 By: Sarah OuyangThe simplified neoclassical economic theory, originating from John Hicks’ “post-war synthesis” of Keynesianism and classical economics, demands that the government invest in the economy for short term growth. It also assures that in the long term, markets will reach a steady equilibrium of growth by themselves through “boom and bust” cycles, as the classical theory suggests. The key point of this theory — or rather, this synthesis of two theories — is that economies are meant to grow, whether by itself or with government intervention.
Following the recession of 2008, however, dismayed economists watched as the US economy failed to meet their expectations, disappointing “even the most pessimistic early predictions.” A 2016 estimate records a 2.2% annual growth (1.3% lower than the Federal Reserve’s lowest prediction) and a 2% long term growth (0.5% lower). [1] This situation has now been categorized as “secular stagnation,” a term coined by Alvin Hansen and familiarized by Lawrence Summers. [2] The concept describes a sustained and seemingly indelible deceleration of the economy, and it has provoked a new, heatedly debated question: is this lack of growth really that concerning — or should it be embraced? The “degrowth” movement, as it has now been dubbed, supports its argument with three main reasons: the environmental unsustainability of eternal growth, the increase of other significant problems in an industrialized economy, and the suitability of GDP growth as a measurement of prosperity. Environmental activists like Greta Thunberg have condemned corporations and the government for blindly pursuing economic growth, which culminates in resource-intensive activity. Criticizing the ecological impacts of sustained growth, this stance cites climate change as evidence of the planet’s limitations. While advocates of continued growth have argued that it is possible to decouple economic growth and resource consumption, a process known as “green growth,” this has not happened in the least so far, save for relative decoupling, or a “decrease in resource use per unit of GDP.” Paired with the limitations of recycling, the facts show that eternal economic growth is unsustainable and green growth is only “wishful thinking.” [3] Although the EU has made promises to decrease carbon emissions, it is unclear how this can be achieved without tampering with economic growth. Current energy consumption demands fossil fuels, which add greenhouse gases to the air and thus contribute to global warming. Therefore, the only way to reach this goal would be to reduce energy consumption, a process that will likely impede growth. Further, expanding concerns such as income inequality can be partially traced back to economic growth. Technological advancements have induced an increase in supply and demand of high-skilled labor jobs such as “business managers, consultants, and design professionals.” These occupations tend to include a higher salary, widening the gap between real incomes of different classes. [4] Economists have even traced problems like higher mortality rates and extreme political polarization to the unquenchable thirst for economic growth. The latter may occur because, as Nobel Prize winners Abhijit Banerjee and Esther Duflo iterated, social tensions arise when the “benefits of growth are mainly captured by an élite.” If growth must be pursued, then, the government must also address problems with income inequality and wealth distribution, as well as provide relief with “health care, education, and social advancement.” [2] A final issue that the degrowth movement has with the stance of growth advocates is whether or not GDP is an appropriate measure of a country’s prosperity. One of the primary hurdles of GDP is that it represents solely aggregate data and ignores the “nuances” of inequality that can be disguised by an increase in absolute wealth, especially when the increase is enjoyed mostly by an élite class while the poorer divisions of the nation remain desolate. [5] Countries with high GDP’s may show astonishing income inequality. This is often measured by the Gini coefficient, a “statistical measure of distribution intended to represent the income or wealth distribution of a nation.” The Gini coefficient may range from 0%, which represents perfect equality, to 100%, which represents perfect inequality. Using this measurement, the problems with GDP as a measure of prosperity become evident. Take the U.S.: the United States currently has, according to the World Bank, a GDP of about 20.54 trillion USD. [6] Meanwhile, Norway has a GDP of about 434.17 billion USD, approximately one-fiftieth of that of the U.S. [7] However, when examining the Gini coefficient of each country, Norway measures at about 25.8% while the U.S. has one of the highest among developed nations: a whopping 40.8%. [8] Another weakness of GDP is its pure focus on numbers. Physical output alone portrays a rise of GDP, so the current measure of growth neglects the quality of services such as health care and education. Recent dips in GDP should not be cause for concern, as a closer look actually reveals a shift of consumer spending “from tangible goods… to services, such as child care, health care, and spa treatments.” [2] Progress and development in innovation also contributes nothing to GDP. Such oversight refutes GDP as a reliable measure of prosperity, thus encouraging the need for a new and more applicable measurement. Either embrace the benefits of secular stagnation — or redefine economic growth altogether. To combat the potential concerns of stagnation, economists recommend “policies such as work-sharing and universal basic income.” [2] Job sharing allows multiple people to complete, in part-time shifts, a task that would usually be accomplished by one person working full-time. A universal basic income sets a mandatory minimum wage for people everywhere to be guaranteed by the government. Such policies could provide financial security for the people and may assist the fight against inequality. In fact, there have already been examples that this tactic works. For instance, Finland offered 2,000 unemployed citizens 560€ per month in 2017, resulting in “reduced stress” for the participants and “more incentive to find a good job.” [9] While the degrowth movement challenges established economic theories and common sense itself, the evidence points, in reality, to its exigent benefits. Scholars continue to debate whether this is truly the best path and fiddle with the possibility of policy changes, but at the moment degrowth supporters argue that economic growth, at this rate, is simply not sustainable. [1] https://time.com/4269733/secular-stagnation-larry-summers/ [2] https://www.newyorker.com/magazine/2020/02/10/can-we-have-prosperity-without-growth [3] https://theecologist.org/2018/feb/22/why-economic-growth-not-compatible-environmental-sustainability [4] https://courses.lumenlearning.com/wmopen-microeconomics/chapter/causes-of-growing-inequality/ [5] https://time.com/5118026/gdp-metric-success-wealth/ [6] https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&idim=country:USA:CHN&hl=en&dl=en [7] https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&idim=country:NOR:SWE:FIN&hl=en&dl=en [8] http://hdr.undp.org/en/content/income-gini-coefficient [9] https://www.thebalance.com/universal-basic-income-4160668
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