Growth: the false god of economics

Growth: the false god of economics

If a team of interplanetary anthropologists (the phrase is an oxymoron, but we have none better) were to descend to earth in their spacecraft, they would notice that, like some distant tribe who worships a panther's claw, a voodoo mask or the gnarled roots of an ancient tree, the human race has a strange fetish for growth.


Those extra-terrestrial anthropologists would think, wouldn't they, that ours was a society headed for self-imposed destruction — like the stone-head builders of Easter Island or the vikings in medieval Greenland?


Nowhere is this obsession more apparent than in finance and economics. Governments are obsessed with GDP growth, even if that means unsustainable debt, imbalances or environmental destruction. Businesses are obsessed with profit growth. Regardless of growth's long-term merits, the chief executive of any publicly-listed company will be sacked quicker than you can say "board meeting" if he says otherwise. Investors, more to the point, are obsessed with beating inflation and each other. And of course they are, they're investors.


Despite living in probably the most comfortable country on earth, in what is probably the most advanced period in history, Australians are not immune from this fetish either, notwithstanding the country's sometimes forced routine of studied indifference. No mainstream politician would dare say growth is not the priority and no mainstream economist would dare say growth isn't good (most, after all, are employed by banks). Tell your bank manager that you plan to earn less and you're unlikely to get a mortgage. Tell your financial planner that you want your assets to decline in value and you'll be referred to a psychologist.

Yet economics beyond growth is exactly what we need if some kind of equilibrium is to be restored in the domestic and global economy. Forgetting for the moment Malthusian arguments about resource scarcity, or indeed the science of climate change, for the insidious political economy of a highly unequal world to subside and for the backbone of democracy – a middle class where most are in the middle – to reassert, we essentially need a no-growth environment.

But how can such an agenda be pursued? If capitalism is inherently not the answer then is socialism? Probably not. Marx fetishised growth as much as the market, just with different methods. China's Great Leap Forward and Stalin's Five Year Plans, after all, were blatant growth-pursuing exercises that would make Wall Street blush.

Is deep ecology the answer? Not if you don't wish to wear a hairshirt. Reducing our standard of living to the level of people Bono sings about is never going to be popular. Ditto for primitivism, survivalism and fundamentalist religion as well.


To broaden our economic objectives we could start by broadening our economic measurements. As my colleague blogger "Sell on News" wrote on Saturday, GDP – the lodestar of the growth religion – measures economic transactions, not economic wellbeing or advancement, and thus, since it came into mainstream use leading up to the Second World War, it has not only been an imperfect measure of economic success or otherwise, but a policy signal of dubious value.

Whether examined from the inequities of the "99 per cent" in the United States, the glaring imbalances in China, the productivity challenges of Australia or the debt crisis in southern Europe, an elite focused on the GDP speedometer has failed to avoid hitting the proverbial tree.


Alternative measurements, such as Bhutan's "gross national happiness" measure, or the United Nations' human development index, have been promoted, but even simple mainstream indicators like gross national income per capita, the Gini coefficient or just plain old CPI could be used to a greater extent.

Right now, however, with austerity policies attracting controversy in Europe and the US recovery remaining tepid, the majority instinct is to go the other way, with some economists even proposing to have central banks use GDP targeting in setting interest rates, not just unemployment or inflation. Yet by elevating the false god of GDP to the omnipotent centre of economic cosmology, the inherent unsustainability of the debt-fuelled system that GDP-chasing has created would only get worse.

There is much hope for the world economy, whether in the form of nanotechnology, greener energy or 3D-printing, and human ingenuity will probably find a way to accommodate the world's billions at a higher standard of living. Yet to achieve economic nirvana our cabalistic idols must first be destroyed. To create an economics that's not reliant on debt, inflation, over-consumption or money creation, we need to requestion its ultimate purpose.


Modern society has largely moved on from burning witches, exorcising demons and sacrificing virgins. It's time to re-examine the primeval practices of our economic cult as well. It's time to create an economy that's built for more than growth.

Michael Feller is an investment strategist at Macro Investor. Macro Investor is offering a free, 21-day trial for new subscribers.

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