Citizen Action Monitor

Do we need economic growth to keep the economy stable?

Why is the conventional answer to this question always the same: “Yes. There is no alternative.”

No 2063 Posted by fw, September 29, 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. 

In Section 1 of Chapter 4, Jackson declares in his brief introduction that any one of three related propositions, discussed at length in Chapter 3, could place us on the “horns of an extremely uncomfortable dilemma”:

The first, discussed in Section 2, is that material opulence – though not synonymous with prosperity – is a necessary condition for flourishing.

The second, discussed in Section 3, is that economic growth is closely correlated with certain basic entitlements – health or education, perhaps – that are in themselves essential for prosperity.

The third is that growth is functional in maintaining economic and social stability.

This third proposition is the focus of today’s synopsis, Section 4, titled “Income growth and economic stability.” The third proposition posits that maintaining economic and social stability in a nation is the function of economic growth. This proposition prompts Jackson to seek support for an alternative viewpoint: that, in the face of economic turbulence, resilient nations may be more dependent on their social structure and political response than on maintaining their economic growth.

In addition, the author asks why, in answer to the question, “Do we need economic growth, after all, simply to keep the economy stable?” the conventional answer to this question is always the same: “Yes, we need more economic growth.” His outline of how the capitalist system works leads him to a surprising answer.

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Income growth and economic stability: a synopsis, from Chapter 4, “The Dilemma of Growth” of Tim Jackson’s book, Prosperity without Growth, Routledge, 2nd edition, 2016-17

Jackson finds supporting evidence for the third proposition — that economic growth is functional for economic and social stability — among ex-Soviet states following their move from centrally planned economies to market economies. They suffered “profound changes in social structure” including “a collapse in state provision of health and social care.

In contrast, he notes that Cuba, Iceland, Japan, and Argentina were able to maintain their national health services during periods of severe economic turmoil. On the basis of this positive evidence, Jackson suggests that “loss in the face of economic turbulence … may be more dependent on social structure and political response than on the degree of economic instability that is encountered.

On a cautionary note, Jackson emphasizes that the very risk to a nation’s social and political structure gives one pause for concern: halting or disrupting economic growth is indeed risky business. Nevertheless, Jackson asks, “Do we need economic growth, after all, simply to keep the economy stable?

The conventional answer to this question is always the same: “Yes. There is no alternative.”

Why is more growth always the answer?

For an answer, Jackson presents this telling broad-brush, simplified outline of how the capitalist economic system works

  • Capitalist economies emphasize efficiency though continuous improvement in technology
  • Increasing efficiency drives costs down, which increases consumer demand and a cycle of expansion
  • Technological-driven gains in efficiency results in job cuts
  • Increase in unemployment reduces consumer demand
  • Business revenues fall and business investment is cut back
  • Unemployment rises further and the economy falls into a spiral of recession
  • Recession impacts public revenue
  • With higher unemployment, social costs rise
  • Tax revenues decline as unemployment increases, incomes fall along with consumer spending
  • Social spending is reduced affecting human flourishing
  • Governments are forced to borrow more to try and stimulate consumer demand
  • The national debt grows
  • Maintaining interest payments on the debt is difficult in a declining economy
  • In a worst case scenario, the debt accumulates, the economy fails to recover, and the country declares bankruptcy

In short,” says Jackson, “modern economies are driven towards economic growth. For, as long as the economy is growing, positive feedback mechanisms tend to push this system towards further growth. When consumption growth falters the system is driven towards a potentially damaging collapse with a knock-on impact on human flourishing. People’s jobs and livelihoods are put at risk.

Thus, to the question posed at the outset by the third proposition, whether growth is functional for stability, Jackson surprises us with a circular logic fallacy:

“In a growth-based economy, growth is functional for stability.”

He adds:

“The capitalist model appears to have no easy route towards a steady state position. Its natural dynamics seem to push it towards one of two states: expansion or collapse.”

As we come to the end of Chapter 4, recall the chapter’s title: The Dilemma of Growth.

In his conclusion, Jackson captures the dilemma this way —

Growth is unsustainable – at least in its current form. Burgeoning resource consumption and rising environmental costs are compounding profound disparities in social wellbeing.

‘De-growth’ is unstable – at least under present conditions. Declining consumer demand leads to rising unemployment, falling competitiveness and a spiral of recession.

“This dilemma … has to be taken seriously. The failure to do so is the single biggest threat to sustainability that we face.”

 

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