Friday, January 6, 2012

Is growth what we want?

I got an email from a participant at the Center for Popular Economics 2011 Summer Institute, which I was fortunate enough to be able to teach. It was, as always a crazy busy, exciting week. The question concerned growth: whether I thought growth was necessary, and how it is related to employment. It's a pretty big question. In economics, the questions don't get much bigger. So I promised to write a blog post to give my answer. And this is that blog post. I will do my best to answer broadly, simply, and, I hope, intelligibly for any audience no matter how much or how little economics they may have been subjected to previously.

First, some definitions are in order. What do we mean by "growth." In the U.S., growth is reported quarterly (every three months) by the Bureau of Economic Analysis, as the annual rate of increase of real Gross Domestic Product (GDP) shown in the previous quarter. According to the latest release: "Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.8 percent in the third quarter of 2011." That means that if the rate of growth in the third quarter was constant for a whole year, real GDP would be 2% higher at the end of the year. The definition of GDP is embedded in the quote, that bit about output of goods and services produced in the United States.

What does the "real" mean, you may ask. Real in this sense means that the amount of goods and services (which is measured in the dollar value of the stuff produced) is adjusted for inflation (a sustained increase in average prices, usually measured by the Consumer Price Index). The point is, we don't want to fool ourselves into thinking we're making more stuff just because the prices of all that stuff went up. So we pay attention to real GDP, not plain old GDP.

Now that we know what is generally meant by growth, we can ask if we need it or not. Many people might (and do) say, "Well duh! Of course we need growth!" I want a better answer than that, though. The mainstream economic argument for growth is the following. Because we have scarcity (defined as limited resources in a context of unlimited wants), we need growth. Growth is a necessary part of the human condition. We just all want as much stuff as we can get. Also, an auxiliary argument goes, look at all the poverty in the world. We obviously need to keep growing so all those people don't starve.

Let's look at the scarcity argument first. There are two parts: limited resources and unlimited wants. It is true that there are limited resources, at least in the short run. We don't look to be mining the asteroid belt any time soon (sigh). Of course, this means that continuous exponential growth is, sooner or later, going to be a problem. An interesting read on this topic is Limits to Growth (long story short, there are limits to growth on this planet, and we may be nearing them soon). As far as unlimited wants are concerned, this is an assumption about human nature that is, I think on shaky ground. Humans have needs: food, water, air, shelter, and other humans. There are still plenty of all of these to go around (but more on that, below). Humans may have an instinct to gorge themselves derived from our evolutionary environment, when our pre-iPhone ancestors could not rely on McDonalds drive-thru windows being open 24 hours a day. But this instinct, like others, can surely be reined in by reason. I am not sure how strong this instinct really is, at least pertaining to all of the stuff that we now produce. Much more money per minute is spent on advertizing than on content on television. I think this money is being spent to try to convince us that we want stuff we don't need.

"What about poverty then, you heartless bastard?" Indeed. What about poverty? People starve. Even in the United States, perhaps the most economically developed nation ever. Of course, malnutrition, starvation, even famine has never been the result of a lack of available food, at least in modern times. The phenomenon of hunger today is fundamentally a problem of distribution. There is enough food to feed everyone on the planet (let's leave aside the valid questions of the quality of the food, the nature of the food production system and the structure of food output). But not everyone can afford to eat. The last century has seen tremendous strides in the amount of food produced, which has grown faster than the global population. Yet we still have hunger. We are not now and never will grow ourselves out of the problem of hunger. The same basic argument holds for non-food production, as well.

Do we, as my friend Yosef asked me, need growth for employment? This is a great question. I think the answer is obviously, no. Now, it is true that, in our current economic system, in order for most people to live they must work and earn a wage with which to buy the necessaries of life. But, as stressed earlier, many cannot afford those necessities. Is it for lack of work? At a basic level, yes, BUT. But first, let's look at the relationship between growth and employment. Given the fact that the population (in the U.S. and the world at large) is growing, and that there is a large amount of unemployment, clearly we need the economy to grow so that more jobs will be created that will allow those people out of work and entering the labor force to find work. Oh, and since workers are also getting more productive all the time, we need growth to be even faster. If we want full employment, the economy must grow faster than the labor force and productivity combined, and just as fast, once we attain full employment.

This is the kind of growth that mainstream economics tells us is needed. It is also the kind of growth that Marx described as being inherent in capitalist economic systems. They must continue to grow, because individual capitalist firms must continue to grow or die in the competitive marketplace. Marx marveled at this system, which had already brought tremendous increases in living standards by the time he was writing. Growth is necessary for capitalism. That does not mean that growth is necessary for humanity.

Of course, there is an alternative to continuous, exponential growth of the kind I just described. Given that humans as a species are now so productive that we are seemingly running out of useful things for people to do (I know, I know, there are LOTS of useful things people could be doing, but nobody is hiring anyone to do those things, are they?), people could, say, work less for the same pay. That would be a good thing to do with all that extra productivity we've unleashed with our technology, wouldn't it? Of course, it would mean corporations taking smaller profits and hiring more individuals to do the same amount of work for less pay. It might even mean that less people work at making crap we don't need (I don't care how great a Sham-wow is; do we really need it?). It could also mean a very different way of organizing the production of our needs and wants. We humans are very smart. I think we're capable of coming up with a different way of doing things that makes sense, for us and the world around us and the world we leave for our descendants.

This has all been too brief and over-simplified. But, the general outline is what I wanted to convey. More detailed discussions should follow.
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