Delicious
Digg
StumbleUpon
Newsvine
Facebook
Google
Yahoo
TechnoratiTurn Left for Growth
In contrast to the right, the left has a coherent agenda. It's one that offers not only higher growth, but also social justice
Both the left and the right say they stand for economic growth. So should voters trying to decide between the two simply look at it as a matter of choosing alternative management teams?
If only matters were so easy! Part of the problem concerns the role of luck. America's economy was blessed in the 1990s with low energy prices, a high pace of innovation, and a China increasingly offering high-quality goods at decreasing prices, all of which combined to produce low inflation and rapid growth.
President Clinton and then-chairman of the US Federal Reserve, Alan Greenspan, deserve little credit for this - though, to be sure, bad policies could have messed things up. By contrast, the problems faced today - high energy and food prices and a crumbling financial system - have, to a large extent, been brought about by bad policies.
There are, indeed, big differences in growth strategies, which make different outcomes highly likely. The first difference concerns how growth itself is conceived. Growth is not just a matter of increasing GDP. It must be sustainable: growth based on environmental degradation, a debt-financed consumption binge, or the exploitation of scarce natural resources, without reinvesting the proceeds, is not sustainable.
Growth also must be inclusive; at least a majority of citizens must benefit. Trickle-down economics does not work: an increase in GDP can actually leave most citizens worse off. America's recent growth was neither economically sustainable nor inclusive. Most Americans are worse off today than they were seven years ago.
But there need not be a trade-off between inequality and growth. Governments can enhance growth by increasing inclusiveness. A country's most valuable resource is its people. So it is essential to ensure that everyone can live up to their potential, which requires educational opportunities for all.
A modern economy also requires risk-taking. Individuals are more willing to take risks if there is a good safety net. If not, citizens may demand protection from foreign competition. Social protection is more efficient than protectionism.
Failures to promote social solidarity can have other costs, not the least of which are the social and private expenditures required to protect property and incarcerate criminals. It is estimated that within a few years, America will have more people working in the security business than in education. A year in prison can cost more than a year at Harvard. The cost of incarcerating two million Americans - one of the highest per capita rates (pdf) in the world - should be viewed as a subtraction from GDP, yet it is added on.
A second major difference between left and right concerns the role of the state in promoting development. The left understands that the government's role in providing infrastructure and education, developing technology, and even acting as an entrepreneur is vital. Government laid the foundations of the internet and the modern biotechnology revolutions. In the 19th century, research at America's government-supported universities provided the basis for the agricultural revolution. Government then brought these advances to millions of American farmers. Small business loans have been pivotal in creating not only new businesses, but whole new industries.
The final difference may seem odd: the left now understands markets, and the role that they can and should play in the economy. The right, especially in America, does not. The new right, typified by the Bush-Cheney administration, is really old corporatism in a new guise.
These are not libertarians. They believe in a strong state with robust executive powers, but one used in defense of established interests, with little attention to market principles. The list of examples is long, but it includes subsidies to large corporate farms, tariffs to protect the steel industry, and, most recently, the mega-bailouts of Bear Stearns, Fannie Mae, and Freddie Mac. But the inconsistency between rhetoric and reality is long-standing: protectionism expanded under Reagan, including through the imposition of so-called voluntary export restraints on Japanese cars.
By contrast, the new left is trying to make markets work. Unfettered markets do not operate well on their own - a conclusion reinforced by the current financial debacle. Defenders of markets sometimes admit that they do fail, even disastrously, but they claim that markets are "self-correcting." During the Great Depression, similar arguments were heard: the government need not do anything, because markets would restore the economy to full employment in the long run. But, as John Maynard Keynes famously put it, in the long run we are all dead.
Markets are not self-correcting in the relevant time frame. No government can sit idly by as a country goes into recession or depression, even when caused by the excessive greed of bankers or misjudgment of risks by security markets and rating agencies. But if governments are going to pay the economy's hospital bills, they must act to make it less likely that hospitalisation will be needed. The right's deregulation mantra was simply wrong, and we are now paying the price. And the price tag - in terms of lost output - will be high, perhaps more than $1.5trn in the US alone.
The right often traces its intellectual parentage to Adam Smith, but while Smith recognised the power of markets, he also recognised their limits. Even in his era, businesses found that they could increase profits more easily by conspiring to raise prices than by producing innovative products more efficiently. There is a need for strong anti-trust laws.
It is easy to host a party. For the moment, everyone can feel good. Promoting sustainable growth is much harder. Today, in contrast to the right, the left has a coherent agenda, one that offers not only higher growth, but also social justice. For voters, the choice should be easy.
Joseph Stiglitz is professor of economics at Columbia University.
© Guardian News and Media Limited 2008
26 Comments so far
Show AllAlex, Shirley may know this by now, but surely the masses don't --- as documented by Thomas Frank's "What's the matter with Kansas", and by the re-election of the Commander-in-Chimp crook.
Surely by now most of the middle and lower class voters have notice that the Republican trickle down is always warm, yellow and malodorous.
Although Stiglitz's article is very insightful and accurately addresses the key fault of crony/Ponzi/negative externality capitalism, the article could be more accurately called "Turn Left for Progress" ---- since anyone afflicted with obesity or cancer well understands that 'growth' is not the same as 'progress'.
If the corporate corrupted MSM honestly talked about our US economy in terms of 'progress' rather than always screaming about the need for economic 'growth' the mindset of our entire society would be focused in the correct direction for everyone --- rather than cowing before the alter of 'growth', which the ruling elite corporatist Empire keeps using as a false football that their 'Lucy' continues to pull away from our working-class 'Charlie Browns'.
hazmat asks: what exactly is meant by "growth," and why is it used in such a way as to suggest it's an unquestionably good thing to have?
Most economists consider ANY increase in GDP as "growth." It is generally seen as a "good thing" because the tacit assumption is that the individuals in a society are all better off as a result. This is, of course, utter nonsense. A much more useful index for evaluating growth would be a rise in median household income: something Republicans NEVER refer to. And an even better measure of social well-being is the Human Development Index (HDI)http://en.wikipedia.org/wiki/Human_development_index
interesting comments: HAZMAT, WORDS ARE IMPORTANT & HEDOLOGY.
ClassAct,
great point, the labor/production dichotomy.
The main problem with the article is the fact that Mr. Stiglitz (perhaps on purpose) doesn't mention that neither the Democrats or Republicans represent the "left". Ever since corporate America successfully took over the two mainstream parties, Neo-Con corporate polices are firmly entrenched. Meanwhile the American public continues to buy into the illusion of an epic struggle of ideologies between the GOP and Dems that is constantly reinforced by the corporate media.
Stiglitz is correct in his criticism of the Neo-Con ideology, however he fails to prescribe the cure... vote for anyone this November as long as it is neither of the corporate parties!
"The cost of incarcerating two million Americans…should be viewed as a subtraction from GDP, yet it is added on."
Assuming that those two million people would be commiting crime if out free, I don't see why the above is true. *Crime* subtracts from GDP. Preventing criminals from commiting crimes is a valuable service. Whether it's done in a cost effective way is a different subject.
Progress through PRESERVATION.
Unfortunately for our progeny, growth is no longer an option. WE have seriously degraded the earths ability to sustain us.
Soon the question will become sustainabilty itself..
WE are the products of the consumer society, but to survive, we will have to make a profound change, and develop a sustainable conserver economy and society. The earth is finite, and it is the bubble of the biosphere that sustains us. To sustain ourselves, we must take care to sustain the biosphere.
WE must not only cease further damage, we must find ways of repairing the damage that has already been done. It is already very late. WE should have started long ago, but time lost can't be reclaimed. The time to start is NOW.
Instead of 'growth' being a goal, 'progress' should be the goal. Or at least, sustainable growth (sustainable consumption).
There should be a measure of society's well-being which considers more values than just the price of the stock market. It should measure: employment, healthcare, education, housing, justice, peace, environment etc.
In fact, when the stock market goes up, it is an indication that fairness is going down.
"It's difficult to get a man to understand something when his salary depends on his not understanding it." Sinclair Lewis
Regarding Professor Stiglitz's economics, check out in particular the leftist economist Robin Hahnel's "Panic Rules," more relevant than ever. Stiglitz correctly emphasizes that laissez-faire free marketeers advocate policies that (a) slow down growth, and (b) result in capitalism devouring itself, especially by way of financial panics. This puts him roughly in the camp of Adam Smith himself (the real Smith), not to mention Joseph Schumpeter, John Maynard Keynes, and John Kenneth Galbraith. The problem, though, is "How do you create an economy-- a system of production/consumption/allocation of goods and services-- that works for everybody?" I think Hahnel makes a good case that capitalism, and corporate-managed trade (even if tweaked by smart Keynesians) CANNOT do it. Read Stiglitz (great writer), but also read Robin Hahnel.
Reading the article for what it actually says, was excellent although not new news. What is interesting is to read the comments, the nitpicking over semantics, left or right, or the idea that more ideas should have been included, that more complex economic data had been left out, and so on. Many comments were excellent commentary, but to criticize it for what it didn't say, or for the nuances that seem so important to some, is rather unproductive. It's like criticizing a novel because you didn't like the ending or the characters. What about simply adding your views to just what you read, the article was simple and at the same time a reminder of a more practical way of market management that benefits more than just a few; not even close to an all out treatise on the economic woes facing us today. I agree is was partisan, so what?
whatfools August 7th, 2008 4:30 pm
"unsafe at any greed."
That was a doozy!
Translated from Stiglitz's econobabble what he sez is 'Vote Obama'. Yawn. Yet another of CD's Vote Obama thread commentaries.
No mention of climate change, no mention of the environmental support systems rapid degradation as result of the growth of human species numbers, technology and affluence. Economists should spend their lives looking at this if they want to be useful, instead of being well paid apologists for corporate power.
As a professional economist Mr Stiglitz of course has not mentioned Impact = Population x Affluence x Technology. As Impact is now far greater than sustainable levels, then the long term equalibrium position, something that economists just love, involves reductions in each one of P, A and T. That is of course, only if the result of life support systems degradation does not reduce P to zero.
Apart from the noted absence of environmental basics, the rest of the article is gobble-de-gook, apart from the idea that markets, or the sum total of human affairs that economists are aware of, need to be regulated for the long term well being of all. Regulation and reduction of the carbon emission market might do as start. If you cannot get that right, then all long term bets are off.
Excellent article. "The cost of incarcerating two million Americans...should be viewed as a subtraction from GDP, yet it is added on." Just because we are producing prisons or bombs or poisons or crap, it's all great for the idiotic GDP. Will statistics and common sense ever get together and birth something truly useful?
The problem for progressives is that choosing between the two major parties is a choice between bad (Democrats) and worse(Republicans). One will get you ther sooner (Republicans) but both are heading in the same direction which is down. If you really want construcyive engagement of government to level the [playing fiweld for all Americans the best choice is:
Nader/Gonzalez in 08--Go to the votenader website and see what I mean.
Growing. Growing up. Growing older. Growing wiser.
Mankind often outgrows his environment then it is disease and starvation that works it's way on we poor lemmings.
Growing wiser? The Gods are laughing at us!
Nature has given us all we need and a mind to use it wisely but, here we are, unsafe at any greed.
This article is good as far as it goes, however, it does not recognize the counterposed roles of supply and demand in the economy. With regard to production, supply is in active determination of what will be provided, under what circumstances, how it will be produced, and what will be charged for the product. "Demand" should be more accurately called "request" because of its passive role in the product market – some "demands," after all, will never be filled because it would not be "profitable" to do so.
On the labor side, it is demand that holds the active role. Supply is simply a mass of persons many orders of magnitude greater than those who have demand for labor, but virtually no resources to hold out for a better offer. Demand sets the conditions for payment, the requirements for payment, and determines what will be paid.
What makes demand for labor and supply for production similar is that they are the same organized entities – businesses – chartered by government. The state meanwhile employs all means available to prevent effective action by supply in the labor market and demand in the production market, that is the public. The state serves business, but obstructs the public.
re my own post @ 2:18pm:
sorry, the correct spelling is of course "homeostasis."
Bravo----Great article---Well stated and I really appreciate the fact that someone has articulated the premise.
Some federal government participation for quality of life ---and return to anti-trust is needed unfortunately in our government as we are too selfish--- when one is given actual power in our semi-capitalistic state---we lose sight of our humanity for some reason.
along the same lines as locust above, i would caution against engaging in debates where the central term is undefined, in this case "growth."
what exactly is meant by "growth," and why is it used in such a way as to suggest it's an unquestionably good thing to have?
i submit that the ideal model for a "seventh-generation" economy is the human body. its growth curve begins to flatten out after puberty, and then, if all goes well, reaches "homeostatsis," or steady state. its adult size is optimal for its functioning, and it can sustain itself without having to increase its consumption.
the earth, being of a finite size, cannot survive indefinitely as the net consumption of its creatures increases. that way lies another model, the malignant tumor whose unrestrained "growth" eventually kills its host.
The nitpicking critics of left/right semantics failed to appreciate that Professor Stiglitz is correctly diagnosing that most "professional" (right-leaning) economists have cause and effect backwards. This is one of the better articles you see on CD. Read it again.
I ask once again that we avoid this 'left/right' dichotomy. The words alone defeat us. How do you argue with someone who is 'right'?
('left out', 'out of left field'--so much negative imagery)
Please, use 'progressive' and 'regressive' and other words that will change the paradigm, reframe the message to indicate that we offer progress, we make possible movement and change.
One of the most important aspects of strategy is to choose the battlefield you wish to fight over.
Left/Right? or Progressive/Regressive? Choose your words carefully.
Professor Stiglitz:
This was an unusually incoherent article. Left or right, it really makes no difference. Capitalism is unsustainable, due to the "Tragedy of the Commons" conundrum, capitalism is a cancer that will consume the planet - then die.
If you want a second Nobel Prize, answer this riddle, "How do you increase GDP while reducing consumption?"
Go Green