On a recent trip away, my travelling companions and I played poker to while away an idle hour. In deference to our poverty, we opted to gamble matchsticks instead of hard currency. At first each match represented, for the sake of verisimilitude, one GB pound. Then someone joked that we might as well make them worth a billion pounds apiece, so we could all feel like island-owning, Davos-attending, Dr. Evil-style oligarchs. We laughed and the game continued, each of us – the lucky/skilled ones at least – accumulating unimaginably vast fortunes in hyperinflated pinewood.
Fine, good: a billion quid is such a huge amount that contemplating it made us chuckle.
Let’s try another figure. How about 840 years? That’s a long time, but not batshit-crazy long. Only 10 or so modern Western human lifetimes.
Now what about 2.5%, the arithmetic mean of the ideal GDP growth rate range (2%-3%) as defined by the majority of US professional economists, and accepted as effectively axiomatic by all governments everywhere? Why that’s positively small.
Great. So here’s the thing:
If a nation’s GDP per person were one pound 840 years ago, and were subject to growth of 2.5% per annum, it would be well over one billion pounds today.
Which is to say that through the ‘magic’ of geometric series, the recommended rate of healthy, measured, stable, sustainable economic growth would over the course of 30 generations turn every dirt-poor peasant on earth into a literal billionaire.
Interesting, but hardly revolutionary since 840 years is (as noted) a longish time, during which:
a) currencies can emerge and disappear and get ‘monetarily reset’ (making a squillion units of an old piteously devalued currency like the German Papiermark or the Zimbabwean dollar worth one unit of a shiny new currency), empires rise and fall, and war and pestilence obliterate entire generations;
b) income levels, cost of living and the foreign-exchange value of a currency tend (or at least should tend) to move approximately in tandem, so assuming no economic catastrophes, lots of units of currency today would buy you the same loaf of bread that a few units of currency bought you years ago. As long as wages and inflation both shadow the 2.5% GDP growth line, nobody gets financially better or worse off except the ink merchants, who make a fortune off all those extra zeroes.
No, the money is not the problem.
In fact inflation is by far the lesser of the two chief evils consequent to healthy, stable, sustainable growth (let’s abbreviate it to HSSG hereafter; it’ll get used a lot). The greater evil requires consideration of the definition of GDP, which is “the market value of all officially recognised final goods and services within a country.”
The services part, the intangible stuff, is unproblematic, like the modest inflation HSSG as a whole encourages. It comprises valuable work like medicine and education as well as involute tail-swallowing guff like management consultancy and investment banking. None of it uses up physical material except indirectly in the form of ring-binders and business lunches.
The goods part, assuming that the proportion of GDP comprising goods stays roughly the same, is where the serious trouble lies. Under HSSG, it is expected that we make enough physical stuff this year to be worth 2.5% more than last year’s haul. (As if the fiduciary spell cast on the matchsticks were reversed, and now they’re back to being made of wood from real trees from real forests.)
It’s worth stressing here that we’re not necessarily talking about 2.5% more stuff, only about stuff worth 2.5% more. You might think that the problem is thereby solved: if wages go up and purchasing power commensurately down, we’re just producing the same amount of goods but charging 2.5% more for them in a currency worth 2.5% less.
Unfortunately, in practice we’re always talking about more stuff. Citizens in a growing economy earn more and understandably want more things. Otherwise what’s the point in being richer? The most dramatic example at the moment is China, where new car sales increased 335% from 2005 to 2012, when almost 20 million vehicles were sold. Let’s take a look at how bleak these statistics (which the media usually report as Good News) are. Over 6 years, HSSG mandates a GDP increase of just under 16%. China’s admittedly crazy-high growth during this period was almost 78%. But far from being happy with the same amount of stuff, the country’s emerging middle class spent several times more, even after adjusting for inflation, on new cars in 2012 than in 2005. And you’ll be overjoyed to note that January 2014’s sales hit a record high of 2.16 million. In one month.
Let’s leave scary China alone and come back to the sane, sensible world of HSSG. And let’s return to the original thought experiment but switch from 840 years ago to 50 years in the future, at which time a) many of you will still be alive and b) one pound’s worth of goods produced, subject to 2.5% HSSG per year, should be worth a less spectacular, though still troubling, £3.43.
Wicked, naughty China has shown that we can’t rely on 2064’s £3.43 worth of things being a physically smaller pile than 2014’s £1 worth. It’s probably not going to be 3.43 times the size, but HSSG and the example of recent emerging economies predict it’ll sure as hell be bigger than this year’s. We are already running out of accessible ore mines, shallow oil wells and fertile land. As the last of the low-hanging fruit gets picked, the real unit cost for all the elemental gubbins we’re in love with skyrockets. And yet: more goods production in 50 years’ time than now, recommend those in the know.
This isn’t just a Bad Idea. It’s logically impossible.
A professional economist might argue here that similar portents of doom were made generations back and were given the lie to by spectacular advances in manufacturing, agricultural and petrochemical-exploration technology. All true. And science is absolutely fucking awesome. But is it infinitely awesome? Can science squeeze more toothpaste out of a tube in 50 years’ time than it struggles to today? Out of the same tube?
The economist might go on to object that the proportion of goods in ‘goods and services’ does not stay the same. In fact it has decreased significantly as tangible goods (books, CDs, letters, DVDs) get replaced by their pure-data equivalents. Also true. But there will come a point when most if not all candidates for electronification have been electronified. Thereafter, we will still need food, water, matchsticks, sanitation, medicine, transportation, and the physical devices (in our hands or in the cloud) on which our newly-digitised bounty gets stashed. They’re made from the very same finite pool of elements as everything else.
Something literally doesn’t add up. Macroeconomists aren’t idiots, but they seem to share the myopia of politicians for whom a moment more than two terms-of-office into the future is just unimaginably distant, as irrelevant to us as we were to even the most imaginative stegosaurus. On short, administrative timescales, 2.5% HSSG probably is healthy, stable and sustainable. It allows small businesses to expand, creating more jobs. The gainfully employed spend more on things, goosing the economy, paying more tax to the exchequer and allowing the government to improve services. If they’re smart enough to prioritise education over, say, defence, this makes for a more skilled workforce, and thus a salutary cycle gets underway.
It’s not clear how long it takes for cracks to appear in this pretty tableau. At a guess, a few more scientific step changes will stave off the inevitable for a few decades. But this is palliation, not cure. Nothing will prevent the unstoppable force of HSSG hitting the immovable object of Planet Earth’s finite mineral, agricultural and nonrenewable fuel resources.
We’re in control of one half of that equation.
I really mean ‘we’ here, as in you and I, not some abstract placeholder for a mute majority of powerless grumblers. We just need to question, privately and publicly, whenever and wherever possible, the doctrine of HSSG. It may be that 0% growth (with all the bottom-up reprogramming of our Savannah-honed greed circuits that that entails) is the solution. It may be nowhere near that simple. It may require the concepts of GDP/GNP/GNI/CPI to be refined or abandoned as too univariate. But once people start questioning the doctrine that Growth Is Good, once mainstream news outlets stop parroting GDP growth figures without analysis or criticism (growth = good news story, holding fast = stagnation = bad news story), the outlook can only improve. Tweet Robert Peston. Email the FT. Call your MP. Put out a Facebook APB to economist friends to justify HSSG or provide an alternative.
You could win a billion pounds.