When it comes to the global commons — clean air, healthy oceans, conservation of diverse species — this is no longer true. There are two ways of protecting the commons.
The first is to reduce the human footprint. This was the early message of the Club of Rome in its famous The Limits to Growth pdf treatise, published in The second is to innovate technology or approaches.
Agenda , and the consensus on the global goals, is all about the second way forward, where the key to success is to create bridges between environmentalists, who argue for the primacy of sustainability, and development practitioners who put people first. It would be naive to dismiss the tensions between these communities, despite the fact that they share common goals. Everyone wants both prosperity for individuals and a healthy planet. But the tools that are used to try to achieve these aims often have conflicting effects.
The most obvious example of this tension is the divergent views on coal-fired energy plants. The low upfront financial costs of such plants make them appealing to many policymakers interested in economic growth, while the devastating environmental costs in terms of both global climate change and domestic health hazards make them anathema to environmentalists.
In this case, technology now provides a suitable alternative. In India, the cost of solar power may now be cheaper than coal. Win-win solutions based on renewables and energy efficiency can provide both growth and lower carbon emissions.
World Saving, Prosperity and Growth : Luigi Paganetto :
In other instances, however, technology is not the answer, at least not at current rates of adoption. The modern version of constraints to growth is the ambivalence of many environmentalists towards the emerging middle class in developing countries. People in this class consume more goods and services than poorer ones.
The authors further show hat the increase in credit is dominated by mortgage credit going to the household sector. The large increase in credit has been accompanied by a persistent decline in the price of credit as long term interest rates have fallen to historic lows. What is behind this structural shift in finance?
The United States, and the global economy, experienced a couple of major structural shifts around The rise in top income share occurred in many other countries as well see e. Alvaredo et al. Second, the collapse of the Bretton Woods system in ushered in the era of global capital flows. A number of countries started running large current account deficits or surpluses post High savings by oil-rich countries and high-growth Asian economies have also contributed to the global rise in credit through cross-border flows that have accelerated since The U.
The rise in top income share contributes to the expansion of the size of the financial sector. The financial sector deploys these larger gross savings back into the economy through credit creation. Mian and Sufi show the same pattern holds when using individual level credit bureau data. The increasing financial surpluses, or savings gluts, have expanded the total supply of credit to the economy, lowering long-term interest rate in the process.
What has the increased supply of credit financed? The textbook model of finance says that credit is used to finance real investment: savers deposit their surplus funds in the banking sector which then lends these funds to firms for investment. In other words, credit is used to finance production, or the supply-side of the economy. However, evidence suggests that a relatively small fraction of the increase in credit has gone towards funding production.
For example, despite the large increase in credit creation, rate of investment has not gone up. The average U.
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Other evidence is also at odds with the idea that the additional credit has gone into increasing productive capital. Overall growth is not any higher post Moreover, there is strong evidence that productivity growth has slowed down significantly over the last decade and a half. If additional credit has not gone into financing production as much, then the other possibility is that credit has increasingly been used to fund demand. There is indeed robust evidence to support this view. The concentrated growth in government and household debt suggests that aggregate demand is increasingly reliant on credit creation for support.
The reliance on credit creation for supporting aggregate demand is a natural consequence of a higher share of income being saved due to increased inequality. Equilibrium condition for the real economy implies that as a larger fraction of the output is saved, the increased savings must be channeled back to the real economy either as investment or consumer demand.
In the absence of such a channel, the real economy will be forced to contract — or not grow as fast — in order to equate supply and demand in the real economy. Eggertsson and Krugman However, as the economy continues to rely on credit-creation for supporting demand, it becomes increasingly more difficult to do so. The reason is that as household and government credit builds up, interest rate needs to fall in order to keep the debt service requirement manageable.
The reduction in interest rate also tends to raise asset prices, especially housing values, which enables household to borrow more easily. But the dependence on ever lower interest rate to support a larger stock of debt cannot go on forever. At some point it becomes difficult for interest rate to drop any further without adding a cost of its own.
First, there is the natural zero lower bound constraint on nominal interest rate. Second, and perhaps more importantly, very low interest rates introduce other problems that are damaging for the overall economy. For example, asset markets are more prone to bubbles at very low interest rate. It becomes increasingly difficult to fund pension plans and insurance funds with long-dated liabilities. The combination of high debt and increased likelihood of bubbles makes financial sector more fragile. Low interest rates can also inhibit productivity growth due to greater misallocation of capital Gopinath et al.
The remarkable growth in credit and the accompanying fall in long-term interest rate since represents the most important shift in finance in the modern era. The discussion above highlights why this shift is not sustainable, at least not without major harm to economic growth. A reliance on continuous credit creation to generate demand eventually slows down economic growth through liquidity trap like scenarios and other ill effects of very low interest rates. What can be done to reduce the dependence on credit and create more space for economic growth as a result? This book is organized around these three requirements.
This is not a book that focuses on problems while relegating solutions to the last few pages. That said, Part I, Questions of Enough, is more about why than how. Part I also considers what constitutes desirable levels of population and consumption, and then makes the turn toward how by describing the defining features of a steady-state economy. Part II, Strategies of Enough, provides solutions — an escape route from the perpetual growth trap described in Part I.
Taken together, the policies described in Part II form an agenda for transforming the economic goal from more to enough.
The productivity solution
But these policies will sit on the shelf unless we can gain extensive support for, and concerted action toward, achieving an economy of enough. This part of the book contains ideas for moving past the culture of consumerism, starting a public dialogue about the downsides of growth and the upsides of a steady-state economy, and expanding cooperation among nations. All this discussion leads up to the presentation of an economic blueprint that summarizes the components and steps needed to build a steady-state economy.
This blueprint offers hope at a time when we need it most.
What has the increased credit supply financed? The “credit as demand” channel
It provides a viable way of responding to the profound environmental and social problems of our era. The time has come to figure out what we can do. We can build a better economy. We can meet our needs and care for the planet at the same time. We can live balanced lives, including time for the occasional game of checkers.
Enough is enough. His research focuses on the changes that would be needed to achieve a successful non-growing economy, and alternative ways of measuring progress besides GDP. Dan has worked in both the public and private sectors in areas such as regional planning and energy management.
He holds a doctorate in ecological economics from the University of Leeds, and a master of environmental studies degree from Dalhousie University. Rob Dietz is a writer, researcher and activist who is trying to help build a better economy — one that works for people and the planet. He is the editor of the Daly News , a popular online publication named in honor of Herman Daly, a leading light of ecological economics. Rob was also the first executive director of the Center for the Advancement of the Steady State Economy , taking it from an unfunded start-up organization to an internationally respected leader on new economic thinking.
He regularly writes articles and delivers public presentations that draw from his education and experience in both economics and environmental science. Rob is married, has one daughter and lives in Corvallis, Oregon. Is this most feasible for a developing country to aspire to or a developed country to transition to. Yes, I know we all need to change, but who could actually be the leader in this? All countries can move toward the goal of sustainable and equitable well-being, as opposed to the goal of increasing production and consumption. See, for example, how Bhutan is institutionalizing this idea with its work on Gross National Happiness.
But it makes sense for countries like the U. Loungerie Emiliano.