January 25, 2009: The Fallacy of Endless Growth
Economists, polioticians and investors keep talking of teurning to econpomic growth when the
current (2009)depression ends. The proposition (theory) of endless growth has been ingrained since 1971 invented by the Americans and driven by
their self belief and massive engines.
"The American people have been told by no less an
authority than the President's Council of Economic Advisors that, "If it is agreed that economic output is a good thing it
follows by definition that there is not enough of it" (Economic Report of the President, 1971, p. 92). It is evidently impossible
to have too much of a good thing. If rain is a good thing, a torrential downpour is, by definition, better!
Has the learned council forgotten about diminishing marginal benefit and increasing marginal costs?" (source: STEADY-STATE ECONOMICS
By Herman Daly,
Chapter 5: A Catechism of Growth Fallacies
"The part played by orthodox economists, whose common sense has been insufficient to check their faulty logic,
has been disastrous to the latest act." (J. M. Keynes, 1936).
Consumerism became the centre of the theory and this requitred a focus on monetary policy. The consumer is required to spend forever, rather than save,
so the theory attacked the savings and superannuation basics. Some countries such as Australia had politiical leaders who could take a helicopter view, Paul Keating, Australia's Treasurer,
for example. The labor government of Hawke Keating brought in mandatory contributions to super. However Keating knew the level of 9% was not enough.
John Howard, and Peter Costello, by comparison did not and so spending has outsripped savings.
Governments (run by rating agencies who scare them with bogus AAA ratings and whose predictions and assessments were, and are still,
spurious) babbled on about surplus. This was preferable to investment in public assets.
Privatisation cannibalised the asset base of countries in search of never ending profits.
Governments embraced the privatisation and "public private partnerships" voodoo put about by the
masters of the financial universe - consulting firms and investment banks. They too cast the bones, and spoke voodoo.
Underneath all of this sat the theory of developing economies and consumer aspirant demand. Places like India and China with huge populations clamouring to reach the
American consumer dream and have the feckless technologies of the
Ipod, MP3 players, the latest phone, the talking rock and the ever better devices, cars and symbols of wealth. The poor, well they could get credit and aspire. The second plank was productivity.
There could be no wage rises threatening profirs unless there was a countering productivity trade off. Voodoo theorists love this. Public servants, human resource managers and con artists at the management level
created measuring systems and did what good staticians do, they created the result that management, politicians, the ratings agencies and the markets wanted. The third foundation was to create new financial instruments because finance, services and trinkets would be
the new economic growth machines, not manufacturing. At one instance, in the late nineties fools prophecied that the "www - internet" would
reshape us all, replace reality, bricks and mortar. There was the tech wreck, in the late nineties, which might have warned the average but in the convoluted and
mosaical structure of the new paradigm the warning was lost. The finance sector grew hundreds of times faster than any other. The world casinos of the stock exchanges were pumping. We were driving our economic machines in the red zone day after day.
Then they invented the risk reduction platform. This took very bad debts, investments and the poor credit stuff and sliced each into slivers.
These slivers were put with mediocre, and some better performing slivers. The
aggregate would thus spread the risk to minimal proportions. The theory was that the risk could never be realised in catastrophic terms.
If any failure occurred then only a sliver to two would be affected.
massive capital amounts were hoarded (hedge funds) and used to manage and play the stock casinos. Short selling to make a profit was rampant.
Justification was that short selling exposed flaws in the value of enterprise and that it exposed porr performers. This was all nice and good if
everyone playing the market knew this. Many investors were self appointed personal game players enthralled by their new electronic access to the stock exchanges.
Trading became a challenge and a pass time enhancing socila position, conversation and sometimes wealth.
Huge bonuses, and the demands of poorly educated, and greedy, investors turned management to the short trem. CEO's and Borads that challenged market theory, the voodoo economics, the
mantra of surplus and the driving at high speed and revving were dispensed with. The demographics of stupidity, that is the population is a pyramid, with the brightest and smallest sector at the top, had sway. One could be both rich and stupid on a scale that would ultimatley bring the
whole lot down.
Today, in 2009, we have all of the above in play intertwined with theories and practices, that are reasonable, or bunkum in part or whole.
- The consumer is king and that if we give the consumer
money they will spend and we will return to normal, they way it was
- Business needs endless supplies of credit and living within the means of income and expenditure is not a worthy objective because that stifles growth
- All governments must have surplus
- saving stifles growth and mandatory superannuation at 15% is by inference bad because it increases costs of employers
- It is better to have a buisness operating to employ people on some wort of wage rather than not operating at all
- Corporations are real persons with real rights and the corporation muts be protectdd at all costs
- Monetary theory and fiddling interest rates trumps fiscal (Keynesian) theory and practice
- ratings agencies are the fount of all knowledge and governments should dance to their tune
- Politicians should be paid less than people in the private sector because the latter are worth more as a public benefit
- banks are pivotal and the bankers are, as above, experts, worth more and generally right
- Privatisation trumps public ownership
- Institutions, acdemics and the chattering classes, should be marginalised particularly by governments.
- Training in shallow competencies, short skills, and business demanded scope, prepares a nation for growth and challenges
So we need to examine all of the above and any I have missed that are pertinent. While doing this we need to challenge
the foundations, theories and practices and beliefs that underpin the way we work in society and the mosaic.
"To ascertain the state of an economy most analysts rely on a statistic called GDP (Gross Domestic Product). This statistic is constructed in accordance with the view that what drives an economy is not the production of wealth but rather its consumption. In short, what matters here is demand for final goods and services.
Since consumer outlays are the largest part of overall demand, it is consumer demand that sets in motion
economic growth — so it is held. ... By focusing exclusively on final goods and services the GDP
framework lapses into a world of fantasy where goods emerge because of people’s desires. This is in total
disregard to the facts of reality i.e., the issue of whether such desires can be accommodated. All that matters on this view is
the demand for goods, which in turn will give rise almost immediately to their supply. Because the supply of goods is taken for
granted this framework completely ignores the
whole issue of the various stages of production that precede the emergence of the final good....
However, it must be realised that at no stage does the so-called “economy” have a life of its own independent of individuals. The so-called “economy” is a metaphor — it doesn’t exist.
Through lumping the values of final goods and services together government statisticians concretise the fiction of
an economy by means of the GDP statistic. Furthermore, by regarding the “economy” as something which exists in the real world
mainstream economists reach a bizarre conclusion that what is good for individuals might not be good for the “economy” and vice versa.
Since the “economy” cannot have a life of its own without individuals obviously what is good for individuals cannot be bad for the economy.
The GDP framework cannot tell us whether final goods and services that were
produced during a particular period of time are a reflection of real wealth expansion, or on account of capital consumption....
We can thus conclude that the GDP framework is an empty abstraction devoid of any link to the real world.
Notwithstanding this, the GDP framework is in big demand by governments and central bank officials since it provides
justification for their interference with businesses.
It also provides an illusory frame of reference to assess the performance of government officials. "
(source: Is GDP an economic fallacy? Dr Frank Shostak, BrookesNews.Com, Monday 3 September 2007).
FALLACY 1,
U.S. Goods Cannot Compete Effectively with Those Produced by
Cheap Labor in Countries Such as China
FALLACY 2,
Immigrant Labor Confers Economic Benefits on the Host Country
FALLACY 3,
Globalization Acts to Raise Living Standards in the West
FALLACY 4,
Countries Forming a Common Market Reap Economic Benefits
FALLACY 5,
Rent Controls are Necessary during a Housing Shortage
FALLACY 6,
The Fact That Womens Earnings are Significantly Below
Those of Men Is Evidence of Discrimination
FALLACY 7,
A Reduction in Building Costs Will Reduce House Prices
FALLACY 8,
Jobs Are Lost When a Factory or Business Closes Down, and Vice
Versa
FALLACY 9,
A Competitive Private Enterprise Economy Tends to Produce
Economic Efficiency
FALLACY 10,
A Subsidy to University Education is Justified Since it
Promotes Equality of Opportunity and Confers Benefits on
Society as a Whole
FALLACY 11,
The National Debt Is a Burden on Future Generations
FALLACY 12,
Inflation Is Caused by an Excessive Increase in the Supply of
Money
FALLACY 13,
The Rate of Economic Growth Over Time Is a Good Index of the
Growth of Peoples Satisfaction
(Source of the fallacies above: Thirteen Persistent Economic Fallacies, E. J. Mishan
ISBN: 0-313-36605-5, ISBN-13: 978-0-313-36605-5, DOI: 10.1336/0313366055, Praeger Publishers
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