Everybody seem to agree that growth is sluggish so too many stay mired in poverty, that there are not that many jobs to go around, that globalization has contributed to an already unacceptably high inequality and that technological innovation has been stagnating lately (well, the last point is still hotly debated, but I’ve been around just enough time to have reached my own conclusion: my life at 20 was vastly more different from my life at 10 than what my life at 40 is from the former… we do have the internet and mobile phones, but we travel using the same means, produce energy in the same way, erect buildings with the same materials and shapes, construct roads, dams, and factories with the same blueprints and even die of the same maladies, may be a tad later). Even acknowledging those problems, the majority in what is known as the First World still thinks the overall socioeconomic system is, not to put too fine a point about it, the best we have ever had as an species, so to tinker with any of its main tenets (from the dominant reason that justifies it and pushes every citizen to strive to the utmost to comply with its three main commandments to the market organization that colludes with such reason in rewarding differentially those that are already in a favored position) would be utter foolishness. Even in the less economically developed countries the minority in power agrees to a man with the excellence of our system (at least, the part of it dealing with economic rules, which they try, with different levels of success, to separate from the political and social rules), and only varies in the extent in which they try to have the majority of the population under their command participate in the increase in wealth that they expect to extract from the increased adherence to the aforementioned rules.
But I think we could collectively do much better. I’m not a great fan of growing the amount of material goods produced and services paid for within a society (the most extended measure of economic well being is the Gross Domestic Product, or GDP, which counts as if it meant something manufacturing new gadgets that replace old ones with the exact same functionality, but then create additional environmental problems by filling the already huge landfills, and also counts the provision of “services” that demean both the provider and the buyer) as I think there are things more important for human flourishing that what those metrics capture (a clean atmosphere and natural landscapes, rich and dense networks of relationships, a shared narrative artfully articulated), but I recognize the accumulation of whatever is measured by such metrics does have a positive impact in the lives humans can lead.
Between 1950 and 2010 the average GDP per person in the USA (similar figures for the UK and Germany, and good representatives of the rate of improvement in most First World countries) has roughly trebled (from 16,000 $/year in 1950 to 50,000 $/year in 2009 in constant 2009 dollars). Even if we concede that a fraction of that increase is “well-being neutral” and it just reflects that the person in 2009 receives additional income that he then has to spend without extracting any utility from it, like consuming more gas in a longer commute or in pills to sleep better and to combat his chronically higher work related stress) we have to admit that he is considerably better off than his forebears. How much better? We know that he has access to a much greater variety of some of life’s pleasures: better looking food, although I have my doubts about how much more tasty it is, and even greater doubts about how less healthy overall; bigger homes (but further from his workplace); incrementally more comfortable means of transportation; more leisure options like music, satellite radio, TV shows, even books, almost any work ever published delivered to his doorstep in mere hours (but less time to enjoy it)… We also know that his life expectancy at birth has grown, albeit at a much smaller pace lately (it grew from roughly 45 years in most Western countries in 1900 to roughly 70 in 1950, while it has only grown to 80 in the last 65 years –and is actually decreasing in some groups, as this much touted article by Gina Kolata in the NYT recounts: Whew, USA white low-middle class is screwed!). So interestingly, it is undeniable that a lot of progress (in well-being, I’m not talking yet of personal freedom, opportunities for recognition, equality or fairness in the distribution of the social product) has been made in the last century, so even for the poorest members of society it is far better to live today than in 1900, but not so much than in 1950 (and, as it is famously noted, for most of American middle class, no real gains in disposable income have been achieved since 1971).
What about the rest of the world? it is much more of a mixed bag. In some cases (most of sub-Saharan Africa) they are barely better than how they were in 1900, which is not that different from how they were in 1000 AD (maybe even worse, as 1000 AD was before the most serious ravages of the slave trade) both in GDP per person and in life expectancy. In other (Latin America, North of Africa, India, China –that has had to recover from a much deeper and miserable place due to the catastrophic policies of its “Cultural Revolution” and “Great Leap Forward”- and South West Asia with the exception of Korea and Japan, which for all practical purposes are today equivalent to any other advanced economy) they have advanced in fits and starts, amid some occasional regression, and they are roughly where we were around 1970. Russia and its satellites would be in a similar position (both in life expectancy -69 years in 1962 and 68 years in 2009- and in GDP per capita –from 8,000 $ in 1970 to about 20,000 $ in 2010).
Given that, I have the following position to stake: technological advance was a net positive for everyone in the West (broadly understood to include Japan and Korea) until 1970, and from then on it has served mainly to lift the fortunes of the top 1% with little benefit to the rest. The meager increase in life expectancy since then can be mostly attributable to the reduction in smoking (so in a sense we are better off, since we have mostly stopped poisoning ourselves voluntarily with a potent carcinogen, although we probably still do it inadvertently with a thousand similar toxic fumes that envelop our cities without us noticing). That means that for most of the world (Africa excepted, as they may still need a couple decades –if everything goes well, which it rarely does- to get to where the advanced economies were in 1970), they have already reached the level of socioeconomic development that is optimal for the majority of the population, and whatever they manage to keep growing is likely to improve the wealth (and overall well-being) of a similarly tiny sliver of their populations, at the price of exacting an increasing effort from everybody else (not coincidentally, the great theorist of the modern phenomenon of burnout is a Korean, Byung-Chul Han). In a series of posts more than a year ago (culminating here: What should be done IV) I analyzed the current stage of capitalism understood as a world system defined by the following features (to which I assigned the accompanying moral valence):
1. Secure private property rights -positive
2. Use of money - positive
3. Commodity production (that requires markets to determine the price of every merchandise and service by the intersection of its supply and its demand) – negative/ neutral
4. Labor market, that determines the wage level also by the intersection of supply and demand (but subject to specific regulation) - negative
5. A technological level that allows for cheap food, energy and communications (each less than 10-20% of the average basket of goods) - positive
6. Globalization (minimal barriers to the circulation of goods, capital and information) - positive
7. Digitization of experience - neutral
I concluded that only 3 and 4 were problematic (non conductive to maximal enablement of human flourishing), and that only 4 actually required doing something about it, which back then I thought was implementing a UBI (Universal Basic Income) that would free people from having to work involuntarily and/or in degrading conditions. That was a very incrementalist approach, which I thought was granted by a basically positive evaluation of where the described system (which I dubbed “digital capitalism”) had taken our societies. Such incrementalism was justified by my appraisal at that date that growth rates in GDP would pick up and revert to the previous trend rate (around 3.5% for most of the West) and, both in the USA and Europe there would be a fast reduction in unemployment, an increase in the percentage of the working population and a resumption of the increase in wages that would in turn enable a reduction in inequality. Not only none of those have materialized, but I do believe now that with the current socioeconomic structure they will never materialize. Inequality, low labor force participation, miserable salaries with no prospect of rising (which enable the recently noticed phenomenon of the “salaried poor”, people that after years being fully employed still are below the poverty level, have no expectations of ever rising above it and sure as hell can not afford things we take for granted as signs of having reached a middle class status like owning o house, no matter how small, owning a car or even a set of personal appliances like a smart phone or a PC) are now a part of the landscape, a constant reminder that something is seriously amiss in the way we organize the production and distribution of goods and services.
One of the reasons I have despaired of ever seeing the current system reform itself, or correct its most glaring problems, is because I’ve concluded that the solutions being offered by the different macroeconomic schools are all wrong, and wont to disappoint:
· Monetarists believe that loose monetary policies will do the trick, and low interest rates will sooner or later cause investment to resume, capacity to pick up and we will be back to normal. Unfortunately we have been stuck at the “zero bound” where rates can’t go any lower for more than half a decade, and the results have been… underwhelming. Most serious monetarists already concede the point and simply declare this is the new normal, and we should get used to interest rates near zero as long as the eye can see (and that those, being the new “natural rate” won’t even specially stimulate the economy, simply there is nothing that can be done and an anemic growth is just what’s in the cards for all of us).
· Neokeynesians maintain that the problem is one of low aggregate demand (something with which I agree), and resort the old recipe of getting the state to replace the non existent private sector to try to spend our way back to growth and prosperity. They can (rightly again) point to the unmitigated disaster of austerity policies in the EU (where the proponents of tightening the budget and cutting public spending in the face of an already deep depression should be criminally prosecuted for the amount of unwarranted suffering they have inflicted in the population of their countries for no logical reason whatsoever). But in this case, sadly, the fact that the opposite policy is insanely wrong does not mean that the one they propose is right. As Japan abundantly shows, you can force the public sector to spend like there is no tomorrow and that is not going to kick start the economy back to the growth rates of the 80’s of last century (Spain between 1999 and 2007 could serve as a similar cautionary tale). There comes a moment (and most Western economies are well past it) when there are simply no more good investment opportunities that the public sector can profitably undertake, and the multiplier then becomes vastly below one, so you just sink good money after bad with no noticeable result, “crowding out” starts having a pernicious effect, while the national debt balloons (it doesn’t seem to matter in a scenario of very low interest rates, but at some point it will become a serious limiting factor for any additional growth)
Basically that covers the “mainstream”, “sensible” positions in economics today, everything else being a collection of loonies and hucksters trying to sell snake oil like supply side economics, trickle down, tax cuts that pay for themselves and other mythical beasts, that have no more real existence than the Easter bunny, unicorns or fire-breathing dragons. The more clear-eyed within the profession admit we are facing a “secular stagnation”, as the two great components that have kept the economy growing at a fast pace have exhausted themselves, to wit:
· Demographic growth (more people meant more consumers and more producers at the same time) is essentially over, except in some backwaters in Africa, and demographic contraction is already in an advanced stage in places like Japan, Singapore, Russia, most of the UE, and soon Latin America and the USA. Good luck finding increasing numbers of consumers in the next decade there. China is also already about to start decreasing in number, but as their numerous citizens continue going from dirt poor to moderately poor (to, maybe some day, moderately affluent) you can still hope to sell them additional units of whatever gewgaw. Ditto for India. But even those will eventually peter out
· Technological advance, which in turn drives increased productivity, so your dwindling workers can keep on producing the same (or even more) has gone the way of demographic grow. The reasons of its demise are not as clear, but my hunch is that it has to do with the aging of the population and the incentive structure of the market we have jointly created being massively slanted towards short term gain, which leaves very little resources to more long term, potentially disruptive technologies.
So if we can not trust that keeping things basically as they stand now (plus a UBI) may get us out of our low growth predicament, and such predicament ensures that increasing numbers of workers (specially the youngest and the less skilled) are left out of the economic ladder, increasingly hopeless, may be it is high time to ditch incrementalism and go for a more radical alternative (what used to be termed the “revolutionary” path). It has to be reckoned that the revolutionary record is pretty dismal, even if we concede high marks to the English and American Revolutions, we still have to fail the French, the Russian, the German, the Spanish (the last two happened in a very convulse period, in the face of counterrevolutionary tendencies that either threatened or effectively brought about a good deal of similarly perverse effects), the Chinese (which we could extend to encompass the Korean, Vietnamese and Cambodian), the Iranian and most likely the Lybian, Egyptian, Syrian and possibly Ukrainian… more than enough to discourage any aspiring revolutionary that the odds are heavily stacked against him, and that more likely than not the unexpected results of whatever discontinuity he may champion may end outweighing the potential positives.
However, we shall not be deterred by the failures of the past. All this was intended to serve as a preamble of my next post regarding the desirable economic organization of society, which although as tongue-in-cheek as usual when I deal with the dismal science (which I do not consider a science at all) will probably be a bit more daring and a bit more unmoored in reality than usual. We blog, after all, to improve our ability playing with words, so play we will, and find out where our revolutionary fancy takes us.