Happiness and the economics of growth

(Hat tip to Economists View)

Chris Dillow, the writer, is an economist with many media outlets. The post basically puzzles over politics at the present moment, and how it seems less driven by economics (which Dillow seems to imply is a matter for economists) than by animal spirits turned mean. 

“And here’s the thing. There is some justification for this denial of economics. The link between income growth and subjective (pdf) well-being is weak and even many of the worst off feel they are living comfortably. Granted, this might be a sign of adaptive expectations. But it also tells us that things other than economic growth are important: community, autonomy, physical and mental health and so on. From this perspective, perhaps it’s understandable that politicians should want to offer a sense of security – as in various ways austerity, Brexit and immigration controls do – rather than higher incomes.

But, but, but. As Benjamin Friedman has shown, economics does matter. Growth makes people more open-minded and tolerant whilst stagnation makes them meaner: it’s no accident that a decade of stagnation has led to a rise of reactionary populism. John Stuart Mill claimed that a stationary state of incomes provides “as much scope as ever for all kinds of mental culture, and moral and social progress”. Subsequent history, however, suggests he was wrong.”

I myself sort of bridle at the fact that Benjamin Friedman is distinguished in the field by "showing" that economics matters. Really, he was preceded here by Marx, Adam Smith, Aristotle, and King Henry II of a “chicken in every pot” fame. Interestingly, the implication here is that if we listen to the economists, we get growth, and all its benefits. And, by the way, John Stuart Mill was speaking through his hat. 

I would show a little more respect for John Stuart Mill, and a little less time praising “growth”, if you want to really talk about the political economy. I’d say Dillow’s puzzlement is a small sign that the field of economics desperately needs to return to its political economics roots. To speak of growth as the post does, and to oppose it blankly to stagnation is the work of mystification rather than analysis. 

You have to couple growth with other aspects of economic living in order to really judge whether economics should "matter." I like to refer to Stefano Bartolini’s essay, Beyond Accumulation, to mix up the notion of growth, for in that essay he proposes something radical yet simple: that negative externalities could operate to aggrandize growth. Instead of being opposed to growth, or the cost of growth, they could operate as a driver of growth.

If you go to Friedman’s book, the Moral Consequences of Growth, there is no separate item in the index for social cost, and externalities are treated to a pretty small spotlight, one in which Friedman imagines externalities only in terms of regulations from “outside” the economy. 

At no point does he imagine that the working class denizens of growth have in any way to pay for growth. 

Growth, of course, is one of those controversial phenomena in economics. There is something not accounted for in it. It has a mysterious relationship to what Robert Solow calls the “residual”. In the 90s, the mystery was solved, or at least some economists thought so, by simply reversing one of the tenents of classical economics, which held that one could expect decreasing returns on endogenous production factors over time. This school, lead by Paul Romer, said aha! we should include knowledge as an endogenous factor, and knowledge shows increasing returns over time. Hence, puzzle solved!

The optimism of the 90s has passed, and many have suspected that the re-accounting for all those productivity gains created by computing might actually be, hmm, not so great. Certainly not as great as those for, say, the invention of artificial fertilizer. Nor is it true that knowledge leads linearly to increasing returns - in fact, these returns seem more like monopoly returns given a certain legal system restricting competition than anything else. 

What Bartoloni suggests, in line, it must be said, with a Marxist school of political economics, is that growth might actually exploit those negative externalities to create more growth – that, in other words, besides the surplus value accumulated by Capital from Labour, there might be another dimension of surplus value in the life styles demanded by the system.This gives us a more complicated relationship between growth and well-being than is dreamt of by Friedman. Growth can very easily look good on paper, but in the everyday, lead to increasing stresses and expenditure - especially when public expenditure lags behind growth, although the latter is no panacea either.

Consider a highway. That sounds good, building a highway. Its a growth-y kind of thing. But if it makes businesses locate along it, and if the real estate landscape is such that it doesn't congregate around the business, then employees might have to commute in. And they might have to schedule chunks of their time to do that which would otherwise be spent on their own lives. 

Which means for one thing they have to figure out what to do with the children. And so on. 

It is easy to see where this structure is going. It is here that the matters that have fallen under the rubric “identity” have their political economic correlates. What does happen to the children? What happens is that women, largely, take care of them. Since women also work, since the households that exist in the growth societies require – in order to maintain the lifestyles that, for instance, result in housing, which results in growth – cannot exist, for the vast majority of people who live under the upper middle class line, without two earners, growth puts a great burden on women. Although self-reported happiness should be viewed with suspicion – it is by no means clear what the respondents mean by happiness, and it is possible that, in a society with a success ethos, to say one is not happy might mean that one is not successful, thus skewing the response – it is true that there’s a gender divide about happiness, with women reporting much higher levels than men. Men, at least in America, who are white and above forty report the highest happiness level, in contrast to the public face of these men, which is one of anger.
Its complex.  

If, however, economists insist that the economy consists of economic ideas instead of practices that must be empirically understood as well as theoretically modeled, they will persist in imposing economic policies on an increasingly unhappy population, and then puzzling over the “politics” of it all.  

Here are some driveby shots at development economics: ass it is set up now, growth economics situates itself in the absurdly short term (with the long term made into a smooth abstraction of the same old thing in the indefinite future), smooths out or does not address feedbacks (hence, the idea that stagnation is the opposite of growth, when of course it could as easily be the result of growth, depending on the composition of the growth), and it also persists in making itself more about equilibria (which goes back to the absurd idea that economics, to be a science, must be centered around the equilibrium, an apriori idea about markets that has done infinite harm) than about real human flourishing.

And as the incredibly inefficient distribution of wealth becomes more egregious, the situation of human flourishing becomes worse and worse. Here economics has mattered greatly - that is, economists bear a lot of blame for our current unhappiness.

All of this is not to say that growth is a bad thing – rather, it is to say that it is different things. And at the root of economics as an ideology is an old myth, that is a subset of the classical economic view that a systematic phenomenon motivated by profit contingently produces such benefits in the mass of people that they become happier. However you formulate this, it is a restatement of the invisible hand metaphor - a coordination between two independent variables that is not explained by either of them. In fact, who knows, empirically growth in the narrow sense might make the mass of peeps happier - or then again, it might not. In any case, to be happier in a changed environment requires a lot of unrecognized expenditure by the individual, with the burdens of that expenditure being unequally distributed.