Ultimately the problem is ecological, not economic
With advances in transportation and communication, the world opened up during the fifteenth and sixteenth centuries. At first greed manifested as pursuit of precious metals, then natural resources. When industrial capitalism enabled a production profusion, there was a pursuit of markets.
Under capitalism each producer is driven by the carrot of profit and the stick of competition (“grow or die”) to produce as many units as can be profitable. Mass markets developed during the nineteenth century. Producers then faced an essentially infinite populace of consumers. Under those conditions the striving to maximize production, profit, and market share became frenetic.
World population rose seven-fold between 1800 and 2000, from about one billion to about seven billion. Obviously that trajectory is unsustainable, so the period will forever be viewed as unique (“singularity”). Production and consumption rose two-hundred-fold (and has doubled since 2000).
There had been an idea that the natural resources needed for production would become increasingly scarce … with resultant inflation. The experience of oil shortages during the 1970s gave credence to the idea that inflation would become the terminal condition of industrial capitalism. But another factor proved to be more significant: Globalization reached a point (around 1980) where production facilities could be located anywhere. The vast masses of the third world became a supply of cheap labor. This was highly deflationary.
It was deflation, with ensuing bankruptcies, that was near-terminal for the system during the 1930s. Governments and central banks fear it. That’s why we currently see such low interest rates and such extreme monetary and fiscal policies.
Cheap credit and governmental stimulus has recently been a win-win-win phenomenon:
. the wage stagnation afflicting lower- and middle-class workers has been palliated by cheap goods and low mortgage rates;
. marginally profitable producers have been able to stay in business due to cheap credit;
. much of the stimulus has wound up buttressing the prices of stocks, bonds, and real estate, so the financial elites have become super-rich.
The stimulative monetary and fiscal policies have not led to inflation because of the near-infinite supply of cheap labor worldwide. Theoretically these conditions could go on for a very long time. But invariably accompanying higher and higher levels of production and consumption are higher levels of pollution. Whether it’s CO2 in the atmosphere or plastics in the oceans or deforestation or aquifer depletion, ecological degradation will eventually impinge upon economic growth.
A system where each producer is driven by the carrot of profit and the stick of competition (“grow or die”) to produce as many units as can be profitable is ruinous. There is an idea that an eco-socialist regime could implement a planned, coordinated, and just process of degrowth. I hope so, but I’m a little skeptical about prospects for such.
Anyway, meanwhile, having noticed that they can increase stimulus without producing inflation (win-win-win), it may be that the central banks and governments have gone too far. Eventually the zombie corporations dependent upon cheap credit will fold. Eventually the over-building of commercial real estate will have consequences. Eventually hyper-valuation of financial assets will reach a limit. In the next downturn further lowering of interest rates will not be possible (they’re already near zero). Fiscal deficits and Fed balance sheets are already at unprecedented extremes.
Up and down capitalism will go, will continue to go. There’s still a near-infinite pool of cheap labor and of systemically-additional consumers worldwide. Natural resources are generally still pretty abundant. The planet and its web of life will continue to suffer.
