The Growth Game

Controlling the Madness

Fifty years ago, the Club of Rome published its iconic report, Limits to Growth. After much research, and input from economists worldwide, it concluded that many of the natural resources that fueled economic growth around the world would be exhausted if economies continued to push development and profit at the rate of the 1970s.

There was heavy, well-funded pushback to that thesis over the next two decades. By the cresting of neoliberalism in the 1990s, the Club of Rome report was endorsed by few economists. But then, as we moved into a new century, another factor began to rear its ugly head – not even mentioned in the 1972 report – the specter of climate change! It wasn’t so much that resources like water and fossil fuels would become depleted but that their over-use was rapidly destroying the planet. Consumption needed to be scaled back for human civilization to survive. Eventually, by the 2010s, the Limits to Growth became fashionable again.

A new strain of economic analysis began to emphasize not so much the instrumentalities of growth in a capitalist-dominated world as the effects of runaway growth. If people’s well-being was the goal of growth, then we had to acknowledge that, beyond a certain point, further growth contributes less to that well-being. Equal distribution of the rewards of that growth (in real GDP) became more important than the mere accumulation of capital. As redistribution became a goal, more attention could be paid to adaptation as we came to accept that the curve of resource consumption would not be significantly flattened in time to prevent the worst effects.

Combined with the current gloomy political outlook for much of the world in the 2020s, it now seems like redistribution and adaptation are the best strategies going forward. Certainly not growth for growth’s sake! Of course, there will be a few who are convinced in their fever dreams that THEY are so gifted that they will be the ones who “strike it rich” in the meritocratic capitalist growth game – but aren’t they simply the most privileged? Some say this is the promise of American “exceptionalism” anyway – a society built for gamblers!

For the rest of us, those who have never entertained that dream, it’s appealing to think of financial stability for our immediate families as the highest value. We may have more in common with most Europeans than with those frontier American entrepreneurs who seem to believe in the American Dream. We want to be comfortable and economically secure. We don’t necessarily want to beat our neighbors on the wealth front, we just want to fit into our neighborhood! For those of us in that demographic, a concept like Tim Jackson’s “de-growth” economics seems attractive. Jackson is British (which may say a lot) and believes that all advanced societies (the “rich” world) should de-emphasize growth. They can’t expect to match the growth rates of developing economies (China is doing what China does – it won’t last, either!). Not only does slower growth tend to conserve resources, and a habitable climate, but it is statistically inevitable as societies develop, even in our capitalist-centric world. Birth rates decline as people become more affluent. Yes, growing populations spur higher economic growth rates, but over time, plenty of demographic data shows population growth tending to flatten (lower fertility even as mortality also declines). And, on top of that, there are now objective measures of “subjective well-being” (SWB) which show that above a certain per capita income, gains in SWB diminish. Growth, beyond a certain level, creates only more capital, not more quality of life. That raises the question of inflation.

We know inflation hurts some more than others – mostly those at the bottom of the distributional chain. There are two basic causes of inflation. There is demand-push inflation and cost-pull inflation. We may be experiencing both simultaneously in 2022, but the two separate types are quite different. Demand can push prices higher when people suddenly find more money in their pockets, or when supply, which has been constrained by externalities like pandemics, has trouble keeping up. Costs can pull prices up by forcing employers to pay higher wages, trying to fill those empty slots in their labor force (during times of full employment). Costs of certain scarce raw materials – or capital goods – can also pull prices up. This effect is especially acute when shareholders (or owners) demand profit maximization over the short-term. A rather indirect method of controlling inflation is purported to be reducing the demand for capital by intentionally making it prohibitive to borrow so much! Thus, the Federal Reserve desperately raises prime lending rates through the banking system. This is indirect because businesses can determine their target profit margins independently from prime lending rates. They are beholden only to shareholders, not necessarily to an ideology of continued growth – or debt!

It would seem like the most effective means of controlling inflation is to satisfy demand (produce more) while reducing expectations of shareholders for gain; hence, slow net growth of GDP (and the stock market). Satisfying demand increases GDP while lower margins decrease it. This is the essence of a degrowth regime. Implementing it is clearly a political problem. And to be effective, it must encompass all of society – at least the economically productive part of society. Justice demands that the poorest members of society, and the poorest societies, should not shoulder a disproportionate share of the burden of degrowth. The Global North, the most privileged, most developed, needs to be the main contributor to fighting inflation via reduced growth.

But justice remains a political matter. Next stop: power relation redistribution for justice. These days we are focused way too much on sheer dollars in our macroeconomic analysis — not enough on where those dollars go. That is the madness of the growth game.

— William Sundwick

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