A new paper out of CU Boulder argues it may be time to stop being hyper-focused on economic growth as a leading indicator of a society’s success, because we may be headed for a long-run decline in growth this century, whether we like it or not.
The paper, published on Nov. 18 in the journal Nature Human Behaviour, argues slowing growth could bring challenges particularly in countries with multicultural democracies like the United States. To address these challenges, the authors call for a “guided civic revival” aimed at decoupling social capital and well-being from economic growth.
In order to prepare for a slow-growth future, we might need to move away from the notion of a growing economy as central to national identity, said lead author Matt Burgess, assistant professor of environmental studies, affiliate in economics and fellow at the Cooperative Institute for Research in Environmental Sciences (CIRES) at CU Boulder.
“Basically, if you’re not growing, you can’t have this narrative that the rising tide is lifting all boats,” Burgess said. “You have to have a narrative that your social cohesion is built on around something else.”
In recent years, the financial crisis and COVID-19 pandemic have contributed to slowing growth in the United States, but growth has been gradually slowing since the 1970s. Still, economic growth continues to be a key measure of success in the country.
A guided civil revival
Socially and politically, the United States has long been a democracy that citizens believe performs best when business is booming, Burgess said, and the economy has historically been the identity that everyone in America can get behind.
But if growth is slowing, that mantra will have to change.
Burgess and his co-authors argue slowing growth gives rise to challenges not just in social solidarity but also in opportunity and inequality, personal finance (retirement, savings), mental health and overall trust in government.
These issues are not easily solved, but the paper identifies four key areas of focus as a place to start: strengthening democratic institutions; increasing social integration and reducing economic inequality; increasing the public’s return on investment by closing tax loopholes, reducing corruption and likely raising taxes; and improving non-economic aspects of people’s well-being.
They call this effort a “guided civic revival.”
“It’s a civic revival because we need grassroots cultural forces to be part of it,” Burgess said. “It’s ‘guided’ because governments have a role to play, too.”
One example Burgess offers to improve social solidarity and reduce inequality is to integrate communities more rather than segregate them based on how much money people earn.
“Instead of building subsidized housing in a concentrated area, the government could give families vouchers so they can live where they want,” Burgess said. “Then families can become more integrated in the community. In experiments, this type of program has also been successful at reducing inter-generational poverty.”
The good and bad of slowing growth
Economists have previously noted two of the main causes of slowing growth––aging populations and shifts from goods to services––actually reflect improvements in well-being.
“Declining birth rates reflect progress in many important areas,” said study co-author Amanda Carrico, associate professor of environmental studies at CU Boulder. “For example, women’s rights, access to education and access to health care are all associated with lower fertility.”
The societal shift from goods to services also reflects development: People in general already have everything they need, meaning less goods are being produced and instead consumers are spending more on services to care for the stuff they have.
But this shift makes it more difficult to increase labor productivity, which has a direct impact on how countries such as the United States balance their budgets. Less productivity means less total goods and services produced in the country––commonly referred to as gross domestic product (GDP) in economics.
GDP is a key indicator of economic growth. The U.S. has long used GDP to offset budget deficits. But the Congressional Budget Office projects federal debt to outpace the GDP in the coming decades as growth slows.
“Slow growth could make it harder for countries to reduce their debt burdens without balancing their budgets,” said co-author Alessandro Peri, assistant professor of economics at CU Boulder.
This means the U.S. and other developed countries that use similar tactics may need to look at other ways to offset budget deficits.
While the authors offer anecdotal solutions, the main objective of their paper is to draw attention to these important issues, and to spark a conversation among scholars and political leaders to plan for the challenges that may lie ahead.