Economic Growth and Consumerism

“Is man one of God’s blunders or is God one of man’s blunders? We may never know but all hail the one true God, the almighty consumer.”

The Japanese Economy has remained the same for the past 3 decades with no real change in living standards of the people or productive capacity of the economy. Even while watching Fight Club, we are brought face to face with the stark reality of our times. Mindless consumerism. 

Most of the economies around the world rely on consumerism to fuel their economic growth. In the 1980s, Japan witnessed an intense spree of consumerism. Then came the decade of 1990s, the lost decade of Japan. More than 50% of Indian GDP growth is driven by Private Household Consumption. In this context, the GFC can also be construed as a by-product of institutionally induced consumerism. The question that arises out of these examples is whether economic growth propelled by consumerism is sustainable or are we pushing the envelope of the environment around us and the fabric of the society itself. 

Consumerism in a finite world is threatening the planet. The growth of GDP and the outwards shifting of the budget line is threatening the world we live in. 

A rise in Aggregate Demand is most commonly an attribute of an increase in the real income. As consumption demand increases, we force the world to produce more and more from the catalogue of finite resources.

This PPF curve shows a trade-off between non-renewable resources and consumption. As we increase consumption, the opportunity cost implies a lower stock of non-renewable resources.

For example, the pace of global economic growth in the past century has led to a decline in the availability of natural resources such as forests (cut down for agriculture/demand for wood)

a.     A decline in sources of oil/coal/gas

b.     Loss of fishing stocks – due to overfishing

c. Loss of species diversity – damage to natural resources has led to species extinction.

There is an even bigger question of how consumerism is creating this disconnect between our actual living style and our wants. How it fails to give true meaning to our lives and creates an internal turmoil where our biggest struggle is spiritual in nature and the biggest depression, our lives. But that is beyond the scope of economics and very much philosophical.

To begin with, I think it is quintessential that we look at some of the negative externalities of economic growth:

a.     Pollution - Increased consumption of fossil fuels can lead to immediate problems such as poor air quality and soot.

b.     Diffuse Pollution - the effects of increased CO2 emissions are less immediately obvious and therefore there is less incentive for policymakers to tackle. Scientists state the accumulation of CO2 emissions have contributed to global warming and more volatile weather. All this suggests economic growth is increasing long-term environmental costs – not just for the present moment, but future generations.

c.    Global Warming - Global warming leads to rising sea levels, volatile weather patterns and could cause significant economic costs. 

d.     Loss of Bio-diversity - Economic growth leads to resource depletion and loss of biodiversity. This could harm future ‘carrying capacity of ecological systems’ for the economy.

Of all the theories surrounding the correlation between economic growth and economic cost, there is one that uses Kuznets Curve to demonstrate the possible future road map of the environment of an economy as it progresses. 

It suggests that that up to a certain point economic growth worsens the environment, but after that the move to a post-industrial economy – it leads to a better environment.

But this theory has inherent flaws such as the fact that the curve may be true for the pollutants but nor for the stockpile of natural resources – that is a straight downward sloping curve. It also ignores the fact that most often reducing the pollution in one country leads to the outsourcing of pollution to some other nation - perfectly captured in the map presented below by Our World in Data.

There are many other models that explore this correlation, such as: 

a. Limits Theory - This suggests that economic growth will damage the environment, and damage will itself start to act as a brake on growth and will force economies to deal with economic damage. In other words, the environment will force us to look after it.

b. Race to the bottom - This suggests that in the early stages of economic growth, there is little concern about the environment and often countries undermined environmental standards to gain a competitive advantage – the incentive to free-ride on others’ efforts.

While there can be numerous efforts taken by the government to tackle these issues, there can be no real change, unless there is a paradigm shift in the consumer culture of the modern world.  

It is estimated that if everyone on this planet started consuming like an average American, we would need four such planets to sustain ourselves. Consumerism has also lead to an ever increasing economic inequality gap. More than 59% of the world’s resources are consumed by the 10% richest countries, whereas the poorest consume less than 0.5%.

But why should we even care about our survival or the survival of the future. On a long enough timeline, the survival chances of everyone drops to zero. But, if there is any way of stretching out this supposed timeline, I think it is worth the efforts then.

The governments all around the world can introduce carbon credits, subsidies, strict laws and regulations to control this spree of mindless consumerism but none of it will work. It is only God who can reverse this phenomenon, and the God is the consumer. We need to change our outlook and our definition of a ‘good standard of living’. The things we own end up owning us. Until and unless we work on fighting our perceptions of true economic growth, the incessant spree of consumerism will continue to grip us and eventually strangle us.