Opinion: Now that the ‘Old Economic Model’ is broken, a question for you…

The ‘Old Economic Model’ which brought many years of economic growth relied on people spending beyond their means and getting into debt. People like Vince Cable warned against this, but Gordan Brown didn’t listen, and now the bubble has burst – and we are all paying a very high price.

We need a new model, the old one is broken.

But what is this new model? What is going to drive growth in the fututre now that we cannot return to the old model? Or is infinite growth a Utopian fantasy, and that, apart from places like China and India, we should come to terms with not having any significant growth from now on?

Over to my fellow Lib Dem Voice readers…

Geoffrey Payne is a Liberal Democrat member in Hackney, and occasional contributor to LDV.

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14 Comments

  • I know that growth isn’t quite so simple as this, but broadly speaking it comes down to: the planet and its resources are only finite, therefore infinite growth is impossible, therefore at some point an economy and economic model based on “growth is inherently good” will collapse.

    http://www.csiro.au/news/The-Limits-To-Growth.html

  • Oh I don’t know – say inflation at 2%, credit that is payed back at a reasonable rate and steady jobs with average wages.

    I wonder whether we’ve tried it before? Let’s call it `perpetual spring` – moderate but hopeful with constant green shoots.

  • Surely there is only one answer you can possibly expect… 😉

    Land Value Tax

  • We are going to have to think beyond the conventional growth model.

    Not least because as soon as any ‘consumption growth’ comes back to western economies – the price of Oil will start back up again.

  • There is actually nothing wrong with the old model (and sticking with the motoring metaphor) except that it was modified by juvenile hoons, and thrashed into the ground. They blew up the engine by trying to keep it into the red-line region for far too long.

    We just need to strip it down and do a complete rebuild.

    But a new model? Yes, maybe, but with a twist. Disband the mutant Keynesian/monetarist Franken-onics the muppets have used to crash and burn the economy, and revisit the Austrian/Von Mises/Hayek school of economics; an older model… with a few tweeks to bring it up to date.

    The business cycle is a fact of life and the ludicrous attempt to banish boom and bust was a folly of the highest order… especially in trying to engineer a perpetual boom.

    The business cycle, like the seasons, is something to plan for and embrace. In that sense, “pure” Keynesianism may have a chance of working. Unfortunately, political expediency causes governments to seriously *&^% around with the model, swapping from whatever school’s prescribed tinkering will make them look the best at the time.

    Voila – Franken-omics.

  • Should have added that at some stage, perpetual growth may be impossible. Whatever model we embrace should be able to survive that. The current system will cause massive long term deflation when that point arrives.

  • David Morton 21st Apr '09 - 9:22pm

    Terra isn’t a zero sum system. It receives a collosal external imput every day in the form of sun light. Since the first Cave Art c 27000 to 30000 years ago Human beings have been able to create “value” greater than the objective market rate of the source materials.

    Sun Light + Intellectual Property means we don’t need to worry about growth per se for Millennia.

    That isn’t to say that the current model of growth won’t trigger runaway global warming, a Lovelockian nightmare and the collapse of Western Style civilisation but I don’t buy Zero Growth as a philosophical or economic iron law.

  • “But a new model? Yes, maybe, but with a twist. Disband the mutant Keynesian/monetarist Franken-onics the muppets have used to crash and burn the economy, and revisit the Austrian/Von Mises/Hayek school of economics; an older model… with a few tweeks to bring it up to date.”

    Or let’s not go the laissez-faire route.

  • The major problem with the current system is that it does not empower certain fields I am talking about Academia, Science, and Agriculture.

    Their impact on society must be bigger in the future and in order for that to happen we must give them some clout.

    Laissez-Faire while it is beautiful in it’s simplicity and efficiency, it does not reward people based on their contribution to society.

    Maybe we’ll see more of these professions as part of the government then. Currently it seems to be a Lawyer/Businessman/Politician(!) saturation. It’s pure hearsay thought as I couldn’t find anywhere previous professions were listed.

  • “Laissez-Faire while it is beautiful in it’s simplicity and efficiency, it does not reward people based on their contribution to society.”

    That’s a debatable point. Laissez Faire economics is quite a broad church and does have scope for rewarding the worthy (subjective as that is). What it tries very much to avoid is rewarding the unworthy.

  • Yeah, it’s really tough to find the words here.

    It is my feeling that our society under represents these fields in both income distribution and political power.

    These professions have concrete benefits to society yet the system doesn’t do them justice. They are usually beholden to the money men which may not be the most productive way to produce innovation. They are not interested in sustainability, social issues or health. Of course this is not because they are bad people or morally corrupt.

    As Milton Friedman said:

    But it’s always been true that business is not a friend of a free market… If free markets weren’t so damn efficient, they could never have survived because they have so many enemies and so few friends. People think of capitalism or free markets as something that obviously is supported by business. People think that if a business party is a party in politics, it will promote free market. But that’s wrong.

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