In ‘Shrink The Economy, Save The World’ (2024), the New York Times describes an ideological fight between capitalists and proponents of ‘post-growth’ or ‘degrowth.’ It is not for the faint-hearted.
To set the stage, the article refers to ‘The Limits to Growth’ published in 1972. The authors (in)famously concluded that ‘if the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years.’ Two generations ago, this thesis was ridiculed.
Now, if the global economy were to grow at the same pace as the global population from today to 2050, the incremental amount of GDP that would need to be generated in just one generation would be roughly equivalent to the size of the entire US economy.
The relationship between aggregate demand and supply could become strained if the global economy were pushed deeply beyond planetary boundaries (incl. clean water and land for food) while labor scarcity rises due to an aging population and deglobalization weighs on productivity.
In economic terms, the aggregate supply curve would become more and more inelastic as supply expands (see chart below). In that context, higher quantities would only be offered in exchange for an increasingly disproportionate price hike, as experienced during the supply shock of the 70s when the global economy hit a wall. This is the textbook case for stagflation, with dire implications for inequality. This is not a political argument; it is an economic one.
The proponents of sustainable growth do acknowledge this risk but have faith in the ability to decouple economic growth from the use of resources in absolute terms through technology (including AI) and sustainability initiatives such as the dematerialization of the economy.
On the other side of the spectrum sits a movement including Kohei Sato, a self-proclaimed ‘degrowth communist’ prominently featured in ‘The Atlantic‘ last month. Mr. Sato is a new face of the degrowth ideology that includes Naomi Klein and seeks to force a political debate.
In short, the movement argues that tech-driven efficiencies only serve to produce more (see ‘The Jevons Paradox’), which is untenable. It contends that the alternative is to produce and consume less through a shorter workweek. It notes that this required approach conflicts with capitalism, which is based on wealth accumulation. It proposes a system in which wealth is more widely redistributed, assets are shared rather than owned, and firms operate as cooperatives. There is a sense of déjà vu…
Capitalism might have a decade to prove that sustainable growth is a viable path forward. Any failure to do so could economically result in structural inflation, wealth deaccumulation, growing inequalities, and rising eco-socialistic challenges to the prevailing establishment. A Berlin tale about popular anger due to rising prices reported in the Financial Times this week serves as a forewarning.
When confronted with a plausibly steepening supply curve and sustainability challenges, eye-rolling must be replaced with sleeve-rolling to keep degrowth at bay.
This is not a political argument; it is an economic one – admittedly one that has political implications down the road.
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