The World Economy Just Can’t Escape Its Low-Growth, Low-Inflation Rut

It’s inaccurate to say that we “can’t” escape it. The federal reserve has been raising interest rates to slow inflation and growth in employment, and for years they have paid interest on bank reserves at the fed and constantly talked up plans to unwind their portfolio (selling off assets). If they had done less of all that we would have higher inflation.

Same is true of some other central banks. I always am frustrated when I hear about japan not being able to raise inflation rates much. If their activities have no impact on inflation at all, why not buy up all the securities and foreign exchange in the world by printing yen? The Japanese could live entirely off the dividends because of this magical property of their central bank.

As is typical of such articles, this is written from the point of view of a central bank. Low inflation is only a problem to central banks. Central bankers are bothered by low inflation because they can't cut interest rates below zero. The US and Europe inject money into the economy by having the central banks loan it out to commercial banks, who then loan it out at a profit. That's not the only way to do things. Japan uses large government-funded infrastructure projects to pump money into the economy.

The real problem is "secular stagnation". We just don't need that many people to make all the stuff. The US now has a huge population that's irrelevant, and acts as a dead weight dragging down wages. I've been saying this for over a decade, and it's now conventional wisdom, although it took way too long.

> Somewhat counter-intuitively, a low unemployment rate is a lot more important to workers' overall incomes than a rise in wages (given typical variation in both).

That's generally true, but it's not an absolute, and it doesn't rule out paying higher wages while also maintaining the current level of employment. It's pretty clear from the data [1] that corporations are earning more than ever and not passing it on to employees.

> This is also why high real wages are so damaging when they lead to higher involuntary unemployment: they actively rob those who are most in need of their rightful incomes! It's why recessions make people angry and anxious for "something to be done", whatever that might be.

That's true, but doesn't apply. Real wages aren't even keeping up with inflation, and are decreasing relative to productivity [2], so it's silly to claim they're so high they're causing unemployment.

[1] https://fredblog.stlouisfed.org/2018/08/corporate-profits-ve...

[2] https://www.epi.org/publication/charting-wage-stagnation/

this link is _fantastic_ , thank you for sharing it, i haven't heard this argument before .

First: For a given constant T > 0 there exists C > 0 such that Temp(earth)

  > Right, if you plot the U.S. energy consumption in all forms from 1650 until
  > now, you see a phenomenally faithful exponential at about 3% per year over
  > that whole span. The situation for the whole world is similar. So how long
  > do you think we might be able to continue this trend?

  > Alright, the Earth has only one mechanism for releasing heat to space, and
  > that’s via (infrared) radiation. We understand the phenomenon perfectly
  > well, and can predict the surface temperature of the planet as a function of
  > how much energy the human race produces. The upshot is that at a 2.3% growth
  > rate (conveniently chosen to represent a 10× increase every century), we
  > would reach boiling temperature in about 400 years. [Pained expression from
  > economist.] And this statement is independent of technology. Even if we
  > don’t have a name for the energy source yet, as long as it obeys
  > thermodynamics, we cook ourselves with perpetual energy increase.

  > At that 2.3% growth rate [of global energy consumption], we would be using
  > energy at a rate corresponding to the total solar input striking Earth in a
  > little over 400 years. We would consume something comparable to the entire
  > sun in 1400 years from now. By 2500 years, we would use energy at the rate
  > of the entire Milky Way galaxy—100 billion stars! I think you can see the
  > absurdity of continued energy growth. 2500 years is not that long, from a
  > historical perspective. We know what we were doing 2500 years ago. I think
  > I know what we’re not going to be doing 2500 years hence.

  > If we tried to generate energy at a rate commensurate with that of the Sun
  > in 1400 years, and did this on Earth, physics demands that the surface of
  > the Earth must be hotter than the (much larger) surface of the Sun.

Second: Energy(earth) / GDP(earth) >= K > 0

  > Then in order to have real GDP growth on top of flat energy, the fractional
  > cost of energy goes down relative to the GDP as a whole.
  > How far do you imagine this can go? Will energy get to 1% of GDP? 0.1%? Is
  > there a limit?
  > if energy became arbitrarily cheap, someone could buy all of it, and
  > suddenly the activities that comprise the economy would grind to a halt

That is, assuming we want Temp(earth) 0, K > 0 such that Energy(earth) = K > 0 . Therefore GDP(earth) <= C / K .

> how can we have infinite growth on a planet with limited resources?

I find it sad but unsurprising that a reasonable question like this attracts a bunch of downvotes here.

I heartily recommend Higgs' book "Collision Course" -- it doesn't provide solutions about how to get ourselves out of the mess that we're in, but it does provide a lot of historical evidence explaining how much public thought and speech around economic growth has been warped by propaganda:

Kerryn Higgs -- Collision Course: Endless Growth on a Finite Planet

https://mitpress.mit.edu/books/collision-course

A few quotes from reviews:

> If modern society ever had a core taboo it is against speaking favorably of limits, especially with respect to growth.

> Higgs explains brilliantly how our ideas about economics and the environment have been carefully warped and manipulated over decades, just so a small minority could get rich.