By Hugo Dixon
LONDON- Christmas is traditionally a period for consumption and spiritual reflection. That makes the upcoming holiday a good moment to pose one of the top political and economic questions facing rich countries: whether their citizens can continue to live well in an era of slower growth.
This depends in part on economic and political decisions about how to allocate resources.
But if well-off countries continue with an acquisitive and individualistic mindset, there will be much unhappiness and conflict. If they embrace a more purposeful, caring and green future, citizens can thrive.
Ancient Greek philosophers such as Aristotle knew that material goods are necessary but not sufficient for good lives. People also have social, intellectual, and even spiritual needs.
Modern studies, such as the annual World Happiness Report, back this up. Income is one factor that explains how satisfied people are with their lives. But social support, healthy life expectancy, and freedom to make their own choices are also vital. Despite this, modern culture gives pride of place to economic growth.
Economic progress can be a powerful force for social change. In recent decades, rapid increases in GDP have helped to take billions out of poverty. People who lack basic material goods can have miserable lives. So poor countries need to keep growing.
Meanwhile, poor people in rich countries need more income. If growth is slow, that means they will need to be given a bigger slice of the economic pie. Even after basic needs are met, extra income can boost people’s happiness.
But the narrow pursuit of money can also be counterproductive: it discourages people from spending time on other things that matter to them; it contributes to climate change; and it weakens the social fabric.
In any case, advanced economies haven’t grown much since the 2008 global financial crisis — and the prospects for the future are gloomy. If rich societies stick with a hyper-materialistic mindset, they are setting themselves up for a clash between what they desire and what they can achieve.
In the 15 years since the financial crisis, advanced economies grew an average of 1.6 percent — down from 2.8 percent in the previous 15 years. The International Monetary Fund forecasts average growth of 1.7 percent for the next five years.
Hopefully the world economy will not face another global financial crisis, a new pandemic or another war with a human and economic impact equivalent to Russia’s invasion of Ukraine.
But it will face multiple known headwinds, even without factoring in surprises.
To start off, there are the drags from the recent crises. Spending related to bailouts has driven the gross public debt of advanced economies to 112 percent of GDP from 71 percent in 2007. Interest rates, which were artificially low for a decade and a half, are now nearer to historical norms. So loose fiscal and monetary policy will not be able to boost the economy in future years.
Rich democracies are also jacking up spending on defense in response to the Russian invasion and China’s sabre-rattling in East Asia. Buying tanks, missiles and fighters contributes to economic output. But it also diverts resources from other areas and does less to boost future income than more productive forms of investment.
Then there are mega-trends that will weigh on economic vitality. The Organization for Economic Co-operation and Development forecasts the ratio of people aged 65 to those of working age in the club of rich countries will shoot up to 53 percent in 2050, from 33 percent this year. Older people are less likely to work and more likely to need more care. – Reuters
