A few days ago the ever insightful Brad Delong published in his blog a list of what he considers, "THE SEVEN CARDINAL VIRTUES OF EQUITABLE GROWTH." Here it is in total:
1. Manage the macroeconomy to match aggregate demand to potential supply. Take the dual mandate seriously: maintaining full employment is as important a central bank goal as low and stable inflation--and much more important than preserving healthy margins for the banking sector. Run large deficits--run up the national debt--in times of war, depression, or other national emergency calling for government action. Pay down the debt in other times.
2. Invest. Invest in ideas, in equipment capital, in structures capital, in education: we need more of all forms of investment. Boost public and private investment: we need both kinds.
3.Over the past generation, America has shifted enormous resources into value-substracting industries: health-care administration, prisons, finance, carbon energy. We need to reverse those shifts, and focus the American economy on the value-creating sectors rather than the value-subtracting ones.
4. We ought to have had a carbon tax 20 years ago. We still need one.
5. We need more immigration. It is much easier, worldwide, to move the people to where the institutions are already good than to make good institutions where the people are. More immigration produces a richer country for those already here. More immigration is a mitzvah for immigrants. More immigration is, to a a lesser degree, a mitzvah for those in poor countries outside who see less population pressure on resources. And a U.S. in 2070 that has 600 million people is more of an international superpower than a U.S. in 2070 that has only 400 million people.
6. We need more equality. If we want to have equality of opportunity 50 years from now, we need substantial equality of result right now.
7. We are going to need a bigger and better government. The private unregulated market does not do well at health-care finance, at pensions, or at education finance. The private unregulated market does not do well at research and early-stage development. The private unregulated market does not do well with commodities that are non-rival. We are moving into a twenty-first century in which these sectors will all be larger slices of what we do, and so a well-functioning economy will need a larger government relative to the private economy than the twentieth century did.
J. Bradford DeLong
While I agree whole heartedly with Dr. DeLong, however, as with most stirring generalizations, the clarity with with which they are enunciated turns a bit foggy when one tries to figure out what they mean when attempting to carry them out into reality. In fact people who agree on the generalities often have opposite ideas on how they play out in the real world. This was confirmed to me when, way back in the 1970's. At that time, I was engaged in writing and implementing much of California's monumental Coastal Program and its implementing legislation.
Almost all of us engaged in coastal protection at the time agreed that our job was to "save coastal resources." But what did that mean? To some it meant no additional development at all (at least in places important to them). But what about the fact that most of the coastal resources were in jeopardy because the continuing effects of pre-existing development would eventually cause them to disappear anyway? Some argued let nature take its course. But a dead and lifeless wetland killed by pollutants and reduction of water diverted to existing development is still dead and like it or not will not be allowed to lie there and fester for long.
What about the people living along the coast, especially the poor? Some pointed out these poor communities were unsightly, too dense and incapable of remediation and better off relocated elsewhere away from the coast.
These disagreements were just some of the ones that divided those who were most committed to the concept of saving the coast. Add to those people, the lukewarm, the self interested and the down right opposed and the generalization dissolved as they so often do into a series of accommodations that pleased almost no one. As a result, we often found ourselves supporting the principle while being dissatisfied with the results.
So, let me look at DeLong's cardinal virtues of equitable growth with the above in mind and contribute a few of my thoughts about the use of the word Growth.
Growth is perhaps one of the most loaded and overused words in our lexicon today. I think it probably has outlived its usefulness and should be replaced with less ambiguous words and phrases.
Lets take a look at something DeLong also wrote recently:
"To put it another way: In 1870 the daily wages of an unskilled worker in London would have bought him (not her: women were paid less) about 5,000 calories worth of bread--5,000 wheat calories, about 2½ times what you need to live (if you are willing to have your teeth fall out and your nutritionist glower at you). In 1800 the daily wages would have bought him about 3,500 calories, and in 1600 2,500 calories. Karl Marx in 1850 was dumbfounded at the pace of the economic transition he saw around him. That was the transition that carried wages from 3500 calories per day-equivalent in 1800 to 5000 in 1870. Continue that for another two seventy-year periods, and we would today be at 10,000 calories per unskilled worker in the North Atlantic today per day.I assume for the purpose of this Diary that DeLong's analysis is factually correct that within 75 years the number of calories that could be purchased by an ordinary worker in an emerging society increased by slightly less than 500 times. If that worker does not spend all that income actually on wheat calories, what does he spend it on? Also, I need to keep in mind that since 1870 this large increase in wages translated into calories has grown from being available to a few million workers to over 2 billion or more.
Today the daily wages of an unskilled worker in London would buy him or her 2,400,000 wheat calories.
Not 10,000. 2,400,000."
And also assume I understand the implications of that rate of physically unsustainable growth inuring to unskilled labor and it is undesirable consequences.
What do any of those virtues he listed mean with reference to those startling facts?
Demand equalling supply is a good idea but seems to miss the point.
Investing in ideas may be advisable, but shouldn't some mention be made on focusing that investment on solving a problem that appears to be disastrously untenable? Why would one want to allow ambiguity on whether the growth being encouraged includes even the possibility of this continuing?
OK avoiding value-subtracting activities could include halting the obscene escalation of per capita caloric intake, but given its importance should we not at least include it among the examples.
A carbon tax. Good idea. It helps. Some would say it starts the ball rolling, but shouldn't we urge something like a sustainable life style at substantially less than 2,400,000 calories per capita?
Immigration. Good thing too, but will each immigrant be entitled to 2,400,000 calories per day when they arrive or should they get less or even should those already burning the 2 million plus calories per day be required to share them with the new arrivals?
More equality. Another good thing even if "equality of result," is a bit confusing. Does this include everyone having the same right to profligacy. The 2.4 million does this mean we all have to give something up or only those who use more than the average being forced to give it up to those using less so that we all can still spend the same average amount?
This post is not a criticism of DeLong. What he suggests is the right thing. But even doing the right thing may not be enough.
Joe Stieglitz has said that the two most important issues of our age are global warming and income inequality. Jeremy Grantham has warned that compound growth, not only cannot continue indefinitely, but probably in inadvisable even over a relatively short time without producing a severe negative reaction.
I have suggested in prior diaries that there may be a ghost in the machine called humanity even greater than our mayhem compulsion. DeLongs caloric analysis indicates that it may be our inability to refrain from consuming all the resources available whenever they are accessible. Even societies that developed mechanisms for living more within the limits nature allows usually fail to account for potential major changes in their environment, war, extended drought and so on. It is difficult to almost impossible, I believe, for a society to refrain from exploiting those resources that their technology enables them to.
So smarty pants what do you suggest?
I haven't the slightest idea. But, I am reminded of a story.
One day a long time ago I met with a rich woman who lived in a house along a beautiful and uninhabited (except for her) stretch of the California Coast. Her house stood on the top of a bluff at the end of a point of land extending out over the ocean and affording her a magnificent view up and down the coast. Strangely enough she had actually arranged her toilet to command the best views in the house. Another rich person had proposed building house on the next point of land visible from her commode.
She argued persuasively that this was a solemn and precious stretch of the coast and should not be ruined by additional development.
I told he I agreed and suggested that she consider tearing down her own home and living in a tent on the property so that she could continue living on her land and enjoying the views while contributing greatly preserving the environment.
I was shown the door.
In any event the permit for the house on the adjacent point was denied and the land ultimately purchased and added to the local preserve. Eventually the rich lady was approached to contribute her land while retaining a life estate. She agreed and everything worked out all right.
Sometimes we have to feel good about small successes even where your role is small and the real problems remain.