Open Reading Frame

Iain J Coleman has a good post up on Fistful of Euros highlighting this paper by UCDavis economist Peter Lindert (that Carlos mentioned in this Electrolite comment thread about this NYT article about the working poor in America). See what I mean about conversations? Anyway, the paper describes why a high-spending welfare state doesn't depress GDP (viz., "looks like a free lunch" but isn't). Here's Iain's summary, emphasis mine:

... social spending is good for personal productivity, and democracy is effective in ensuring that real-world governments avoid the costly mistakes that anti-welfare theorists assume. Apart from illustrating the dangers of hand-waving economic arguments, this tells us that the choice between a European-style high-welfare state, and a US-style low-welfare state, has nothing to do with promoting economic growth and is simply a matter of which kind of society we find more pleasant to live in.

I'd better confess that I haven't read the paper yet and will likely be out of my depth if I do, the dismal science being mostly Martian (or worse, mathematics) to me; but that's why I read blogs, and the excerpt makes intuitive sense to me. I certainly know which kind of society I prefer; besides, "growth for the sake of growth is the ideology of the cancer cell"¹. I keep hearing that modern economic theory is predicated on infinite growth, but that can't be right: it's too crazy. Nonetheless, Economic Growth does seem to have become some kind of modern deity, Mammon's offsider, and it's not obvious to me that economic growth is intrinsically good, or that the opposite of growth is shrinkage (or stagnation). Why is it bad if we don't make more, build more, spend more, own more crap this year than we did last year? What has happened to the concept of "enough", as in, "I have enough, I don't need more possessions or security, I can afford to pay into a pool of common good from which those in need can draw"? For what kind of person is a bigger television more important than that the hungry should have food?

But as I said, I'm probably just out of my depth.

¹Edward Abbey

Update: fixed the link to the Electrolite thread.

The modern economy is driven by the stock market, and so the opposite of economic growth is panic.

When you take your company public, you are in essence borrowing money from a boatload of strangers, who expect a return. If they don't get it (and they only get it if your business continues to make more and more money), they'll dump your stock. At that point, you either have to buy it back, convince another company to buy yours, or go under.

(I am not an economist, nor even much of a business person. I studied art in school. So the above may be complete rubbish.)

Comment number: 006367 Posted by: pericat on January 24, 2004 09:08 AM from IP: 216.232.77.228

That makes sense to me, and is one reason why I have no stock market investments. (Another is that I don't have the faintest clue how it all works.) I still come back to my question: what happened to "enough"? What drives me nuts is the constant insistence on more profit. Investors don't just dump stocks that aren't providing a return, they dump those which fail to provide ever-increasing returns (and I'm not just talking about keeping pace with inflation). And there's another thing -- inflation. "Too much money chases too few goods", says Econ101; in other words, demand outstrips supply so prices rise. But "demand" covers a lot of ground, and I don't see why -- if not for greed -- prices can't simply fall again. IANAeconomist either, but I don't see why inflation should be inevitable on a stable political background.

Um, you want this soapbox for anything? I seem to be done with it. :-)

Comment number: 006368 Posted by: senn on January 24, 2004 11:07 AM from IP: 67.166.82.95

I don't see why -- if not for greed -- prices can't simply fall again. IANAeconomist either, but I don't see why inflation should be inevitable on a stable political background.

I'm also NAE, tho the concepts are generally pretty intuitive to me. One reason (outside the stock market) that moderate inflation is positive and implicitly encouraged by our economic policies is that it makes borrowing money (for housing or entrepreneurship) appealing and practical. ie, you can borrow 100k now to buy a house, and pay it off slowly. Inflation means that in th

During deflation, interest rates would have to be negative lending to make sense, but in such a situation no one would lend money (they'd be better off to keep their cash because if they lend it out they will get less back in the end with negative interest -- the only way to prevent that would be for the government to tax the mere holding of cash, impossible for now). So only people with money on hand could buy houses, start businesses, etc. And who'd want to do that anyway, because if you just sit on your cash and wait you can get more for it later.

I'm not sure if I'm even addressing your question, but that was just my gut reaction to your comment.

Comment number: 006369 Posted by: Dave on January 24, 2004 06:25 PM from IP: 66.143.220.111

Why is it bad if we don't make more, build more, spend more, own more crap this year than we did last year?

Oh yeah, for three reasons: there are more people every day who need stuff; most people are very selfish, and I don't see how that could change; when we spend too much on stuff, people have more money to make other, better stuff, and things get better and cheaper for everyone.

That's pretty vague isn't it?

Comment number: 006370 Posted by: Dave on January 24, 2004 06:30 PM from IP: 66.143.220.111