Transitioning to a sustainable economy: A preliminary degrowth macroeconomic model

The degrowth literature argues that growth in real monetary terms is unsustainable and rejects appeals to decoupling. But it assumes the continued availability of advanced materials and technology. This paper argues that much of the degrowth literature implicitly or explicitly requires an industrial “core.” The paper introduces a stylized three-sector model with a formal convivial economy that predominates in everyday life, together with an industrial core and informal household convivial production. Drawing on prior work by post-Keynesian economists, which showed that positive net profit for the economy as a whole is compatible with a steady-state economy if there is consumption out of wealth, this paper shows that a wealth tax can play the same role and extends the result to a degrowth pathway. This has important policy implications because the viability of degrowth and a steady state no longer rely on a behavioral parameter alone, opening the way for functional finance. The paper presents an explicit balanced degrowth pathway, and then discusses more realistic degrowth pathways.