Suppose you lived in a community where an old but well maintained bridge connected two river banks, enabling people and goods to move across. The bridge would represent a piece of community wealth, although its existence would only marginally impact the community’s ‘GDP’. Now suppose someone proposed to boost the community’s economic activity (GDP) by blowing up the bridge and building a new one.
The community would raise credit, hire demolition crews, destroy the old bridge, bring in architects and building contractors, and construct the new bridge. All this spending would boost employment and GDP, but might leave the community’s wealth flat or even negative because of the new debt. Clearly, “economic growth” does not automatically create wealth or improve a community’s quality of life. It follows that economic policy shouldn’t amount to an unthinking pursuit of growth.
Rather, policy must be formulated around the desired social objectives. What do we wish for our labours to achieve? What improvements in our lives do we desire? Blind pursuit of growth is not only dangerous – it is also unsustainable. Consider this: if your wealth consisted of a single ounce of gold and your policy objective was to grow this ‘hoard’ at a rate of 5% per year, in 1200 years your hoard would exceed the weight of the entire planet. At some point, laws of nature would force you to rethink your objectives.
Today, we appear so set on chasing economic growth that all other policy objectives are subordinated to it, or dismissed as unimportant. This is because our policy makers have almost entirely abdicated on their responsibilities, deferring economic policy entirely to the central planners bankers who in turn view society exclusively through the prism of the monetary system. Economies must grow (in terms of the monetary unit), else the whole system implodes. Whether we enjoy good, dignified lives or not is irrelevant. So is sustainability, environment, and biodiversity of the living systems that actually sustain our very existence.
Sooner rather than later, we will have to decide to supplant this pathological system with more life-sustaining economic models.
Alex Krainer is an author and hedge fund manager based in Monaco. Recently he has published the book “Mastering Uncertainty in Commodities Trading“.