King summed up his ideas in a recent op-ed for the New York Times:
We are reaching end times for Western affluence. Between 2000 and 2007, ahead of the Great Recession, the United States economy grew at a meager average of about 2.4 percent a year — a full percentage point below the 3.4 percent average of the 1980s and 1990s. From 2007 to 2012, annual growth amounted to just 0.8 percent. In Europe, as is well known, the situation is even worse. Both sides of the North Atlantic have already succumbed to a Japan-style “lost decade.”King then describes in stark terms what happens when growth stops:
Surely this is only an extended cyclical dip, some policy makers say. Champions of stimulus assert that another huge round of public spending or monetary easing — maybe even a commitment to higher inflation and government borrowing — will jump-start the engine. Proponents of austerity argue that only indiscriminate deficit reduction, accompanied by reforming entitlement programs and slashing regulations, will unleash the “animal spirits” necessary for a private-sector renaissance.
Both sides are wrong. It’s now abundantly clear that forecasters have been too optimistic, boldly projecting rates of growth that have failed to transpire.
The end of the golden age cannot be explained by some technological reversal. From iPad apps to shale gas, technology continues to advance. The underlying reason for the stagnation is that a half-century of remarkable one-off developments in the industrialized world will not be repeated.
First was the unleashing of global trade, after a period of protectionism and isolationism between the world wars, enabling manufacturing to take off across Western Europe, North America and East Asia. A boom that great is unlikely to be repeated in advanced economies.
Second, financial innovations that first appeared in the 1920s, notably consumer credit, spread in the postwar decades. Post-crisis, the pace of such borrowing is muted, and likely to stay that way.
Third, social safety nets became widespread, reducing the need for households to save for unforeseen emergencies. Those nets are fraying now, meaning that consumers will have to save more for ever longer periods of retirement.
Fourth, reduced discrimination flooded the labor market with the pent-up human capital of women. Women now make up a majority of the American labor force; that proportion can rise only a little bit more, if at all.
Finally, the quality of education improved: in 1950, only 15 percent of American men and 4 percent of American women between ages 20 and 24 were enrolled in college. The proportions for both sexes are now over 30 percent, but with graduates no longer guaranteed substantial wage increases, the costs of education may come to outweigh the benefits.
Adam Smith discerned this back in 1776 in his “Wealth of Nations”: “It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state.”When Wealth Disappears (The New York Times)
The decades before the French Revolution saw an extraordinary increase in living standards (alongside a huge increase in government debt). But in the late 1780s, bad weather led to failed harvests and much higher food prices. Rising expectations could no longer be met. We all know what happened next.
When the money runs out, a rising state, which Smith described as “cheerful,” gives way to a declining, “melancholy” one: promises can no longer be met, mistrust spreads and markets malfunction. Today, that’s particularly true for societies where income inequality is high and where the current generation has, in effect, borrowed from future ones.
I first head about this via this post on the Web site of the right-wing think tank the Cato Institute (via another site). Obviously the Cato institute doesn't buy it, but if you read their page closely, you'll notice that even they acknowledge growth is slowing and harder to come by! For one of the more prominent propaganda mills for Neoliberalism to acknowledge this point is telling, even if they don't completely accept the thesis.
Note that King's fundamental conclusions: that growth is coming to an end, could have been found in books from Das Kapital to The Limits to Growth by the Club of Rome.
What's curious about the op-ed, though, is that King follows this grim assessment not with calls of a steady-state economy, a rethinking of usury as the basis for the global economy or massive asset redistribution, but with the standard laundry list of Neoliberalism - less trade barriers, lower taxes, shrinking government, etc. But of course the emphasis on growth has always been used to ignore any issues of wealth distribution. Without the prospect of growth to distract us from extreme inequality, we may start to ask questions about the extreme distribution of resources in our economy, which as we noted recently is more lopsided than any point in history, despite our wealth being more dependent upon our collective actions than at any point in history. This caused even a staunch Neoliberal like Matt Yglesias to make this point:
I find his argument that this is the case unpersuasive, but what's really unpersuasive is his list of policy remedies. He favors entitlement reform, deficit reduction, openness to trade, and everything else you would expect an intelligent purveyor of the economic conventional wisdom to advocate in 2003 or 1993 or 1983 or 1973.If Growth Is Dead, We Need Radical Redistribution (Slate) And the zero-sum struggle over a fixed pool of resources has been well described in a recent essay by Raul Ilargi Meijer of The Automatic Earth:
Something has gone wrong with your analysis if you manage to combine a striking diagnosis of the world situation with such a banal list of policy remedies...the assumption that economic growth will continue undergirds conventional wisdom about economic policy in a really profound way—namely it's the key reason to limit political interest in redistribution of economic resources. There are a lot of metaphors about rising tides lifting all boats and baking a bigger pie instead of arguing about how to divide up a small one, and they're all pointing to the same issue—distributional issues matter, but in the long-term, economic growth matters much much more. Average living standards in the West are much higher in 2013 than they were in 1863 not because we abandoned capitalism and workers seized control of the factories, but because society as a whole is much more prosperous than it was 150 years ago. Thanks to growth, middle-class people can enjoy miraculous opulence—antibiotics, cars, air conditioning—that was far outside the grasp of the rich in the 1860s.
But if growth is over, that whole logic collapses, and politics really should just consist of a bitter zero-sum scramble over the distribution of a fixed pool of resources.
The only possible way to improve our societies, so we are told, is through economic growth. In the same vein, we are told that we actually do have economic growth again today, just not enough. That's not really credible either, although some growth faithful might claim that it all depends on which data you use. The S&P hit another record, so all must be well.Winter In America Gets Colder : Why We Choose Poverty (The Automatic Earth)
It is a choice, and it is an ongoing trend that is far from being finished. Those who do have wealth today are not going to voluntarily take a step back and say I have enough. A few individuals may, but the vast majority will continue to look for more. In the absence of actual growth, and in the presence of increasing debt, they can and will only achieve that by pushing the poor deeper into poverty. That is the real choice, even as faith in eternal growth makes it easy, if not necessary, to deny that such a choice exists.
Or to put it in different words: we continue to live with the idea of recovery, which in our minds equals a return to what we had, plus added growth. For some of us that may come true, but for a very rapidly increasing number amongst us, it will not. Because, and it's high time we acknowledge this, at this point in time, the only way the upper echelons of our societies can achieve some level of growth is to take it away from everyone else. And those upper echelons, mind you, demand exponential growth, which means, in a society that cannot grow, that the numbers of poor people will rise exponentially as well.
The incessant repetition of the "recovery is just around the corner" mantra has a hugely distorting effect on people's behavior in that even those who would be inclined to listen to appeals for redistribution of wealth and income will tend to turn a deaf ear if they are convinced no such redistribution is needed because those who are poor today will soon, any moment now, be made rich(er) by the recovery. This also makes it much easier to label redistribution of wealth as, just to name a term, communist.
And that's a very twisted picture that can exist only because we have such poor memories, especially when it suits us. Because in reality, we are of course already seeing a huge redistribution of wealth today, only this one increases inequality instead of decreasing it. Which means all those dreams about equal access for everyone to the best health care and education available are long gone. If we would only redistribute wealth in such a way that it would see us return to the level of inequality that existed when those dreams were relevant, 60-odd years ago, much of our poverty conundrum would be solved. It is really as simple as that.
This development, this process, is not going to go away by itself, inequality in wealth and income will keep increasing, and ever more people will end up under the bus. It's a choice we make as a society. Even if we do somehow achieve a period of real economic growth, it will make little difference anymore for the poorer: it will be swallowed up whole by the demand for growth embedded in the richer parts of society.
The desire for growth has become a sort of auto-immune disease, in which the body, the society, in the absence of external food sources, preys upon itself. We need to consider the potential consequences of this, and ask ourselves if they add up to the kind of society we wish to live in, and we want our children to grow up in. Right now, we're choosing poverty, and we should ask ourselves why we do that.
There are millions of Americans who've been unemployed so long they no longer even count as unemployed. There are millions more working jobs that don't pay the bills. This can and will not simply be undone by a growing economy. Many are scarred for life, and that certainly goes for the huge numbers of children growing up in poverty and now seeing their food stamps cut to boot. Leaving aside whether we see rising inequality as a good or a bad thing, we need to realize that it is a choice we make for ourselves and others: there is no need for 25% of our children to be too poor to function well, there is enough wealth in our societies to provide for them. We would just need to redistribute that wealth, and to limit inequality to the levels we had when our economies were doing better than they ever have, before or since. Would that really be such a bad thing? Are we truly better off creating this fake Darwinian jungle we have today? Just asking.
And then of course there's that last remaining question: "How long do you think such a society can last?"
But America, a country that was founded in the notion of eternal growth, first by the plundering the resources of the New World, then by "taming the frontier," then by the Industrial Revolution, then by the discovery of oil, is unlikely to embrace this new reality. As Ronald Wright put it:
"The Columbian Age [the Age that occurred after Christopher Columbus discovered America] was built on colonial attitudes: on taming the wilderness, civilizing the savage, and the American dream of endless plenty. Now there is nothing left to colonize...Mankind will either share [this planet] or fight over it--a war nobody can win...[The United States of] America...must now examine its own record--the facts, not the myths--and free itself from the potent but potentially fatal mix of forces that created its nation, its empire, and the modern world."
Except it now us --the American people--who will become colonized by the one percent.
Your selected references are apt, and your point is well argued. What got sidetracked along the way, I think, is losing sight of a basic definition taught in Economics 101: Economics as the allocation of scarce resources. The definition is fundamentally political By nature. Why, for instance, the London School is not just about economics but about political science - it's full and proper name. And why, for instance, the Great Recession has been more demoralizing than the previous cycles of expansion and contraction.ReplyDelete
Another quote comes to mind, Bertoldt Brecht in Die Dreigroschenoper - the human condition is one of chicanery and corruption. It too defines how resources are allocated and how public policy is now made and why wealth inequalities always factor into these boom and bust cycles.
Indeed, it corresponds to the decline of “political economy” as a focus of economists in favor of abstract mathematical models based on game theory, rational utility-seeking individuals, efficient markets, Pareto optimality and things like this. Thus, economists are blinded to crony capitalism, the decline of unions, monopolies, resource depletion, pollution and climate change, energy, overproduction, automation, loss of social trust, overcomplexity, advertising, political corruption, and all of the other things that are actually shaping our world, and are unable to predict, respond to, or even explain them adequately. As you pointed out, all economics is, by definition, political economics, since it depends on allocation of resources and who does that allocation.Delete
You’ve probably seen this article:
Here’s a particularly apt comment:
Insofar as economics is a science, it's really a subspecialty of social psychology--it studies the behavior of human beings with respect to the exchange of material goods and labor. Too many economists believe that they are studying the behavior of units of currency, and that because their data are more readily quantifiable they are more scientific than the other human sciences. When economists recognize that all economics is behavioral economics, and begin to find ways to incorporate emotions, attitudes and values (including political values) into their theories, rather than treating these as noise, they may have a breakthrough. As the anthropologist Bronislaw Malinowski said, "there is no such thing as a purely economic transaction."