During recent weeks, evidence has piled up that U.S. and European economies, far from recovering, are swirling back into recession. Failure of American politicians to address the federal debt crisis, the U.S. credit rating downgrade, and increasing fragility of European economies have investors running for the hills.
Concern is being voiced that we may be at a fundamental economic turning point. Deutsche Bank’s strategist Jim Reid even suggests that the western world’s financial system might be “totally unsustainable.”
As it happens, I’ve just published a book, The End of Growth: Adapting to Our New Economic Reality, that reaches the same conclusion, and that foresaw the economic relapse that’s playing out in headlines. The book’s content was finalized in March, when economic data appeared to show the nation in a recovery. I suppose I’m justified in saying “I told you so,” but others are as well. Herman Daly, former World Bank economist, has pointed out the absurdity of expecting continual economic growth on a planet with limited resources. Paul Gilding, former head of Greenpeace International, explains in his book The Great Disruption why climate change and resource depletion are bringing world economic growth to a close. And Jeremy Grantham, co-founder of GMO (one of the world’s largest investment funds), argues that, with ever more humans competing for a finite supply of natural resources, rising prices of metals, oil, and food are decisively choking off GDP growth.
Even if we are being proven right, this is no time for victory laps. Here’s the point. Daly, Gilding, Grantham, and I are saying that as humanity has chewed through the low-hanging fruit of our natural resources and has turned to lower-grade and more expensive ores and fuels, managers of the economy have attempted to keep growth going by piling up debt in the mistaken belief that it is money that makes the economy run rather than energy and raw materials. Now we’ve reached limits to government and consumer debt, and the realization of that fact is sending financial markets into fibrillation. If energy supplies and debt are both stretched tight, that means more economic growth isn’t possible. Worse, if policy makers fail to realize this and continue assuming that the current crisis is merely another turning of the business cycle, then we lose whatever opportunity still remains to avert a crash that could bring civilization to its knees.
Admittedly this is still a minority point of view. After all, in the “real” worlds of politics and economics, growth is essential to creating more jobs and increasing returns on investments. Questioning growth is like arguing against gasoline at a NASCAR race.
Liberals believe that stimulus spending by government will boost employment and consumer spending, thus flipping the economy back to its “normal” growth setting. But stimulus packages of the past few years have produced only anemic results, and governments can’t afford more of the same.
Conservatives nurture faith that if government spending shrinks, that will liberate private enterprise to grow profits and jobs. Yet countries that implement austerity programs show less economic growth than those whose governments borrow and spend—until the spending spree ends in bond market mayhem.
Neither side wants to acknowledge that its prescription no longer works, because that would imply the other side is correct. But maybe both liberals and conservatives are wrong, and growth is finished.
If Daly, Gilding, Grantham, and I are right, this is scary business. But there will be life after growth, and it doesn’t have to play out under conditions of misery. With less energy to fuel globalization and mechanization, there should be increasing need for local production and labor. We can reorganize our financial and production systems so that everyone’s basic needs are met. Indeed, if we focus on improving quality of life rather than increasing quantity of consumption, we could all be happier even as our economy downsizes to fit Nature’s limits.
But that benign future is unlikely to transpire if we all continue living in a dream world where growth knows no bounds.
The alarm bells are ringing. Wake up to the post-growth economy.