Satyajit Das: High economic growth could be over – and it may have benefits

Midweek View: Growth was based on policies that led to the unsustainable degradation of the environment

Growth is not a given. In a deliberately provocative 2012 National Bureau of Economic Research paper entitled Is US Economic Growth Over? Faltering Innovation Confronts The Six Headwinds, the economist Robert Gordon found that prior to 1750 there was little or no economic growth (as measured by increases in gross domestic product per capita).

It took some five centuries (from 1300 to 1800) for the standard of living to double in terms of income per capita. Between 1800 and 1900, it doubled again. The 20th century saw rapid improvements in living standards, which increased by between five or six times. Living standards doubled between 1929 and 1957 (28 years) and again between 1957 and 1988 (31 years).

Other measures show similar trends. Between 1500 and 1820, economic production increased by less than 2 per cent per century. Between 1820 and 1900, economic production roughly doubled. Between 1901 and 2000, economic production increased by a factor of something like four times.

Professor Gordon argues that growth and improvements in living standards will slow, possibly to 0.2 per cent, well below even the modest 1.8 per cent between 1987 and 2007.

Over the last 30 years, a significant proportion of economic growth and the wealth created relied on borrowed money and speculation. But this process requires ever-increasing levels of debt. By 2008, $4 to $5 of debt was required to create $1 of growth. China now needs $6 to $8 of credit to generate $1 of growth, an increase from around $1 to $2 of credit for every $1 of growth a decade ago.

The ability to maintain high rates of economic growth through additional debt is now questionable.

Growth was also based on policies that led to the unsustainable degradation of the environment. It was based upon the uneconomic, profligate use of mispriced non-renewable natural resources, such as oil and water.

There are striking similarities between the problems of the financial system, irreversible environmental damage and shortages of vital resources like oil, food and water. In each area, society borrowed from and pushed problems into the future. Short-term profits were pursued at the expense of risks which were not evident immediately and that would emerge later.

Another common theme in the parallel crises in finance, environment and management of scarce resources is mis-pricing. In the period leading up to the global financial crisis, risk, especially the ability of individuals and firms to repay borrowings, was under-priced. The true cost of polluting the environment or consuming certain resources has also been under-priced.

In the early 20th century, the German economist EF Schumacher observed that human beings had begun living off capital: "Mankind has existed for many thousands of years and has always lived off income. Only in the last hundred years has man forcibly broken into nature's larder and is now emptying it out at breathtaking speed which increase from year to year."

That observation is now just as true about the economic and financial system as it is about the environment.

Government intervention can cushion some of the costs of the crisis but cannot solve the fundamental problems. It is not self-evident that growth can be conjured up policy diktat. If government deficit spending, low interest rates and policies to supply unlimited amounts of cash to the financial system were universal economic cures, then Japan's economic problems would have been solved many years ago. The lack of easy policy options means that the world faces an unknown period of low, below trend growth.

The simultaneous end of financially engineered growth, environmental issues and the scarcity of essential resources threatens the end of an unprecedented period of growth and expansion. But it was an unsustainable world of Ponzi Prosperity where the wealth was based on either borrowing from or pushing problems further into the future.

Arthur Miller wrote that "an era can be said to end when its basic illusions are exhausted". The central illusion of the age of capital – unbounded economic growth– may be ending.

Satyajit Das is a former banker and the author of 'Traders, Guns & Money' and 'Extreme Money'

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
PROMOTED VIDEO
News
Elton John and David Furnish will marry on 21 December 2014
people
Sport
SPORT
News
people
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
News
Stacey Dooley was the only woman to be nominated in last month’s Grierson awards
mediaClare Balding and Davina McCall among those overlooked for Grierson awards
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
Twitchers see things differently, depending on their gender
scienceNew study shows that birdwatching men have a lot in common with their feathered friends...
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
i100
Arts and Entertainment
Christopher Biggins as Mrs Smee in Peter Pan
theatreHow do the men who play panto dames get themselves ready for the performance of a lifetime?
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick