11 November 2010

the 'no-growth' model

It is almost blasphemous for an economist to consider a 'no-growth' model, the very subject itself is the study of economy and no growth = no money, right? Traditional economists propounded that the earth could support endless growth. However, current economics proves that this is not possible - destruction of the ecological system, leads to eventual collapse of the economic system.

It seems to be a Catch-22 situation. Without growth, we spiral into poverty. With growth we head towards ecological collapse. To address the tantalizing question of whether we could have a healthy economy that doesn't grow, Prof. Peter Victor of York University, Toronto created a computer model of the modern Canadian economy. He then adjusted the model so that elements like consumption, productivity and population gradually stopped growing after 2010. He then shortened the workweek to 4 days to stave off unemployment. He also set up higher taxes on the rich and more public services for the poor. He imposed a carbon tax to discourage the use of fossil fuels. According to the model, it took a couple of decades but unemployment fell to 4%, much lower than what it is today, standards of living rose and GHG emissions decreased well below Kyoto levels.

The idea of a 'no-growth' economy is not new. Adam Smith, John Stuart Mill and John Maynard Keynes have all acknowledged that when maximum growth is reached, man would devote his time to "non-economic purposes". Industrial-age economists did not have to face the problem of resource crunch. The ones that did worry about resources running out where so far ahead of their times and it was not considered to be an issue of concern.

The biggest problem that the post-modern economic system faces is the use of GDP as a yardstick for the measurement of economic growth. GDP is an often baseless figure which is based solely on economic growth, completely disregarding 'unmeasurable' but often important components of actual growth. In terms of growth, the majority of the world's population has hit the point of no return vis-a-vis monetary wealth and real happiness.

In the end, resource scarcity, price hike and climate change will cause global conflict and no-growth thinking could become a realistic economic model. Do we dare hope?

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