No 2034 Posted by fw, August 18, 2017
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For newcomers to this blog, I am in the process of writing a series of synopses of every chapter, section by section, of the 2nd edition of Tim Jackson’s thought-provoking book, Prosperity Without Growth, (Routledge, 2016-17).
Jackson’s title for Chapter 2, “Lost Prosperity” sets the chapter’s tone, for, as he puts it in the chapter’s penultimate paragraph: “There now seems to be a distinct possibility that the growth on which we have relied, not only to improve the quality of our lives but also to maintain economic stability, might just not be available any more.
As Jackson explained in Section 1 of Chapter 2, the Introduction, government attempts to bailout failing banks and jumpstart the economy not only failed, they precipitated further crises. The litany of failures prompted Queen Elizabeth II to ask economists why no one had seen the crisis coming.
And that is the subject of today’s synopsis of Section 2 of Chapter 2, titled, “In search of villains.”
Tim Jackson is a British ecological economist and professor of sustainable development at the University of Surrey. He is the director of the Centre for the Understanding of Sustainable Prosperity (CUSP), a multi-disciplinary, international research consortium which aims to understand the economic, social and political dimensions of sustainable prosperity.
Following the collapse of Lehman Brothers in 2008, Queen Elizabeth II asked economists why no one had seen the crisis coming. She subsequently received a parsimonious three-page letter, which concluded: “… the failure to foresee … was principally a failure of imagination … to understand the risks to the system as a whole.”
What the Queen really wanted to know was, “How did these system risks arise? Why didn’t economists understand them?”
In a hind-sighted search for villains, the finger of blame pointed in different directions: subprime lending in the housing markets; credit default swaps to hide toxic debts; greedy speculators; regulatory failure of government; economic slowdown caused by rise in inflation and accompanying slow-down in growth; and private sector household and company over-indebtedness.
Take your pick. However, Jackson focuses on the significance of over-indebtedness leading to the Lehman Brothers’ collapse. As Jackson notes:
“… the most striking aspect of this over-indebtedness was just how long it had been going on. The expansion of domestic private credit across the advanced economies had started already in the 1950s and from that point on continued steadily until the mid-1990s, when the pace of growth even accelerated slightly.”
Moreover, accompanying the decades-long rise in private sector debt during the crisis itself, there was a steep increase, worldwide, in public (or government). Jackson writes:
“Generally speaking, public sector debt across the advanced nations increased by over 50 per cent as a proportion of GDP in the space of just a few years as a result of the crisis. In a number of countries – notably Iceland, Ireland, Portugal, Spain and the UK – the debt to GDP ratio more than doubled between 2007 and 2010. By 2015, the sovereign debt of Greece stood at almost 200 per cent of GDP.”
If it’s a villain we want for Lost Prosperity, it appears that private and public sector indebtedness are prime suspects.
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