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Saturday, July 09, 2011

What's the Point of Economic Growth?

Kevin Quinn:

I am confident that the medicine The Republicans and - say it isn't so - Obama, are preparing for the sick Economy, LEECHES, will work as it always has.

The substance of his post, however, is the relationship between economic growth and happiness. In paticular, the question "why should happiness or utility be the desideratum of economic growth?":

Happiness and miscellaneous, by Kevin Quinn: Richard Easterlin et. al. have a new working paper, "The Happiness-Income Paradox Revisited." Note first the rare scholarly modesty here: it is of course "The Easterlin paradox" that we are talking about : the paradox that consists in the fact that happiness increases with income in the cross-section while it is unaffected by income over the long run (see below) in the time series. It presents new support for the paradox as well as a response to some of the recent self-styled refutations...
There is no theory in the piece, but they pithily sum up the most plausible explanations of the paradox: " the escalation of material aspirations with economic growth, reflecting the impact of social comparison and hedonic adaptation."
Readers of The Theory of Moral Sentiments will know that Adam Smith would not have been at all surprised by the paradox. On the contrary - remember his description of the poor man striving all his life to become rich who, when he finally succeeds, finds he is no happier than he began? But for Smith - and I agree - the paradox is in itself no critique of economic growth, as it has been wielded in contemporary debate: Smith thinks it a good thing (I'm paraphrasing, my TMS is in the office 20 miles down the road) that we Nature (I think it's capital N Nature, or it may be capital P Providence) deludes us in to thinking that more income will make us happier, because all this striving under this delusion has produced, well, Civilization! "Turned mighty ocean into a broad highway" and such - you know the passage. The larger point, though is this: why should happiness or utility be the desideratum of economic growth? Just as they had an objective, rather than a subjective, theory of value, The Classical economists generally, I suggest, had an objective rather than a subjective theory of well-being. In Senian terms, economic growth increases our capabilities. What we do with them is another thing. ...

It's interesting to comapre Kevin's post to this one:

The Building Blocks of 21st Century Prosperity, by Umair Haque: ...What's this crisis really about? I argue that it's not a liquidity crisis, or a solvency crisis--as most central bankers, prime ministers and presidents still do. It's nothing short of an institutional crisis. When you look around, it seems that most of our institutions (everything from banks, to "the corporation", to "boards", to "equity", to "GDP") are fatally, irrevocably broken--in the sense that they seem incapable of seeding capital, allocating it socially usefully, or renewing it. ...
So how do we being reinventing these broken institutions? Is it even possible to do so? I believe it is possible--and that today's economic renegades are already taking on the challenge. ... What's the point of yesterday's institutions? Well, they optimize for industrial age conceptions of what it means to prosper: the now-familiar productivity, efficiency, and effectiveness...
But today's economy is very different from yesterday's, in terms of its resource constraints, capabilities, structure, needs, wants, and demands. ...
Hence, it's time to take a quantum leap to more nuanced, sophisticated conceptions of prosperity--that don't just optimize for industrial output (whose mightiest peaks we've already scaled), but optimize for people living meaningfully better. I'd suggest it's time to shift to socio-efficiency, socio-productivity, evolvability, and socio-effectiveness, to name just a few--updated conceptions of what the point of an economy is. ...

Another way to think about this is that the central question society must answer has changed from production to distribution:

Political Economy, you think, is an enquiry into the nature and causes of wealth -- I think it should rather be called an enquiry into the laws which determine the division of produce of industry amongst the classes that concur in its formation.

[Letter from Ricardo to Malthus in 1820: Ricardo, Works and Correspondence, 8: 278.]

    Posted by on Saturday, July 9, 2011 at 12:06 PM in Economics | Permalink  Comments (68)


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