Citizen Action Monitor

What if a low-growth, no-growth economy became the new normal?

Tim Jackson reviews the evidence for a return to “secular stagnation.”

No 2042 Posted by fw, August 28, 2017

To access all other synopses from Prosperity without Growth, click on the Tab titled “Prosperity without Growth” — Links to All Posts in the top left margin. 

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.

In the preceding post, Section 5. Chapter 2, Jackson reports that the implementation of a Keynesian plan to restart the economy was “not happening fast enough for nervous politicians and critical commentators.” As a result, Keynesianism was out, austerity was in and economies that were trending towards recovery were pushed back into recession.

In this, Section 6 of Chapter 2, titled “Enter the deflationary headwinds…”, as cries of “growth at all costs” grew louder, some “What if” questions were raised: “What if a low-growth, no-growth economy became the new normal?”

In addressing this question, Jackson reviews the signs of a renewed emergence of “secular stagnation.” (The term ‘secular’ is used in the sense of stagnation continuing from age to age, as opposed to ‘cyclical’ or ‘short-term’ stagnation).

Tim Jackson is a British ecological economist and professor of sustainable development at the University of Surrey.

This section’s synopsis marks the end of Chapter 2.

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Enter the deflationary headwinds, a synopsis, from Chapter 2, “Prosperity Lost” of Tim Jackson’s book, Prosperity without Growth, Routledge, 2nd edition, 2016-17

In the midst of the 2008 financial crisis, cries of “growth at all costs” grew louder, prompting some economists to pose some “what if” questions. What if:

  • there wasn’t much growth to be had anymore;
  • the capacity to grow the economy was slowing;
  • the reluctance of businesses to invest and consumers to spend was now less cyclical and more deep-rooted

These were, in fact, the worrisome signs of a recurrence of “secular stagnation”, a term first used in 1939 to reflect “a condition of negligible or no economic growth in a market-based economy”. The possibility was looming that the 2008 recession may mark the onset of a new age of secular stagnation for the economy .

Among the signs of a renewed emergence of secular stagnation is a persistent decline over several decades in labour productivity.

Jackson cites one study positing that a decline in “big technological advances of the last two centuries are now over.” That long-term downturn, in conjunction with six “deflationary headwinds”, including an ageing population, rising inequality, and an overhanging consumer and government debt, could very well contribute to an economic slowdown in the US.

Regardless of the causes, the fact remains, productivity has fallen since 2000 to a low of 0.5% in 2015.

“In the aftermath of the 2008 crisis, says Jackson, “as business, households and government all seek to reduce their indebtedness, the long-term weakness of both demand and supply are becoming visible.”

In 2015, the International Monetary Fund cited falling growth rates in both emerging and developing economies for the fifth year in a row.

On August 24, 2015, when over 8% of Chinese share values was wiped out, a UK government official warned people of another crash. And a Swiss banking official warned that “the world was now stuck in an era of low growth.”

However, there was a positive side-effect of repeated warnings about secular stagnation — Conventional economists began to sit up and take added notice of their peers who, on ecological and social grounds, had long been questioning growth.

On that positive news, Jackson is prompted to conclude this section, and this Chapter 2, on this upbeat note:

“Seven years after it was first published, “Prosperity without Growth” is no longer a radical narrative whispered by a marginal fringe, but an essential vision for social progress in a post-crisis world.”

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