Austerity, algebra and theology

Florian Schui’s [amazon_link id=”0300203934″ target=”_blank” ]Austerity: The Great Failure[/amazon_link] is a readable book, which has seen me through my Tube journeys this week, but an odd one. He presents thinking about austerity through the ages as seen through two prisms: the religious and moral strand of thought in western tradition about the inherent virtue of modest living and thrift; and the sensible economic perspective, reaching its pinnacle in Keynesian thought, that analyses consumer spending and fiscal expansion as the source of prosperity. Modern austerity, from Thatcherism and its Hayekian emphasis on the small state, to the post-crisis argument for austerity, is therefore described as essentially theological.

[amazon_image id=”0300203934″ link=”true” target=”_blank” size=”medium” ]Austerity: The Great Failure[/amazon_image]

“Today, there is general agreement that growing consumption is a pre-condition for economic growth and the satisfaction of potentially unlimited material wants is accepted as one of the principal objectives of economic activity,” Schui writes. The environmental movement is portrayed as a quasi-religious movement descended from the 19th century Romantics. Yet the final chapter of the book is an assessment of the ‘good life’, in much the same vein as in [amazon_link id=”0241953898″ target=”_blank” ]How Much is Enough?[/amazon_link] by Edward and Robert Skidelsky. It’s a pretty sudden corner turn right at the end.

Another oddity is that the book hardly mentions debt (as I noted on glancing through the index). Given that today’s case for austerity – and indeed previous versions – rest heavily on debt-related arguments, this is a glaring omission. I think it makes David Graeber’s [amazon_link id=”1612191290″ target=”_blank” ]Debt: The First 5000 Years[/amazon_link], for all that it is a flawed book, a far more credible critique of austerity measures.

A third strange bit of the argument here comes in the discussion of why Keynesianism fell out of favour because of stagflation in the 1970s, to be succeeded by Thatcherism. Schui argues that the true cure for stagflation was not the Hayek-inspired effort to shrink the state that we got (and that had great popular support, given the massively disruptive public sector strikes as unions tried to win higher pay rises), but instead more government spending and indeed an extension of central planning as practiced in the Soviet bloc. This is a boldly contrarian argument to say the least.

A final complaint is that the book claims economics can explain how to maximise growth but can not answer the question, do we need more growth? I think it’s exactly the other way round. Economics says, yes we need more growth – very few of the world’s people enjoy the good life of a distinguished western European academic; and as many economists – including for example Joel Mokyr in [amazon_link id=”0691120137″ target=”_blank” ]The Gifts of Athena[/amazon_link] (and me too in [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief but Affectionate History[/amazon_link]) – point out, growth is the name we give to the constant process of innovation that has improved our health, life expectancy, and quality of life so massively.

What we don’t know is how to increase growth, the elusive gold of our kind of alchemy. If we did, nobody would see austerity as a dilemma. Faster growth would remove any need to worry about debt. Without it, rescheduling/default or inflation are the more troubling options. This is algebra, not theology.


2 thoughts on “Austerity, algebra and theology

  1. This is *almost* on-topic, hope you don’t mind me posting. I’ve read your take on growth in previous books and been persuaded. I’ve also (a) been critical of impossible hamster/`it’s all about the exponential’ type arguments as missing many of the key things about what growth really is, as well as hearing people involved in development say growth remains a vital part of what they do.

    I was happily going along rejecting all the `de-growth’ stuff, until the two paragraphs below crossed my path (Jorg Friedrichs’ The Future is Not What it Used to Be p.3-4). I’m having trouble seeing a way round how he’s framed the `obvious objections’ to growth shifting into less resource intensive forms of exchange. I’m suspecting I’m accepting some assumptions that you’d reject – but I’d be very interested in your view.

    “For the sake of the argument, assume that world economic output continues to grow by 3 percent per annum. This implies that global GDP will double within twenty-three years, and quadruple within forty-six years. It also implies that, a century from now and other things being equal resources consumed and pollutants emitted will have increased by a factor of more than sixteen. It is easy to see that such enormous growth would not be sustainable. The obvious objection is that resources consumed and pollutants emitted can be reduced by efficiency gains and other forms of technological progress. So let us assume, again for the sake of the argument, that resource intensity and thus pollution can be reduced by a fairly ambitious 50 percent. Even so, under the above scenario, a century from now the world economy would consume eight times as many resources and emit eight times as many pollutants as today.

    “To continue the thought experiment, let us demand that the world economy should grow for a century by 3 percent per annum, but without any increase of resource consumption and pollutant emissions. By how much would it be necessary to abate the resource and emission intensity of the world economy (resources consumed and pollutants emitted per unit of GDP)? The answer: by a staggering 94.8 percent. To reconcile a century of 3 percent growth with the more ambitious goal of reducing resource consumption and pollutant emissions, the abatement of resource and emissions intensity would have to be even more drastic.”

    • It’s a question to be taken very seriously. I would want to unpick ‘resources’ to be more specific about which ones – whale oil availability once looked like a binding constraint. The mix of resources used has changed substantially. The character of the economy has also become increasingly intangible – services and digital goods. So I think energy is the real question, the one that gives me most pause for thought.

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