The Tyranny of Growth
Stagnation. It's an ugly word with even uglier connotations and, in recent months, it has found its way into more and more discussions about the future of the US economy (and, by association, the global economy.) With so much talk of the coming recession, the ongoing slowdown, the strangely euphemistic "negative growth" that the US might experience, it is inevitable that people would begin to compare the prospects for the US economy with Japan's experiences over the past decade or so.
Such comparisons are fair -- after enjoying a burst of frenzied economic growth that catapulted it into the number two spot among the world's biggest economies, Japan has been stuck in the mud for more than 10 years, unable to post anything more than nominal economic growth while watching its currency become the whipping boy for the world's foreign exchange dealers. With interest rates having sat near-as-dammit at 0% for years, Japan has been the place where people go to borrow the money that they need to invest pretty much anywhere else where interest rates are higher, while its own economy has seen very little foreign investment.
It really wouldn't take much for the US to find itself mired in the same scenario, if indeed that isn't already happening. But is "mired" really the right image? Is an economy of zero growth, with zero inflation, really such a bad thing?A quick glance at the numbers suggests it's not so bad after all. Japan's GDP per capita is almost $34,000, unemployment remains below 4%, inflation is practically nonexistent. And poverty? Also practically non-existent. In the US, which has been humming along in an economic boom for the past few years, 12% of the population lives below the poverty line (according to the CIA factbook).
At the heart of this paradox is the unremitting focus on economic growth -- the drive to achieve growth at practically any cost and to the exclusion of all other measures of prosperity. To illustrate the folly of this focus on GDP growth as the prime measure of economic success, take a look at one of the world's fastest growing economies: Mozambique. That sub-Saharan African nation of 21 million people is turning in a ripping 8% annual growth in GDP -- something policy-makers in Washington can only dream of. Yet 70% -- yup, that's seven in 10 -- of Mozambicans live on less than one dollar a day. Average GDP per head is just $900, which means that a very select few of those living above the poverty line must be doing very well indeed. That country's relentless and myopic focus on headline growth numbers may be helping it rack up some plump statistics, but it is clearly failing the vast majority of the population.
In the US, the prospect of negative GDP growth is being used to terrorize the population -- and, perhaps, to justify some pretty draconian cost-cutting among some of the country's businesses. But most of the values used in scary stories about impending recession, stagnation and market crashes are relative. When people talk about the dramatic collapse of property prices in Japan, which fell by 70% from their peak, they are comparing the prices to a level that those people also -- sometimes in the same breath -- describe as the result of an extreme and unsustainable speculative bubble. The same goes for GDP growth figures. We're looking at the possibility that GDP in the US might actually shrink this year, but that is compared to 2007. Even if the economy shrinks by 10% this year, real GDP will still be higher than it was in 2002, a year when most people in the States were pretty well off, by any measure.
Perhaps, then, the focus on Japan's experience is a healthy development. We can take heart from the fact that, despite its apparent economic malaise, Japan is not in such bad shape after all.
Finally, if your aim really is to scare people with all this talk of recession, don't call it "negative growth", call it "shrinkage". That's what it is, after all. And maybe it's not such a bad thing, because when you're talking GDP, it's not how big it is that counts, it's what you do with it.
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Capitalism is driving by greed and self interest and it is therefore doomed to succeed until the planet is raped to death. Then we are all just doomed, unless you can afford your geothermal-powered cave with the major air/water filters and hydroponics gardens...and eat the poor people.
Who ever came up with the idea of endless growth, the idea that things have to keep getting bigger and bigger and bigger. We only have so much space on this earth, can't people do the math. Who perpetrated this great scam on us anyway, who continues to believe that an economy can grow forever and there will be no consequences? I questioned the idea my first year of business school. I think most of these "economists" and "business" folk know what's up, it's just others who got brought in by this scam, like the author states in the article, the public has been feared into believing things must keep growing. The only thing I think that's happened over the decades is a massive transfer of wealth from the middle class to the very few super rich. Now we've got 12% of the population living in poverty, that's shameful! And these 1%ers can go to bed at night with their silk sheets and $500 dollar pillows and live with themselves? It must take a certain level of selfishness and uncompassion to be that wealthy and also be able to enjoy ones self. I could not do it, I'd have to give almost all my money to helping causes I cared about and only taking what I needed to live and take care of my family.
Good post Daniel. I also liked Monford's column today when looking at what the economy really is about. http://www.sfgate.com/columnists/morford/
Unless we Care about each other, it's gonna continue to suck.
Excellent point(s), Mr Keeler.
Economic "growth" has become a fetish in our society and mistakenly equated with "capitalism." But, by definition, one would think that perpetual growth is neither sustainable nor desirable.
The only thing in nature that exhibits "sustained growth" is cancer, and I fear we'll see the same results, in our Economy.
This is one of the most sensible articles I've seen in a long time.
Re "And maybe it's not such a bad thing, because when you're talking GDP, it's not how big it is that counts, it's what you do with it. "
As long as we're going silly with the double entendres...
And when it comes to income distribution, everybody gettin some is preferable to a few people getting all the action.
Japan is not experiencing growth because they have a stagnant or declining population that is ageing into retirement and their export markets are being contested.
Capitalism based on debt based fractional banking has to incur ever more debt to grow the money supply and that means ever more goods to consume.
Indeed, debt based fractional banking needs excellerating consumption to generate enough money to pay for principle and interest due, past the money already generated. That is why the powers that be are scared to death when growth comes to an end, money is destroyed by the insolvency of lack of money causing a leveraged cascade of further money destruction and insolvency.
Japan has tried everything to stimulate consumption including public works and a rediculously low interest rate but the demand for consumption just isn't there in an ageing society saving for retirement.
To create a sustainable economy one must use credit based money, money the government creates, not borrows. Credit based money creation must be the basis for the banking system.
Japan is in far better shape than are we. They are savers, are very energy efficient and are running a huge trade surplus per capita.
We would be fortunate to be in their position. Our fate looms much more ominously.
I second, I think 'growthies, growthies' is bushit.
We see unlimited growth in nature as well: it's called cancer.
Stagnate THIS. For decades, our 'economy', or Con Me, or Con Game, has been micromanaged into the ground. If you wanna make money, you gotta make something you can sell, or provide a service that someone will want to utilize. Goods, and services. That also implies 'good service'. That implies good managment principles in supervision and oversight. Quality control. And, the independence, INdependence, to make effective management decisions that will promote the health of the instiutiton as a viable business, and protection from things like predatory taxation, frivolous lawsuits, and so forth. Otherwise, the best place to set up your country probably IS in China, where multi-generational graft is less entrenched, and there's less of a preburden on every profit dollar realized.
I started thinking about this problem during the Davos follies a couple of weeks ago. I came the conclusion that, while growth may indeed be tyrannical, it is also an illusion:
http://therehearsalstudio.blogspot.com/2008/01/growth-illusion.html
The primary reason everyone is obsessed with growth rather than, say, "quality of life," is that everyone can agree on quantitative metrics for growth; so no one has to fuss over the subjective nature of a concept like "quality of life."
Shrinkage = reality-based correction.
Growth cannot go on forever, regarless to what we discuss. I'm glad to see an article like this, as I've been saying basically this same thing for years now whenever I get into discussions with people who equate growth, capitalism, democracy, all with each other. Good article.
Growth has become irrelevant for most Americans since only a small minority benefit from it anyway. Unless you still believe that your little share is going to trickle down from Richistan there is really little need for Americans to concentrate on so called 'growth' that is in fact irrelevant for most of them.
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