Why Economic Growth Is Finished

By: Andrew_McKillop

By Pure Economic Decision
Firstly Tweeted by journalist Peter Spiegel, late Sunday, September 7, a leaked copy of proposed and agreed new EU28 sanctions against Russia, dating from September 5 confirmed that Russia's energy giants Rosneft, Gazprom and Transfeft will all be hit by European capital market bans:

https://twitter.com/SpiegelPeter/status/508627866012360705  Only an idiot can pretend this will not further depress economic growth in Europe. Only an idiot can pretend that Putin will not now be considering the use of “Russia's economic atom bomb” and reduce or shut down oil and gas supplies to Europe – at the start of winter!

Politically, it is possible to assassinate economic growth but the pretence that economic growth can also be “tweaked' or revived and restored by purely political decisions is “non-symmetrical”, because it cannot. Attempts at doing so have a one-word title: Keynesianism.

Robert Gordon's Long Trend Theory
Veteran US economist Robert Gordon calls it The Blip Economy. He rather precisely dates it at 1880-1980. Before that, in the western economies and societies, economic growth was either low or very low. After “the blip”, growth is and will be either low or very low.

If we take the 500 years before about 1775-1800 in the western societies and economies, the long-term average rate of economic growth was rarely better than 0.25% to 0.33% per year. When there were “spurts of growth” this could raise the annual rate to 0.5% for a while, but there were also long periods of slow-but-sure contraction, with annual rates of decline and contraction at maybe 0.25% to 0.33% or “minus 0.25% to 0.33% growth”.

There is in fact no such thing as “negative growth”, but there is contraction.

Making things more complicated, if there was a Long Cycle of Growth in 1880-1980, and Gordon does not claim there was one, it was certainly not symmetrical. Its peak was bunched right at the end – and after that growth fell off a cliff. The peak was the “Trente Glorieuse” of French economist Jean Fourastie, which he claimed was 1945-75 but in fact was closer to 1949-74, or only Vingt Cinq Glorieuse! Rates of real GDP growth for the western economies in that period were often 4% to 6% every year. In other words they were 20-times above the long cycle trend of before 1800, and considerably higher than in the 1880-1900 period, at the start of Gordon's “long trend”.

Gordon especially focuses the US and other “western economies” but in no way ignores the post-1980 global growth system and paradigm – only concerning the Emerging economies. He may or may not accept the argument that, previous to 2008, the Emerging economies were in “catch-up growth” mode, but since then are looking at the same growth cliff over which the western economies fell from around or about 1980.

What Was Special about the 30 Glorieuse?
We may be surprised that the IMF, which employs economists who have to do something at the office, itself has reports and studies, of course couched in IMF-language that examine the very special one-off or singular conditions which applied at the time. These IMF studies and reports are available by searching its Web sites, and look at the fundamental and basic drivers of economic growth. They do not clash with Robert Gordon's theories.

These fundamental and basic drivers of growth can be separated into 2 main groups:

  Technical, technological and industrial growth-aiding factors and processes
  All other factors including policy, demographics, emigration and immigration and others

There is plenty of crossover between these two sets of factors and processes.  Demographics, for example is “technical” because very specifically and today, there is no way at all to stop or reverse demographic contraction, not only in the western societies and economies, but increasingly worldwide. Bangladesh, for example, is today very close to the 2.2 births-per-female (in her reproductive lifetime) fertility rate after which population decline is sure and certain. Who would have expected that, in 1980 (or1990), for example? World population will be trending downwards, to zero growth and then contraction for at least the next 50 years and possibly 100 years.

Likewise, the era or age of true Mass Migration is rapidly drawing to a close. There are no “empty continents” any more. Migration is now almost purely economic and can reverse anytime the economy turns bad in the host country for migrants. Economic globalization has totally leveled the playing field, on the Ricardo model of comparative advantage. Industrial technology innovation and development has made that doubly sure and certain. Economic migrants are go anywhere. Technology is go anywhere.  Low wages + high technology are in no way a recipe for growth, rather the opposite.

Pure science discoveries in the “technical” group are still today hailed as possible citing the 1955-1965 quantum physics-based discovery, then exploitation of the quantic properties of matter. This enabled transistors, tunnel diodes and then semiconductor integrated circuits but one thing is sure – this will never happen again. Robert Gordon calls it “one-time growth gains”, exactly like electricity and piped water and wastewater drainage applied at mass scale. Try doing it a second time!

Reinventing the Wheel
Just like the wheel, once invented, there are problems finding more ways to use it. For the Maya of Central America things were simple – only childrens' toys could use the wheel, and wheels were excluded from use in national transport. This provided more work for the slaves dragging sledges along the dirt roads of the Maya “empire” but did little to favor economic growth. The Maya occupied themselves with gory mass executions, ISIS-style, to assuage the Cruel Gods which gave them the wheel – only for children. Culture also has major effects on growth.

Reinventing economic growth in the western societies and economies, and increasingly in China, India, Brazil and South Africa (the BRICS minus Russia), has had to move on to the “IMF model” of simply cooking the books. If an average western “free market liberal” private bank has $1 trillion of liabilities, for example, this could imply “future growth”, but certainly not growth today. Growth therefore will be coming back - but we do not exactly know when. The “delayed future of growth” is the ersatz paradigm for western political and corporate deciders of today, but as Emerging economy leaders are also finding, real-economy growth is declining. Only heroic statistical manipulation and fudging of economic data can produce an ersatz image of growth.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

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