#37 Degrowth by disaster?

Collapsology: the real-world edition

Hi all,

There was a time when we could still get worked up about bankers crashing the world economy, when headlines about spiralling sovereign debt sent shivers down spines, and when we could still explain financial storms with terms like recklessness, regulatory failure, or plain bad luck. We endured pandemics and energy shocks from war and still believed in the possibility of containment, of policy responses, of repair.

There was also a time when politicians and policymakers acted, or at least pretended to act, as stewards of the economy when crisis management meant trying to fix things, not break them further.

That time has passed.

We now live in an era where the elected leader of what once was a flagship democracy actively sabotages global economic stability — not out of ignorance, but by design. Trump’s return to power is not just a political crisis; it’s a calculated economic assault.

At the same time, ecosystem collapse has faded into the background. What was once front-page urgency has become mere décor in the grand theatre of geopolitics—a stage now dominated by wars, power plays, and farcical outrage over the trivial. Environmental breakdown no longer sets the agenda; it merely decorates it. Policies once aimed at halting this decline are being diluted, delayed, or quietly discarded.

Today’s economic uncertainty runs deeper. It’s no longer about market volatility or cyclical recessions. The foundation is crumbling—the fundamental trust that nations won’t stab each other in the back, that rules matter, and that agreements will be honoured. No monetary policy or stimulus package will save us when that trust erodes.

We don’t need the climate to destroy capitalism — although it might, as was argued by an Allianz employee. We already have Trump, trade wars, and global conflict. This isn’t managed degrowth. This is degrowth by disaster in real life. Or Collapsology - real-world edition.

The economic calculus isn’t complicated. A trade war reignited by Trump could wreak havoc on global supply chains, distort investment flows, and shatter multilateral trust. Its consequences won’t be short-term—they will be systemic and negative for economic prosperity (see below for a little more elaboration on this).

Add war to the mix, and the destruction of economic growth is physical and fiscal. There is a long-standing economic truth: military expenditures are fundamentally unproductive. They inflate GDP on paper but add nothing of lasting value. In addition to that, they crowd out other public expenditure that enhances well-being, such as education or health care spending. If we were to subtract these costs from our economic performance — and account for ecological losses — the story is clear. A higher GDP figure that consists for a larger part on damage spending (=war), or damage restoration (climate adaptation for example) is essentially degrowing well-being.

We are shrinking. We are decaying. We are degrowing by policies of disaster.

So, let’s not kid ourselves. The age of ‘more’ is over. And what replaces it — unless we act differently — might not be less, but worse.

But then we have a problem—a deep-running problem. Our system depends on growth because we need it for capital accumulation, profits, financial returns, and government income.

But the trouble with these facts runs very deep. A new paper shows that many academics still believe in green growth (the idea that we can decouple economic activity from its environmental impact). The strongest factor associated with green growth endorsement is the belief that ongoing economic growth is crucial for human well-being.

Source: Suter et al (2025)

Even among the proponents, there is no agreement that decoupling is possible (or realising climate goals). What does this tell me? Most of us are trapped in within-system reasoning: because our economic and social system depends on growth, it must grow. This is, of course, very bad reasoning. If you would turn it around and, for instance, start getting the economic system within planetary boundaries, we would be forced to change it. It might be hard to do that. But if our current policies are already on a degrowth trajectory, why not do it smarter? See below some more on this paper.

So the question: can we change our economic system fundamentally? Not if we keep thinking in the same way about the economy. Dennis Snower and David Sloan Wilson try, also in an new article, to show the principles of how alternative economic thinking can be operationalised.

Their multilevel paradigm builds an alternative to the current (neoclassical) way of analysing an economic system. In blog 19, I also gave a summary of their first article. The core idea is that the economy is understood as embedded in the polity, society, and the natural world. It is based on Generalized Darwinism. That theory refers to all processes that combine the ingredients of variation, selection, and replication – not just genetic evolution – making it relevant to the cultural evolution of economic systems embedded in political, social, and environmental systems. They argue that trust and pro-social behaviour are emergent system properties: individuals must understand that they sometimes have to sacrifice individual gains for the greater good. Let’s tell Donald Trump and his broligarghs how that works. In addition, it allows for the idea that actors in the system (such as governments, firms and individuals (such as families, consumers, voters, and employees) also change their behaviour. Critical, given the discussion before relating to what governments might do (according to economic theory) and what they do. Below more about this article.

The core message is clear: rebuilding our economy to serve the well-being of all is not only necessary—it’s entirely possible. But doing so requires the courage to rethink the system itself. We must be willing to embrace fundamental change and imagine genuine alternatives—not to be confused with "alternative truths."

From there, it’s a matter of cultivating the collective will, fostering political readiness, and empowering a movement capable of pushing for transformation. This isn’t merely a matter of generating new ideas—it’s about recognizing and seizing new opportunities. And some of those opportunities may involve doing less—less production, less consumption—what some call degrowth by design. Not as a narrow policy prescription but as a natural outcome of pursuing equity, ecological balance, and shared prosperity.

Perhaps the most sobering truth of our era is this: entrenched elites—be they broligarchs, autocrats, plutocrats, narcissists, nihilists, or populists—are not interested in an agenda that serves all people, let alone future generations. Their power depends on preserving the status quo.

If we fail to act, degrowth by disaster will be what remains.

Source: DALL-E

Unwinding trust

Our current prosperity is built on fundamental trust between nations. The United States, once the flag bearer of free trade, has changed its stance. Tariffs are flying back and forth, up and down. Economics textbooks say: don’t retaliate, let the aggressor run its course. But those textbooks were written in a world where mutual benefit was the norm—not geopolitical mistrust.

Yes, we’re seeing short-term economic damage. iPhones are getting more expensive, supply chains are stalling, stock prices are falling, climbing, falling. But the real problem is more insidious. We’re heading into a world where no one trusts each other anymore. Where countries retreat behind their borders, preach strategic autonomy, and aim to ‘secure’ supply chains. It sounds logical. It’s even understandable. But economically, it’s a recipe for collective impoverishment. Doing more ourselves might sound like a healthy challenge, but let’s be honest: it mostly means everything gets more expensive.

Free trade was never just a party of (sometimes excessive) low prices. It led—and still leads—to excesses, from exploitation to pollution. So it's absolutely valid to think critically about it. But above all, it was a system built on mutual trust: you make this, I make that, we exchange and both benefit. That system only works if you believe your partner won’t turn against you tomorrow. Trade, like friendship, is a matter of trust. And like an ex with commitment issues, a country that becomes unreliable can count on fewer lasting relationships.

A world without trust is a world where each country must produce everything itself. That sounds bold—“our industry first!”—but it’s wildly inefficient. It’s like making your own furniture because you don’t trust the carpenter—noble, perhaps, but it gives you back pain, takes more time, and the result is often wobbly. We’ve spent decades building international specialization precisely because it creates efficiency.

The irony is that the U.S., in an attempt to protect its economic power, is undermining that very power—and especially the exceptional leverage it held via the dollar as the global reserve currency. But if trust in America declines, why would anyone still hold dollars? Why keep reserves in a currency when you don’t know which erratic leader will be in charge tomorrow?

If that trust vanishes, so does the world’s willingness to finance America’s deficits. The U.S. has been buying more than it sells for decades—and it could, because the world was willing to finance that. If that willingness dries up, the foundation of the American economy collapses. We saw the first signs of that last week—with potentially massive global repercussions.

And then there’s something even more fundamental: a world without trust is a world without long-term vision. You don’t plant a tree if you fear your neighbor will cut it down tomorrow. You don’t invest in a foreign factory if you're afraid of sudden tariffs. You don’t build a shared future without the belief that others will also keep their promises.

That may be the greatest loss of all: the loss of future trust. And with it comes the real price tag of this geopolitical shift. Maybe not (yet) a direct crash or dramatic crisis. No, a slow, creeping erosion of mutual trust, which eventually leads to less trade, less investment, less innovation—and therefore: less prosperity. Not tomorrow. But ten years from now, we’ll look back and ask: where did it all go wrong?

Maybe that’s the most important lesson we need to learn now. Economies don’t run on factories or algorithms, but on trust. Undermine that trust, and you break the engine of prosperity. And that can’t be fixed with a tariff here or there. The only answer is a new narrative, one where trust forms the foundation again. Not romantic idealism, but a sober acknowledgment that in a world without trust, nobody wins.

Because those who invest in mistrust, get uncertainty in return. And that turns out to be a lot more expensive than an iPhone with a tariff.

Green growth beliefs

A recent global survey of over 3,000 economists and environmental scientists reveals a significant divide in expert views on green growth—an idea that promises sustainability through continued economic expansion. While 59% of respondents endorse its feasibility, this support is most strongly linked to the belief that economic growth is essential for human well-being. Economists are more strong in their belief than other scientists. This belief, not empirical evidence of sustained decoupling, appears to drive endorsement. Even among proponents, many express doubt that green growth can deliver on its central promises: to maintain GDP growth while reducing carbon emissions and resource use at the scale and speed required. The perceived feasibility of absolute decoupling—both in terms of emissions and material throughput—remains low, particularly when examined against climate targets like the 2°C threshold.

This distinction is crucial. That societies are structured around growth and remain dependent on it for stability is not in dispute. But mistaking this dependency for proof that green growth is achievable risks conflating a systemic constraint with a physical possibility. Rather than offering evidence for green growth, the survey illuminates the ideological and institutional forces that continue to prioritize GDP as a proxy for well-being. It is this growth imperative—internalized by institutions and experts alike—that sustains belief in green growth, even as empirical assessments of decoupling fall short. In this light, the findings point less to the promise of green growth and more to the inertia of a system reluctant to imagine prosperity beyond it.

As the authors say in their discussion:

The fact that green growth endorsement correlates with the belief that economic growth is essential for well-being may point to the fact that such beliefs stem from a common framework (e.g., ideology, free market beliefs).

It is not clear if green growth is possible. But the importance of this topic is undeniable, because many influential policies are based on green growth beliefs. Our survey findings show that many academics endorse the concept of green growth, often linked to the scientifically contested belief that growth is essential for human well-being. Our findings underscore the continued need for a robust empirical assessment of expert opinion on green growth.

(Suter et al. 2025).

So, more work to be done.

Rethinking the Theoretical Foundation of Economics II

In their latest article, "Rethinking the Theoretical Foundation of Economics II: Core Themes of the Multilevel Paradigm," Dennis J. Snower and David Sloan Wilson build upon their previous work to propose a transformative framework for economic theory. This follow-up shifts attention from critiquing the limitations of neoclassical economics to illustrating a vision of the economy as an evolving, multilayered system. It’s a move from diagnosing the problem to suggesting how a new kind of economic reasoning can better meet the needs of both people and planet.

At the heart of this paradigm is a recognition that individuals do not act in isolation, nor are they merely utility-maximizing agents. Instead, economic behavior emerges from interactions within and between various levels of social organization—ranging from households to institutions to entire societies. Each level has its own structures, roles, and modes of cooperation. What this multilevel view highlights is that economic efficiency and well-being depend not only on individual choices but also on the functional organization and alignment of these collective layers.

A striking element of their approach is the emphasis on trust. Unlike traditional models that treat trust as a residual or optional component, here it is foundational. Trust underpins the cooperation required at all levels of economic organization. It reduces transaction costs, makes informal coordination viable, and supports shared norms—especially important in conditions of radical uncertainty. The authors argue that economies cannot function effectively without trust, especially when market signals and institutional controls are not sufficient to guide complex, interdependent behavior. An economy that works, therefore, is not merely efficient or productive—it is deeply social, anchored in reciprocal trust. Very obvious is, of course, the parallel with what I wrote above: if trust is shattered in trade relationships, it will harm long-term prosperity. Thanks Donald.

Table 1 of the article (see below) provides a useful schematic of this thinking. It categorizes different organizational levels—individuals, groups, and systems—and describes the types of agency and coordination mechanisms prevalent in each. For example, individuals operate with intentional agency, guided by personal goals and bounded rationality, while groups and systems rely more on shared goals, social norms, and formal institutions. What emerges is a dynamic picture of how different layers of economic life interact, suggesting that policy interventions must be sensitive to these layered contexts rather than relying solely on market-based levers.

Source: Snower & Wilson, 2025

Returning to their earlier article, Snower and Wilson critiqued the oversimplifications of neoclassical theory and introduced the foundations of a multilevel view. This second piece adds structure to that critique, offering a framework that not only makes theoretical sense but also connects with practical needs—especially in a world facing overlapping ecological, social, and economic crises.

What emerges from their work is a call for economics that is less about control and more about care—less about isolated optimization and more about trust, cooperation, and coherence across the many levels of our shared lives.

Does their work, or their analysis tell something about degrowth or green growth? No, it does not. However, its emphasis on functional organization and trust offers a framework that transcends this dichotomy. By focusing on the alignment of economic systems with social and ecological well-being, the multilevel paradigm provides insights into building resilient, cooperative, and sustainable economies.

As I also have been advocating for, it is about an embedded economy. Embedded into the natural world and social relationships. Once the embeddedness breaks down, the economy collapses. Hopefully there will be an opportunity coming years to transform all these well-articulated ideas into policies. It might take some time.

If we fail to act, degrowth by disaster will be what remains.

Keep the spirit high!
Hans