Thursday, 5 January 2012

This is Necessary

“In fact the reality is we are one with God and He loves us. Now, if that isn't a hazard to this country... Do you see my point? How are we gonna keep building nuclear weapons, you know what I mean? What's gonna happen to the arms industry when we realize we're all one? Ha ha ha ha ha! It's gonna fuck up the economy! The economy that's fake anyway! Ha ha ha! Which would be a real bummer.”

- Bill Hicks

Rogoff is out with a tasty piece questioning why we need economic growth at all. Perhaps this is a kind economists existential crisis akin to a priest questioning why we need to believe in God? Even some of the blogosphere agree. In fact I pretty much agree with the premise. The problem is that economic growth is now necessary rather than desirable.

The reason growth is now necessary is the entire global pension/welfare Ponzi scheme requires growth in order to maintain itself. Calling it a Ponzi scheme may seem harsh but the wiki definition is:

“A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation.”

This is a pretty good definition of public pensions at least in the UK since there are no productive assets and all current pensions are paid out of current taxes. This works fine with economic and population growth; more taxpayers at the bottom paying for the few retirees at the top. However without economic and population growth + longer life expectancy the burden falls on an ever shrinking base of productive workers.

So growth is no longer desirable in fact it’s necessary to maintain the status quo.

The idea presented by Deus Ex Macchiatto is woefully inadequate with regards to Italy. Italy is a case in point of how zero growth can wreck your society. On the surface things may appear fine but youth unemployment is high and young people are living off the savings of their parents which may also explain the declining birth rate and household formation. Much of the talent of Italy is currently in countries like Germany and the UK where there are jobs and flexible labour laws. Italian employers all game the system giving young workers short term contracts to avoid having to pay various benefits such as pension contributions. Such an environment might look nice when you go on holiday but it’s no place for a ‘dolce vita.’

So whilst I agree with the philosophical sentiment of Rogoff I can’t see a way to easily change the present course of growth of our western growth oriented economies in the medium term. It’s easy to question why we need growth from an ivory tower but the societal setup is obvious – look at what we have without growth; mass unemployment. Now we could start to change the whole relationship of jobs and people, we could all job share our existing jobs to bring about total employment. You go first Ken and part the monetary Red Sea. Show us the way to the Promised Land of economic contentment.

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