An economy based on zero growth could be more stable – experiencing fewer crashes – and bring higher wages, suggests a new University of Sussex study.
Running counter to dominant economic thinking, the new research shows that economies can be stable with or without growth and are in fact likely to be less volatile if we stop chasing ever-increasing GDP.
The idea of a no-growth economy is not new – British economist John Maynard Keynes in 1936 predicted an end to growth – but it has gained traction in the past few years as people have increasingly come to view infinite growth as environmentally unsustainable.
Dr Adam Barrett, a mathematician at the School of Engineering and Informatics at the University of Sussex, says: “Our economic system relies on growth but, because we live on a finite planet, most people agree there is a limit to how long this can continue.
“Slowing down economic activity therefore makes a lot of sense in theory but the charge has always been that this leaves you vulnerable to financial crises.
“My research suggests that not only is this not necessarily true but that, if anything, zero-growth scenarios are more likely to remain stable. An end to growth did not trigger instability in my tests.”
Instead, financial crises have much more to do with erratic debt behaviour than whether or not the economy is growing, Dr Barrett says: “The more rapidly businesses try to change their level of debt in response to changing conditions, the more likely there is to be an economic crisis.”
Dr Barrett’s paper is the first to assess the relative likelihood of a crisis emerging from a period of zero growth versus a period of positive growth.
The study found that, in contrast to the alarming conclusions of French economist Thomas Piketty, an end to growth would not cause rising inequality: the share of profit going to workers would actually increase. However, the study does concede that this would be accompanied by more frequent substantial drops in levels of employment.
Interestingly, all the scenarios modelled by Dr Barrett included a positive interest rate for loans, a key feature of a capitalist economy. This could be seen as a sign that a move to a stable no-growth economy could be achieved without dismantling our entire banking system. Indeed, the research modelled gradual and sudden transitions to a post-growth economy and found that neither would trigger a crisis; although, again, there would be some fluctuations in the level of employment in the absence of an active government.
Unlike other studies, which search for an elusive sweet spot where an economy is steady and robust to all shocks, Dr Barrett accepted that all real economies are subject to fluctuations and cycles. He says: “None of the studies so far really take account of the fact that capitalism is unstable and prone to crisis even during a period of strong and stable growth.” Instead, he characterised crises as “run-away explosive behaviour” and paid less attention to small bumps in the road.
Using a new mathematical model based on American economist Hyman Minsky’s theory of financial instability – work that was much overlooked prior to the financial crash of 2008 but which has been receiving increasing attention in recent years – Dr Barrett ran a series of scenarios in which productivity is forever growing (at two per cent per year) and some scenarios in which productivity stops growing.
He allowed the models to play out for a period of 250 years, after which the patterns began to repeat.
Learn more: No-growth economy could mean fewer crashes and higher wages, study shows
The Latest on: No-growth economy
[google_news title=”” keyword=”no-growth economy” num_posts=”10″ blurb_length=”0″ show_thumb=”left”]- Fed chair Jerome Powell: No sign of stagflation in U.S. economyon May 1, 2024 at 3:31 pm
Federal Reserve Chair Jerome Powell said Wednesday there was no sign of stagflation in the economy, even as inflation remains stubbornly high and some signs of slowing growth have started to emerge.
- The $34 trillion U.S. debt is nearly as big as the economy and there’s (still) no plan to fix iton May 1, 2024 at 10:53 am
Goldman Sachs, International Monetary Fund, and the Congressional Budget Office are the latest to warn it’s a looming problem.
- China’s Sorry Economy Exhibits Little Demand For Credit.on May 1, 2024 at 10:10 am
Lending and borrowing in China are sliding along a downward path — another reflection of the economy’s fundamental problems.
- 'Growth is not God-given, it is earned': Sanjeev Sanyal after Chidambaram says India becoming 3rd largest economy a certaintyon May 1, 2024 at 3:02 am
Sanjeev Sanyal said that in the socialist period, the government had bad policies due to which the country had stymied growth.
- Economic growth must be a priority for tax reformon April 29, 2024 at 2:23 pm
Businesses consider several factors when deciding where to invest, and it’s no secret that one of the most important considerations is taxes.
- In the AI Economy, There Will Be Zero Percent Unemploymenton April 28, 2024 at 7:00 am
AI developer Andrew Mayne explains why technology could create more jobs and lead to unprecedented economic growth.
- America’s Economy Is No. 1. That Means Trouble.on April 27, 2024 at 12:36 pm
Solid growth, big deficits and a strong dollar stir memories of past crises.
- 2 experts outline a looming scenario where the US economy could end up caught in a dreaded period of stagflationon April 27, 2024 at 9:12 am
GDP slowdown, paired with hotter inflation, is a sign of trouble for the Fed. Some analysts warn of eventual stagflation.
- The US economy is cooling off. Why experts say there's no need to worry yeton April 26, 2024 at 11:15 am
The economy slowed dramatically to start 2024. The U.S. economy slowed dramatically at the outset of 2024, though it continued to grow at a solid pace. The finding, released in a Commerce Department ...
- US growth slowed sharply last quarter to 1.6% pace, reflecting an economy pressured by high rateson April 25, 2024 at 4:31 pm
The nation’s economy slowed sharply last quarter to a 1.6% annual pace in the face of high interest rates, but consumers — the main driver of economic growth — kept spending at a solid pace.
via Google News and Bing News