In our Western economic system, is ZERO GNP GROWTH for a country
sustainable over 10 years or more? Would our system automatically
"flip" from say plus 1% to minus 2% per annum or more? It worries me
to calculate the long term consequences of a plus 2% growth over 400
years. I'm looking for an answer IN PRINCIPLE, not in detail. Whenever
I meet an economist at a party I ask them, and never seem to get a
coherent answer. Your answer would seem to influence most of the world
I live in (urban South of England).

Dear doxeyman,

Thanks for your question.  First, let me request that if any of the
following is unclear or if you require any further research – please
don’t hesitate to ask me for a clarification.

You asked – “Is ZERO GNP GROWTH for a country sustainable over 10
years or more?”

Assuming full employment and no population growth, the answer is a
resounding yes (in fact, with negative population growth, lifestyle
could even improve under 0% growth…).  What you will in fact witness
in such a case is a steady-state economy.

Fear of 0% growth, however, is driven by the expectation that
populations in most of the world do continue to grow – this is further
exacerbated by the fact that at the point-of-entry to such a scenario
we are not, in fact, at full employment (popularly defined as a 4%
unemployment rate).  This is why, from an economist’s perspective, a
0% GNP growth scenario is called a recession.  See excellent
presentation with graphs at –

http://economics.wustl.edu/~e1041s01/lec-9-010205.doc

In most economies, therefore, 0% GNP growth would not be sustainable. 
As the population continues to grow, unemployment will rise and demand
for good and services will drop – creating a cycle that will drive the
economy to negative growth.  One can imagine that as this cycle
continues to play out civil unrest will increase etc.

Another concern in such a situation, especially for capitalist
economies, is deflation – as demand drops, prices fall and wreak havoc
on financial markets that are dependent on earnings growth; without
growth in earnings equity prices will drop and investment in the
economy will shrink – again, further impacting the downward slide.

So, again, in theory, given well-defined economic characteristics at
the onset of such a period, 0% GNP growth could be sustainable.  But
in reality it would be rare for all such factors to coincide.

I hope this response adequately addresses your request.  Please let me
know if you are in need of additional information concerning this
query.

Thanks,
ragingacademic-ga


Search Strategy:

"zero gnp growth"

Great book on human history and economics:

"Non-Zero Sum" by Robert Wright:
http://www.nonzero.org/