The end of easy growth

While chief economist at the IMF, Raghuram Rajan was one of the very few economist that prevented the crisis before 2008. The True Lessons of the Recession, his last paper (pdf) is definitely worth reading:

In fact, today’s economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side. For decades before the financial crisis in 2008, advanced economies were losing their ability to grow by making useful things. But they needed to somehow replace the jobs that had been lost to technology and foreign competition and to pay for the pensions and health care of their aging populations. So in an effort to pump up growth, governments spent more than they could afford and promoted easy credit to get households to do the same. The growth that these countries engineered, with its dependence on borrowing, proved unsustainable.

Rather than attempting to return to their artificially inflated gdp numbers from before the crisis, governments need to address the underlying flaws in their economies.

His main point is key: last decades’ economic growth was totally flawed and qualitatively weak. Contrary to our pretensions, Western countries are badly developed and have few chance to return to growth any time soon.

I wonder if we shouldn’t think totally differently. Instead of looking for an hypothetical economic growth, why don’t we start by asking ourselves how can we manage a growthless economy?