Wednesday, July 27, 2011

Review: "The Moral Consequences of Economic Growth"

The Moral Consequences of Economic GrowthThe Moral Consequences of Economic Growth by Benjamin M. Friedman

The main argument of the book, in a nutshell, is this. People want to feel better off. They have two standards to use in assessing this: (a) comparison to their neighbors, and (b) comparison to their own circumstances at an earlier time. If they feel better off by standard (b), then standard (a) will be relatively less important (and vice versa). Since it is obviously impossible for all members of society to be better off than their neighbors, an over-emphasis on standard (a) will lead to a frustrated, repressive, "zero-sum" society. By contrast, if people feel better off by standard (b), society will become more open, more socially mobile, and more democratic. This argument is made in chapter 4, pp92-94.

The central portion of the book is a lengthy examination of the historical evidence (in the US, Britain, France and Germany) for and against this thesis. Is it true as a matter of history that social advances are correlated with economic growth, and that repression and intolerance are correlated with economic decline? Friedman concludes that more often than not this is the case.

The last part draws policy conclusions. Because growth produces positive "externalities" - structural benefits to society as a whole - Friedman writes, "there is a consequent role for [public] policy measures to seek growth beyond what the market would provide on its own", and he goes on to detail some possibilities in the familiar areas of investment, education, and healthcare. But he does not seriously address the possibility that natural resource limits will mean that "strong economic growth" will prove to have been a transitory stage in the human story. (To be more precise, such concerns are answered with the usual claim that the price mechanism will provide "substitutes" for scarce resources, but this is just playing with words: increasing prices for a resource will lead to "substitution" in the economic sense that other resources will be relatively more consumed, but economics can offer no guarantee of a "substitute" in the ordinary English sense of an alternative which generates substantially the same benefits as the exhausted resource did.)

For this reason I find the book ultimately a pessimistic one, despite its opening evocation of Enlightenment optimism. Mass democracy, equality, and openness, it suggests, are luxury goods, epiphenomena of an age when economic growth blunts the costs of a generous spirit. If endless growth is simply an illusion, this is not good news.

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rdeforest said...

Does Friedman address the (supposedly) growth promoting public policies that are currently in vogue? Namely, lower marginal tax rates on the wealthy and 'austerity measures'.

Unfortunately, these measures will likely increase inequality and leave the middle class is worse shape, taking both points (a) and (b) above in the wrong direction.

John Roe said...

I don't think so - his "growth promoting policies" include rolling back the Bush tax cuts, for example.