Stephen D. King, chief economist at HSBC and author of the recent When the Money Runs Out: The End of Western Affluence, painted a horror story as gruesome as any of his namesake in his New York Times Op/Ed article titled “When Wealth Disappears.”
King reviews the no-growth economy that Europe and Japan already have and is about to reign in the United States. King takes it as a fact that no-growth has to lead to a decline in the economy—that an economy that is not growing is weak and bad. He takes it for granted that because growth will no longer bring extra wealth each year, college costs will keep going up and we will continue to fray our safety net.
Common sense should tell you that this idea is nonsense. If we have already achieved great wealth, why should no more increases prevent us from performing the functions of an economy—to provide a reasonable living standard for everyone? We have so much wealth right now that we could feed, educate and care for everyone in our country—if we only redistributed it. All a growing economy does is enable people to live a higher standard of living without having to seriously consider wealth redistribution.
The standard of living in the mature industrialized countries is already quite high. Who says it ever has to get any higher? Certainly we have to improve the lives of our poorest and most disadvantaged residents, plus there are billions of people living at or below subsistence in the developing world. But in general the middle and upper classes of the industrialized nations are living on easy street.
Of course if there is no economic growth, the improved position of the poor has to be funded from existing pots of money—and that means redistribution of the wealth. And that’s just not part of the agenda for the people who created the field of economics, most practicing economists, those who fund economic research and those who look to economic theory to guide their business operations—otherwise known as rich folk.
The idea that a healthy economy requires growth is nothing more than a first premise, similar to the premise that the shortest distance between two points is a straight line, upon which all of traditional geometry is based. The difference is that the shortest distance between two points really is a straight line (except to a few brilliant scientists and mathematicians), whereas an economy can thrive without growth. No ruling elite ever wants to try it though, because it takes planning and a commitment to the community that our wealthiest citizens don’t seem to have.
King’s own plan, outlined in broad brushes after his plea that we be honest about the end of abundance, will certainly benefit his employer without inconveniencing much, if at all. Here it is:
“That means a higher retirement age, more immigration to increase the working-age population, less borrowing from abroad, less reliance on monetary policy that creates unsustainable financial bubbles, a new social compact that doesn’t cannibalize the young to feed the boomers, a tougher stance toward banks, a further opening of world trade and, over the medium term, a commitment to sustained deficit reduction.”
A higher retirement age and more immigration will keep the number of workers high and thereby lower wage rates, which is good for any employer. The “new social compact” assumes that taxes on corporate profits and wealthy shareholders will not go up; unspoken here is the obvious—that we could keep the current social compact if we taxed the wealthy at the rates we taxed them in 1950, or even 1980. King does mention a tougher stance towards banks and less government manipulation of money, but what does he really mean? He has very concrete ideas when it comes to increasing the pain of working stiffs, but only vague strategic thoughts about modifying banking.
It’s not just what King says, but what he doesn’t say. Immigration is a great way to funnel people from poor countries to rich countries with shrinking populations, but only if we have immigration across the board, not just for the wealthy and educated. There is nothing wrong with further opening world trade, but only if trading partners meet the high environmental, wage and work safety standards of the West. Otherwise free trade exploits both the poorly paid workers in developing countries and the middle class workers in wealthy countries who lose their jobs.
King’s horror story also doesn’t tell us how we got into this mess: by straining the world’s resources. We can’t grow anymore, because we don’t have the raw materials of growth. Instead of bemoaning the shrinking population, King should embrace it and advocate efforts to bring down the population even faster.
And make no mistake about it. If we as a species don’t voluntarily bring down our population and learn to live well while using less energy and resource than Americans currently do, then we will see a true horror story—one in which the world descends into a hell of major wars, famines, epidemics and human-induced weather and chemical disasters.
Instead of fearing the end of growth, King should understand that it is a good thing and then set his mind of an economist to making sure that the end of growth does not also mean the end of wealth.
Of course, that’s not King’s job. His job is to help his company make more money.
Alas, eternal growth is necessary to keep the kite up in the “good old boy underbelly” model that you describe in your next piece.