Jerome Powell recently warned Congress that US debt is exceeding economic growth. He reported that this trajectory is unsustainable. This comes on the heels of a letter issued by climate scientists seeking less economic growth.

Climate Science Goals

11 thousand scientists have signed a letter calling for the decline of growth in world economies. They want a reduction of GDP throughout the entire world. From the letter:

To secure a sustainable future, we must change how we live, in ways that improve the vital signs summarized by our graphs. Economic and population growth are among the most important drivers of increases in CO₂ emissions from fossil fuel combustion (Pachauri et al. 2014, Bongaarts and O’Neill 2018); therefore, we need bold and drastic transformations regarding economic and population policies. 

Negative per capita growth seems to be the goal of these scientists. It is, hopefully, not likely that scientists will get their way.

But in case people may latch onto the Utopian economic goal they have, we have an example of declining per capita growth in Japan resulting from economic issues in the past.

Japan in Crisis As Per Capita Income Declines

Shifting goals from GDP growth is certain to cause big economic problems. Japan is just one nation, but it is an example of what could happen to the world if science gets its way. Japan, a nation that is experiencing population decline, is being buried in debt and forced to invest in nations that are growing. Japanese banks are often making reckless bets in Unicorns like the one Softbank made in WeWorks. Japan's GDP is growing, but per capita income is not.

From the Japan Times we see an article explaining Japan's decline:

In fact, Japan’s per capita income measured by purchasing power parity declined to about 70 percent of the U.S. level in 2013, while in 1990 it had been about 80 percent of the U.S. level. 

Japan's Purchasing Power Parity (PPP), has been declining for years:

(Click on image to enlarge)

The Japanese had the highest per capita income in the world in the 1970s:

Overall real economic growth was called a "miracle", with a 4% average during the 1980s.^[7] Throughout the 1970s, Japan had the world's second largest gross national product (GNP)—just behind the United States— and ranked first among major industrial nations in 1990 in per capita GNP at US$23,801, up sharply from US$9,068 in 1980. After a mild economic slump in the mid-1980s, Japan's economy began a period of expansion in 1986 that continued until it again entered a recessionary period in 1992. 

Japan's per capita income, adjusted for purchasing power has been weak for years and that appears to be continuing.

Japan was laid low by the after-effects of the massive bubble in stocks and real estate that developed in the late '80s and '90s. Very slow growth has resulted in desperate BOJ stimulus measures, such as negative interest rates. But negative rates didn't work. High debt coupled with an aging population has made the Japanese rebound very elusive. Negative rates make bonds unstable.

If declining GDP and negative population growth were engineered into economic systems, those systems could look somewhat like Japan does today. Declining population in Japan has not helped per capita income there increase.

The pressure on banks in Japan must be enormous. Over half of Japan's regional banks are losing money. And the big retail banks are losing foot traffic for multiple reasons including the truth that Japan's population is continuing to shrink.

Do the scientists have a plan to move safely to declining per capita income the world over. The letter states no such solution.

I am not convinced that orderly paring back of population along with orderly reduction of GDP will result in anything but crisis!

Negative Growth and Negative Rates

Negative growth sows the seeds of economic destruction, political repression, and even war fever. From the New Yorker:

In 2018, economic growth was driven by a higher demand for energy, trucking and air travel, and industrial activity. Companies were manufacturing more stuff, including steel, cement, and chemicals. The carbon intensity of the power sector, meanwhile, did not decline fast enough to offset all those demand increases. As has been common since Nordhaus’s 1974 paper, the report seems to pit controlling climate change against a growing global economy.

The Fed believes that economic growth is crucial.

Jerome Powell has said that immigration and population growth are important to economic growth. He said:

From an economic growth standpoint, reduced immigration would result in lower population growth and thus, all else equal, slower trend economic growth.

This very basic concept is not taken seriously by climate change scientists.

Dangers Lurking Going Forward

Science is great. It has given us many wonderful things. It allows us to grow. But the laws of economics are as relentless as the laws of science. Interfere with the laws of economics and nations are undermined and the social order is tested.

Even if climate science does not prevail with its economic aspirations, the world faces increasing challenges to growth and normalization of interest rates. The new normal, as Powell says, is slow growth and low rates and little inflation. The new normal has been around since the Great Recession.

Europe and Japan suffer from these population and debt and rate challenges continually. Hopefully, the US will take Mr. Powell's words seriously and promote business investment and growth in the USA.

When I say Europe is struggling, even the Dutch, stalwarts of economic prudence and caution, are now struggling with their pension system due to fewer workers and negative interest rates:

Dutch workers have typically been able to retire on a pension equivalent to roughly 80% of their average pay. But stress on pensions from low interest rates has led to talk of reduced payouts to retirees, or increased premiums for those still in work, shocking a nation that has come to rely on a system known for its strict accounting and reliability.

Getting money into the hands of the people is a crucial first step. Jeffry P. Snider has said that the Fed just flooding money markets with money is not the answer.

He said this about the primary dealers:

Dealers already possess excess reserves, so is the FOMC shooting for some other relevant functional level above that; excess reserves? These dealers don’t want to lend in money markets, so they don’t, which causes the Fed to get involved by giving the same dealers more of what they don’t want to lend in money markets.
Brilliant!

Jeffrey's sarcasm is well placed. Procyclical bankers are pulling back in the financialized portion of the economy. They already pulled back in the real economy. So, getting that money that Will Rogers said was important, into the hands of the average person is becoming still more difficult. Even without climate science prescriptions for growth, the world faces major challenges going forward. 

The ideas exist for getting that money where it needs to go. The world could experiment with Jubilee or with Helicopter Money as a means to increase growth over debt. Will Roger's always said it is important to get money into the hands of regular folk.

But even Japan won't do those things considering the challenges it has, and its per capita income relentlessly declines while its central bank does nothing to address it. It is likely that other nations are fearful of these sound ideas to give each individual a boost even with a one off.

How long can nations go with negative interest rates, negative growth and declining GDP before something breaks? It appears that there is stuff breaking. Look at the premium charges for health insurance. Low interest bonds make it difficult for insurance companies to make money. Pensions are in jeopardy as well. Attacks on Social Security and Medicare increase. Harm is being done to main street and to the financialized economy and even a little better growth would be welcome. 

The Fed is good at warning. It is not so good in using the little common sense that Milton Friedman gave it long ago. Federal Reserve money is misdirected. Get it into the hands of the people.