What does a post-growth society look like?

 

A recent article in The Morning newsletter from the New York Times rekindled a smoldering ember of thought that resides in a corner of my mind.  It has never burned hot enough to inspire me to serious study on the subject, but this time it has at least motivated me enough to write about it.  The topic is growth; how our society and economy are dependent on it, why I think that is problematic, and how it can change.  My thoughts on this subject are not well formed at this time and, unusually for Wisdumb, I offer no answers, only more questions.

The Times article covered the aging population of Japan and showed the chart below projecting other major economies and the world as a whole being on the brink of a rapidly aging populous.

The article primarily focused on the social impacts of this aging population, in particular that Japan is running out of workers.  It posits the only solution is to bring in more immigrants.  This is what bothers me and stokes that ember in the back of my mind.  I have some big questions: Is our economy and society dependent on growth?  Why?  Can that change?  If so, what does a stable economy/society look like?  Can you have a shrinking society/economy without widespread problems?  Are there examples of societies that have been through this in the past?  Is there anything inherently different about modern times vs. pre-industrial revolution societies that would make comparisons difficult?

I have googled these questions or variants of them looking for answers or looking for authors who have studied these topics that I could read.  I came up empty.  If there are economists or demographers studying this, they aren't popular or mainstream enough to make it into the first few pages of search results.  Maybe I need to try one of these new AI enhanced search engines.  If any readers have suggestions on what to read, please add them in the comments.  Or if you have your own ideas on the topic, I'd love to hear them and discuss.

Is our Economy and Society Dependent on Growth?

The overwhelming answer to this is yes.  Economic output as measured by GDP is the commonly accepted measure of the health of the economy.  This chart (shown on a logarithmic scale) of the last 75 years shows nearly constant growth with a few interruptions.  

Those interruptions are recessions.  Any interruption to that growth leads to economic pain which in turn leads to real pain- people losing jobs, some unable to afford food or shelter.  In extreme cases that can in turn lead to revolution, war, genocide, etc.  The proposed fixes for Japan's current struggles with an aging population are calling for growth through immigration as the solution.  I'm not going to dive further into this question, as I don't think there is much to debate here.  The next question is more interesting.

Why?

I dunno.  I have not found any good explanation of why our societies require growth and have not been able to come up with a plausible answer on my own.  I think back to what Yuval Harari posits in Sapiens: A Brief History of Humankind that humanity was best off as hunter gatherers and not organizing into larger societies.  I'm not fully on board with his premise, but it makes me think about what life was like for hunter gatherers in terms of growth.  

• Did the tribes grow in size naturally? 
• Did they have to cover more and more land to find enough food to feed everybody?  
• Or did they hit a natural limit?  
• Was that natural limit enforced by starvation?  
• If things were so great, why did we "progress" to farming?

Another influential book that fans the embers of thought is Collapse: How Societies Choose to Fail or Succeed by Jared Diamond.  The idea presented in this book is that societies fail because they use up all their resources.  It seems to me that unchecked growth will inevitably use up some finite resource.  Sadly, Diamond explains why most societies fail to act, even in the face of indisputable evidence that their resources are running out.  It does not give me much hope for humanity and predicts a dire future for many.  In short, humans act out of self-interest and aren't great at acting for the collective good.  That self-interest leads to exploitation of the remaining limited resources, even in the face of total collapse.

But maybe things aren't necessarily so bad for the future.  I recently read another book, Factfulness: Ten Reasons We're Wrong About the World - and Why Things Are Better Than You Think by Hans Rosling that presents a counterpoint on population growth and presents statistics that show as societies become less poor and life expectancies increase, birth rates go down.  He also points out that most population models show world population leveling off and stabilizing in this century.  So, the historical reasons for growing population are waning.  It seems imperative that we (humanity as a whole) had better reevaluate economies and societies dependent on growth.  In investing terms, we need to be behaving more like a value company than a growth company.

What about the economy?  Free market principles handle supply and demand.  In theory.  The problem with them is they don't take into account human suffering.  Pricing for everything will be set at the intersection between supply and demand.  In a society with population growth, demand and supply of most items will grow or fall in tandem as market forces work to keep equilibrium.  At some point, however, you hit a limit on supply of some particular critical good or commodity with no alternative.  Water for example.  The price skyrockets.  Most people can't afford it and there isn't enough to go around.  People must either move or die.  This is where societal organizations (governments?) must play a role in managing the finite resources if mass suffering is to be avoided.  

In other areas of the economy, innovation keeps growth alive and well, even if population is not increasing.  Innovation increases productivity generating more GDP per capita.  Will innovation ever stop?  I doubt it.  While it often seems we are destined for the dystopia presaged by Mike Judge's cult classic movie "Idiocracy," I don't believe innovation and ingenuity will ever be evolved out of humanity entirely.  

Can dependence on growth be changed?  

I don't see why not.  I can't think of any hard reason why societies must be based around growth.  Maybe there is some law of nature that prevents it, but I doubt it.  There must be a way to achieve stability without mass suffering.  While I believe a stable society and economy is possible, I'm not hopeful anyone will ever achieve it.  I have little reason to believe we can manage the collective will and sacrifice required to put societal-interest above self-interest.   

If so, what does a stable economy/society look like?

This is an interesting question.  Say our goal is flat population and flat GDP.  Stability.  No inflation or deflation on the whole.  No change in the money supply.  Since I believe innovation will continue, what happens when a way to make televisions cheaper is developed?  How does that not become deflationary?  That cost savings would have to be spent elsewhere in the economy to keep everything balanced or you would have to sell more of them.  But with a flat population, the market for TVs isn't growing.  That sounds hard.  I don't think it's going to work.

What if the goal is flat population but GDP is allowed to grow or contract while maintaining or growing wellbeing?  This goal necessitates decoupling GDP growth from population growth and decoupling wellbeing from GDP growth.  GDP growth can be maintained by increasing productivity through innovation.  It needn't rely on a growing workforce.  In our current economy we have both: GDP grows through both innovation and population growth, so we should assume that if we remove population growth, the net growth of GDP will typically be slower but can still be positive over the medium and long term.  As today, there will likely still be recessions with a shrinking GDP.  

The second part of the equation is more problematic- how do you maintain or grow wellbeing with a GDP that is not always growing?  I have always thought that Keynesian economic theory provides a good blueprint handling this situation:  the Government increases spending during downturns to balance out the shrinking GDP.  The other side of this coin is the Government must decrease spending during times of economic growth to pay off the debt and/or build up reserves for the next downturn.  There are plenty of economists and politicians who claim Keynesian economics doesn't work based on its application in the US, but I beg to differ.  The theory is sound and similar ideas are used all the time in engineering.  Noice cancelling headphones work on the same principle: inject an equal and opposite stimulus to cancel out the noise.

As for the critics saying it doesn't work, I don't believe it has been properly applied in the US (at least in my lifetime).  You can't blame the theory if the testing of it is flawed.  We have the first part, deficit spending, down pat.  But, outside of a brief period in the late 90's, we have not run a government surplus when GDP was growing to pay down debt and build up savings for the next economic downturn.  Politically, this is hard to do.  It requires raising taxes and cutting government spending.  That means sacrifice today for a stable tomorrow.  That's what we're up against.  

In today's environment, no politician wants to do the right thing and raise taxes because they will be punished for it by the electorate.  To make this more feasible, tax rates and government spending should be automatically tied to GDP growth so that tax hikes and cuts occur automatically based on how the economy is doing.  Remove politicians from the equation.  To some extent, we have some of this today with the Federal Reserve.  They have independence and can set interest rates and control the money supply as needed for the health of the economy.  A similar approach to taxation and government budget would likely be beneficial in the long run.

Can you have a shrinking society/economy without widespread problems?  

I want to believe the answer to this is "yes," but I really have no solid basis for making that call.  Social Security and pension programs would work in theory to provide benefits for retirees in a flat economy that is stable, but getting there is a problem.  That aging hump that Japan and others are facing will greatly stress programs like this.  After that initial aging of the population, however, these may provide a stable model with enough of the younger generations to fund the older generations.  If society can survive the transition from growth to stability, maybe it will be smooth sailing from then on.

I recently saw an article about population loss in my state of Massachusetts.  The article claims Mass has had an exodus of tens of thousands of people over the past couple years driven by the high cost of living.  So apparently, I live in a shrinking society.  It doesn't seem so bad to me.  You would think with a declining population, real estate prices and rents would be tanking and there would be signs of neglect and decay and a further rush of people leaving as society breaks down.  That isn't happening.  In fact, it seems like the opposite.  In 2021, even with people leaving the state, it seemed like every house on the market would generate a bidding war and sell for well over the asking price.   New development is everywhere.  The only evidence of a problem I see is the difficulty of finding service industry workers.  That seems to be a universal problem throughout the country enabled by the pandemic.  Perhaps that is a sign of the problems that will need to be endured with a shrinking population.  Now, maybe I am wrong.  Maybe I am living in a bubble.  There could be towns in the state that are not prospering.  If there are, I haven't seen them, and they aren't making the news.  

On the other side of the argument are places like Detroit which has lost 2/3 of its population since 1950.  I have no firsthand knowledge of Detroit, just what I see in the news, but it appears to have suffered significantly from this decline with large run-down areas of the city, high crime and other problems.  What causes the differences between Detroit's declining population and Massachusetts'?  Some ideas are the magnitude of the decline, the duration of the decline and the reasons for the decline.  In Mass, the thinking is people are leaving because the cost of living is too high.  In Detroit, people left because auto manufacturing jobs were leaving and going to lower cost areas or being automated.

These are small-scale examples of a shrinking society.  Do they apply to countries as a whole?  

Are there examples of societies that have been through this in the past?

This seems like a question that historians should be able to answer, but I have yet to find a good example.  Lots has been written about the fall of Rome (and other empires) but their collapses have more to do with the weight of managing an unwieldy empire than economic or population declines.  Jared Diamond's book only seems to deal with societies that have failed due to resource issues, but doesn't cover those that have declined but survived.  

I see occasional articles discussing the history of world reserve currencies.  Ray Dalio has a new book, Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail, that spends a lot of time discussing the relation between reserve currency status and the growth and decline of empires.  Reserve currency status has always been given to the economic powerhouse of the era and Dalio details the historical examples of this with the Dutch, British and US economic empires.  He also believes the US is declining phase of its economic reign and there is lots of doom and gloom about debts, wars, revolution, etc.  What he doesn't cover is what was/is daily life like in these societies in their decline and after?  The Netherlands are still around as a country and seemingly thriving.  The quality of life in Great Britain is still pretty good today.  BUT population has still been growing in both countries, so maybe they aren't technically post-growth even though their economic influence declined.

Many of the former states of the Soviet Union have experienced population decline since 1991.  The impact seems to be mixed.  The Baltic states seem to be weathering >20% population declines over this time relatively well, though I have no first-hand knowledge of what life is like in Latvia & Lithuania and limited exposure via the news.  As far as I know, there isn't widespread hardship there.  Perhaps these states can serve as a model for handling population decline?  Or perhaps their small total population (smaller than Massachusetts) is not applicable to larger nations, such as the US or Japan.

Is there anything inherently different about modern times vs. pre-industrial revolution societies that would make comparisons difficult?

Since I haven't turned up any examples of large nations dealing with economic and population decline in the past couple centuries, does it make sense to look further back for examples?  I'm starting to see why nobody has tackled this problem- there are lots of variables and no real proxy for mapping previous examples to our modern world.  Never before has our world been as interconnected as it is now.  The ease of moving and travelling has never been greater.  Lifespans have never been greater.  For these and other reasons, I expect we can't look to history to predict how our current difficulties will play out.  

Conclusions

I can't end with any conclusions because I haven't reached any!  We are in uncharted territory and figuring out what the future is going to look like or even creating policy to try to steer the future to where we want it to go is a tall order.  It makes sense that all eyes are on Japan right now to see how it handles its aging population.  They have experienced deflation and no population growth for several decades now.  I don't hear reports of widespread suffering as a result, but I also don't think anyone would describe the country as thriving.  And maybe that's OK.  If thriving requires endless growth, perhaps that isn't what we should be striving for.  Let's strive for contentedness to be happy in a post-growth society.  Let's popularize the idea that growth isn't the be-all and end-all goal of an economy.