From Slow Growth to No Growth
The perils of living beyond our means.
Jun 13, 2011, Vol. 16, No. 37 • By DALIBOR ROHAC
If normal growth is the likely state of affairs in the decades to come, politicians on both sides of the Atlantic need to take it into account when devising their spending plans. In the United States as in Europe, that means curbing the growth of entitlement programs and rethinking what role government-provided welfare can be reasonably expected to play. Politicians will need to become prudent, modest, and more frank about what governments are able to do, and at what cost.
Many of our current predicaments result from the simple fact that politicians have refused to face reality. They either pretended that Western societies were becoming wealthier than they actually were, or thought that grand political schemes—such as a common European currency—were going to boost growth miraculously.
Both of those approaches—denial and hubris—have failed spectacularly and led to costs that are much greater than the direct effects of the under-lying productivity slowdown. The prospects of living in a world of only modest economic growth are not exciting. But as our current economic woes suggest, there is an almost limitless potential for ill-advised policies to make things worse.
Dalibor Rohac is a research fellow at the Legatum Institute in London.