Stumbling and Mumbling

Author: chris dillow   |   Latest post: Thu, 6 Aug 2020, 2:10 PM


We don't want economic growth

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In launching a new 50p coin to mark Brexit, Sajid Javid seems to be interpreting the role of Chancellor in the same spirit that Trigger regarded Del Boy's request to talk about money: "I saw one of those old £5 notes the other day." We might have hoped that his energies would be better directed towards improving the UK's lamentable productivity performance.

In fact, though, we should not snark. Mr Javid has grasped an important point not understood by leftists and economists (two groups which increasingly overlap) - that the public do not want economic growth.

We know this because they have consistently voted against it. The party of austerity won a majority in 2015; the public voted for Brexit in 2016; and they supported Johnson's hardline Brexit deal last month even though it will reduce (pdf) GDP over time. Philip Hammond - remember him? - claimed that "no-one voted to become poorer". But he was wrong. They did. Trigger

It's not just votes that tell us that people don't want economic growth. The ONS has found that well-being has edged up since they started measuring it in 2012 despite (or maybe because of) lacklustre GDP growth.

All this is the flipside of the Easterlin paradox - the finding that, over long periods, rising income doesn't increase happiness (pdf). If growth doesn't make us happier, the lack of it shouldn't trouble people much*.

There are, for my purposes, two things are going on here.

One is that what matters for well-being is not so much absolute income as our income relative (pdf) to our peers: if we are doing better than them, we're happy and if we are doing worse, we're miserable. Andrew Clark and Andrew Oswald have found that happiness depends more upon relative (pdf) income than absolute income, whilst Christopher Boyce and colleagues have found that it is a person's position in the income ranking (pdf) that matters for their well-being, not their absolute income**.

If it is relative income we care about, then stagnation shouldn't trouble us. We have as much chance of getting ahead of our peers when GDP is flatlining as we do when it is growing.

Also, though, economic growth is associated with some things many of us don't like - with the creative destruction than runs down some industries and areas. As Banerjee and Duflo show in Good Economics for Hard Times, the economy is "sticky": people do not or cannot adjust to such disruption. Hence Anand Menon's heckler's point: "that's your bloody GDP. Not ours." A stagnant economy in which zombie firms preserve jobs and in which we face less threat from foreign competition or new technology is perfectly tolerable for many - and better than the tumultuous, threatening growth of the 80s and 90s.

All this helps explain the Tories' lurch towards nativism. The problem with any policies to revive growth is that they jeopardize vested interests. This wasn't just true of Labour policy. Stian Westlake and Sam Bowman's proposals - the best I've seen from outside Labour - envisage tougher competition policy and a tax on land values. Both are threats to the Tory client base.

And why bother rocking the boat? Of course, as Benjamin Friedman showed in 2006 - and as subsequent events have vindicated - economic stagnation breeds intolerance and xenophobia. For many, however, this is not a bug but a feature.

* Yes, there are big doubts about that paradox. For my purposes, however, we don't need to believe the coefficient of well-being on GDP is zero: a small positive one is consistent with my point.

** This isn't to say that all income inequalities depress those at the bottom of the pile. They can make younger people happier, if they anticipate getting the high incomes themselves. Graduate trainees, for example, need not get the hump at their bosses' high earnings.

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