Is The World Headed For Long-Term Stagnation?

by: Financial Sense

By FS Staff

"Growth or, rather, the lack of it is a key issue of our times. The Age of Stagnation provides a penetrating analysis of how a combination of the aftereffects of the Great Recession and deep-seated structural factors now cast a long shadow over the future..." -Nouriel Roubini, professor, New York University's Stern School of Business, and chairman, Roubini Global Economics

In The Age of Stagnation, Satyajit Das challenges the assumption that growth "is a given" - arguing instead that what many around the globe have become accustomed to is actually an aberration of the post-World War II period. The addiction to growth is a problem in Das' mind because so many people in western countries have been promised benefits and services based on an unrealistic economic model. Despite continued technological advancement, Das believes the real problems facing the world - things like food shortages, lack of clean water, or infectious diseases resistant to drugs are not being properly addressed by scientists or other experts.

In response to what he calls "technophiles," Das asserts that "all of the real innovations in technology were in the nineteenth century… in terms of electricity, sanitation, and use of carbon fuels", and he also reminds us that new technology can also bring its own set of problems, like air and water pollution.

When asked about improvements in robotics or AI, Das maintains that these don't accrue large benefits for those at the bottom of the economic ladder. Das believes that robotics will not fix the basic problem of providing more jobs for an ever-increasing number of people around the world.

Das also questions how a decline in global trade can be explained by an increase in global digital exchange - he calls this an example of "economists explaining away a result… that they do not like." Digitization is reducing the costs of almost everything, Das says, and it is not clear how the decent jobs lost by a decline in global trade can be made up in this newer world dominated by deflationary forces.

Regarding scientific advances that may help people to live longer, Das actually sees this is a net drag on economies since pensions will have to be increased and other services provided to people who may spend more time in retirement than they ever spent working. This is an example of technological innovation having unintended, negative consequences.

Das maintains that a world without growth is not necessarily a problem - the problem is with the expectations of people who expect to get richer from the current economic model, or who otherwise depend upon permanent high levels of growth in some way. When people realize they have been lied to about the limitations of current models based around growth, "populism and political extremism will take hold," Das says. The darkening social mood caused by stagnation can lead to irrational behavior on the part of states, such as "resource wars" between different parts of the world, and other kinds of chaos as the world rejects globalization.

Das is critical of the "extend and pretend model" he sees pervading the financial world, and feels that much of the growth in recent years is simply a mirage created by debt. Rather than making difficult choices now, politicians pander to entitled electorates in the present: "The entire model is that we enjoy everything today and we defer the costs into the future… by kicking the can down the road. The problem is, those cans just keep getting bigger and bigger."