Musings on the Difficulty in Achieving Equitable Growth when the Earth’s Resources Reach their Functional Limits.
A few years ago the ever insightful Brad Delong published in his blog a list of what he considers, “THE SEVEN CARDINAL VIRTUES OF EQUITABLE GROWTH.” Here it is in total:
1. Manage the macroeconomy to match aggregate demand to potential supply. Take the dual mandate seriously: maintaining full employment is as important a central bank goal as low and stable inflation–and much more important than preserving healthy margins for the banking sector. Run large deficits–run up the national debt–in times of war, depression, or other national emergency calling for government action. Pay down the debt in other times.
2. Invest. Invest in ideas, in equipment capital, in structures capital, in education: we need more of all forms of investment. Boost public and private investment: we need both kinds.
3.Over the past generation, America has shifted enormous resources into value-substracting industries: healthcare administration, prisons, finance, carbon energy. We need to reverse those shifts, and focus the American economy on the value-creating sectors rather than the value-subtracting ones.
4. We ought to have had a carbon tax 20 years ago. We still need one.
5. We need more immigration. It is much easier, worldwide, to move the people to where the institutions are already good than to make good institutions where the people are. More immigration produces a richer country for those already here. More immigration is a mitzvah for immigrants. More immigration is, to a a lesser degree, a mitzvah for those in poor countries outside who see less population pressure on resources. And a U.S. in 2070 that has 600 million people is more of an international superpower than a U.S. in 2070 that has only 400 million people.
6. We need more equality. If we want to have equality of opportunity 50 years from now, we need substantial equality of result right now.
7. We are going to need a bigger and better government. The private unregulated market does not do well at health-care finance, at pensions, or at education finance. The private unregulated market does not do well at research and early-stage development. The private unregulated market does not do well with commodities that are non-rival. We are moving into a twenty-first century in which these sectors will all be larger slices of what we do, and so a well-functioning economy will need a larger government relative to the private economy than the twentieth century did.
J. Bradford DeLong
While I agree whole heartedly with Dr. DeLong, however, as with most stirring generalizations, the clarity with which they are enunciated turns a bit foggy when one tries to figure out what they mean when attempting to carry them out into reality. In fact, people who agree on the generalities often have opposite ideas on how they play out in the real world.
Growth is perhaps one of the most loaded and overused words in our lexicon today. I think it probably has outlived its usefulness and should be replaced with less ambiguous words and phrases.
Let’s take a look at something DeLong also wrote recently:
“To put it another way: In 1870 the daily wages of an unskilled worker in London would have bought him (not her: women were paid less) about 5,000 calories worth of bread–5,000 wheat calories, about 2½ times what you need to live (if you are willing to have your teeth fall out and your nutritionist glower at you). In 1800 the daily wages would have bought him about 3,500 calories, and in 1600 2,500 calories. Karl Marx in 1850 was dumbfounded at the pace of the economic transition he saw around him. That was the transition that carried wages from 3500 calories per day-equivalent in 1800 to 5000 in 1870. Continue that for another two seventy-year periods, and we would today be at 10,000 calories per unskilled worker in the North Atlantic today per day.
Today the daily wages of an unskilled worker in London would buy him or her 2,400,000 wheat calories.
Not 10,000. 2,400,000.”
I assume for the purpose of this Diary that DeLong’s analysis is factually correct that within 75 years the number of calories that could be purchased by an ordinary worker in an emerging society increased by slightly less than 500 times. If that worker does not spend all that income actually on wheat calories, what does he spend it on? Also, I need to keep in mind that since 1870 this large increase in wages translated into calories has grown from being available to a few million workers to over 2 billion or more. And also, I assume I understand the implications of that rate of physically unsustainable growth inuring to unskilled labor and it is undesirable consequences.
What does any of those virtues he listed mean with reference to those startling facts?
Demand equalling supply is a good idea but seems to miss the point.
Investing in ideas may be advisable, but shouldn’t some mention be made on focusing that investment on solving a problem that appears to be disastrously untenable? Why would one want to allow ambiguity on whether the growth being encouraged includes even the possibility of this continuing?
OK avoiding value-subtracting activities could include halting the obscene escalation of per capita caloric intake, but given its importance should we not at least include it among the examples.
A carbon tax. Good idea. It helps. Some would say it starts the ball rolling, but shouldn’t we urge something like a sustainable life style at substantially less than 2,400,000 calories per capita?
Immigration. Good thing too, but will each immigrant be entitled to 2,400,000 calories per day when they arrive or should they get less or even should those already burning the 2 million plus calories per day be required to share them with the new arrivals?
More equality. Another good thing even if “equality of result,” is a bit confusing. Does this include everyone having the same right to profligacy. The 2.4 million does this mean we all have to give something up or only those who use more than the average being forced to give it up to those using less so that we all can still spend the same average amount?
This post is not a criticism of DeLong. What he suggests is the right thing. But even doing the right thing may not be enough.
Joe Stieglitz has said that the two most important issues of our age are global warming and income inequality. Jeremy Grantham has warned that compound growth, not only cannot continue indefinitely but probably in inadvisable even over a relatively short time without producing a severe negative reaction.
I have suggested in prior diaries that there may be a ghost in the machine called humanity even greater than our mayhem compulsion. DeLong’s caloric analysis indicates that it may be our inability to refrain from consuming all the resources available whenever they are accessible. Even societies that developed mechanisms for living more within the limits nature allows usually fail to account for potential major changes in their environment, war, extended drought and so on. It is difficult to almost impossible, I believe, for a society to refrain from exploiting those resources that their technology enables them to.