Some Notes on Growth

Posted: September 1, 2014 in Uncategorized

It’s always hard to talk about “economic growth,” because people in general and Americans in particular tend to talk about things in this very Boolean sort of a way.  i.e.:  Economic growth is good, TRUE OR FALSE?  And if you say “true,” then you’ve got to support everything that “grows the economy” at all times, and anything that interferes with growth in any way is self-evidently bad.  And if you say “false” then you must want there to be no economic growth ever and actually you want the world to descending into a crippling, grinding poverty for eternity until there is no money and everyone is eating old shoes for dinner.

There is, of course, no answer besides “true” and “false”, so when we start with that presumption, the terms of the argument are fixed from the beginning.  While we can argue that some other things might be good as well, we’re stuck having conceded that economic growth is always good everywhere forever.

Well, look.

Imagine your neighborhood, with all of its intersections.  And imagine that there’s a spot nearby where people keep getting into accidents because they zip on by and don’t notice that someone is making a left turn — maybe it’s one of those roads that comes in at a slightly weird angle, or there’s a house or a tree or something right there so that you can’t quite see around the corner.  

To solve this problem, someone proposes putting in a stop sign.

I know what you’re thinking!  Catastrophe!  The car would have to stop at the sign, and the period of deceleration and accompanying acceleration would reduce the car’s overall net speed.  

And isn’t speed the only reason we HAVE cars?  Cars exist to get us quickly from one place to another; anything that stops us from getting one place to another as quickly as possible is necessarily antithetical to the very purpose of cars!  A stop sign is anti-speed, which means it’s anti-car, which means it’s anti-YOU dear reader, since you didn’t buy a car so you could slow down on the road.

Right?

Oh, no wait, that argument is utter fucking nonsense.  When we talk about driving a car around, it’s perfectly obvious that “maximum speed” is only one of a number of desirable characteristics that have to be balanced against each other.  If there are kids playing by the street, we take that into consideration, no one’s going to give you the okay to go a hundred miles an hour down a residential neighborhood just because you have to get where you’re going.

When we’re talking about cars driving around in streets, obviously we’re not talking about “getting where you’re going as quickly as possible” but “getting where you’re going as quickly as possible without unnecessarily jeopardizing the lives of the people around you.” 

This should be a pretty easy analogy to transfer to economics of course, but it never is.  When people say, “hey guys, what about some environmental regulations, or something, on all these giant coal plants?” other people respond with, “environmentalists just want to interfere with economic growth!” and environmentalists are always obliged to be like, “oh, no, no, no, I don’t want to stop GROWTH, never that, god no–”  “HEY THIS GUY HATES GROWTH!”  “No, I’m not saying–”  “REGULATIONS HALT GROWTH, WHY DO YOU HATE GROWTH?”

Etc.

Except obviously, duh, I DO want to slow down economic growth.  If the fastest way to improve the economy is to build a bunch of badly-regulated and dirty coal plants that pump a half a ton of mercury into the air every week, that is definitely a good example of when “maximum speed” is not actually the most desirable outcome.  If the fastest way to make money is to sell a bunch of drugs BEFORE we figure out whether or not they cause brain hemorrhages, then yeah, that’s actually a good situation in which “fastest way” is not the same as “best way.”

So, look, a thing about economic growth is that we always want more of it because we’re told that the point of civilization is to make people richer.  And sure, it’s true that if the economy only grew at the same rate as the population, everyone would be the same amount of rich, and that would suck for a lot of people (though, weirdly, it wouldn’t especially suck for the people who are the strongest advocates for MAXIMUM GROWTH).  If the economy grew only somewhat faster than the population, then people would only get slightly richer, and that would still suck for everyone at the very bottom (though, again, would not suck at all for the MAXIMUM GROWTH crowd).

But I think this is also pretty misleading.  Because even when we’re talking about GROWTH, that unrivaled and utterly irrefutable GOOD, it seems specious to say that all growth is created equal.  The economy “grows” as an aggregate, yeah — if we add every single person up and look at their resources and their income and their debt &c.  The problem is that the overall economy isn’t really an actual thing; we live in a world made up of smaller local economies, and those economies are sometimes more and sometimes less connected to the overall global economy.

So, I think it’s pretty obvious that there are cases when the “growth” of a company can have major effective benefits on a community — Comcast grows, it hires more people, those people have more disposable income, they spend it in Philadelphia, lots of other people get more disposable income, they buy Doritos with it or whatever.  So, that’s fine, we can all see how that works.

But how does Comcast’s growth help, say, Erie?  On the other side of the state?  How does the extra income gathered up from Comcast get distributed all the way back there?

Oh, right, there are Comcast employees out there, definitely, but only as many employees as there is demand for services, which has a saturation point.  If Comcast wants to make more money, it’s got to expand into new places — New Jersey, Delaware, Maryland.  If it gets more revenue from those places, it doesn’t send it to Erie.  Erie’s already GOT as many workers as the town can support.  Comcast’s growth, in that sense, has no direct impact on the growth of the Erie sub-economy.

Or consider something like J. Crew, which just realized that it can’t support any more stores in the US, and if it wants to make money, it has to expand overseas to Hong Kong, Singapore, Beijing, &c.  Well, that’s all well and good for J. Crew, but what are they going to do with the extra money?  We’ve already established that they can’t support any more stores in the US, they’ve already hired as many US workers as there is demand for J. Crew products.  J. Crew’s overall growth is not going to have any direct effect on the growth of the sub-economy of King of Prussia (where there’s a mall with a big J. Crew store in it, in case you don’t know).  In fact, if it weren’t for the fact that it was owned by the same set of people, J. Crew could easily just spin off its Asian operations into a different company, almost completely isolated from the American version of the company.

(What about stockholders?  Don’t they profit from it?  Won’t they distribute that money throughout the world?  Well, yes and no.  For one thing, a tax holiday created in the 1950s to encourage Americans to invest overseas has long surpassed its usefulness, and now is just being taken advantage of by companies who keep revenues overseas to avoid paying taxes on them; that’s one.  Two, the stockholders who profit the MOST from stock increases actually probably all live in a handful of places — people who make their money from stocks are not at all evenly-distributed through the economies of the world.  There are, of course, a lot of people who make money from stocks through pensions, mutual finds, &c., but those are mostly retirement funds.

So, consider — a community’s economic health is directly related to the disposable income of its community members.  When my 401(k) increases in value because J. Crew’s Hong Kong operation was profitable, my disposable income doesn’t increase; that money stays invested.  In the short-term, there’s no financial benefit to King of Prussia because my 401(k) performed better than expected.  In the LONG-term, of course, I’ll collect on that money, but only after I’ve retired and no longer have a regular income.  The money made from the high-performing 401(k) replaces the money lost from when I stop working; my net amount of money is the same [or roughly the same compared to inflation, anyway], there’s no increase in disposable income.  There’s no net advantage here.)

Now, look, I’m not saying that growth is bad.  And I’m not saying that it never has a positive effect on communities.  I’m not even saying that it isn’t vitally important to the health of communities!  What I’m saying is that, much like in the car analogy earlier, while it’s important, it’s not the only important thing, and its advantages have to be weighed against its disadvantages.  

Economic growth isn’t good in and of itself, it’s good because it results in positive consequences that proceed from it.  Simply taking economic growth as a metric for community health and well-being misunderstands the essential relationship of the economy to the community — the economy is a tool for distributing resources.  It’s those resources and their distribution that matter, not the measure of the idiosyncrasies of the distribution system.

The purpose of the car, in other words, is to get people where they’re going quickly AND safely.  Measuring the health of an economy by its growth is like measuring the effectiveness of a road system by checking the average speed of the cars.

I don’t know, guys.  I’m starting to think that all of the talk that politicians engage in about economics is just rhetoric.

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