The Bubble Economy ─ Is Sustainable Growth Possible?

The global economy has become increasingly, perhaps chronically, unstable. Since2008, we have heard about the housing bubble, subprime mortgages, banks "too big to fail,"financial regulation (or the lack of it), and the European debt crisis. Wall Street has discoveredthat it is more profitable to make money from other people's money than by investing in the realeconomy, which has limited access to capital--resulting in slow growth and rising inequality. Whatwe haven't heard much about is the role of natural resources--energy in particular--as drivers ofeconomic growth, or the connection of "global warming" to the economic crisis. InThe Bubble Economy, Robert Ayres--an economist and physicist--connects economicinstability to the economics of energy. Ayres describes, among other things, the roots of our bubbleeconomy (including the divergent influences of Senator Carter Glass--of the Glass-Steagall Law--andAyn Rand); the role of energy in the economy, from the "oil shocks" of 1971 and 1981through the Iraq wars; the early history of bubbles and busts; the end of Glass-Steagall; climatechange; and the failures of austerity. Finally, Ayres offers a new approach to trigger economicgrowth. The rising price of fossil fuels (notwithstanding "fracking") suggests thatrenewable energy will become increasingly profitable. Ayres argues that government should redirectprivate savings and global finance away from home ownership and toward"de-carbonization"--investment in renewables and efficiency. Large-scale investment insustainability will achieve a trifecta: lowering greenhouse gas emissions, stimulatinginnovation-based economic growth and employment, and offering long-term investment opportunitiesthat do not depend on risky gambling strategies with derivatives.

Robert U. Ayres, an American-born physicist and economist, is Emeritus Professor of Economics and Political Science at INSEAD, the international graduate business school. He is the author or coauthor of many books, including (with Benjamin Warr) The Economic Growth Engine: How Energy and Work Drive Prosperity.