Abstract: We document two stylized facts. First, most periods in history have been characterized by per capita GDP growth that was an order of magnitude slower than modern growth in the “old world”. Second, most countries with capitalists institutions have grown steadily and relatively fast. This presents us with a puzzle: does the recent growth slowdown in the capitalist old world mean that the second stylized fact was an historical exception, or is the current phase of low growth just a temporary phenomenon? We apply modern growth theories to analyze this puzzle. Neoclassical growth theory explains growth slow-downs in institutionally stable economies from either the exhaustion of catch-up potential, or the slowing down of innovation possibilities. We dismiss both as plausible explanations for the current growth slowdown and as basis to expect low growth in the near future. We then present two alternative growth models: one based on speculative investments and inefficient financialization and the other based income inequality and monopolization of investment opportunities.

This media entry was a contribution to the special session "Degrowth versus growth. Do we really have the choice?" at the 4th International Degrowth Conference in Leipzig in 2014.