Posted on by Art Powell

A lot of people realize there are problems with the economy but few if any understand what is happening. Therefore we have varied reactions. Many people cling to faith in economic growth, some are exploring the concept of sustainability and a few are looking at “degrowth”. This blogger thinks of the three approaches as points on the ray of a matrix.

Predicting the future is difficult although the shorter the term the easier it is. Economists are little help because most are paid directly by business people or indirectly through government. Very few people get away with telling the whole truth to the people who pay them. Most economists find it expedient to say what their employers want to hear and that is mostly that the economy will continue to grow and that there will be continuing profits.

Nor can we expect the truth from political leaders as their positions depend on maintaining the support of the people. It is hard to think of any government leader telling us we will have to tighten our belts and remaining in power. Are citizens mature enough to listen to that? It would be interesting to see a political leader try.

Our recent economic memory is based on a tremendous use of energy and mineral resources. Not only have we fought two world wars we have also had the resources for an incredible standard a living in which the rich have grown richer and the rest of us have done okay. The result is we have a strong committment to economic growth and a belief that it will continue forever.

Many economists are fond of regression analysis because it assumes constant economic growth. It is a mathematical formula which takes a series of data points and calculates the best fitting straight line through them. It is generally assumed this line will angle up.

This guy thinks we would get a more truthful picture of what happens in the economy if we were to use fractal analysis. Fractals are series of ups and downs each with a subseries of ups and downs within them. The sea coasts are often used as examples. The mathematics of fractals is not as clear as regression analysis but there are some useful concepts. I am fairly certain those people who do “black box” analysis of stock markets are using fractal analysis. They are apparently having some success. The concept of fractal dimension can be calculated (two minus the Hurst exponent) and changes indicate a change in direction.

If we were to apply fractal analysis to economics it would be easier to see and accept ups and downs in the economy and easier to develop mechanisms to deal with them.

The word “sustainable” as applied to economic growth is a buzzword in some circles but I find it challenging as its meaning is not clear. I suspect it is mostly a cover for continued economic growth.

To the extent that some people use fewer energy and mineral resources it is good but I suspect that sustainable development maintains a committment to economic growth. Sustainable to me means going on forever and that is what a lot of people believe about economic growth.

The reality is that the quantity of goods and services we can produce and exchange depends upon the quantity of energy and mineral resources we have and can retrieve with a reasonable expenditure of energy. The concept of sustainable development is probably 100 years too late.

Our committment to economic growth is so strong I am not aware of any career economist having thought about what happens when the economy goes into decline. This is unfortunate as the economy regularly goes into recession and this time it may be extended.

This blogger figures current economic problems are because we have used up the most accessible energy and mineral resources. Sure, there are lots left but they require massive amounts of energy to retrieve them. Solar may help but not yet. I fear that we will be forced into degrowth.

If so the challenge will be to figure out how do distribute fairly the goods and services we have, how to cope with leisure, how to create money that will not disappear during a crisis and how to not fight over the available resources.

Money will be a special problem as fractional reserve banking works only in times of economic growth. When growth stops and banks stop making loans the money supply goes down and because it is fractional reserve the money supply goes down with a multiplier effect. Ouch. A super big ouch.

There are lots of anecdotal evidence from around the world that we are going into a down economy. This could easily be an explanation for a lot of the negative news, both economic and non-economic, to which we are becoming accustomed.

If we could get away from our committment to economic growth we could focus instead on happiness. This concept is impossible to measure although there is some evidence that people do not need a lot of material things to be happy.

What ever happens and wherever humanity ends up it looks as if we will experience a lot of human suffering. I would like for us to minimize the suffering and maximize the happiness.

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Filed under: Economics | Tagged: degrowth, down economy, economic growth, Economics, energy, fractal analysis, Fractals, fractional reserve, future, growth, hurst exponent, matrix, minerals, money, negative growth, political leaders, regression analysis, sustainable, sustainable development, truth |