Why A New Wave Of Economists Are Championing Slow Economic Growth
A thriving nation needs a growing economy … or does it? A lot of economists say maximum growth is bad for society and the planet, and they’re preaching slow-growth — or even no-growth — economics.
Dietrich Vollrath, growth economist at the University of Houston. Author of “Fully Grown: Why a Stagnant Economy Is a Sign of Success.” (@DietzVollrath)
Kate Raworth, ecological economist at Oxford University’s Environmental Change Institute. Author of “Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist.” (@KateRaworth)
Since the early 20th century, the conventional wisdom has been that economic growth is not only desirable; it’s the best sign of a healthy economy. If that growth slows — or, even worse, stops altogether — it is considered an ominous harbinger. Investors panic, the stock market suffers and whatever party is in power must suffer the political consequences. So it follows that steady and rapid economic growth must be a good sign, and stagnation something to fear. Right?
Not necessarily. Some growth economists, like the University of Houston’s Dietrich Vollrath, say stagnation can actually be a sign of prosperity, an indication that a country has neared its ceiling for economic success or shifted the material basis of its economy — say, from manufacturing to services. In this view growth is good after an economic downturn or for a developing nation, but it’s not necessarily a bad thing if growth slows to a crawl during a stable economic period.
Others economists believe that a focus on unending economic growth is not only misguided; it’s dangerous. Kate Raworth, an ecological economist at Oxford University’s Environmental Change Institute, subscribes to the theories of environmental scientist Donella Meadows, author of the 1972 book “The Limits to Growth.” Meadows liked to say growth was a “stupid” goal, impossible to sustain and, if unfettered, a potential threat to the environment.
Raworth and Vollrath concede that GDP growth was a fairly good metric for economic success through much of the 20th century, when GDP and more direct markers of economic health, like unemployment and median income, largely paralleled each other. But since the 1970s, GDP growth has become detached from material improvements for workers. And on top of that, Raworth says, the true “limits to growth” can be seen in the advent of climate change, caused at least in part by unsustainable resource extraction.
“I want to shift away from thinking about growth going up or stagnant or down,” Raworth said. “It’s last century’s number and we need to be looking at something different.”
Vollrath and Raworth joined On Point host Meghna Chakrabarti to share their views on our “obsession” with economic growth, and what alternative metrics we could turn to for signs that our economy, society and planet are healthy.
On GDP growth as a “fitness tracker” for the economy
Dietrich Vollrath: “GDP is … the measure of goods and services produced in a year. There’s a very technical definition of it that is associated with well-being at certain levels of development and such, as you might see in India or China. The example I always use in class is, think of GDP as a fitness tracker, a step counter for the economy. It’s a number and it’s a nice tangible number. It’s an easy to count number. And it has meaning for your health in certain situations. If you, say, are a little overweight or you have a heart issue, then seeing your steps go up and up and up everyday is probably a good sign that you’re moving in the right direction. That maybe breaks down, though, when you become healthy and maybe you start swimming and now you’re not stepping as much, but you’re still in a healthy state. So for developing countries, for sure, GDP can still be a good barometer of improvements. But each separate situation perhaps needs to be thought of in its own context.”
On the ideas of Donella Meadows
Kate Raworth: “In 1960, [John F. Kennedy] was the first American president to stand explicitly on a platform of promising a five per cent growth rate. And the ‘60s were really the golden age of GDP, thinking it was the golden time that GDP, that so far over the last two decades it just delivered and delivered. And there’s a wonderful story that as soon as he got elected, he turned to his chief economic adviser and said: ‘Do you think we can deliver on that growth rate?’ You know, can we keep this promise? But it stuck, this mantra of growth. And so I want to turn from those wonderful voices of so many men to the voice of a very wise woman who in the 1970s — Donella Meadows, one of the mothers of systems thinking — she said growth is one of the stupidest purposes ever invented by any culture. And when anyone calls for more growth, we must ask, growth of what, and why, and for whom, and who pays the cost, and how long can it last, and what’s the cost to the planet and how much is enough? And we have not asked that question enough until now.”
On our “pathological” obsession with growth
Kate Raworth: “There’s something addictive about that pathological that we believe that a country must keep growing forever, no matter how rich it already is. And I believe it’s because we are financially, politically and socially, socially, structurally addicted to endless growth. You just mentioned the financial system. At the heart of our financial system is the drive to maximize the return on investment. And that means that all publicly traded companies I speak to chief financial officers and many say, ‘We want to be more sustainable. We want to be more ethical.’ But every quarter we have to show that we have growing sales, growing profits and growing market share. Otherwise, the markets punish us. They are structurally caught in the pursuit of endless growth.
“Politicians know … they have to deliver on this outdated idea that GDP going up is the predominant sign of well-being. And socially, I think we’ve inherited, ever since the 1930s and ‘40s and ‘50s, the idea that our children must earn more income than us and that that’s what means, well, they’ll have a better life. I don’t see children marching in the streets today demanding higher incomes than their parents. I see children marching in the streets for a stable climate. They have switched metrics. And our politics and our politicians and our business need to catch up.”
On why we shouldn’t fear stagnation
Dietrich Vollrath: “I’m not proposing that we should target zero growth or slow growth, but I’m not really afraid of slow growth. I mean, I think that we have to conceive of, from the economic side, the growth occurs because fundamentally because we can either add more inputs into the economy, more labor, we could use more resources, we could build more capital; or we can get more productive at using those things. And productivity is the thing that has been driving the economy for decades and centuries, this is the fundamental source of all this growth. There’s two ways to respond to that productivity. One, the way we’ve been pursuing for a very long time, is to use the existing inputs, have higher productivity and have higher growth, higher GDP. An equally valid response to higher productivity is to use fewer inputs, work fewer hours, use fewer resources, take a longer vacation. Those are all valid ways of taking advantage of productivity.
“So at the risk of my own health in the economics community, perhaps I will disagree with Larry Summers and say that no, [stagnation] is not something that is to be feared at all. And it’s not in the sense that the economy would become comatose. It’s us taking advantage of productivity growth to do something different than we’ve done in the past. Productivity growth is the thing that we don’t want to get rid of because it allows us to make these choices, where we’ve reached the stage where we’ve decided to take longer vacations, work less, use fewer resources, change our vision.”
On reframing our metrics for economic success
Kate Raworth: “I want to shift away from thinking about this growth going up or stagnant or down, because I think it’s its last century’s number and we need to be looking at something different. So let’s look at the dynamics of what our economies are producing. And I think Western, high-income economies like yours, like mine, are degenerative. We are running down the living planet in the way we produce things. We take resources, use them for a while, maybe just once, and then throw them away. So we are literally draining our earth’s resources and spewing oil waste into her sinks and pushing ourselves over planetary boundaries, causing climate breakdown and ecological crises. So these are the dramas of the times that we should create metrics for.
“We also have deeply divisive economies. America’s just actually had a fantastic decade in terms of GDP, and yet two in five Americans say they’d struggle to come up with $400 an emergency. One in three households are classified as financially fragile. What is going on with the 1 percent running away into the stratosphere? So, we need to turn degenerative economies that run down the planet into regenerative ones that work within the cycles of the living world, that are circular economies that actually restore planetary processes. And we need to turn divisive economies into distributive ones so that the median wage rises so that ordinary people doing precarious jobs actually find that earning more and they feel more secure. So to me, these are the dynamics: I want to see more regenerative economies, far more distributive economies. And then when the GDP goes up or down in that process, to me, it’s a sort of knock-on effect. And that’s why we have to take GDP off the pedestal.”
Liam Knox produced this story for the web.
From The Reading List
Excerpt from “Doughnut Economics” by Kate Raworth
Excerpted from “Doughnut Economics.” Copyright © 2020 by Kate Raworth. Excerpted by permission of Chelsea Green Publishing, in White River Junction, Vermont. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpt from “Fully Grown” by Dietrich Vollrath
Reprinted with permission from Fully Grown: Why a Stagnant Economy Is a Sign of Success by Dietrich Vollrath, published by the University of Chicago Press. © 2020 by the University of Chicago Press. All rights reserved.
The New Yorker: “Can we have prosperity without growth?” — “In 1930, the English economist John Maynard Keynes took a break from writing about the problems of the interwar economy and indulged in a bit of futurology. In an essay entitled “Economic Possibilities for Our Grandchildren,” he speculated that by the year 2030 capital investment and technological progress would have raised living standards as much as eightfold, creating a society so rich that people would work as little as fifteen hours a week, devoting the rest of their time to leisure and other ‘non-economic purposes.’”
“As striving for greater affluence faded, he predicted, ‘the love of money as a possession . . . will be recognized for what it is, a somewhat disgusting morbidity.’ This transformation hasn’t taken place yet, and most economic policymakers remain committed to maximizing the rate of economic growth.
“But Keynes’s predictions weren’t entirely off base. After a century in which G.D.P. per person has gone up more than sixfold in the United States, a vigorous debate has arisen about the feasibility and wisdom of creating and consuming ever more stuff, year after year. On the left, increasing alarm about climate change and other environmental threats has given birth to the ‘degrowth’ movement, which calls on advanced countries to embrace zero or even negative G.D.P. growth.”
The Washington Post: “Opinion: Let’s celebrate slow economic growth” — “For the United States, the 21st century has been a time of less-than-spectacular economic growth. The highest annual inflation-adjusted economic growth rate since 2010 is 2.9 percent (in 2015 and 2018). In the 2000-2009 decade, which included the Great Recession, the annual average was 1.9 percent.
“These numbers concern everyone. President Trump has said the growth rate should be ‘4, 5 and maybe even 6 percent, ultimately.’ An actual economics expert, former Obama administration treasury secretary Larry Summers, has written extensively about ‘secular stagnation,’ and identified it as a possible cause for the West’s ‘surly and dysfunctional’ politics.
“But what if slow growth instead reflects great economic success? That’s the provocative thesis of a new book, cleverly titled ‘Fully Grown,’ by economist Dietrich Vollrath of the University of Houston. Vollrath not only offers the proverbial two cheers for slower growth rates, but also explains why many oft-proposed policy solutions are not likely to rekindle rapid growth.”
This article was originally published on WBUR.org.
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