It goes without saying that the key policy objective of fiscal and monetary authorities world over is to achieve and sustain economic growth. This unthinking adherence to orthodoxy is very unfortunate. We cannot hope to solve society’s problems unless we formulate the problems correctly. And we can’t formulate them correctly if we set inappropriate goals.
A while back, Jeremy Grantham made an illuminating projection: suppose that in 3030 B.C. the total possession of the people of Egypt filled a box measuring 1 cubic meter. Suppose further these possessions grew at a rate of 4.5% per annum. How large should this hoard get 3000 years later, in 30 B.C.?
The answer: 10^57 cubic meters – something like 2.5 billion Solar systems.
People instantly grasp the point of this argument but then object how today, in modern times, economy is not only about material wealth, there’s intangibles, services, bla, bla, bla. But this reaction is little more than a desperate attempt to avoid thinking. All of the economy everywhere serves to support human needs for food, shelter, health, travel/communications, art/entertainment and security. That’s basically it. In one way or another most of these needs ultimately depend on material things.
So we can get back to Grantham’s one cubic meter of humanity’s possessions. We can play with the rate of economic growth and the from-to dates, but the insight of this exercise is inescapable: defaulting always to economic growth as the unquestioned policy objective is patently absurd and unsustainable; and that which is unsustainable must inevitably collapse – it is only a matter of time.
Thus, if economic growth isn’t the answer, we have to start thinking about what the appropriate objectives to solve society’s problems should be. To do that we have to start from ourselves and our needs as human beings: how do we want to live our lives? Or better, what would we want our children’s lives to be like? Better yet: if we were on our deathbeds, what might we regret about the way we live now, and what would we not?
If we fail to think things through, aren’t we a bit like hamsters running in a wheel, exerting ourselves daily yet moving no closer to any real solutions or the better, more beautiful life we’d want for our children?
The Naked Hedgie 
Interesting post.. Couple of thoughts..
– For Grantham’s thought experiment, maybe considering economic cycles (i.e. declines as well) would not lead to such a severe growth rate? Maybe the growth target is just that – a target – and in reality, we never achieve it over sustained periods due to human nature being what it is, and the cyclical nature of the economy.
– With an increasing population, to incentivise them all to contribute to society and for everyone’s common goals to be fulfilled (whether that’s reduction of poverty, increase in working hours or general quality of life), wouldn’t economic growth be necessary?
Can you see any flaws in my thinking?
Thanks
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Thank you Vin. The imperative of economic growth is the consequence of our monetary system. Since money is put into circulation as debt at interest, growth is necessary for the principal+interest to be repaid. This principle remains in operation regardless of what stage of development and progress we have attained. I think that at the very least we need a more fully educated and informed debate about the desirable objectives we should work toward, not just mindless busywork to attain growth because in this way we seem to be creating a lot of things we positively don’t want: wars, environmental destruction, extinction of species, etc. We serve the system but the system isn’t serving us so well. Something isn’t quite right…
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