Friday, March 01, 2019

Maybe constant economic growth is neither sustainable nor desirable

The idea that a country's, and indeed the world's Gross Domestic Product (GDP) need to keep growing and growing, preferably as much as possible, has been an article of faith for most of the 20th century, and now continuing into the 21st. However, even Simon Kuznets, the man who is usually credited with establishing GDP as the measure and benchmark of a country's prosperity back in the Depression days of the 1930s, was not totally convinced that it was the best measurement, and certainly didn't anticipate it becoming the be-all-and-end-all of economic welfare that it represents today (Kuznets, 1934: "The welfare of a nation can scarcely be inferred from a measurement of national income")
Every time I come across an article like this one, I shake my head and wonder about the hold that GDP growth has on macroeconomic debate. The article decries the fact that the US economy only grew by 2.6% (annualized) in October-December 2018, down from 3.4% in July-September and 4.2% in April-June. Predictions for the next quarter are lower still, probably below 2%. Note that this is still GROWTH of 2%, not shrinkage - we are not talking about a recession here just a slightly slower rate of increase in the economy - but it is nevertheless accompanied by the-sky-is-falling noises. In the same way. Economists are making dire predictions about China's economy because it is "only" expected to grow by 6.1% this year, down from 6.6% last year, which was in itself the slowest in almost 30 years (it is still over twice the global average).
Do we really need this constant growth? And is any growth good growth, and the more the better, as is usually assumed? Well, there is some opposition to this orthodoxy. An article in today's Globe and Mail (which first alerted me to the reporting of the poor GDP figures for the United States, and which I can't find online for some reason), while very conservative in its language, suggests that slower growth reduces the likelihood of interest rate increases by the Federal Reserve, thus keeping the economy from "overheating", as the phrase goes.
But this extended article in The Atlantic from a couple of years ago suggests that more and more economists are coming round to the idea that GDP isn't everything, that high growth has not helped everyone in society (far from it), and that considerations like health, wealth distribution, leisure and the environment should be included (along with GDP) in any assessment of a country's prosperity.
And then there are those who believe that "sustainable degrowth" (the managed down-scaling of production and consumption in order to increase human wellbeing and I.prove the planet's environment) is a desirable and practicable solution. This is not a million miles away from the conclusions of the ground-breaking report The Limits To Growth, which came out, can you believe it, back in 1972.
The latter sounds a little utopian to me, much as I like the sound of it. But surely we can temper our single-minded pursuit of growth at all costs a bit. The poor of the world, and the world itself, will probably thank us for it.

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