Thread by @docrussjackson

#THREAD

The inextricable link between material consumption & GDP makes infinite-growth incompatible with ecological sustainability - so how do we transition to alternative economic paradigms founded on the reconciliation of equitable human well-being with ecological integrity?

Even within mainstream economics, the growth orthodoxy is being challenged, and not merely because of a heightened awareness of environmental perils...

newyorker.com/magazine/2020/…

In “Good Economics for Hard Times,” two 2019 Nobel Prize winners in Economics, Abhijit Banerjee & Esther Duflo, say larger GDP doesn’t necessarily mean a rise in human well-being—especially if it isn’t distributed equitably—& the pursuit of it can sometimes be counterproductive.

“Nothing in either our theory or the data proves the highest GDP per capita is generally desirable.”

Govts should stop chasing “the growth mirage” & focus on specific measures with proven benefits eg helping the poorest get access to health care, education & social advancement.

In countries like the UK & US, the misguided pursuit of economic growth since Reagan-Thatcher has contributed to a rise in inequality, mortality rates, & political polarization. When the benefits of growth are mainly captured by an élite, they warn, social disaster can result.

Since 1990, the number of people living on less than $1.90 a day fell from nearly 2 billion to around 700 million.

Yet for advanced countries, policies that slow GDP growth may prove to be beneficial, especially if the result is that the fruits of growth are shared more widely.

In this sense, Banerjee and Duflo might be termed “slowthers”—a label that certainly applies to Dietrich Vollrath, an economist at the University of Houston and the author of “Fully Grown: Why a Stagnant Economy Is a Sign of Success.”

Vollrath thinks that slower rates of economic growth in advanced countries are nothing to worry about. Between 1950 and 2000, G.D.P. per person in the U.S. rose at an annual rate of more than three per cent. Since 2000, the growth rate has slowed to about two per cent.

The phenomenon of slow growth is often bemoaned as “secular stagnation,” a term popularized by Lawrence Summers, a Harvard economist & former US Treasury Secretary. Vollrath argues that slower growth is appropriate for a societies as rich & industrially developed as the US/UK.

Unlike other growth skeptics, he doesn’t base his case on environmental concerns or rising inequality or the shortcomings of G.D.P. as a measurement. Rather, he explains this phenomenon as the result of personal choices—the core of economic orthodoxy.

As countries like the US have become richer and richer, their inhabitants have chosen to spend less time at work & to have smaller families—the result of higher wages & the advent of contraceptive pills.

G.D.P. growth slows when the growth of the labour force declines.

But this isn’t any sort of failure, in Vollrath’s view: it reflects eg “the advance of women’s rights & economic success.”

Vollrath estimates that about two-thirds of the recent slowdown in G.D.P. growth can be accounted for by the decline in the growth of labour inputs.

He also cites a switch in spending patterns from tangible goods—such as clothes, cars, & furniture—to services, such as child care, health care, & spa treatments.

In 1950, US spending on services accounted for 40% of G.D.P.; today, the proportion is more than 70%.

And service industries, which tend to be labour-intensive, exhibit lower rates of productivity growth than goods-producing industries, which are often factory-based. The person who cuts your hair isn’t getting more efficient; the plant that makes his or her scissors probably is.

Since rising productivity is a key component of GDP growth, that growth will be further constrained by the expansion of the service sector. “In the end, that reallocation of economic activity away from goods & into services comes down to our success,” Vollrath writes.

“We’ve gotten so productive at making goods that this has freed up our money to spend on services.”

Taken together, slower growth in the labor force and the shift to services can explain almost all the recent slowdown, according to Vollrath.

He’s unimpressed by many other explanations that have been offered eg sluggish investment, rising trade pressures, too much 'red tape'.

In his account, it all flows from the choices we’ve made: “Slow growth, it turns out, is the optimal response to massive economic success.”

Vollrath’s analysis implies that all the major economies are likely to see slower growth rates as their populations age—a pattern first established in Japan during the nineteen-nineties. But two-per-cent growth isn’t negligible.

An economy expanding at 2% growth rate will have doubled in size by 2060, & a century from now it will be almost eight times its current size.

But is such a scenario environmentally sustainable?

Proponents of “green growth” now include many European Govts, the World Bank & the OECD, insist that it is, & given the right policy measures & technological progress, we can enjoy perpetual growth & prosperity while reducing carbon emissions & consumption of natural resources.

“A new economic era where growth is driven by the interaction between rapid technological innovation, sustainable infrastructure investment, & increased resource productivity. We can have growth that is strong, sustainable, balanced, & inclusive.” - 2018.

newclimateeconomy.report/2018/

But can such “alternative strategies” be implemented without huge ruptures? For decades, mostly mainstream economists have cautioned that they can’t. “If growth were to be abandoned as an objective of policy, democracy too would have to be abandoned” - Wilfred Beckerman, Oxford.

Any comprehensive degrowth strategy would have to deal with distributional conflicts in the developed world & poverty in the developing world. As long as GDP is steadily rising, all groups in society can - in theory at least - see their living standards rise at the same time.

If growth were abandoned, then helping the worst off may pit winners against losers. Also, in many Western countries over the past couple of decades, slower growth has been accompanied by rising, dangerous, & potentially antidemocratic political polarization.

Some degrowth proponents say distributional conflicts could be resolved through work-sharing & income transfers. A decade ago, Peter A. Victor, an emeritus professor built a computer model, since updated, to see what would happen to the Canadian economy under various scenarios.

In a degrowth scenario, G.D.P. per person was gradually reduced by roughly fifty per cent over thirty years, but offsetting policies—such as work-sharing, redistributive-income transfers, and adult-education programs—were also introduced.

Reporting results in 2011, Victor wrote, “There are very substantial reductions in unemployment, the human poverty index and the debt to GDP ratio. Greenhouse gas emissions are reduced by nearly 80%. This reduction results from the decline in GDP & a very substantial carbon tax.”

Kallis & other degrowthers have called for the introduction of a universal basic income, which would guarantee people some level of subsistence. A Green New Deal, aiming to create a zero-emission economy by 2050, included a federal job guarantee & some backers advocated a UBI.

Yet Green New Deal proponents appear to be in favour of green growth rather than degrowth. Some sponsors of the plan have even argued that it would eventually pay for itself through economic growth.

There’s another challenge for growth skeptics: reducing global poverty.

China & India lifted millions out of extreme deprivation by integrating their countries into the global capitalist economy, supplying low-cost goods & services to rich countries, involving mass rural-to-urban migration, proliferation of sweatshops, & environmental degradation.

But the eventual result was higher incomes and, in some places, the emergence of a new middle class that is loath to give up its gains. If major industrialized economies were to cut back their consumption, who would buy all the stuff developing countries produce?

What would happen to the economies of African countries such as Ethiopia, Ghana, and yes, Rwanda, which have seen rapid G.D.P. growth in recent years, as they, too, have started to join the world economy? Degrowthers struggle to provide a convincing answer to these questions.

This article was writtne before the current #CostOfGreedCrisis, but given the scale of the environmental threat & need to lift up poor countries, some sort of green-growth policy would seem to be the only realistic option - but it may involve emphasizing “green” over “growth.”

Kate Raworth has proposed that we adopt environmentally sound policies even when we’re uncertain how they will affect the long-term rate of growth. There are plenty of such policies available.

All major countries could take more definitive steps to meet their Paris Agreement commitments by investing heavily in renewable sources of energy, shutting down any remaining coal-fired power plants, & introducing a carbon tax to discourage the use of fossil fuels.

Taking energy efficiency seriously is also vital: several measures should be taken immediately, including insulating old buildings to reduce heat loss, requiring cars to be more fuel efficient, expanding public transportation, & reducing energy use in the industrial sector.

To ameliorate the effects of slower G.D.P. growth, policies such as work-sharing and universal basic income could also be considered—especially if the warnings about artificial intelligence eliminating huge numbers of jobs turn out to be true.

In the UK, the New Economics Foundation has called for the standard workweek to be shortened from thirty-five to twenty-one hours, a proposal that harks back to Victor’s modelling and Keynes’s 1930 essay.

Proposals like these have to be financed by higher taxes, particularly on the wealthy, but that redistributive aspect is a feature, not a bug. In a low-growth world, it is essential to share what growth there is more equitably. Otherwise, the consequences could be catastrophic.

Finally, rethinking economic growth may well require loosening the grip on modern life exercised by competitive consumption, which undergirds the incessant demand for expansion.

John Maynard Keynes, a Cambridge aesthete, believed that people whose basic economic needs had been satisfied would naturally gravitate to other, non-economic pursuits, perhaps embracing the arts and nature.

A century of experience suggests that this was wishful thinking. As Raworth writes, “Reversing consumerism’s financial and cultural dominance in public and private life is set to be one of the twenty-first century’s most gripping psychological dramas.”

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