The Rupture will not be Televised

LI has been pondering the slogan of Sarkozy, the Frankenstein candidate for President in France. Sarkozy has been calling for a ‘rupture’. This might sound like an odd thing for a conservative to do, but, since the 80s, there's a ponce conservative fashion for using those leftist terms associated with ‘revolution’ and revamping them in terms of reaction, much like some rich collector buying antique cars and making them road useable.

In reality, at this point in the developed economies, there are no longer a lot of unknown models. The last two hundred years have given us an ensemble of economic policies, and it isn’t too hard to put in one’s parameters and predict results. It is hard, on the other hand, to imagine another all encompassing economic policy. LI thinks that this will be the conceptual roadblock to really dealing with the environmental affects of the treadmill of production over the next thirty to fifty years. Sarkozy’s rupture is simply applying as much Thatcherism as he dares to create a typical neo-liberal boom in France – one that concentrates the benefits of growth in the wealth of the upper income percentiles, and that spreads affluence further down the percentiles by easing credit and by substituting upward job trajectories for wage raises. The advantage of this kind of growth is that the wealth it creates is extensive enough to expand the seeming base of goods shared by all – the image of prosperity, in other words, connects to a certain extent with the reality of prosperity. Credit is not a fiction. It is a real driver. And it fits well into the notion that greater income comes not from increases in wages, but rising through the ranks. A system that is built like this can’t, in the end, afford a large manufacturing sector. One of the prices of Sarkozy’s “rupture” is de-manufacturing. The Anglo-sphere is all about de-manufacturing.

There is an interesting article by Stefano Bartolini that deals with growth using a Polanyi-style scheme of analysis. 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 generally feel are icky, and that LI feels are exactly the point.

“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.”

Tomorrow I am going to comment a little more about this paper, which is very relevant to the issues before the French public in this election. One more quote to shore that up – my French readers will surely appreciate the relevance of this graf in Bartolini’s paper to the headlines in the papers:

“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.”