Weil Economic Growth Solutions Chapter 8.zip
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The second step argues that economic growth is a dominant example of what provides the general population with a greater range of choices and allows more preferences to be satisfied. A famous observation by Nobel laureate Robert Lucas illustrates the significance attributed to growth as a source of wellbeing. After noting that there is a large spread between the growth rates of countries, Lucas (1988, p. 5) commented:
Economists also explore the role of social institutions and norms in supporting economic growth (North 1987; Rodrik et al. 2004). In his Nobel Prize lecture, Douglass North (1994) pointed out that the neoclassical growth model does not apply in countries lacking the necessary institutions for markets to operate. An important example is that effective legal protections for property rights are essential for strong economic growth (La Porta et al. 2008; Xu 2011). Some studies emphasise social values such as trust (Fukuyama 1995; Quddus et al. 2000; McCloskey 2010), while others focus on good government and good governance (Krueger 1990; Kaufmann et al. 1999; Hulme et al. 2015) including strict requirements for macroeconomic stability (Fischer 1991; Fatás and Mihov 2013).
This research has created a consensus among economists about what constitutes good economic policy, represented for example by the contents of the Going for Growth report published annually by the OECD (2017b). Taking these arguments together, the promise is that orthodox economic policies will increase growth of per capita real gross domestic product (GDP), which will allow individuals to increase the range of their choices, which will promote wellbeing. This is the vision behind statements such as the one cited above from David Cameron that growth is the essential foundation of all our aspirations.
Anthropogenic greenhouse gas emissions have increased since the pre-industrial era, driven largely by economic and population growth, and are now higher than ever. This has led to atmospheric concentrations of carbon dioxide, methane and nitrous oxide that are unprecedented in at least the last 800,000 years. Their effects, together with those of other anthropogenic drivers, have been detected throughout the climate system and are extremely likely to have been the dominant cause of the observed warming since the mid-20th century.
These concerns are amplified by the way in which growth is currently measured; that is, as percentage increases in GDP. The rules for calculating GDP are set out in the United Nations System of National Accounts (United Nations 2009), which sets boundaries on what categories of economic activity are included in the measure. Certain forms of unpaid work are excluded, such as care for children by parents within their own households. Also excluded is most environmental damage caused by economic production.
Herman Daly and John Cobb (1989) similarly argued that GDP cannot measure genuine economic progress. They created an index of sustainable economic welfare (ISEW) to include considerations such as distributional inequality, household production for own consumption and degraded natural environments. Daly and Cobb showed that the average growth in the ISEW for the United States is substantially below the growth rate of GDP (idem, p. 453). Similar conclusions have been reached for other countries using either the ISEW or variants such as the genuine progress indicator and the sustainable net benefit index.Footnote 6
In short, it is not reasonable to presume that GDP growth, regardless of the nature of that growth, will increase wellbeing. Indeed, certain patterns of growth can cause harm to wellbeing, and so economics must recover a deeper understanding of how wellbeing is enhanced.Footnote 7 A good starting point is the capabilities approach developed by Amartya Sen.
Consistent with the focus of economists on growth, Walt Rostow (1960) famously defined development as a process of countries moving through five stages of rising economic growth: (1) living in traditional society; (2) creating the pre-conditions for take-off; (3) achieving take-off; (4) driving to maturity; and (5) enjoying high mass consumption. Reacting to that theory , Amartya Sen offered an alternative understanding based on what people are able to do in their lives (Sen 1983, p. 754):
A key task of wellbeing economics is to integrate the different levels of human choice represented in Fig. 1.1 with the different types of capital investment listed in Table 1.1. Investment in human capital, for example, may be made by an individual person, whereas growth in diplomatic capital requires global collaboration. The two dimensions of the framework are therefore brought together in the final proposition of this chapter.
Despite greater attention to measuring wellbeing, it is still common for the current wellbeing of some citizens to be sacrificed by policies intended to promote GDP growth. This practice ignores wider social issues important for wellbeing and is inconsistent with environmental limits to economic growth. Consequently, this book sets out to recover from the economics tradition what it calls the wellbeing economics framework.
In each case, the chapter draws insights from the economics literature to analyse how wellbeing can be enhanced, not just by public policy, but at all levels of human choice. Chapter 9 then integrates these different elements to introduce a wellbeing fabric for policy analysis. It demonstrates how wellbeing economics can contribute to expanding human capabilities for living the kinds of lives we value and have reason to value.
Macroeconomics deals with country-level outcomes such as economic growth. An interesting example of research on macroeconomics that respects ecological limits is Fontana and Sawyer (2016). An influential analysis of planetary boundaries can be found in Rockström et al. (2009a, b).
That the economic system is rigged to create upward redistribution has been the theme of economists (e.g., Dean Baker, Josh Bivens, Jared Bernstein, Joseph Stiglitz, Lawrence Mishel, Heidi Shierholz, Elise Gould, and James K. Galbraith) and policymakers for some time, though articulations of how the system is rigged vary. President Trump, for instance, focused on immigration, trade treaties, and bureaucracy. Others focus on growing product market monopoly power affecting consumers. Some analyses focus on the need for more competition (Block and Harris 2021). The approach in this paper is to pinpoint and measure the impact of the factors that have empowered employers in the labor market to be able to suppress wage growth for the vast majority; these include maintaining excessive unemployment, weakening labor standards, diminishing unions and their economic and political power, leveraging monopoly power to lower labor costs through fissuring and subcontracting, and by adopting forced arbitration, noncompetes, and other contractual mechanisms to undercut worker options.
The discussion so far has relied on economic analyses that derive the pace and skill bias of automation from patterns of occupational employment growth or from wage and education supply trends. It is worthwhile to examine other perhaps more direct footprints of automation to discern the pace of automation in recent years compared to earlier periods. These data are illustrated in Appendix Figure B, drawn from Mishel and Bivens (2017) and Mishel and Shierholz (2017).
What made the oil price shocks especially effective in generating wage-price spirals in the 1970s were the atypically strong perceptions held by American workers about their own bargaining power, as well as expectations of real wage growth fostered by decades of rapid and equal economic growth.
Meanwhile, Medicaid spending began to accelerate again. It is expected to grow at a rate of approximately 8.5 percent per year over the next decade because of a combination of factors.6 First, between rising health care costs and slower economic growth, employer coverage may decline and the number of uninsured increase. States will see increased Medicaid and SCHIP enrollment, even with no expansion of eligibility standards. Second, hospital costs and prescription drug expenditures are likely to continue increasing at fairly rapid rates. Third, Medicaid managed care is no longer providing the same savings as it did in the 1990s and will not provide states with the tools they need to constrain spending on acute care. Fourth, long-term care costs are also likely to rise because of the aging of the population, labor force shortages, and efforts to improve nursing home quality. Recent court decisions have required states to expand coverage of services in the community for disabled persons. And finally, the federal government is determined to curtail use of DSH and UPL programs, which have been an attractive source of revenue for states. 2b1af7f3a8