Was the market undone by growth itself?
30 Aug 2010
When economist Tim Jackson was spoke recently to the UK Treasury, it was “standing room only,” Will Day, head of the Sustainable Development Commission, told me. Granted, “it was a very small room,” Day added. But still this is extraordinary.
That’s because Jackson was invited there after publishing a report for the Sustainable Development Commission called “Prosperity without growth?”, and spoke about a possible end of economic growth, as well as the need to measure our countries successes or failures by something other than economic growth.
Governments have made continual economic growth one of their top tasks. When growth stops, governments go into crisis mode. Since the Great Recession of 2008 started (or maybe we should call it the Greater Depression, since it may be even worse than the one in that began in 1929), there have been endless calls to “get growth back on track” or predictions of how things will be “when growth gets back on track.”
What if, in the long run, growth doesn’t continue?
Economic growth might permanently end, whether we want it to or not. That’s because we may soon hit an all-time peak in energy supplies—and growing energy supplies are crucial to keep economies growing. Even before the total energy supply starts shrinking, we may see permanent contraction of economies, it seems to me.
But we might also decide that we’d actually prefer it if economies stopped growing.
Within conventional economics, that kind of thought seems crazy. But there are a lot of reasons why the emphasis on growth has been pathological, as Jackson describes in “Prosperity without growth?”.
One reason, he argues, is that growth contributed to the crash. Growth undid itself.
I won’t go into the whole background and argument, but here’s a snipped from page 26 of his report:
the roots of the crisis lie at least in part in a concerted effort to free up credit for economic expansion across the world.
In The New Paradigm for Financial Markets, George Soros traces the emergence of what he calls a
‘super-bubble’ in global financial markets to a series of economic policies to increase liquidity as a way of stimulating demand. Loosening restraints on the US Federal Reserve, de-regulating financial markets and promoting the securitisation of debts through complex financial derivatives were also deliberate interventions. Their overriding aim was to promote economic growth.
In other words, the market was not undone by isolated practices carried out by rogue individuals. Or even through the turning of a blind eye by less than vigilant regulators. It was undone by growth itself.
Despite Jackson’s invitation to the Treasury, I’m not expecting that governments will experience some kind of conversion, and give up their growth fetish. But if a strong push to “get growth back on track” contributes to another crash, then I think people will really start to think twice about the need for growth.