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On the Road to Zero Growth

Jeremy Grantham, GMO Quarterly Letter
Introduction: Wishful Thinking
Attitudes to change are sticky. We cling to the idea of the good old days with enthusiasm. When offered unpleasantideas (or even unpleasant facts) we jump around looking for more palatable alternatives. Critically, the tech boomand bust and the following housing boom and housing and financial busts helped camouflage the recent unpleasanteconomic development lying below the surface: the steady and important drop in long-term U.S. growth. Someday,when the debt is repaid and housing is normal and Europe has settled down, most business people seem to expect arecovery back to America’s old 3.4% a year growth trend, or at least something close. They should not hold their breath. A declining growth trend is inevitable and permanent and is caused by some pretty basic forces. The questionhere is not “Has the growth rate dropped?” (yes, it has) or “Will it continue to drop?” (yes, it will). The question is“At what rate will it drop?”…

…The key issue will be how much unnecessary pain we inflict on ourselves by defending the status quo, mainly bydenying the unpleasant parts of the puzzle and moving very slowly to address real problems. This, unfortunately, isour current mode. We need to move aggressively with capital – while we still have it – and brain power to completelyre-tool energy, farming, and resource efficiency. We need to do all of this to buy time for our global population togracefully decline. It can certainly be done.

The short- and intermediate-term consequences for investors are complicated and (with luck) will be addressed nexttime, perhaps with help from one or more of my colleagues.
(November 2012)

Is green growth possible?

Arthur Neslen, Euractiv
Clean tech jobs to power green growth is considered a no-brainer by progressive policy makers, NGOs and businesses, and the idea forms the core of the UN’s Year of Sustainable Energy For All (SE4ALL). But some economists, academics and environmental thinkers increasingly question its central premise.

Critiques of ‘green growth’ have often been articulated by business lobbies opposed to climate action, but also by environmentalists and socialists, who argue that infinite growth is impossible in a finite natural world.

One EU official speaking to EurActiv on condition of anonymity said that achieving the emissions cuts needed to contain global warming to the UN’s 2 degrees Celsius target, while maintaining growth was an “outlandish” notion.

“If you want growth in the way that we define it as exponential – a year-on-year increase – and project it into the future, then you have an incredible gap between the increase in total economic output and the decline in total emissions that you rely on,” he said.

Indeed, many climatologists now see the 2 degrees target as doomed.

Last month, a report from Germany’s green Heinrich Böll Foundation argued that increased energy savings do increase productivity and result in income gains, but that these in turn also stimulate demand.

Because this demand will be met by a still mostly-carbonised grid, ‘Green Growth Unravelled’ contends that the “fatal fallacy” of this kind of green growth is that its ‘rebound effects’ will actually increase CO2 emissions.

For instance, increased airplane fuel efficiency may lower flight prices and lead more people to take long-haul holidays…
(27 November 2012)

Charles Eisenstein // Living Without Economic Growth

Justin Ritchie & Seth Moser Katz, The Ectraenvironmentalish

[ Charles Eisenstein // Living Without Economic Growth ] from Extraenvironmentalist on Vimeo.

(27 November 2012)

Have we really seen the end of growth?

Jeremy Warner, The Daily Telegraph
If you believe Robert Gordon, the Northwestern University professor whose work on technological progress – or to his mind, the lack of it – is gaining a cult following, economic growth in advanced economies is essentially over, not just for now, but forever…

there are good reasons for believing there may be something in it this time around. With long yields on government bonds in any halfway creditworthy advanced economy tumbling to historic lows, this seems to be the predominant view of millions of investors around the world. Money managers are betting on low to nil or even negative growth way out into the indefinite future…

It is not hard to pick holes in Prof Gordon’s argument. What about the Renaissance, or indeed the invention of the printing press? How come these big leaps forward didn’t have the same traction as the inventions of the second industrial revolution? As for running water, the Romans were using this work saving device more than 2,000 years ago. Why did it take so long to catch on?

I’m sorry, but I don’t buy any of this, and nor do Julian Jessop and Andrew Kenningham of Capital Economics, who in a recent analysis, roundly and rightly dismiss Gordon’s ideas as a load of bunkum. “There is no compelling case that the pace of technological change and productivity growth in advanced economies will be slower in future than in the 20th century,” Capital Economics concludes. “On the contrary, there are good reasons to believe it might accelerate”…
(28 November 2012)