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Today’s Contemplation: Collapse Cometh XLI–More Bargaining: Doughnut Economics

Today’s Contemplation: Collapse Cometh XLI

February 22, 2022

Teotihuacan, Mexico (1988) Photo by author

More Bargaining: Doughnut Economics

The following ‘contemplation’ was prompted by an article that was shared to a Facebook group I am a member of regarding ‘Doughnut Economics’ and its possible role in addressing our ecological overshoot.

While I have not read extensively the argument/theory regarding ‘Doughnut Economics’[1] it seems to me, on initial perception, to be another in a growing line of rationalisations that attempt to support and extend the resource-intensive processes that provide for our complex societies. While it incorporates a lot of the concepts around ideas of sustainability and ecological overshoot, it bases most of its argument around the redefinition of ‘progress’ or ‘sustainable development’ in a way that makes it appear less environmentally-/ecologically-destructive (not too dissimilar to the ‘net zero’ narrative that ‘shifts’ numbers around to look compelling). When one scratches at the surface of the proposal, however, it looks just as resource dependent — especially with respect to energy — as our status quo system; it simply redistributes/redirects those resources in an attempt to bring all of humanity up to a ‘preferred’, and supposedly ‘sustainable’, level.

It’s almost as if the theory employs the fallacy of the straw man by initially establishing that the current economic system employed by humanity is the sole/primary cause of our existential crises because of its propensity to chase the infinite growth chalice. It then highlights the inequitable nature of ‘capitalism’. Having set up this straw man, it concludes by arguing we can continue to ‘grow’ if we just dismantle this problematic economic system and employ a different one that defines ‘growth’ in a way that allows us to keep our cake and eat it too[2]. This is all established, however, while ignoring the pre/historical examples of complex societies failing/collapsing as a result of overexploiting their natural environment despite having very different economic systems.

There is a compelling argument to be made that every experiment in complex societies to date has failed eventually because of the diminishing returns they encountered as they expanded and eventually ran out of places to extract resources from to support their growth and increasing complexities[3]. Technology at the time simply didn’t allow societies to control ever-larger areas of land and shuffle resources back to their sociopolitical centre for more than a few centuries, at best (a couple of exceptions dragged on longer but they too eventually succumbed to overextension and diminishing returns). And when the benefits of being part of the society fell below the costs, members opted out and ‘collapse’ ensued. Every time.

The takeover method of expanding one’s environmental reach from which to draw resources and support growth shifted eventually to the drawdown method of resource extraction. This occurred at a time most/all niches were occupied and expansion into unexploited regions became ever more problematic. The energy provided by a one-time cache of ancient fossil energy has allowed the human experiment to grow to unprecedented levels, well beyond the ‘natural’ capacity of the planet to sustain us[4].

The evidence is becoming clearer that we are encountering significant issues not necessarily because of the economic system we are currently employing but because the fundamental resource we have grown extremely dependent upon (fossil fuels) has encountered very problematic diminishing returns — to say little about the negative consequences of this use on our planet’s environment/ecological systems. We are now stumbling around attempting to ‘solve’ a predicament without ‘solutions’, pointing our fingers at all sorts of ‘culprits’, and many gravitate towards the clear disparity between our elite ruling class who seem to be doing just fine, thank you, and everyone else because of a ‘natural’ tendency to seek a ‘fair and just’ world (see the non-human primate studies on justice and fairness).

So, if we were to redefine ‘progress’ and ‘sustainable development’ in a way that doesn’t impinge upon our environment, as Doughnut Economics seems to aim to do, we could continue to ‘grow’. This thinking, however, appears to ignore all the resource inputs that go into virtually everything we do, regardless of how one defines it. So-called ‘service’ industries, for example, still require significant resources (especially energy) to be sustained[5]. How does one extract these resources from the environment without requiring significant resources in the first place? Especially when all the easy-to-retrieve and cheap-to-extract resources have already been used up, and remaining ones require ever-more energy/resource inputs to access and recover what’s left. Even recycling of products, as beneficial as that process is, demands significant resource inputs[6].

Perhaps the problem is not primarily the economic system employed (although that could exacerbate certain negative aspects) but, as Erik Michaels argues at Problems, Predicaments, and Technology[7], our complex societies themselves with their resource demands. And this is especially true as we approach eight billion resource-dependent humans at a time of significant diminishing returns on all the resources we have come to rely upon for our existence. Sure, we could curtail the overconsumption of ‘advanced’ economies and direct the associated resources into more ‘equitable’ avenues, but the pressure on resources and the environment remain when we are looking at billions of humans.

If we are not discussing a purposeful and likely significant contraction of our current experiment (and this is especially true for so-called advanced economies that are responsible for the lion’s share of resource demands and their negative impacts), then I fear we are simply attempting to rationalise a continuation of it to avoid the chaos of the unmitigated collapse that always accompanies a species that has overshot its environment’s natural carrying capacity.

The fundamental flaw I see in Doughnut Economics is that it proposes a ‘solution’ that is entirely the opposite of what we need to be doing. We need to be contracting our complexities and the resource-demands they place upon our planet. We can’t be seeking to bring the vast majority of ‘un/under-developed’ humans up to ‘advanced’ economy standards. We need to be lowering significantly the standards and size of the advanced economies that are very much responsible for much of our plight — perhaps even disbanding large, complex societies completely (and how many of us would survive that given the loss of skills/knowledge to be self-sufficient?). And could this even be done in an ‘equitable’ manner? I have my doubts.

Will such a radical shift even happen? Unlikely, for as writer Robert Heinlein observed we are rationalising creatures, not rational ones. And we employ all sorts of magical thinking to make sense of our ‘world’ and ensure its continuation. As long as we have ‘magic’ (i.e., complex technologies) at our disposal to kick-the-can-down-the-road, we will continue to employ it; we are after all genetically predisposed to avoid pain and seek out pleasure; and collapse, even on our own terms, will be quite ‘painful’.

As I implied in my last ‘contemplation’, we have to be on the lookout for taking the wrong path as we attempt to address our existential predicament of ecological overshoot because it will simply expedite our overshoot and bring about the collapse that always accompanies such a trajectory more quickly and ensure there is little we can do about how it unfolds[8]. A circular economy that extracts resources and recycles them at a pace that doesn’t break through planetary limits might have been tenable a couple of centuries (millennia?) ago, but not in today’s world where we seem to be already sliding down the Seneca Cliff of energy availability for an ever-larger population.

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Our Obsession With Economic Growth is Deadly

Our Obsession With Economic Growth is Deadly

The Netherlands may be the first country to hit the limits of growth

The Netherlands may be the first country to hit the limits of growth

The country has 507 people per sq km, nearly five times the EU average, while liveable land is shrinking due to climate change
© Harry Haysom

The other morning I cycled around the Dutch town where I grew up. Behind our old house, the field where I spent half my childhood is now covered with homes. So is my old football club. My high school is now in a built-up area. At the local train station, the bike shed was full on a Saturday afternoon. When I got to Amsterdam, the business-traveller economy appeared to have broken down: endless waits for Ubers, nobody at hotel reception, restaurants closed at lunchtime for want of waiters.

I know over-construction and understaffing are now global problems, but they are particularly acute in the Netherlands. The country has run out of space and staff. Sure, a recession may temporarily loosen the jobs market, but the problem was acute pre-pandemic and will simply resurface whenever growth resumes. The Netherlands is probably the first country to hit the limits of economic growth.

Other overdeveloped places such as the Bay Area, New York and Singapore may follow, running out of room for new workers and businesses. This raises the question: can a rich place be happy if its economy stops growing?

With hindsight, the Netherlands was too well-suited to the era of globalisation. The trading nation with Europe’s biggest port experienced 26 years of unbroken economic growth until 2008, then a world record. Now it tops ETH Zurich’s KOF Globalisation Index as the world’s most globalised country.

And so its population mushroomed. When the counter hit 14 million in 1979, Queen Juliana said, “Our country is full.” In 2010, Statistics Netherlands said the population would probably never reach 18 million. Today it’s 17.7 million and rising…

Peak oil, economic growth and the big lie

Peak oil, economic growth and the big lie

In the commentary on Peak Oil recently published in the leading scientific journal Nature, James Murray (the founding director of the University of Washington’s Program on Climate Change) and David King (the Director of the Smith School of Enterprise and the Environment, University of Oxford) made the following statement,

Historically, there has been a tight link between oil production and global economic growth. If oil production can’t grow, the implication is that the economy can’t grow either. This is such a frightening prospect that many have simply avoided considering it.

Why do we find the idea of the end of economic growth so frightening? The reason is what I call, ‘The Big Lie’.

The ‘Big Lie’ of our economic system is that anyone can get rich. Most of the world’s population will not see wealth in their lifetimes, either because of the circumstances of their birth, or because they chose the wrong career path, did not work or study hard enough or did not think it so important to pursue personal monetary gain.

However we all take comfort from the idea that it might be possible to improve our lot or even that, if we make the right choices, we could become rich. Most of us believe that anyone can become wealthy if they truly work hard enough for it. But in a world where finite resources are passing their peak extraction rates this is no longer true: if it ever was.

The great majority of people in our society do not understand economics. Judging by economists’ ability to predict the behaviour of the economy, most of them do not understand economics either. Yet, most people believe they understand the idea of economic growth, or at least the “growth” part. The end of growth does not sound positive.

…click on the above link to read the rest of the article…

This Time Is Not Different. More Debt, Less Growth

This Time Is Not Different. More Debt, Less Growth

This Time Is Not Different. More Debt, Less Growth

I remember that in 2009 three messages were constantly repeated: “In this crisis measures are different, because governments are investing in the recovery by increasing public spending,” “the funds from stimulus plans will strengthen the recovery “and “central banks help a stronger recovery by lowering rates and increasing liquidity”. Then, 2010 arrived and the Eurozone entered a deeper crisis. In many aspects, this recession is similar. Many governments are doing the same as they did in 2009. Extend and pretend. Extend structural imbalances and pretend this time will be different.

It is worrying to see the same level of excessive optimism of 2009 these days, and we must prepare for a complex environment and a difficult recovery if we are to emerge from this crisis stronger.

A recent analysis by Ned Davis Research shows that as government debt rises, growth slows, and jobs recovery is weaker. Using a multi-factor mode analysis with data from 1951 to 2020, as government debt to GDP exceeds 100%, real growth per annum falls to 1.6%, non-residential investment falls and non-farm payroll recovery weakens to 0.6% per annum.

Two factors tell us that the recovery in 2021 will likely be disappointing. Massive liquidity injections, with $26 trillion injected by central banks, have been used mostly to perpetuate elevated government spending, fundamentally current spending, and fund public debt. The second is that corporate balance sheets have been damaged to a level that will make it difficult to see a significant growth in investment above depreciation. SP Global expects global capital expenditure to remain weak in 2021.

Global growth estimates look too optimistic. The consensus assumes a recovery of 4% globally in 2021, returning to the GDP of 2019 at the end of 2022. This assumes an extraordinary and unprecedented fiscal multiplier of debt and liquidity…

…click on the above link to read the rest of the article…

Capitalism is destroying ‘safe operating space’ for humanity, warn scientists

Capitalism is destroying ‘safe operating space’ for humanity, warn scientists

Source: Steemit

The COVID19 pandemic has exposed a strange anomaly in the global economy. If it doesn’t keep growing endlessly, it just breaks. Grow, or die.

But there’s a deeper problem. New scientific research confirms that capitalism’s structural obsession with endless growth is destroying the very conditions for human survival on planet Earth.

landmark study in the journal Nature Communications, “Scientists’ warning on affluence” — by scientists in Australia, Switzerland and the UK — concludes that the most fundamental driver of environmental destruction is the overconsumption of the super-rich.

This factor lies over and above other factors like fossil fuel consumption, industrial agriculture and deforestation: because it is overconsumption by the super-rich which is the chief driver of these other factors breaching key planetary boundaries.

The paper notes that the richest 10 percent of people are responsible for up to 43 percent of destructive global environmental impacts.

In contrast, the poorest 10 percent in the world are responsible just around 5 percent of these environmental impacts:

“These findings mean that environmental impact is to a large extent caused and driven by the world’s rich citizens.”

The new paper is authored by Thomas Wiedmann of UNSW Sydney’s School of Civil and Environmental Engineering, Manfred Lenzen of the University of Sydney’s School of Physics, Lorenz T. Keysser of ETH Zürich’s Department of Environmental Systems Science, and Julia K. Steinberger of Leeds University’s School of Earth and Environment.

It confirms that global structural inequalities in the distribution of wealth are intimately related to an escalating environmental crisis threatening the very existence of human societies.

Synthesising knowledge from across the scientific community, the paper identifies capitalism as the main cause behind “alarming trends of environmental degradation” which now pose “existential threats to natural systems, economies and societies.” The paper concludes:

…click on the above link to read the rest of the article…

Why economic growth is not compatible with environmental sustainability

Why economic growth is not compatible with environmental sustainability

Man walking with factory in background

Academic FEDERICO DEMARIA will be addressing staff at the European Commission today in a keynote speech about the crucial issues of economic growth and environmental degradation. He asks, is the well-being of the individual, societies and nations possible beyond economic growth? 

‘Growth for the sake of growth’ remains the credo of all governments and international institutions, including the European Commission.

Economic growth is presented as the panacea that can solve any of the world’s problems: poverty, inequality, sustainability, you name it. Left-wing and right-wing policies only differ on how to achieve it.

However, there is an uncomfortable scientific truth that has to be faced: economic growth is environmentally unsustainable. Moreover, beyond a certain threshold already surpassed by EU countries, socially it isn’t necessary. The central question then becomes: how can we manage an economy without growth? 

Enough is enough

Kenneth Boulding, the economist,  famously said that: “Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist”.  

Ecological economists argue that the economy is physical, while mainstream economists seem to believe it is metaphysical.

Social metabolism is the study of material and energy flows within the economy. On the input side of the economy, key material resources are limited, and many are peaking including oil and phosphorus. On the output side, humanity is trespassing planetary boundaries.

Climate change is the evidence of the limited assimilative capacity of ecosystems. It is the planet saying: ‘Enough is enough!’. 

Mainstream economists – finally convinced by the existence of biophysical limits – have started to argue that economic growth can be decoupled from the consumption of energy and materials.

 …click on the above link to read the rest of the article…

Carbon emissions reach record: How can we build solidarity to fight climate change?

Carbon emissions reach record: How can we build solidarity to fight climate change?

When carbon emissions appeared to level off from 2014 through 2016, some people were hopeful that industrial civilization just might be able to decouple carbon emissions from economic growth. After all, the world economy had been growing and yet carbon emissions had not grown with it.

Fast forward to today. It turns out that humans are still burning lots of carbon to support economic growth as carbon emissions in 2018 reached a new record. The temporary halt from 2014 through 2016 was primarily due to the rapid replacement of coal-fired power plants with natural gas and renewable energy sources, a trend that by itself cannot solve the climate crisis.

So, once again, policymakers are asking how they can possibly achieve the rapid decline in emissions which the world’s scientists say is necessary to avoid catastrophic climate change. The answer is actually simple and extremely painful. They must stop focusing on growth and make an all-out effort to reduce emissions.

One of the reasons that most leaders around the world refuse to contemplate this is that it would result in mass unrest as those at the middle and bottom of the economic scale would be shut out of bettering their material lives. The only way to address such a situation would be to guarantee them the basics of housing, education, health care and affordable food, something that most ruling elites cannot entertain as a possibility.

Reversing climate change would undoubtedly produce a lot of economic activity. It might even allow for some economic growth. But if growth remains the objective of every society on the planet, then we will almost surely fail to address climate change.

 …click on the above link to read the rest of the article…

Tax Cuts Without Reducing Government Outlays Is Not Possible


According to many economic experts and commentators, an effective way to generate economic growth is through the lowering of taxes. The lowering of taxes, it is held, is going to place more money in consumer’s pockets thereby setting in motion an economic growth. This way of thinking is based on the popular view that a given dollar increase in consumer spending will lift the economy’s gross domestic product (GDP) by a multiple of the increase in consumer expenditure. An example will illustrate the magic of this multiplier.

Let us assume that on average individuals spend 90 cents and save 10 cents of each additional dollar they receive. If consumers raise their spending by $100 million this will boost retailers’ revenues by this amount. Retailers in turn will spend 90% of their new income, i.e. $90 million on various goods and services. The recipients of the $90 million will in turn spend 90% of $90 million i.e. $81 million and so on. At each stage in the spending chain, people spend 90% of the additional income they receive. This process eventually ends with the GDP rising by $1 billion i.e. (10*100million).

In short, all that is required is to give every individual more money to spend, and this in turn should set in motion increases in consumer expenditure, which in turn will trigger increases in the production of goods and services. Observe that within the framework of ‘the multiplier’ savings are actually bad news – since the more people save the smaller is the multiplier.

The magic of ‘the multiplier’ however, is just wishful thinking – a myth. Every activity in an economy has to be funded and therefore it is always in competition with other activities for scarce real savings.  Hence, within all other things being equal if more is spent on consumption goods, then less is left for capital goods. An increase in retailers activity will be offset by the decline in the activity of capital goods producers.

 …click on the above link to read the rest of the article…

Big Trouble in Little China

A worker cleans the promenade in Shanghai on July 24, 2014. (Johannes Eisele/AFP/Getty Images)

A worker cleans the promenade in Shanghai on July 24, 2014. (Johannes Eisele/AFP/Getty Images)

Big Trouble in Little China

The country’s economic problems are starting to escalate.

China is a country of extremes, especially regarding economic forecasts. There are those who think “China will take over the world” with its technocratic central planning. Then there are those who say its debt bubble is so gigantic, the economy will crash and burn.

The truth, probably, lies somewhere in the middle. And it looks like we are getting closer to know the truth.

Official GDP growth, is of course on track at 6.6 percent for the year 2018, stellar among industrial and even emerging economies. But nobody believes these figures, even though they are the worst since 1990.

“Real GDP fell by 1.7 percent and 0.6 percent in Q3 and Q4 respectively compared with the official figures showing growth of 6.4 percent and 6 percent,” Enodo Economics chief economist Diana Choyleva wrote in a note to clients about the annualized growth during the past two quarters of 2018.

According to Choyleva, China is experiencing an unofficial recession.

Enodo Economics estimates Chinese GDP growth was negative during the past two quarters. (Enodo Economics)

While this doesn’t mean the crash and burn scenario is unavoidable, the flurry of official and unofficial economic indicators flashing red make the “take over the world” scenario quite unbelievable for the intermediate future.

Going Down

No matter which official indicator you look at, the Chinese economy is in decline. Retail sales growth is barely above 5 percent, the lowest level since 2003 with automobile sales crashing 13 percent. Total imports in U.S. dollar terms are down 7.6 percent in December of 2018 as compared to the year before.

Imports in China are crashing. (Capital Economics)

China’s current account balance, or the amount of exports over imports and one of the main drivers of Chinese growth over the decades is down to 0.37 percent of GDP, from 10 percent in 2008.

 …click on the above link to read the rest of the article…

Debt and Deficits: They’re Unsustainable

Debt and Deficits: They’re Unsustainable

Economic growth won’t save us, not without serious cuts in government spending.

The most important issue facing America today is the national debt and increasing federal deficits. Our national debt now exceeds yearly gross domestic product (GDP).

The U.S is the wealthiest country in the world, but our government has the largest spending deficits and national debt in recorded history.

The budget deficit in FY 2018 was $800 billion, but the debt increased by $1,300 trillion, and is now $21,500 trillion dollars. Government accounting (oxymoron) allows for spending and loans outside of the budget. The practice of underreporting deficits is fraud and is not legal in the private market.

Note the US Debt Clock (here).

In simple terms, the national debt consistently increases more than the federal deficit, which will cause a devaluation of the dollar and eventually, a major financial crisis.

In FY 2019, the federal budget projects the following:

  1. Total revenue $3,422 trillion or 17% of GDP
  2. Total spending $4,407 trillion or 21% of GDP

In the best of times, regardless of tax rates, the federal revenue rarely exceeds 18% of GDP. This means based on projected spending, we cannot grow or tax our way out of the deficit because spending is projected at 22% of GDP.

To balance the federal budget in FY 2019, it would be necessary to cut all spending by 22%. 

Yes, this means Social Security, Medicare, defense, food stamps and college loans. A cut of 22% would be devastating to our economy, which means we must begin now to reduce federal spending and debt as a national priority.

During the last major recession in 2008, we had a national debt of $10 trillion. Now, in 2018 we have a debt of $21,500 trillion. On average the debt is increasing at 1 trillion per year, but last year it increased by $1,300 trillion.

 …click on the above link to read the rest of the article…

That Green Growth at the Heart of the Green New Deal? It’s Malignant

That Green Growth at the Heart of the Green New Deal? It’s Malignant

A burgeoning save-the-climate effort called the Green New Deal, explains Vox’s David Roberts, “has thrust climate change into the national conversation, put House Democrats on notice, and created an intense and escalating bandwagon effect. … everyone involved in green politics is talking about the GND. … But WTF is it?”

Roberts goes on to give a good summary, but no one can fully answer that question until someone puts a complete plan down on paper. We do know that the vision as it’s being described by its fans (and it seems to have nothing but fans in the climate movement) explicitly draws its inspiration from the New Deal that the Roosevelt Administration launched eighty-four years ago in an effort to end the Great Depression.

A Tale of Two Deals

The Green New Deal would emulate its predecessor’s use of public investment and hiring, improvement of wages, and socioeconomic safety nets to accelerate economic growth and reduce unemployment. In asking how well that strategy might work against this century’s climate crisis, we first need to take into account how the original New Deal worked, both as a civilian project and as it morphed into the war effort of the 1940s.

The massive public investment in the civilian economy that began in 1933 carried on through that decade. And the war production and recruitment boom of the early 1940s should be seen as an extension of the New Deal, in part because that turned out to be the spending that finally ended the Depression.

The diversion of money and physical resources into military production necessitated the creation of a War Production Board that allocated resources between the military and civilian sectors and limited production of specified civilian goods.

 …click on the above link to read the rest of the article…

The greatest good for the greatest number: A doctrine of acceptable losses

The greatest good for the greatest number: A doctrine of acceptable losses

In 1776 philosopher Jeremy Bentham wrote a phrase that continues to be central to our modern way of thinking: “[I]t is the greatest happiness of the greatest number that is the measure of right and wrong.”

That phrase has morphed into the familiar one cited in the title of this piece. Happiness, however, has been reinterpreted first as “good” meaning something which gives pleasure, a move toward a kind of hedonism. “Good” has, however, become associated with “goods,” that is, objects which consumers and businesses buy to further their personal and occupational goals.

This drift from the original meaning of what Bentham called his “fundamental axiom” is, in part, why we are addicted to economic growth and the consumerism that derives from it. We believe that “goods” are good for us and so more “goods” will always bring more good in their wake.

But now I want to examine the second part of this phrase: “the greatest number.” It just makes sense to most of us that a right-thinking person would endorse the idea of the greatest good for the greatest number. Doesn’t such a framework maximize the life chances of the greatest number of people? Of course, it all depends on what one means by “life chances.”

What I want to point out is that “the greatest number” implies a doctrine of “acceptable losses.” If the net benefits of any course of action are measured for society as a whole instead of for every individual, then actions which kill many people are justified on the basis of the benefit to those who remain living. Such benefits are presumed to outweigh the loss incurred by those dying and those related to the deceased.

This is the bargain we have made, and it has led to mayhem everywhere.

 …click on the above link to read the rest of the article…

Opinion: Sooner or Later, We Have to Stop Economic Growth–And We’ll Be Better For It

The end of growth will come one day, perhaps very soon, whether we’re ready or not. If we plan for and manage it, we could well wind up with greater well-being.
Intro image
Illustration by Kelsey King

Both the U.S. economy and the global economy have expanded dramatically in the past century, as have life expectancies and material progress. Economists raised in this period of plenty assume that growth is good, necessary even, and should continue forever and ever without end, amen. Growth delivers jobs, returns on investment and higher tax revenues. What’s not to like? We’ve gotten so accustomed to growth that governments, corporations and banks now depend on it. It’s no exaggeration to say that we’re collectively addicted to growth.

The trouble is, a bigger economy uses more stuff than a smaller one, and we happen to live on a finite planet. So, an end to growth is inevitable. Ending growth is also desirable if we want to leave some stuff (minerals, forests, biodiversity and stable climate) for our kids and their kids. Further, if growth is meant to have anything to do with increasing quality of life, there is plenty of evidence to suggest it has passed the point of diminishing returns: Even though the U.S. economy is 5.5 times bigger now than it was in 1960 (in terms of real GDP), America is losing ground on its happiness index.

So how do we stop growth without making life miserable — and maybe even making it better?

To start with, there are two strategies that many people already agree on. We should substitute good consumption for bad, for example using renewable energy instead of fossil fuels.

 …click on the above link to read the rest of the article…

Is an Increase in Demand Key for Economic Growth?

Whenever the so-called economy shows signs of weakness most experts are of the view that what is required to prevent the economy sliding into recession is to boost the overall demand for goods and services.

If the private sector fails to increase its demand then it is the role of the government to fill this void.

Following the ideas of Keynes and Friedman, most experts associate economic growth with increases in the demand for goods and services.

Both Keynes and Friedman felt that the great depression of the 1930’s was due to an insufficiency in aggregate demand and thus the way to fix the problem was to boost aggregate demand.

For Keynes, this could be achieved by having the federal government borrow more money and spend it when the private sector would not. Friedman on the other hand advocated that the Federal Reserve pump more money to revive demand.

There is however never such a thing as insufficient demand as such. We suggest that an individual’s demand is constrained by their ability to produce goods. The more goods that an individual can produce the more goods he can demand i.e. acquire.

Note that the production of one individual enables him to pay for the production of another individual. (The more goods an individual produces the more of other goods he can secure for himself. An individual’s demand therefore is constrained by his production of goods).

Observe that demand cannot stand by itself and be independent – it is limited by production. Hence, what drives the economy is not demand as such but the production of goods and services.

In this sense, producers and not consumers are the engine of economic growth. Obviously, if he wants to succeed then a producer must produce goods and services in line with what other producers require ie. consume.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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