Crisis of Growth - Or Recession on Paper Only?
Channel: Sam Vaknin's Musings
Date: 2011-09-05

The sovereign debt crisis of 2010-2 emanated from the realization that lower growth rates throughout the industrialized West were insufficient to guarantee the repayment of debts accumulated by governments. The proceeds of the credits and loans assumed by public sectors throughout Europe and in the USA were ploughed into successive futile attempts to stimulate ailing economies and avert banking crises and panics.

But this second leg of the global Great Recession is less about stalling growth than about the perception and measurement of growth. As labour-intensive industries increasingly adopted information- and automation-driven manufacturing, outsourcing and offshoring, the anemic recovery that attended the 2008-9 conflagration in the industrialized West was rendered jobless. Corporations sit on hoarded cash piles, driven by enhanced profitability and productivity even as workers languish in unemployment lines. Globalizeed labor and skills markets coupled with technological substitution for human employment dented consumption and this, in turn, adversely affected investments. The classical twin engines of every recovery since the Second World War have thus been somewhat decommissioned. Bouts of fiscal and monetary profligacy failed to resuscitate moribund financial transmission mechanisms. 

But this is also a crisis of national accounting. The traditional ways of measuring growth simply fail to capture technological progress; the massive increase in purchasing power as it applies to consumer goods and products; and a discernible improvement in externalities such as the environment. Critical factors such as vastly improved health, an increased life expectancy (and, therefore, an extended economic horizon), public goods, or even changes in the quality of life remain unreflected in the way that countries measure their output and adjust it.

Indeed, current methodologies of quantifying GDP and NDP take a dim view of the precipitous and predictable drop in the prices of consumer goods, for instance. The same computing power costs now one fifth what it used to cost only three years ago. But this means that its contribution to the country's GDP is down by c. 81% over the same period of time (assuming 6% inflation in these three years)! In other words: technological (and productivity) improvements translate into economic contraction in the way we currently gauge our economies.