ZERO ECONOMIC GROWTH



Zero economic growth is an economic condition that may be the result of a nation's public policy, or it may be caused by a recession. When several Asian economies experienced economic and financial crises in 1998, some countries, including Japan, were expected to experience zero economic growth during the following year. A number of factors may be used to measure a nation's economic growth. The largest overall measure of economic output is a country's gross national product (GNP), which is an annual measure of the goods and services produced in the country. When the GNP increases from year to year, economic growth is occurring. Should the GNP decrease, then there is said to be negative growth. Under zero economic growth, the GNP would remain constant over time. For most countries zero economic growth is perceived as a worst-case scenario.

As a matter of public policy, most nations strive for moderate economic growth from year to year. Two types of policies, monetary and fiscal, can be implemented to affect a country's economic performance. Fiscal policy refers to the use of government spending and taxation to affect the overall demand for goods and services. Increased government spending increases the size of the GNP. Higher tax rates reduce the amount of disposable personal income, with a corresponding reduction in demand. Using these two fiscal tools, a government can raise or lower the demand in the economy, with corresponding effects on the GNP and economic growth.

Monetary policy refers to the use of controls over interest rates, the money supply, and the ability of banks to make loans. In the United States monetary policy is established by the Federal Reserve Board. Monetary policies can help reduce unemployment and slow inflation. For example, when the Federal Reserve Board makes it easier for banks to make loans, thus increasing the money supply, businesses are thereby encouraged to make more investments and hire more workers. By increasing the discount rate, on the other hand, the Federal Reserve Board can restrict the money supply and help reduce inflation. Restricting the money supply tends to reduce the size of the GNP, while measures to expand the money supply tend to increase the size of the GNP.

Zero economic growth may be an unwanted condition that a country experiences as the result of a recession or another set of economic circumstances. While fiscal and monetary policies can have some effect on economic performance, it is quite possible to experience unintended zero economic growth. Factors that could contribute to a flat or declining GNP might include high unemployment, inflation and higher prices, high interest rates and little business expansion, a general recession, and anything else that would lessen demand and business production.

Zero economic growth has been discussed in academic circles as a desirable goal of public policy. It is argued that an ever-expanding economy will sooner or later become too large for the finite world we live in. If the world's economies become too large, they will make too great a demand on our planet's finite resources. The ultimate effect of economic growth would thus be the collapse of the ecological, social, political, and economic systems as we know them.

The no-growth argument may be countered by pointing to the adaptability of existing social, economic, and political systems. As economic growth continues, new alternatives are likely to become available. Technological innovations may provide new solutions to the problems caused by economic growth. While economic growth has its costs and benefits, public policy will likely continue to attempt to minimize the costs and maximize the benefits without abandoning the concept of stable economic growth as a policy objective.

[ David P. Bianco ]

FURTHER READING:

Davis, Bob. "IMF Expects 'Moderate Rebound' in Asia in '99." Wall Street Journal, 14 April 1998, A2.

Meizer, Thomas C. "To Conclude: Keep Inflation Low and, in Principle, Eliminate It." Federal Reserve Bank of St. Louis Review, November/December 1997, 3-7.

Stephen, Andrew. "Party Goes on While Clouds Loom." New Statesman, 24 July 1998, 24.

Tiglao, Rigoberto. "Mixed Prognosis: The Islands Show Some Resilience to Asia's Malaise." Far Eastern Economic Review, 19 February 1998, 58.



User Contributions:

1
Richard
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Apr 1, 2008 @ 12:00 am
I would like to see some serious exploration of how to make a low growth or non-inflationary economy work. Most people don't want the collapse of ecological, social, political and economic systems. Most just want these systems stabilized in a sustainable manner which will work for the next few hundred years.

And now most informed people want to see a 50% reduction in CO2eq emissions, starting now, without limiting the growth of food production or triggering a depression. Rising fuel costs will be a natural consequence, leading to a reduction in demand. Is this such a difficult problem for the economists and politicians to solve?

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