Unconventional Economic Wisdom
Turn Left for Growth
Joseph E. Stiglitz
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NEW YORK – Both the left and the right say they stand for economic growth. So should voters trying to decide between the two simply look at it as a matter of choosing alternative management teams?
If only matters were so easy! Part of the problem concerns the role of luck. America’s economy was blessed in the 1990s with low energy prices, a high pace of innovation, and a China increasingly offering high-quality goods at decreasing prices, all of which combined to produce low inflation and rapid growth.
President Clinton and then-Chairman of the US Federal Reserve Alan Greenspan deserve little credit for this – though, to be sure, bad policies could have messed things up. By contrast, the problems faced today – high energy and food prices and a crumbling financial system – have, to a large extent, been brought about by bad policies.
There are, indeed, big differences in growth strategies, which make different outcomes highly likely. The first difference concerns how growth itself is conceived. Growth is not just a matter of increasing GDP. It must be sustainable: growth based on environmental degradation, a debt-financed consumption binge, or the exploitation of scarce natural resources, without reinvesting the proceeds, is not sustainable.
Growth also must be inclusive; at least a majority of citizens must benefit. Trickle-down economics does not work: an increase in GDP can actually leave most citizens worse off. America’s recent growth was neither economically sustainable nor inclusive. Most Americans are worse off today than they were seven years ago.
But there need not be a trade-off between inequality and growth. Governments can enhance growth by increasing inclusiveness. A country’s most valuable resource is its people. So it is essential to ensure that everyone can live up to their potential, which requires educational opportunities for all.
A modern economy also requires risk-taking. Individuals are more willing to take risks if there is a good safety net. If not, citizens may demand protection from foreign competition. Social protection is more efficient than protectionism.
Failures to promote social solidarity can have other costs, not the least of which are the social and private expenditures required to protect property and incarcerate criminals. It is estimated that within a few years, America will have more people working in the security business than in education. A year in prison can cost more than a year at Harvard. The cost of incarcerating two million Americans – one of the highest per capita rates in the world – should be viewed as a subtraction from GDP, yet it is added on.
A second major difference between left and right concerns the role of the state in promoting development. The left understands that the government’s role in providing infrastructure and education, developing technology, and even acting as an entrepreneur is vital. Government laid the foundations of the Internet and the modern biotechnology revolutions. In the nineteenth century, research at America’s government-supported universities provided the basis for the agricultural revolution. Government then brought these advances to millions of American farmers. Small business loans have been pivotal in creating not only new businesses, but whole new industries.
The final difference may seem odd: the left now understands markets, and the role that they can and should play in the economy. The right, especially in America, does not. The New Right, typified by the Bush-Cheney administration, is really old corporatism in a new guise.
These are not libertarians. They believe in a strong state with robust executive powers, but one used in defense of established interests, with little attention to market principles. The list of examples is long, but it includes subsidies to large corporate farms, tariffs to protect the steel industry, and, most recently, the mega-bail-outs of Bear Stearns, Fannie Mae, and Freddie Mac. But the inconsistency between rhetoric and reality is long-standing: protectionism expanded under Reagan, including through the imposition of so-called voluntary export restraints on Japanese cars.
By contrast, the new left is trying to make markets work. Unfettered markets do not operate well on their own – a conclusion reinforced by the current financial debacle. Defenders of markets sometimes admit that they do fail, even disastrously, but they claim that markets are “self-correcting.” During the Great Depression, similar arguments were heard: government need not do anything, because markets would restore the economy to full employment in the long run . But, as John Maynard Keynes famously put it, in the long run we are all dead.
Markets are not self-correcting in the relevant time frame. No government can sit idly by as a country goes into recession or depression, even when caused by the excessive greed of bankers or misjudgment of risks by security markets and rating agencies. But if governments are going to pay the economy’s hospital bills, they must act to make it less likely that hospitalization will be needed. The right’s deregulation mantra was simply wrong, and we are now paying the price. And the price tag – in terms of lost output – will be high, perhaps more than $1.5 trillion in the United States alone.
The right often traces its intellectual parentage to Adam Smith, but while Smith recognized the power of markets, he also recognized their limits. Even in his era, businesses found that they could increase profits more easily by conspiring to raise prices than by producing innovative products more efficiently. There is a need for strong anti-trust laws.
It is easy to host a party. For the moment, everyone can feel good. Promoting sustainable growth is much harder. Today, in contrast to the right, the left has a coherent agenda, one that offers not only higher growth, but also social justice. For voters, the choice should be easy.
Joseph E. Stiglitz, Professor at Columbia University, received the 2001 Nobel Prize in economics. He is the co-author, with Linda Bilmes, of The Three Trillion Dollar War: The True Costs of the Iraq Conflict.
Copyright: Project Syndicate, 2008.
www.project-syndicate.org
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petersalonius 03:39 06 Aug 10
Dr. Stiglitz writes about achieving sustainable "growth" -- while we are facing depletion of the geological energy subsidies (fossil and nuclear), and other looming resource scarcities. It is these TEMPORARY energy subsidies and abundant natural resources that facilitated the unsustainable exponential "growth' we have enjoyed since the beginning of the 19th century when we no longer were dependent solely on the energy we received from the Sun.
Rather than sustainable "growth", we now require sustainable CONTRACTION in order to achieve a long term ability of the human family to [again] function within the limits of solar energy and to glean its sustenance from global ecosystems without mining them into unproductive wastelands.
I invite you to read my treatise on the overshoot of carrying capacity that has been developing for 10,000 years as humans have mined and diminished the very resources upon which they are dependent for their sustenance. I wish I had known about “the quinacrine pellet method of nonsurgical permanent female contraception – QS” --- ----------------------- see: www.isafonline.org ----- that appears to offer a very efficacious method of fertility control by individuals who are convinced that this is the right thing to do --- when I wrote the article (see URL access below).
I have been interested in the relationship between agriculture and population growth since about 1969, and I started writing about the necessity to curb population growth BEFORE the new ‘green revolution’ crop varieties were released by Norman Borlaug and his compatriots. Borlaug himself opined that the new crop wheat and rice varieties ,being produced by CYMITT in Mexico and the International Rice Research Institute in the Philippines in the early 1970s, were only stop gap measures – and that the necessity to constantly increase food production would never end if global population growth was not halted.
I believe that we are now seeing the ramifications of a global 10,000 year old debt crisis (PONZI SCHEME) characterized by the creation of money that supposedly represented actual wealth = the ability to produce food and fibre for the needs of the Earth’s human population. This 10,000 year old ‘PONZI SCHEME’ has incorrectly assumed that environmental services such as soil fertility and other supposedly renewable natural resources were externalities with infinite capacity that need not be accounted for.
I have proposed that humanity “overstepped” the long-term sustainable productive capacity of the soils upon which it relies for its sustenance as soon as cultivation agriculture was adopted.
My thesis suggests the first and most important resource humans have used non renewably (long before fossil fuel depletion/peak oil) is the arable soil on the planet; soil mining by cultivation agriculture began ~ 10,000 years ago. This is the culmination of my ~ 40 year investigation into the relationship between humans and their supporting ecosystems. If my thesis is correct -- then the 'population bomb', that continues to make natural resource management problematic, exploded a long, long time ago, see:
‘Long term agricultural overshoot’
http://www.theoildrum.com/node/6048
My 'guesstimate' for sustainable human numbers in the 100s of millions, if correct, suggests that the present global population has so far overshot the carrying capacity of its supporting ecosystems that most analyses of the relationship of excessive human numbers to SPECIFIC ASPECTS of environmental damage are simply indulgent academic exercises - AND - that the concept of further "growth" is an uninformed pipe dream.
There are more people on the planet (and have been for millennia) than it can sustainably support.
Many of us have concluded that even TWO CHILD FAMILIES -- that would only slowly stabilize the human population -- are not an adequate response to this problem; we require the VOLUNTARY adoption of NO or ONE CHILD PER FAMILY behavior to orchestrate the Population DECLINE that is necessary now.
Comments, constructive criticisms and suggestions are welcome
Peter Salonius
522 route 8 HWY
Durham Bridge
New Brunswick
E6C 1K5 Canada
petersalonius@hotmail.com