Home > Economics, Energy > Welcome to the Post-Growth Economy

Welcome to the Post-Growth Economy

This post is an excerpt from Richard Heinberg’s recent newsletter (Museletter!). Apparently it is based on an op-ed which the mainstream press seemed reluctant to publish. Perhaps because it challenges the endemic assumption that as long as certain policy prescriptions are followed (Austerity from the Right, Stimulus from the Left) then economic growth will continue.

Both mainstream views miss the vital point that Richard lays out below:

———————-

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.

—————————- ENDS

http://richardheinberg.com/museletter232

About these ads
Categories: Economics, Energy
  1. September 22, 2011 at 12:03 am

    What no one seems to genuinely understand is that since all silver was publically and privately withdrawn from trading pari passu with banknotes, we have been in an entirely new monetary paradigm that is only marginally responsive to classical economic ‘controls’. Since that juncture, all currency and interest on its issuance must be borrowed into existence. What we are dealing with is a ‘perpetual money machine’ where currency loaned into circulation as principal at interest, automatically inflates by reason of that interest which, in turn, creates new currency at interest … vice-versa ad infinitum. This co-generating currency-interest has been incrementally expanding in magnitude and is now gone into an exponential state of ‘reverberation’. My hypothesis indicates that this system’s progenitors expected that centralized dictation of interest rates was expected to maintain control over it; however, the Japanese experience presaged otherwise and that clarion bell having been ignored, the progression is now encompassing the entire world. There is a way to avoid catastrophe that would be seamless and nearly invisible; which is to revert all banknotes to their residual purchasing power as metallically expressed originally. In the American case, given 97% depreciation, 10 gram coppers would replace all banknotes and cash equivalents. In so doing, all wage, price and account remain nominally unaffected, but interest on both the current float and new issue ceases, leaving debts more likely amortizable and renewed capital formation possible. Economic ‘healing’ would immediately commence without the disastrous tumult and confusion rather certain to arise from reversion directly to silver and gold while still abysmally undervalued.

  2. David Lilley
    September 22, 2011 at 11:04 pm

    We know all of this. It is tautology. It is a rehearsal of the doom and gloom Malthusian argument.

    Please add to the debate by giving us a “go forward”. If we have a problem we only need a solution and not a “let’s give up” or a “we told you so”.

    You have plugged your gloom and doom book. Did you notice my guest post? Please comment on it.

    It is too late to prevent a Leman 2 but I am desperate to prevent a GD2 before time runs out.

    Regards,

    David lilley

  3. September 23, 2011 at 8:15 am

    Hi David

    The argument is not about about optimism versus pessimism (what you call Malthusian). But whether our society, economy and financial system has correctly modelled the real world. If as Heinberg suggests that our current economic system is predicated on growth, and that growth is dependent on energy, and energy is becoming harder to obtain (in cheap and accessible manners) then current economic growth assumptions are flawed.

    We actually risk far greater misery on ourselves and the world if we keep carrying on as is. The policy suggestions that this theory informs are actually quite progressive:

    – Conservation of non-renewable / finite resources
    – Greater equality of wealth (Henry George suggests that each of us is entitled to profit from our work, but that the gift from nature – i.e. land, fossil fuels etc. – is to be shared equally)
    – Reducing the burden of debt which afflict individuals, households, corporations and Gvts (as under conditions of economic decline, debts will become punitive)

    See this for more details:

    http://richardheinberg.com/231-who-killed-economic-growth

    Also bear in mind that just because economic growth in quantity terms may be constrained doesn’t mean that we are doomed to a life of poverty and misery. This excerpt above explicity states this: “if we focus on improving quality of life rather than increasing quantity of consumption, we could all be happier even as our economy downsizes”.

    Herman Daly refers to this as the distinction between Development versus Growth, and Tim Jackson talks about “Prosperity without growth”. Our cognitive maps says that the two must be linked, and all social systems, political decisions and our finance system conflates the two.

    This is the tension at the core of the current crisis. In trying to vie for more economic growth in financial terms we risk deteriorating our quality of life.

    None of these authors are doom mongers, they are educators who are warning that without adequate preparation, enormous tensions in the world (political, social, economic and financial) are likely to occur. And energy constraints are at the heart of this.

    As you yourself noted in your guest post, if we don’t diagnose the problem correctly first, then how do we know we’re applying the right prescriptions?

  4. November 17, 2011 at 9:25 am

    A similar piece from Chris Nelder at smartplanet.com:

    http://www.smartplanet.com/blog/energy-futurist/economic-theory-and-the-real-great-contraction/116

    “The Physiocrats of the late 18th century believed mankind would eventually overshoot its resources, since land is finite. (The emerging contemporary field of biophysical economics follows in that tradition.) That they could not have imagined the wealth of fossil fuels yet to be exploited does not disprove their thesis; it merely delayed it, and ensured that when human demands finally do overwhelm the capacity of a finite planet to satisfy them, the overshoot and crash will be spectacular.

    Adam Smith believed that government would have to take action to prevent the tragedy of the commons as a necessity of civilized society.

    By modern standards, Adam Smith was a peakist. He would have been aghast to see the economic edifice built in his name, and would be demanding intervention to stop our headlong rush to overshoot.”

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

%d bloggers like this: