Un-growth and all that jazz…
► There are many theories trying to explain ‘why nations fail’ or why economies remain relatively stagnant, without genuine development, technological innovation, sustainable growth, etc. Early theories have pointed at rent-seeking, collective action problems, cognitive deficiency syndromes, roving vs. stationary bandits, etc.
► There are also theories that conjecture GDP (GNP) is a deficient indicator of growth, welfare or development. While this may be correct, proposing a viable alternative to GDP is no easy task. There are a number of options, but they may look too complicated sometimes, too theory-dependent, too hard to measure, too independent from money metrics and what not.
► Then there is the China puzzle: a large country transformed into something else within three or four decades. The power of combined growth rate has made it possible for China to outpace Italy and surpass it in less than two decades in almost all metrics pertaining to the economy, even finance.
► Then there is the simple fact that fundamentalist Islam and development, and economic growth, and innovation have not gone well together for over 800 years. Then there is the fact that unless all education is modern and competitive, and conducive to free thinking, then a nation can and most likely will ‘fail’ in the end. This is one reason among many, but even one important reason suffices.
► I fear that, putting aside the business cycle, potential growth might continue to fall in the coming years as well. So that in the end of a 7- to 9-year cycle, we may find ourselves in exactly the same situation as welfare goes, having lost an entire decade in pursuit of a long-deceased politico-economic model. This would mean a relative regression because the world outside won’t stay put.
► This may be a lot more important than the zero growth the economy faces in 2019. After all, absent base effects, and adjusted for seasonality and calendar effects, the trend growth that remains therein will be a lot less than it was back in 2013 or even in 2015.