In his last post, your correspondent wrote:
…one of my main tasks as an emissary from humanities people to economics people and (in this case) vice versa is to explain to the former that, no, growth, really does matter…
Serendipitously, your correspondent was invited to a lunch seminar yesterday, given by Professor Benjamim Friedman of the Kennedy School, on his book, “The Moral Consequences of Economic Growth,” and he dragged along his skeptical, perennial-humanities-student roommate.
Your correspondent worried that this would be one of those vomit-inducing seminars in which people repeat the phrase “self-interest rightly understood” a dozen times, or remind us that Adam Smith’s first book was on moral philosophy, and conclude that QED virtue is commerce. The reason such seminars induce vomit is that, while the views expressed at them are mostly correct, they’re also by now old, boring, and obvious, while the people who advocate them imagine just the opposite. And the only people in the world more infuriating than the conventionally-opinionated are the semi-conventionally opinionated who cast themselves as transgressively unconventional. (Rant Fin.)
But Friedman’s argument was more interesting and novel.
On “morals and markets” question, fans of the latter typically advance two kinds of arguments, one about extrinsic goods (results) and the other about intrinsic goods:
1. Economic growth, by definition, means more stuff to buy. People need and like stuff. Markets have proven to be the most effective way of maximizing stuff produced, so they are good, QED.
2. Market behavior is itself intrinsically virtuous behavior, and markets inculcate virtue. This is because markets are just big sets of consensual transactions. Consensual transactions are based upon, and reinforce the idea, of, respect for individual autonomy and rights. Markets teach us to think about others’ attitudes and wants and needs, and reward our industry in meeting them (because, simply, a seller must persuade the buyer that her product is worth buying).
Friedman’s case, is that historical growth causes greater personal morality: In periods of high economic growth, people have usually become more welcoming of immigrants, less resentful and suspicious of outsiders, more willing to give, less inclined to bigotry. In periods of economic contraction, people become just the opposite. The most vivid example of this is the fact that the Nazis won only 2% of the German vote in 1928, before the onset of the great depression aided Hitler’s sudden ascent. Friedman draws on enough historical data and examples for a pretty good prima facie case for causation.
The basic explanation for this is that when we feel that we are doing better than we were in the past and that our future is secure, we feel less threatened and become more willing to cooperate with others. We become less interested in protecting what we have, and more hopeful about ventures and partnerships that can make us even better off. And there’s a feedback loop here: As growth increases, we become more optimistic about the future, which makes us more willing to cooperate, which itself boosts growth. (For a basic review of Friedman’s thesis, see The Economist; for a smart criticism, see Will Wilkinson.)
This historical thesis is backed up by some evidence from social psychology experiments which have found, for example, that when you prime people to feel more pessimistic about their future, they are more likely to exhibit “in-group bias.” Put another way: If your life is getting better, you’re less likely to be a prick/racist. With modern data analysis, we could do some really interesting research on whether, say, a bearish stock market correlates with more in-group bias, resentment, or general nastiness, as measured by, say, aggregate word choice on Twitter.
But this takes your correspondent back to a conversation he had with his roommate in which the latter asked “Does/Why does growth really matter?” The latter excerpted the very famous speech in which Robert Kennedy concludes that GNP “measures everything, in short, except that which makes life worthwhile.”
Kennedy was, very plainly, incorrect. Productive enterprise makes life worthwhile, as do travel, education, cool clothes, fun video games, technologies that connect us to loved ones, tickets to the opera, etc., all of which are in GNP. Some ‘negatives’ are in fact encompassed in GNP (i.e., increased production of munitions for a war or new prisons would ‘help’ GNP in the short run). But those are very much the minority, and nobody actually proposes actively building new prisons just to boost GNP. The wonderful things that are not encompassed in GDP — i.e., loving relationships, friendly conversations with strangers — are important, but they are outside the scope of government policy, and so not really relevant to what GNP intends to be used for.
But the roommate asked your correspondent some tough follow-up questions:
(1) Are people with $100,000 a year in income actually happier than those with $60,000 a year? Or those with $1 million a year happier than those with $350,000 a year? Or even, is a person with $10,000 a year in a society with a per capita income of $2,000 less happy than a person with $250,000 a year in a country with a per capita income of $50,000 a year?
(2) In dragging the third world — take India as an example — out of poverty through globalization, and placing the whole world in Western business attire, are we sure that we are not sacrificing some sort of ineffable spiritual values?
(3) Isn’t growth an imperfect metric, since it doesn’t tell us anything about the distribution of the gains?
Your correspondent admits that we cannot say with certainty that the answer to any of these questions is ‘no.’
But here are some things we can say with confidence:
(1) If two countries have equal wealth, but one grows at 2-3% per year, and the other does not grow, the former country will be roughly twice as wealthy within just one generation. That’s a big deal. Even if the gains are not, at first, evenly distributed, the sheer amount of wealth will make it much, much easier for the latter country to solve any problems of poverty through redistributive policies. (Even the gains that go to the top have good effects: Wealthy people, with excess money and leisure, are always the major fosters of great art and culture.)
(2) Poor people in India themselves say that they would like to be much wealthier — as wealthy as we are in the United States. Maybe we privileged, upper-middle class Americans long for some prelapsarian fantasy we see in third-world poverty, and don’t think the affluence in which we have ever been surrounded is all that great — but the global poor beg to differ. It is the worst kind of elitism and presumption for the rich to say the poor, “No, actually, our wealth isn’t worth having — trust us — stay the way you are.” And insofar as we say that India’s continued fast growth is unimportant, that is what we are saying. (And, incidentally regarding the prelapsarian fantasy: There may well be unmeasuarable, ‘spiritual’ goods in life. But the metrics of spiritual harmony/disharmony that we can measure — i.e., murder rates, etc. — all improve as people leave the ‘Eden’ of tribal poverty and become bourgeois moderns.)
Your correspondent thinks that wealth isn’t everything, but it is pretty excellent. The things that it permits — travel, cultivation of arts, independence — are awesome. But even those who are less worldly, corrupted, and greedy than your correspondent should care a lot about growth for those two reasons.