Nov 122017

via Steady State Revolution

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
  • Japan Economy Grows for 8th Straight Quarter, Longest Since 1980s
    on February 17, 2018 at 9:56 am

    But the bubble burst at the start of the 1990s, ushering in a period of low or no growth known as the "lost decades". 'Bubble Economy' The current period of growth is good news for Prime Minister Shinzo Abe, who has been trying to fire up the economy with ... […]

  • Japan economy grows for longest period since 1980s bubble boom days
    on February 14, 2018 at 3:17 am

    But the bubble burst at the start of the 1990s, ushering in a period of low or no growth known as the “lost decades.” The current period of growth is good news for Prime Minister Shinzo Abe, who has been trying to fire up the economy with his pro ... […]

  • Japan's economy on the rise for 8th straight quarter
    on February 13, 2018 at 11:54 pm

    The bubble burst at the start of the 1990s, ushering in a period of low or no growth known as the "lost decades". The current period of growth is good news for Prime Minister Shinzo Abe, who has been trying to fire up the economy with his pro-spending ... […]

  • No Growth: Financial Advisors' Daily Digest
    on February 13, 2018 at 9:34 am

    And thus it is relevant to report that the Council for Economic Education (CEE ... The most recent results reveal just a tiny uptick in the former, and no growth in the latter. The current State of the States (and the District of Columbia) is that 22 ... […]

  • Economic board tries to curtail population decline in state's rural counties
    on February 10, 2018 at 10:00 pm

    according to the U.S. Department of Commerce 2017 Bureau of Economic Analysis. But growth has not been uniform statewide. Twenty-three of the state’s 56 counties — 41 percent — have seen no growth or negative growth over the same time. According to ... […]

  • Why Aren't More States Taking On Economics and Personal Finance Education?
    on February 8, 2018 at 3:34 pm

    This year, things don't look so great. There has been little increase in economics education and no growth in personal finance education, according to the latest report by the Council for Economic Education. There are many benefits to personal finance and ... […]

  • 2018 Survey of the States Reveals Slow To No Growth In K-12 Personal Finance And Economic Education
    on February 8, 2018 at 4:51 am

    Now in Its 20th Year, Council for Economic Education Study Highlights Wide Gaps in Financial and Economic Education Throughout U.S. States NEW YORK, Feb. 8, 2018 /PRNewswire-USNewswire/ -- A 2017 study from the American Psychological Association reveals ... […]

  • No tangible signs of economic recovery – Likukela
    on February 7, 2018 at 2:21 am

    THE Namibian economy has not shown tangible signs of recovery ... All other data are just indicators of possibilities. If GDP data says there is no growth, then there is no growth.” Likukela's comments come at a time when President Hage Geingob tightened ... […]

  • SEB sees Lithuania as slowest-growing Baltic economy in 2018
    on February 7, 2018 at 2:18 am

    Latvia is expected to remain the region's fastest-growing economy next year, at 3.7%, as GDP growth in both Lithuania and Estonia is forecast to slow down to 3%. SEB Lithuania's chief analyst Tadas Povilauskas says that no growth in consumption is expected ... […]

  • 'Grease' Economy Byceasing Non-Resident B$ Loan Restrictions
    on February 5, 2018 at 12:42 pm

    Backing the Central Bank's decision to "investigate policies to promote a soft landing in terms of easing system liquidity", Mr Smith said that - if successful - it could break "a vicious circle" that has held the Bahamian economy in a no growth/high ... […]

via Google News and Bing News

Leave a Reply

%d bloggers like this: