What's really wrong with the economy?
Home » Magazine » Good, issue 4 » What's really wrong with the economy?Damon Birchfield believes our current economic system is broken—and it's a much bigger issue than a few collapsing banks
It is time to question the validity of the assumption that human wellbeing and happiness are achievable only through consumption, more consumption and growth. The assumption may drive the policy agendas of most of the world’s governments, but the reality is our house of credit cards is crumbling—and so it should. Our current consumer-oriented economic system treats neither people nor the environment as if they really matter.
The current crisis in the world’s financial markets provides a perfect opportunity to re-think the relationship between economics, people and the environment.
It is time to sack the ‘growth is good’ mantra. Good for whom, exactly? The CEOs in the US, Europe and other G8 nations who earn an average 262 times more than their workers? Almost certainly. Good for our planet and the future of its six billion human inhabitants? Not likely.
Let’s examine the underpinning of the economic growth myth by looking at how it is measured. Growth can be defined as the increase in the volume of goods and services a nation produces. It occurs when ordinary people like you and I consume more, which in turn means that production levels increase to meet these new demands. This is how the growth cycle is formed.
The main measure of growth is Gross Domestic Product (GDP), which is worked out by totaling consumption, gross investment, and government spending (exports minus imports).
GDP is used as an indicator of a nation’s welfare. The inference is, the more we have consumed the happier we all are. But as far back as 1934 its inventor, Simon Kuznet, said: “The welfare of a nation [can] scarcely be inferred from a measure of national income.”
Simon Kuznet recognised that GDP was unable to take into account distinctions between quantity and quality of growth, between costs and returns, and between the short and long term, and so was actually of little value in measuring human welfare.
Repeated studies show that while our material wealth has significantly grown over the past few decades, our level of happiness has not significantly changed. Why? Simply because in reality wealth is not a big determinant of satisfaction or happiness—ask anybody who has won Lotto. Having good relationships with other people and the planet makes people happy, and a clear sense of purpose and meaning in our daily life. Money is secondary, although it still has an important role to play.
Common economic wisdom, however, sees that a country is only successful and prosperous when it achieves high levels of growth. It is failing and in recession when the level of growth dips significantly for more than two financial quarters—six months. That’s why we are all supposed to be really depressed right now.
The question is: does a decline in GDP mean the end of all the good things we enjoy? Perhaps for a while, if you’ve maxed out your credit card and have been living beyond your means. But from a planetary perspective, the very opposite is true. When growth is high, the planet’s ecosystem is taking a hammering at our expense.
Consider the following trends, a direct result of unprecedented growth in both human population and economic activities over the past 200 years:
- 60 percent of our planet’s ozone has been lost in 60 years
- 70 percent of the world’s forests have been eliminated
- 90 percent of all large fish have disappeared from our oceans
These are serious issues, and there are many more. The United Nations Millennium Ecosystem Assessment concludes: “Human activity is putting such strain on the natural functions of the Earth that the ability of the planet’s ecosystem to sustain future generations can no longer be taken for granted.”
Global financial meltdown or not, this is no time to start equivocating on the critical importance to our world of global sustainability. Perhaps this current financial crisis provides us with a timely opportunity to examine some of the assumptions we have about our lives, and what really makes us happy.
If our happiness comes only at the expense of the planet, then we have a real and systemic problem. These are issues that we everyday citizens have a right to talk about—it’s not just the domain of economists.
People can demand an economic model that genuinely puts them and the environment first, and we will be happier for it. As former World Bank economist Hermann Daly, an advocate for the ‘steady state’ economic model, has said: “There is something fundamentally wrong with treating the Earth as if it is a business in liquidation.”
