Economic Growth

I have recently read a series of articles intended to plant an intellectual seed that has, in my view, the potential to grow into a noxious weed. Some have opposed the generally accepted policy goal of encouraging economic growth. One asserted that accountability (forcing able bodied folks to work in order to receive welfare) was a form of oppression, and several proposed a universal minimum income. I think these concepts hang together.

The reasons cited for opposing the effort to grow GDP are carbon footprint and income inequality. The cause and effect analysis is flawed in both cases. History definitely proves that affluent societies do a better job of protecting the environment than poor ones. Certain forms of economic activity may cause environmental degradation, but there is ample evidence that growth improves the environment. Affluent societies also take much better care of those at the bottom of the socioeconomic ladder than poor ones. Simple math–ya’ can’t pass out money if you don’t have any.

It is easy to forget how lucky we are. Homo sapiens as a species have been around about 200,000 years. For the first 190,000 years, their priorities were to avoid being eaten by a predator, to find enough food to eat and store for winter, and to avoid freezing to death. About 10,000 years ago, farming and herding emerged. That was wealth creation. But the economy was essentially a zero sum game for thousands of years. Wealth was finite–fertile land, livestock, scarce metals and gems. The only way to accumulate wealth was physical force. A few who won the wars lived, relatively speaking, pretty well. The vast majority were peasants, serfs or slaves, struggling to get enough to eat and waiting anxiously for the next warlord’s rape and pillage. As a result of the dawn of capitalism, the scientific revolution and the industrial revolution, we were able to create vast wealth. A combination of land, labor, capital, organization and innovation is a magic elixir. You don’t have to be a warlord to be rich.

The earth now supports more than 7 billion human beings, vastly more than at any time in human history. There were about 2 billion in 1900. About 5 billion live above the subsistence level. For about 2 billion, one of the major health threats is obesity. The final 2 billion live in abject poverty. Most of them lack access to clean water and/or sewage treatment and/or adequate diet. To misquote Hobbs, their lives are nasty, brutish and short.

The central moral imperative of the pursuit of economic growth is to give the 2 billion at the bottom of the economic ladder a chance. You have to look no further than the recent history of China to see what can happen as a result some semi-decent economic policy decisions. Literally hundreds of millions of subsistence level peasants have joined the middle class. The same thing can happen for hundreds of millions in India and Africa, if we can grow the world’s economy.

There is also a mathematical imperative. The demographic of virtually every advanced economy in the world is graying. Longer life expectancy and lower birth rates. Americans are turning 65 and going on Medicare at the rate of 10,000 per day. According to my calculation, our promises to support them are going to be very hard to meet. The actuarial shortfall (difference between projected collections and projected payouts) over the next 30 years is $130,000,000,000,000 (that’s trillion). That is not a wild estimate. I have seen some estimates that are much higher. Either we will generate enough wealth to pay the bill through economic growth or we will have to crimp our lifestyles in a big way. We could just stiff the old folks, but we won’t, because they vote.

There is only one source of economic growth–improved productivity. That does not come without incentives. My experience and study lead me to believe that–at least to some extent and some of the time–human beings are lazy liars. Given a chance, they will sit on their ass and watch others do their work, and they will cover up embarrassing facts with lies. The only solutions are competition and transparency. We get out of bed in order to put food on the table, and we tell the truth because the lie might get exposed. Telling folks that accountability is oppression and giving away money without asking anything in return will not get the job done.

The advocates of free money almost always gloss over the means to get there. Who will pay? The first candidate is high earners. Raise taxes on the rich! The problem is that the average high earner endures a volatile pattern of earnings. California is the poster child for that problem. It relies heavily on a steeply graduated income tax. When the economy gets a cold, the State budget suffers pneumonia. A Silicon Valley real estate broker or VC partner might make $1 million in a good year, but a fat zero in a bad year. Tax receipts plummet. A parallel solution involves taxing inherited and accumulated wealth. The problem with that solution, assuming that the wealthy don’t move themselves and/or their money before you get to it, is that it works only once. The accumulated wealth of every plutocrat in the country will pay the bill for a very limited time. Once it’s gone, there is little chance that anybody would go to the bother of accumulating more wealth that will be taxed away.

One reason cited for the guaranteed income is that it would allow recipients to avoid working at drudge jobs to pay for necessities, freeing everybody up to follow their muse, express their creativity, etc. I say that only the discipline of having to accumulate a stake to pay for the sabbatical, and the cold logic of the market judging the output, will produce results that are socially useful and personally satisfying. My recollection is that Holland tried supporting everybody who wanted to be an artist by buying their output. They ended up with warehouses full of really terrible art.

If we hold all those capable of supporting themselves accountable for their own support; if we have public policy that facilitates economic growth; if we run a society that values competition and transparency; and if we pursue the twin goals of environmental quality and GDP growth, we will maximize our chances of a happy outcome on several fronts. We can pay for the elderhood of the baby boomers; we can lift a lot of folks out of the clutches of abject poverty; and we can be proud of the person we see in the mirror while shaving or putting on makeup.



A Different View

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store