Should We End Economic Growth?

Should we end economic growth? There are few things that can be investigated with experimental methods in economics what is one of the inevitable weaknesses of this science. Sometimes, however, natural experiments occur. The arguably biggest natural experiment in economic history is the comparison of a planned economy and a capitalist, individual based system. Few would doubt that the latter showed to be superior. Libraries could be filled with writing on this topic, but I want to point out only two things. First, the idea of equal distribution of wealth is still considered as positive and that is why communist ideas have never entirely disappeared. Second, planned economies just do not work and that can be proven by many examples in history and the reason is simply human nature. Individuals seem to constantly strive for more and it does have a negative impact on economic performance to deprive them of any incentive to achieve more than others.

To get back to more up-to-date issues, there is a question that is not so far away from those initial thoughts. Is there a need to further expand our economies and keep on growing endlessly? In the current system there certainly is. All industrial economies are constructed in a way that they only function when there is constant growth. The current financial meltdown shows this in its extreme: everything was built on ever faster growing asset prices. Once asset prices turned the other way the system nearly collapsed. Not only the financial sector relies on constant growth, governments and the connected social systems depend on it as well. There is no alternative way to pay back the huge public deficits and pay out pensions for an overaged population. There is no way to escape from the “growth trap” as I may call it – at least not in the near future.

It is not a secret that many resources are limited and cannot be exploited endlessly. Therefore, the very nature of planet earth will end this system of permanent growth one day. Admittedly, this might be a remote point in time, but there are already some signs of depletion in different areas, namely climate and energy related issues. A different question is whether it makes sense to have growth as the prior goal. Are western industrial nations not at a point where the created wealth is enough and they should merely try to preserve it? Will two cars make us happier than one? Or do four instead of three trips to a distant paradise every year enhance our quality of life? Should we not just create a system that sustains itself in the long run and make this the goal of economic policy?