A negative-growth environment, if it persists, is a depression, so that’s not good for anybody. With a low-growth environment, it comes down to defining how much is enough. This is a real problem for us in the West right now.
The heady days of having 3 or 3.5 per cent growth rates in real terms – which is high when you start compounding it over a decade or so – have gone. That was debt-fuelled consumerism, the idea of instantaneously having material goods when we want them, which created the economic growth between about 2000 and 2008. While our parents’ generation might have said, “We can’t go out on Saturday night because we’re saving up for a fridge,” we got used to the idea of instantaneously having material goods when we want them, particularly when Margaret Thatcher took the corset off the financial system in the 1980s and allowed everybody to borrow money. Now we’re looking at growth rates of 1 or 1.5 per cent, and it’s a much duller environment. People have a roof over their head and food on the table but it lacks the excitement we had in the ’80s and into the ’00s as well. That’s what we’re really struggling with: not that we don’t have enough but that we don’t have an excess.
I still hear people say, “When are we going to go back to the way it was?” Even eight years after the crash there’s a gap between the reality of today and nostalgia for those heady consumer times. And in some respects, central banks are culpable for this: the Bank of England, the Federal Reserve in the US and the European Central Bank have propped up the system through the process of quantitative easing, hoping that it would heal itself and a new benign economic cycle would begin again, and that simply hasn’t happened.
There’s an argument that, despite the massive human cost in terms of jobs and homes and businesses, even lives destroyed, it would have been better to have allowed the destructive process which is part of the normal economic cycle. We’ve lost the notion of sustained economic downturns being a proper consequence of the cyclical nature of human behaviour. Karl Marx understood this, John Maynard Keynes understood it as well: humans have a tendency to take good ideas too far so you get booms and busts. We haven’t allowed for the bust in this case because the central banks said, “We’re not going to make those hard decisions any more.”