When the Money Runs Out (2013) by Stephen D. King looks at the dull horror of possible lower growth rates and the implications for the West. This Stephen King is the Group Chief Economist at HSBC but he has written a book that is really scary. The book looks at how the recovery from the Global Financial Crisis (GFC) has been slow enough to suggest that developed world growth rates are going to be substantially lower than those of the period between 1945 and 2000. He argues that this will lead to a crisis of sovereign insolvency as entitlement spending will not be affordable and that the financial and monetary games that are being played are starting to hurt more than help.
King first looks at how Progress has been taken for Granted and in particular how the very high growth rates for the three decades following the Second World War may have been exception. The period 1945-1975 had the rebuilding of countries that were previously economically strong in Europe and Japan, the arrival of a plethora of new technologies in nuclear power, jet engines, containerisation, computers and a big expansion of the work force due to women entering the formal workforce.
The book then describes the pain of stagnation and looks at Japan since 1990 and Argentina and how everyone in the west believes they should be better off than previous generations and how social security spending has massively increased. In the UK in 1950 it was 4% of GDP but today it is 14% of a much larger GDP. Essentially social spending could easily increase for many years as growth allowed people to get richer and to have more taken by the government. However, with lower growth incomes are growing more slowly than social spending.
King spends the next chapters looking at financial and monetary attempts to fix stagnating economies. He looks at the depression and the responses to it and suggests that Keynesian and monetary manipulation are a bit like drugs, useful for some relief but dangerous when they become to be relied on.
King describes three schisms, income inequality, aging and distrust between creditors and debtors that will affect the ability of economies to grow. He goes further and suggests that economic dissatisfaction will lead to radical politics such as the rise of the far right in Greece. King describes a chaotic dystopia that could result if a slowdown in growth is handled poorly.
Finally King gives recommendations for how to avoid dystopia; he wants a central financial authority in the Eurozone, reductions in government spending, coming up with ways of handling generational conflict and calls for a new monetary framework to be constructed.
The book is dense and full of senior economist’s observations of historical crises and their impacts. There is also extensive exposition of major economists’ responses to them with a lot of quotation. It would be considerable improved with more graphical exposition of historical trends. King also does not explore multiple solutions to the problems he sees and attempts to unify the problems of Japan, the US and Europe that perhaps have critical differences mean that the responses should be different.