The Hidden Danger of a "Fully Grown" Economy

Is there cause for concern, should mature economies appear to no longer "need" additional growth?  Perhaps so. Too much non tradable sector activity - much of which is also non discretionary - does not accurately reflect the reality of wide income variance. Since the need for full economic participation (at a basic level) is not taken into account, many citizens also cannot contribute, to what would otherwise be shared responsibilities. Indeed, these hidden losses indicate that a market gap exists which is far too significant to be addressed via aggregate demand "remedies". Essentially, non tradable sector requirements now demand more long term monetary revenue (and consequent need for higher monetary growth levels) than what is actually transpiring.

These systemic burdens are also faced by individuals in their daily lives. Many who aspire to success, come into adulthood convinced they have little choice but to do so on fully monetarily compensated terms. This, in spite of what many workplaces can reasonably expect to offer their employees. And while struggles for full access may suggest illogical meritocracy, consider what is at stake. Until non tradable sector consumption options become more flexible, one's decision to forgo a college degree, will often lead to a lifetime of uncertainty and excessive personal risk.

Despite this reality, even college degrees hold diminishing rewards. For instance, 33.8 percent of college graduates now work "in jobs that don't require a college degree". Given the high costs of non discretionary consumption, societies struggle to create more fully compensated wage capacity than their institutions can actually offer. Is there any wonder our political systems are creaking under the strain?

Yet in all of this, a stronger growth trajectory would be beneficial for reasons which go well beyond mere additional monetary revenues. In a modern day knowledge based economy, it is vital to make economic room for the growth and positive challenges of the human mind. That said, we need to think about doing so in ways which are not near as socially restrictive as the ones we currently rely on.

For these and other reasons as well, I question whether long term growth issues for mature economies are essentially "settled". And economists in particular, should be careful about this assumption. In one recent example, John Cassidy in "Can We Have Prosperity Without Growth?" highlights Dietrich Vollrath's new book, "Fully Grown: Why a Stagnant Economy is a Sign of Success".

Vollrath argues that slower growth is appropriate for a society as rich and industrially developed as ours. 

Of course, services play a major structural role in this circumstance. In 1950, services were only 40 percent of GDP, today they comprise more than 70 percent:

Taken together, slower growth in the labor force and the shift to services can explain almost all the recent slowdown, according to Vollrath.  

It is probably not safe to declare all is well in a "fully grown" economy, until most communities and citizens are at least able to take part at a basic level in economic activity. When citizens lack the ability to do so, their contributions to tradable sector markets are also disrupted. Does it really make sense to declare markets as fully matured, when millions of citizens remain in holding patterns and have yet to truly take part?

What might make it simpler to determine, whether the economy is "fully grown" to an extent it becomes obvious all is well? For one, citizens would be become less inclined to seek more extensive monetary compensation than systems can actually bear. Should non tradable sector activity become more reflective of actual income levels, fewer would be compelled to use higher education as a supposedly necessary signal. Granted, meritocratic preferences will always be important for some, as means to judge and reward accordingly. But merit should not have be the sole path, by which one might create a meaningful and productive life.