This report is taken from chapter 2 of Green House's book The Post-Growth Project: How the End of Economic Growth Could Bring a Fairer and Happier Society published in 2014.
Not only is the economy in crisis, but so is economics. Most economics deduces wrong conclusions from unrealistic premises about just a small part of human material activity. Heatley concludes by suggesting we face a materially poorer world, but perhaps nevertheless a better one. Download Joined up Economics here.
The conventional view is that the UK economy is in a crisis of stagnation, unemployment, debt (especially government debt) and austerity. Growth in GDP is seen as the only answer. Heatley argue that growth is not the answer: it is neither possible, necessary nor desirable.
Heatley start by reviewing the last sixty years of punctuated growth in the UK economy.
The resource and environmental limits to growth mean that growth in material throughput in the world economy will end in the next 10-15 years. While increased productivity will mitigate this, such improvements will not be sufficient to prevent the end to growth in real GDP. The UK economy will not be able to resist this overall trend.
With the end of growth, the share of wages in GDP versus profits will matter more than ever. The share depends on politics not just economics. A smaller share for wages increases inequality. A low share for wages also makes the economy more financially unstable. Welfare is more damaged by inequality than lower GDP per head.
The present UK recession is mainly a financial crisis, prompted by high oil prices in 2007/8, and after 2010 deepened by cuts to government spending. It can be analysed by a catastrophe theory of credit creation allied to Werner’s theory of the consequences of credit creation. Substantial growth will not return in the next few years anyway, quite apart from the material limits to growth, due to the debt overhang.
If there is no change in policy, Heatley's simulations suggest that the UK economy will stagnate for the next few years, inequality will continue to increase and welfare to decline. In the medium term we will become increasingly dependent on expensive fossil fuel imports and our economy will decline further, with adverse consequences for welfare in a world suffering from severe climate change and other environmental degradation.
The alternative is to invest heavily for the next few years in non-fossil fuel energy resources, introduce controls on credit, gradually shorten the working week initially without wage reductions to both prevent unemployment and raise the share of wages and reduce inequality, and limit the use of materials. In the medium term this may lead to stabilisation of the level of GDP and end unemployment, but in the longer term to gradually reducing GDP. Welfare however will be increased.
Heatley concludes that long term sustained real growth in GDP is over forever, whatever purely economic policies we adopt. With the end of growth, the major way to improve our society is not growth but to reduce inequality, and the simple way to do that is to increase the share of wages. Finally, there is no real conflict between the various proposals for a green new deal and the end of growth, provided those proposals are aimed at preparing for the post growth future. But the idea that Green Keynesianism will lead to an era of sustained real green growth in GDP is an illusion.