How to limit economic growth?

Question

Assumptions

Let's assume there is a one world government with a universal currency. It has a Central Bank, large gold reserves, and the currency is fiat-based. The global economy is currently booming, with explosive economic growth.

The Problem

Let's also assume that economic growth in the world is unsustainable, and that natural resources would be depleted in fifty or so years at its current rate. Let's say the government wants civilization to remain in some form by stretching its resources out for a hundred years. (the time amount is arbitrary) How would it go about doing this?

My Solutions

The first thing that came to my mind would be an extreme rationing program. The majority of Mankind would be forced to barely subsist on food, water, and shelter. But let's say the government wants to delay that inevitability.

My idea would be the government limits the money supply, slashes interest rates, etc. An alternative approach would be to introduce a currency system that somehow limits economic growth by its very nature. Maybe a gold standard? Or any commodity currency, really.

All this will culminate result in a gradual cooling of the economy.

The Question

What would the actual result be, however? Is my idea strong enough? Would it even create the intended outcome?

Or more generally speaking, what policies could the government introduce to gradually slow and limit economic growth?

Answer 1

It seems to me that you're not really trying to cool down the economy, but rather ensure the preservation of resources. If that's the case, then the obvious solution is to target the area of concern - resource depletion.

In such a case, what you do is apply a resource 'rent' tax.

Put simply, you charge corporations a set fee for every tonne of resources they pull from the ground. (I'm assuming here by 'natural' resources you mean mineral resources) The rationale behind this is two-fold;

1) Companies have to raise the price of mineral resources to cover the cost of the tax. It can also make pulling minerals out of certain areas nonviable.

2) It encourages industry to use alternative resources that don't incur the tax; mainly recycled goods. This increases investment in recycling technologies and practices.

If you have a strong economy, the last thing you really want to do is mess with that except in those areas that need to be controlled. Additionally, the funds raised through a mineral rent tax can go to incentives to pursue research and development into renewable technologies.

All that said, it is also important to note that the concept of economic 'growth' being an indicator of a healthy society is only now starting to come into review. When the world is 'empty', or at least has room for growth, this idea of an 'empty economic model' (a model where increases in production means more jobs and a healthier economy) is viable. But, we're fast overpopulating the Earth and soon we'll have to consider concepts such as a 'full economic model' (a model where triple bottom lines, sustainability and market longevity are more important than short term profits).

This kind of economic revolution isn't even embryonic yet, but there are those who are looking at this idea and realising that with the current state of population growth and economic 'progress' we'll cause a flame-out in time and that perhaps the light that burns half as bright but twice as long is preferable to immediate gain. If you're really interested in exploring economic theory in a world rapidly depleting its resources, focus on how a government might provide tax incentives for companies that can demonstrate projected viability for a century or more in their chosen fields. Perhaps even getting rid of stock markets in their current form (which reward short term gainful thinking) and replace it with another investment vehicle that rewards the exact opposite; career collectives for instance?

An interesting problem for which detailed answers are only just now starting to be contemplated on the global stage.

Answer 2

This effectively happened during World War II. Rationing, limitations on resources, and redirection of production greatly stagnated economic growth during that time.

Of course, the major difference was the fact that there were limited resources (due to the war itself).

However, it was largely possible because nearly everyone proudly abided to the imposed restrictions. Everyone was doing their part to fight a common enemy, and this ideology was greatly reinforced in government messaging (fireside chat, posters, speeches) and throughout the media (movies, newspapers, commercials). Anyone who didn't "do their part" were generally viewed extremely unfavorably by others.

Even without imposing any form of strict rationing -- If the population of your world were similarly united towards a collective effort, and it was continuously reinforced throughout media outlets, then it could easily be a plausible scenario.

Answer 3

There's a whole field of economics devoted to this question. Take a look at "steady state economics" or "ecological economics", in particular the work of Herman Daly. These economists observe the contradiction that our planet's carrying capacity is fixed, yet our economy must grow exponentially in order to function. They discuss ways in which a market based economy could function with a cap on throughput. "Throughput" as defined here refers to all of the raw material inputs and the pollution outputs on the planet. It's the physical stuff of the economy. A steady state economy could still generate new technologies, grow the services industry, and advance society culturally, but with throughput capped you for the most part keep GDP stable. Note that companies can still create new products and compete with each other - a cap on throughput is just a cap on the size of the pie, but who gets what piece of the pie is still determined by the market.

But there's a problem. Let's assume that a cap on throughput would indeed be a cap on GDP (an economy that can grow on just services, without throughput, has never existed, so it's a worst-case-scenario assumption). You own a factory that produces 100 toast ovens a week using 10 workers. Then, a new piece of technology emerges that cuts your labor needs 50%, so now you only need 5 workers to make 100 toasters. According to neoclassical economics, under the best case scenario in a normal capitalist economy this situation would be OK because toasters will also be 50% cheaper, so people will buy twice as many. Now you make 200 toasters with the same 10 workers. This is how throughput growth makes productivity improvements not cause systemic unemployment. The problem is that in a steady state economy, you can't make more toasters. So how do we prevent the new technology from leading to a 50% layoff? One solution is to somehow requires firms to reduce the number of hours each worker works by 50%, and then double the hourly wage. You would need a complicated administrative system to accomplish this, particularly if you want to maintain an incentive for firms to increase productivity.

Answer 4

natural resources would be depleted in fifty or so years at its current rate. Let's say the government wants civilization to remain in some form by stretching its resources out for a hundred years.

Do what the world does now: find new solutions.

For example, Peak Oil was the great fear 20 years ago.

• What did the US do? Frack.
• What did Canada do? Dig tar sands.
• What did everyone do? Build better windmills -- lots of better windmills.
• And better batteries,
• China's pumping solar panels out the wazoo.
• Better efficiency: not just cars, but manufacturing processes which make things with less energy.

We recycle vast amounts of aluminum, too, and copper, iron, etc, etc ad nauseam.

Answer 5

Raise interest rates and cut money supply.

Both of these things will make goods more expensive. That will limit growth.

The government raises the rate at which the government lends money to the banks. That raises the rate banks are willing to offer to borrowers It also decreases money supply since banks don't borrow/create money as quickly. Higher interest rates will mostly affect big ticket items like houses and cars. Rentals like apartments will go up as well since more people will move to them until their rent is the same percentage different from the house payment as it was before the interest rate hike.

Cutting the money supply, either by destroying physical currency or increasing the cash on hand ratio that banks are required to hold. This will encourage banks to offer real interest rates to those who want to save money. this will not only decrease the amount of money banks borrow but will get people to save money instead of spend it. Both of these get money out of circulation.

For more on what I discussed above, take a look at this Forbes article: How Bank Lending Really Creates Money, And Why The Magic Money Tree Is Not Cost Free

Though this source (not as well known as Forbes) says the same thing but explains it better. Positive Money: How Banks Create Money

The money that banks create isn’t the paper money that bears the logo of the government-owned Bank of England. It’s the electronic deposit money that flashes up on the screen when you check your balance at an ATM. Right now, this money (bank deposits) makes up over 97% of all the money in the economy. Only 3% of money is still in that old-fashioned form of cash that you can touch.

and

Commercial [i.e. high-street] banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.

Answer 6

Is your goal to cool the economy, or prolong natural resources? Because you can take actions that happen to cool the economy, but have a more direct action of prolonging natural resources. For instance, we currently have economic incentives to invest in renewable energy. It's easy to imagine a government either subsidizes recycling, or has a punitive tax added to raw resource extraction/utilization.

The latter would, in fact, cool the economy. But that would be a side effect as opposed to the main goal. It's different from rationing, in that it's a market based solution. Either method would induce recycling.

Answer 7

TL;DR: Government needs to let market economy and innovation work their course, and maybe provide some incentives for alternative technologies like Tim B II and Jesse above suggested. Starving people to preserve an inanimate resource is something that only a crazed dictator would do.

Longer version

You say "natural resources would be depleted in fifty or so years at its current rate". Sir Robert Malthus has said something very similar, in 1798. And yet here we are, after 200 years of exponential growth, with no resources running out just yet.

The reason that economy is not about using resources, it is about satisfying needs.

First, innovation can make a limited resource satisfy a lot more needs. Malthus predicted that the world will run out of farmland to grow food. Today, every decent-sized developed country could easily produce 2-3 times more food than it needs. The poor are suffering from obesity, not starvation.

Second, a need can be satisfied by a different resource. Take heat (for cooking and heating the house). In Malthus times, heat came from wood (or maybe coal). As wood began to run out, people switched to coal. Then to oil. Now it is gas. By the time the gas deposits run low (including the shale ones), the solar and wind will be developed enough to pick up the slack. And by the time we use up all the sunlight, we will be able to build a Dyson sphere.

And the best part is that innovation and technological progress happens naturally, at least under market economy. Did you ever hear of government providing subsidies for shale drilling? Nope, private companies financed it, to profit from growing gas prices. Do you think government rationed firewood? Nope, people just realized that coal is cheaper, and other people realized that mining coal is profitable.

One area where government would have to step in is a "public" resource, such as clean air . Here is some reading But even then, the answer is to limit use of specific resource or support innovation into alternative (like solar and wind energy), not kill the entire economy.

Edit; Sorry for rant. Here are some constructive suggestions:

• If you want rationing and struggling economy, you need war, natural disasters (flooding and storms from global warming), or just economic mismanagement (like in Venezuela)

• If you want economic consequences of a specific resource running out, it would me mining communities turning into ghost towns. Young and capable leave, old and infirm become poor and addicted, etc. Rl example: coal towns in West Virginia.

Answer 8

Global War (but not war),

The first thing that comes to mind is the story 1984 by George Orwell.

In the background of his story is 3 large countries that rule the world. The important things are that if any one country starts to win the other two become allies and gang up on them. Once the allies are winning then one of those switches sides and joins the loser and they beat up on the remaining ally.

This way there is never a winner and the world is in a prolonged state of global war. With this situation the populous are more likely to ration their goods, and give up on most luxury items.

You also get the added benefit of reducing the population, reducing production etc. etc.

There is still a need for technology, and so the sciences tend to benefit during war time, as governments funnel resources into finding ever more efficient ways of killing their enemies.

In reality there is only one government ruling the world, but they are a shadow government that uses these three countries to keep each other in check and keep the population in the dark.

The could even be running coordinated programs in the background to advance technology such as fusion, and space travel. And even using espionage as a way of creating competition and still be able to share scientific breakthroughs.

Answer 9

Trust the market, for it works; and abandon all hope of eternal growth

A civilization cannot run out of natural resources as such. What is actually plausible for a civilization is to run out of cheap natural resources.

As cheap resources are depleted, their price will naturally increase. As their price goes up, the industries which consume them will first pass the increase in cost to the consumers, but this will work only to a point; then try to find ways to use less resources, but this will work only to a point too; then they will try to use substitutes, or to find alternative sources, but this too will work only up to a point.

A logistic curve, the simplest mathematical model of growth where the rate of reproduction is proportional to both the existing population and the amount of available resources.

In the end any kind of continuous exponential growth is not sustainable. Whatever base this civilization has, a planet, a star system, a galaxy, it doesn't matter: it is finite, and a finite base won't sustain indefinite exponential growth. In the end, economic growth won't be exponential, but rather logistic, and it will reach a plateau of zero growth. As long as the civilization has a steady source of free eneergy from the star or stars, it will be able to function at zero growth indefinitely.

Now mathematical models are beautiful, but of course the path towards zero growth will be painful. Zero growth could be taken to imply freezing the inequality between those who have and those who don't; and those who don't will not accept it easily, and they will fight; and it is indeed conceivable that the final plateau will be reached at a level somewhat higher than the level of the presently dispossed, but lower than the level of those who are currently rich.

There will be occasions when new sources of growth will be found; maybe Zefram Cochrane will indeed invent the warp drive, and thus vastly enlarge the base of exploitation: and the logistic growth will start again at its almost exponential left end, but the new base, albeit immense, will also be finite, and a new plateau will eventually be reached.

Answer 10

US CAFE standard

In the 1970s, the United States government came up with Corporate Average Fuel Economy (CAFE). This said that each automaker had to hit a particular fuel economy standard measured as miles per gallon in average across the cars that it produced.

This had a number of effects:

1. It virtually ended a common car type, the station wagon. The station wagon was replaced by two new car types, the sport-utility vehicle (SUV) and the minivan. These new car types were larger and in some cases less fuel efficient than the cars they replaced. So why use them? They didn't fall under the same category for CAFE statistics. They went into the truck and van categories rather than the passenger car categories. By truck and van standards they were comparatively light and fuel efficient. But they were still as big or bigger than the station wagons were.

2. Cheap cars became more fuel efficient and their prices were subsidized by more expensive cars. But car makers had little incentive to make them last. In their ideal world, these cars would fail every year so that they could sell new high fuel economy cars to offset the profitable larger cars.

3. Older large cars became more valuable. They weren't covered by the fuel economy standards, so people who needed large cars continued using existing ones. This was bad, as older cars also were less fuel efficient than newer cars even when controlling for size.

4. Cars became less safe, as they removed material to make cars lighter. This was especially true of smaller cars.

5. People drove more. Because one tank of gas could drive farther and gas was cheap, people started commuting longer and longer distances. On average, people used the same amount of gas even though their cars were more fuel efficient. This had a number of additional negative side effects. For example, fewer people lived in cities, causing their tax base to fall. So the people in the city could afford fewer city services, which made even more people leave for the suburbs.

When you optimize for a different statistic than the one that really matters to you, you get improvement in the wrong statistic. Fuel economy was not what was important. Fuel usage was. But instead of taking measures to control fuel usage, like a gasoline tax, they optimized around one possible solution, fuel economy of new things arbitrarily classified as cars.

European gas taxes

Contrast this with what European countries saw with increased gasoline (which they may call petrol) taxes:

1. Most older cars were junked, as they were too expensive to run.
2. Cars were smaller.
3. People took fewer or shorter trips.
4. More mass transit usage.

It is of course conceivable that this was particular to Europe. But we know what happened when gasoline prices increased in the US from about \$1 a gallon to as much \$4 a gallon (before going back to the \$2.50 to \$3 range). Gas usage dropped precipitously and more people returned to urban centers. Pretty much the same as what happened in Europe.

There are about 3.79 liters in a gallon. However, in the 1990s, it was not strange for Europeans to pay about as much for a liter as Americans were paying for a gallon.

Economic growth

Yes, it is true that resource usage and economic growth are correlated. But the correlation is not one-to-one. In some cases, limiting economic growth might even hurt. For example, if most people can't afford a new car, then they will continue using their older, less fuel efficient cars. Thus lower economic growth may cause more resource usage than high economic growth. This is especially true if economic growth was high (so people could afford nice cars) and then drops (so people can't replace their cars).

Lack of economic growth may also cause public services to be cut. For example, mass transit often suffers during downturns. And again, less mass transit pushes more people to take trips in their cars.

If people are underwater in their mortgages (meaning that they owe more than the current value of the house), then it is difficult for them to move. So they're stuck in their current location and may have to travel farther to reach work or may have to turn down jobs that are just too far.

TL;DR: No, I would not expect this to work as desired.

Shaped growth

What you really want is shaped growth. To some extent this will happen naturally. Allow people to speculate in resources. So someone who expects gasoline to increase in price will buy up and store reserves of oil for the future when it is more expensive. Let prices rise. This will throttle growth, but much less than playing with the money supply will.

I've focused on oil and gasoline because I know a fair bit about that example. But this works for other resources as well. For example, the real limiting factor with food is land. And people speculating into land in the hope that it will increase in value will lower the current utilization while allowing for future utilization. Or speculation in water rights.

If you really think it's necessary, the government can accelerate these changes by buying water rights, land, and mineral rights and not using them. This artificially restricts the amount of resources available.

Before doing that though, you may want to go through the system and look for ways that it encourages resource usage. E.g. property taxes encourage people to make the best use of their land they can. They effectively make speculating more expensive. It's one thing to buy low and sell high. It's another to buy low and then pay high maintenance taxes that eat up any profit from selling high. So shift from property taxes to resource taxes. Or something else that moves in the direction that you want to go.