The Economics of Enough

How to Run the Economy as If the Future Matters

Diane Coyle

• Publisher: Princeton University Press
• Year: 2011
• ISBN:
  9781400838110
• Topic: Economía
• Subtopic: Desarrollo sostenible

Why our economy is cheating the future—and what we can do about it The world's leading economies are facing not just one but many crises. The financial meltdown may not be over, climate change threatens major global disruption, economic inequality has reached extremes not seen for a century, and government and business are widely distrusted. At the same time, many people regret the consumerism and social corrosion of modern life. What these crises have in common, Diane Coyle argues, is a reckless disregard for the future—especially in the way the economy is run. How can we achieve the financial growth we need today without sacrificing a decent future for our children, our societies, and our planet? How can we realize what Coyle calls "the Economics of Enough"?Running the economy for tomorrow as well as today will require a wide range of policy changes. The top priority must be ensuring that we get a true picture of long-term economic prospects, with the development of official statistics on national wealth in its broadest sense, including natural and human resources. Saving and investment will need to be encouraged over current consumption. Above all, governments will need to engage citizens in a process of debate about the difficult choices that lie ahead and rebuild a shared commitment to the future of our societies.Creating a sustainable economy—having enough to be happy without cheating the future—won't be easy. But The Economics of Enough starts a profoundly important conversation about how we can begin—and the first steps we need to take.

PART ONE Challenges

ONE Happiness

An image of happiness will prompt a warm glow of emotion, a recognisable mental or even physical reaction. If a picture of a dollar bill or credit card, or of the earning or spending of money, stimulated any emotional reaction it would most likely be a negative one.

For many centuries, philosophers have considered the nature of happiness. During the past hundred years, psychologists have accumulated experimental results about the reality rather than the theory of happiness. In just the past decade or so, economists have muscled into the happiness debate.

Figure 1. Happiness.

What on earth can economics contribute and why is happiness the starting point for a book about how to improve the running of modern economies?

The reason is that virtually every society in the modern world has come to be focused on the achievement of economic growth, although with different degrees of success. The purpose of governments is taken to be making their citizens richer. The assumption underlying this focus has always been that greater wealth is good for people and brings greater contentment, or at least enough contentment to help keep governments in power. But some people have started to challenge this presumption. In the richest countries the relevance of growth as the central aim of policy has increasingly come to be questioned. The consumerism of the boom era has generated something of a sense of revulsion; as the economic and financial dust settles after the banking crisis, a sort of existential introspection questioning the moral basis of the economic order has set in. Don’t Western consumers have enough? And even though growth is agreed to be vital still for poor countries, it is often thought to come at a high cost—for example, in terms of its effects on traditional culture or urban squalor.

The challenge to the central importance of growth as a policy goal dates back some years but has been strongly reinforced by the recent financial and economic crisis. This prompted many commentators—including many economists—to criticize the presumption that as long as real GDP (gross domestic product, the standard measure of the size of an economy) is growing, other things people might want will follow, including even ephemeral states of mind like happiness. The cause of anticonsumerism has become for some people either a moral campaign or—depending how cynical you are—a fashion. What’s more, the flaunting of wealth by the superrich has become politically charged now that so many taxpayers count the costs of recession. The recession has fed into a deep-rooted suspicion of conspicuous consumption.

That phrase was coined by the maverick economist Thorsten Veblen in his 1899 book The Theory of the Leisure Class. In many cultures, including my own Western cultural tradition, it’s a commonplace that money at best does not bring happiness and at worst causes great misery. As the Beatles put it: “I don’t care too much for money, for money can’t buy me love.” The King James Bible warns: “For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.” King Midas bitterly regretted his golden touch and in Ovid’s telling: “Rich and unhappy, he tries to flee his riches, and hates what he wished for a moment ago. No abundance can relieve his famine: his throat is parched with burning thirst, and, justly, he is tortured by the hateful gold.”¹ Economists themselves, drawing on research by psychologists, are now asking: Do the higher incomes created by economic growth make people happy? If not, what will increase people’s happiness, and what economic policies will help? Should economics continue to insist that governments should always aim to increase GDP growth?

There is a happiness bandwagon which says not. It’s widely taken as a fact by media commentators and many academics that GDP has gone up but happiness hasn’t increased. Consequently, some prominent economists and psychologists even advocate policies that trade off growth for happiness, including taxes on luxury goods to stop consumers indulging in wasteful spending.² Their call for governments to force people out of the rat race has gathered quite a lot of support on the center-left of politics, enough to grab significant media attention although not always enough to win votes in elections. The underlying idea that economic growth does not increase happiness (at least in the rich West) has become increasingly commonplace.

This view has the additional attraction of making it seem much easier to reconcile concerns about the pressure of human activity on the natural environment with our own interests. If a halt to growth would make us happy as well as reducing greenhouse gas emissions, so much the easier for policymakers.

In this chapter, I will argue that unfortunately it is not so easy to escape the horns of this dilemma. The new conventional wisdom about happiness and growth is mistaken. Growth does make us happier, easily seen perhaps as the mirror of the unhappiness caused by economic recession. The policy challenge for governments is to deliver economic growth while ensuring it does not undermine other important goals, or indeed the health of the economy further into the future. Often this is described as “sustainability,” although that is a narrower concept than the Economics of Enough. Figuring out policies that can achieve a better balance between the present and the future is what the rest of this book is about. I draw on a long, if overlooked, tradition in economics, dating back to Frank Ramsey and revisited recently by Partha Dasgupta, which emphasizes that the optimum or desirable rate of growth is unlikely to be the maximum possible growth, once due account is taken of the future. This will be a central point of this chapter.³

Sustainability includes our impact on the natural world but it has other dimensions too. The threat of disruptive climate change is not the only problem with economic growth as we experience it now. Our political and social arrangements haven’t adjusted to the fundamental changes in the structure of the economy that have occurred in the past two or three decades. Information and communication technologies have radically reshaped how goods and services are produced in the leading economies, leading to phenomena such as globalization, changing patterns of skills and work, the demise of some businesses and restructuring of others. These effects are bigger than those of steam or electricity, reflected in the fastest declines in price and increases in quality ever recorded for a new technology.⁴ The impact of the technologies has been and continues to be profound. Their potential benefit to our prosperity and welfare is enormous, but so too is the disruption to jobs, businesses, and the institutions which govern us. Political and social arrangements and institutions have not kept up with the economic changes.

This gap between the underlying technology and economic events and the capacity of governments and others to deal with them was brought into focus by the financial and economic crisis that began in 2008. It has been one of those periodic upheavals that are a feature of modern economies, recurring with every new generation of fundamental technologies, just as in the 1930s and 1970s. Every time, crises rightly raise questions about how to ensure that fundamental structural change will benefit the whole population. These questions have not been adequately addressed since the impacts of ICTs began to be widely felt in the 1990s, which explains the widespread sense of unease and discontent in so many countries.⁵ The institutions and social conventions with which we organize collective life have not kept up with the radical technological changes, which are overturning established business and social relationships. For example, in the second half of the twentieth century governments used big companies to administer much of the tax and pension system, but now too few people stay in a stable large company for years for this to be a viable structure. Or to take another example, the global community is struggling to find the rules to govern trade between countries with entirely different social and ethical frameworks.

What this means is that as well as environmental sustainability, we need answers as to how governments are to bring their citizens financial, political, and social “sustainability” too. Whether it is the massive government and personal debt burdens, inequality, or the corrosion of social trust, many countries are suffering a largely unacknowledged and yet pervasive crisis in their organization and policies. These different aspects are addressed in subsequent chapters.

In this chapter I start with the prior question of what’s the appropriate goal of government policy, or for that matter personal effort. Not surprisingly, the recent crises have led many people to believe the time has come to reevaluate the pursuit of material wealth, both for themselves and by governments on behalf of society as a whole. So this chapter starts with questions of social welfare.

There is a tradition of anxiety about whether the social and cultural effects of capitalism corrode welfare and make us worse off. I ask whether social welfare should instead be defined as the pursuit of happiness and argue that this is too narrow a definition, just as narrow in its way as the presumption that economic growth alone is enough. Then I explain why the antigrowth bandwagon is misguided in which case growing prosperity is still a valid and important policy goal. In other words, I argue that economic growth does increase happiness and also contributes to other important aspects of welfare, especially freedom. Finally, I turn to what governments need to do to address the varied challenges of our times and increase social welfare. I conclude that we still have a serious policy dilemma in trying to identify and achieve the best balance between growth now and the needs of people in future.

THE CULTURAL SUSPICION OF CAPITALIST GROWTH

In recent times in the richest economies, the pendulum has swung away from economic growth, and what’s seen as its moral consequence, greed. There is a widespread sense that the Western economies during the financial bubble went from enough to excess. This has manifested itself in countless magazine articles and books, analysing and commenting on the financial crisis. It is hard to single out some examples from the crowd but one title makes the point: All Consuming: How Shopping Got Us into This Mess and How We Can Find Our Way Out, by Neal Lawson, is a typical example. Others are more thoughtful. The writer James Meek, in a British newspaper feature on the economic crisis, put it this way:

The worst enemy most of us are being presented with by politicians and the media is the loss of a prosperity few of us believed we had. . . . We feel we’ve fallen from something and it hurts; but the rise to whatever that something was was not as pleasurable as the fall has been painful. . . . The struggle we are engaged on now seems to be the struggle for Britain to be prosperous enough. But until we decide what “enough” means, we’ll never know whether we’ve won or not; we’ll never be happy.⁶

There have been significant social reactions to the widespread sense of excess. One example is the Slow Movement. This began as Slow Food, an Italian protest against the fast food exemplified by, of course, McDonalds, already the target of other protests like those led by farm activist José Bové in France. Over time an array of dispersed “slow” organizations have emerged, described by writer Carl André in his book In Praise of Slowness. André describes the Slow Movement as a cultural revolution, a philosophy, and places it in the tradition of the nineteenth-century Romantics or the 1960s hippie movement. Slow means a rejection not of all that is modern—its adherents have no hesitation in using the web and mobiles to communicate and organize—but rather a rejection of what are understood to be the mainstream values of modern societies. Slow is obviously intended to oppose the “fastness” of the modern economy; I return to this question of time later, as it hints at the key question of giving the future due importance in today’s decisions, although the issue is more of time horizon than being fast or slow. Beyond that, the emphasis is on community, relationships, and the environment, things that unfold and evolve over long periods of time, all of which are felt to be threatened by the relentless push for more growth, more productivity.

This triad—community, relationships, environment—has been identified as the victims of economic growth ever since modern capitalism began in the Industrial Revolution. As André indicates, the Romantics were swift to identify the cultural and social costs of the changes driven by economic imperatives, and to contrast the values of nature and industry. William Blake famously wrote of the dark satanic mills. John Ruskin, better known now for his artistic criticism, wrote a bestseller on “political economy” called Unto This Last, which was one of the most impassioned and articulate blasts against the turmoil created by industrialization. The drive to get rich, he argued, ignored the social relationships involved in the movement of money: if your neighbour doesn’t want money, it has no value to you. The “mercantile economy” centers on money, whereas genuine “political economy” includes the social context. True riches, Ruskin said, sounding like an early prophet of the Slow Movement, lie in:

The farmer who cuts his hay at the right time; the shipwright who drives his bolts well home in sound wood; the builder who lays good bricks in well-tempered mortar; the housewife who takes care of the furniture in the parlour and guards against all waste in her kitchen; the singer who rightly disciplines and never overstrains her voice, are all political economists in the true and final sense; adding continually to the riches and well-being of the nation to which they belong.⁷

Here, Ruskin explicitly includes well-being, or happiness, as a target. The Romantic themes have been picked up again recently by Richard Bronk. In his book The Romantic Economist he advocates a new emphasis in economics on imagination: “The Romantics stressed the central role of the imagination in creating and envisioning the future, and in forging our own identities and aims out of the incommensurable and conflicting values and discourses we face.”⁸ This perspective ties in with the argument that measures such as GDP are an inadequate way to assess economic progress; that we can’t capture it in monetary terms.

These are only two examples plucked out a vast literature highlighting the adverse cultural and social consequences of economic growth. Each economic crash, following a period of boom and excess, has brought a new surge of criticism. Karl Marx was inspired, if that’s the right word, by the financial crises of Victorian Britain such as the railway manias and stock price crashes of the 1840s and the mid-nineteenth-century banking collapses. But the reaction was perhaps most dramatic in the 1930s, when the inevitable result of the Great Crash and the Depression was to encour...