Monday, May 21, 2018

negative externalities, y'all.

It is a semi-holiday here in France. I guess I should include the marker, pre-Uber France. Macronists everywhere despair about these holidays. So it is time to: reference an article by Stefano Bartolini that deals with growth using a Polanyi-style scheme of analysis. Naturally. You know I was a-goin’ there. It bears the rebarbative title (by which I mean a title fit for a cannibal's barbecue) “Beyond Accumulation and Technical Progress: Negative Externalities as an Engine of Economic Growth.”
The abstract, however, hearteningly poses questions that economists have generally ruled out according to the icky rule: if it shows that capitalism is icky, forget it.
“The traditional explanation of growth based on the primum and secundum movens of accumulation and technical progress, faces two major empirical anomalies. Why do people work so much i.e. why do they strive so much for money? The growth literature provides no answer to these question, nor to the further and very important one of why people are so unhappy. Moreover, finding a joint answer to the two questions seems particularly puzzling. Why do people strive so much for money if money cannot buy happiness? I argue that the solution to this 'paradox of happiness' can be provided by including in the theory a tertium movens of growth: negative externalities. These externalities can be of two kinds. The first are positional externalities, i.e. those due the fact that individuals may be interested in relative not absolute position. The second kind of negative externalities are those which reduce free goods. Some recent models, both evolutionary or with optimising agents, show the role of these externalities as an engine of growth. This approach emphasises that the growth process generates extensive negative externalities which reduce the capacity of the social and natural environment to furnish free goods. In these models individuals have increasingly to rely on private goods in order to prevent a reduction in their well-being or in their productive capacity due to decline in social and natural capital. This generates an increase in output which feeds back into the negative externalities, giving rise to a self-reinforcing mechanism whereby growth generates negative externalities and negative externalities generate growth. According to these models, growth appears to be a substitution process whereby free final (or intermediate) goods are progressively replaced with costly goods in the consumption (or production) patterns of individuals. From the point of view of this GASP (Growth As Substitution Process) models the two anomalies of growth theory are two sides of the same coin. People strive so much for money because they have to defend themselves against negative externalities: they work so much in order to substitute free goods with costly ones. But an increase in income does not improve their happiness because it involves a process of substitution of free goods costly ones. Some implications for environmental economics are drawn.”
Perhaps the implications don’t leap out at you. But they do in their way in everyday life. Moving to L.A.? Well, you best get you a car. Why? Cause the town is criss crossed with insurmountable barriers to walking or biking through it. And the mass transit system is slow, and subject to the massive traffic slowdown that provide the punctuation to the rhythm of the place. And those traffic slowdowns penetrate your sleep, because you best get used to getting up early in order to, perhaps, miss the traffic in the morning going to work. And if you have kids, you best have either a partner who can take them to school, a babysitter, or a relative on whom you can throw off the problem of what to do with them. Of course, having kids means you need more money, so put in that overtime, or lengthen that commute. You can play with them on the weekend!
On and on the merry-go-round goes, and luckily, we have wonderful anti-depressants for you!
One more quote.
“In short, the result of perpetual growth seems rather vulnerable to inclusion of a work/leisure choice in models. The plausible mechanisms emphasised by endogenous growth models which ensure a non-decreasing marginal productivity of capital over the long period are insufficient to generate perpetual growth. In order to generate it, individuals must work and accumulate i. e. must be interested in money, more than endogenous growth models predict. According to these models, in fact, individuals react to a long-period increase in labor productivity by enjoying life more than is necessary to ensure perpetual growth. This is as regards the theoretical problems.”

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