A most unhappy soap opera

Mountain Tales: Love and Loss in the Municipality of Castaway Belongings by Saumya Roy is an absolutely gripping read, but don’t expect a happy ending. (The book is called Castaway Mountain in the US.) It’s a sort of soap opera about an extended family and community who eke out their living as pickers sorting through the giant Mumbai waste mountains of Deonar. Braided with the events of their lives is the sorry tale of the city’s inability to tackle the toxic and dangerous waste, despite court cases charging them with taking action. CIty and state governments can’t agree, money runs out, for years nothing happens. Meanwhile fires break out covering the whole city in a cloud of dangerous particles and smoke,  toxins leach into the water, and the giant and growing metropolis simply dumps everything from medical waste to rotting food to plastic bags and broken glass. Needless to say, accidents and illness feature prominently. So does gang violence, lack of schooling, hunger and poverty.

The author came across the community of pickers through a micro-credit agency she co-founded in 2010, and the tale stretches over several years. The book makes one feel rather helpless: the characters featured simply pile up more debt, or borrow elsewhere to repay the micro-loans. Weddings and illnesses chew up all available resources and lead to more debt. The local government is clearly incapable. And even if they could close and remedy the waste mountain (as clearly they should before a major disaster strikes), how would the pickers earn at all? So this is not an easy read, compelling as it is, and the book is not in the solutions-finding business. It is a clear-eyed, sympathetic but realistic, description of a way of life none of its readers could have imagined. And even though I’m no hoarder of stuff, it also made me determined to send even less waste to landfill. How much more plastic do we need to throw away?

51PCJutovUS._SY291_BO1,204,203,200_QL40_ML2_

Share

Growth, stagnation, and degrowth

There’s a new wave of interest in the degrowth idea, recently summed up in the New Yorker by John Cassidy. The degrowthers are mainly inspired by environmental concerns – how can consumption possibly continue to increase without limit without destroying the planet? – and the article also refers to Vaclav Smil’s recent book Growth, which adds to this seeming common sense the intellectual heft of energy physics and logistic curves.

I have no ideological commitment to the view that measured GDP growth will always revert to 1.5-2%, and found much food for thought in Smil. However, there is a misunderstanding in the degrowth movement about what growth implies for physical material and energy use, well explained by Noah Smith in his recent Bloomberg column. My colleague Dimitri Zenghelis also does an excellent job here of debunking degrowth, arguing it is not the best or only way to be green.

Smith refers to another recent book, Fully Grown: Why a Stagnant Economy is a Sign of Success by Dietrich Vollrath, to make the point that we can probably expect slower growth (Smil’s S-curve is flattening out) but this is very different from degrowth or zero growth.

The basic point is that the degrowth argument doesn’t either acknowledge intangible output growth or explain what somehow needs to be taken away from the economy when there is a new innovationto keep growth below zero. On the first point, think about oral rehydration therapy or mini-aspirin – new uses of existing materials which produce improved health outcomes that people are willing to pay for, whose value far exceeds the materials costs (sugar, salt and water; salicylic acid). On the second, if somebody invents a new item everybody wants to purchase – the way smartphones arrived in 2007, say – then what would we stop them buying to keep total growth at zero? And how?

Prof Vollrath’s book, which I read at the proof stage, is tremendous. He portrays the recent slowdown as an inevitability, the result of economic success. Past gains in health, and lower fertility rates due to reduced infant mortality and higher incomes, explain population ageing in the rich economies. Demography is reducing potential growth. We are on the whole also taking more leisure, with a trend decline in hours worked. Purchases of services are taking over from material goods as a share of expenditure, and productivity growth is slower in the service sector (for familiar, Baumol reasons). These two trends go a long way to explaining reduced growth.

The second half of the book explores other potential reasons for the growth slowdown, such as increased market power (see Thomas Phillippon), inequality (Piketty) or too much government tax and regulation – and sets out the data explaining why none has a big enough effect to explain a lot of the trend slowdown. “I see no obvious reason why the growth rate would accelerate in the near future,” Vollrath concludes.

I really enjoyed Fully Grown, which gave me much food for thought. It also is simply excellent on the data sources, growth accounting, and trends. But I don’t think it tells the whole story about innovation either. Vollrath accepts (as Robert Gordon does not) that there are significant technological advances under way; but he sees these as making production more efficient and thus accelerating the shift to services: an ever-smaller part of the economy is becoming super-efficient.

The catch, I think, is in using real GDP per capita as the sole indicator of growth. It is a conceptually flawed measure for an intangible/services economy. Consider a haircut, a service for which there is at least a volume measure (which many services do not have). If the price of haircuts goes up, real GDP as constructed goes down; but if the price is rising because people are substituting from cheap cuts at Big Jim’s Trims round the corner to expensive cuts in Covent Garden, it actually means that they are purchasing a haircut plus a bundle of quality attributes – lovely salon, free cup of tea, head massage, an hour’s talking therapy from a charming hairdresser….. In some four-fifths of the economy, the Price x Quantity = Revenue equation used to construct the growth statistics does not work. Either we should be quality-adjusting many more purchases (and this has its own problems) or there isn’t even a volume measure (what is a unit of management consultancy??)

Anyway, read Vollrath and Smil, devote energy to cherishing the environment. Read our Benett Institute report out in 10 days on how to take a more rounded view of economic progress, including environmental impact, by considering wealth. But ignore the fashionable lure of degrowth.

41utBzmOnNL._SX329_BO1,204,203,200_

Share

Weightlessness Redux

The weeks are flying past. I’ve read recently an array of non-economics books (Owen Hatherley’s Trans-Europe Express, Susan Orlean’s The Library Book, Francis Spufford’s True Stories, a couple of the re-issued Maigrets) and also Matt Stoller’s Goliath and Andrew McAfee’s More from Less. I’ll review Goliath in my next post.

More from Less: the surprising story of how we learned to prosper using fewer resources – and what happens next (to give it the full overly wordy subtitle) is presumably aimed at the airport bookshop market. It’s written in a very accessible way and it summarises a lot of interesting research – although not McAfee’s own.

The main point is that the material resource intensity of economic growth has been declining in the rich western economies. This is set in an account of the origins of modern capitalism in the Industrial Revolution – emphasising the importance of ideas and contestability through markets – and the urgent debate about the trade-off between humans gettern better of (escaping the Malthusian trap) and the damaging environmental impact of growth. The dematerialisation of the economy is helping improve the terms of that trade-off.

A major difficulty I have in reviewing this is that, although it’s an enjoyable read, I wrote a book making the same point in 1997, The Weightless World (out of print, free pdf here). There’s no reason at all McAfee should have read it as I was a nobody, and it was a long time ago. But it does mean that (perhaps uniquely) I can’t find anything that’s new in More From Less. The research he cites concerning dematerialisation dates from 2012 (Chris Goodall) and 2015 (Jesse Ausubel, The Return of Nature) – so this is another example of a phenomenon being discovered twice; because there was similar work in the mid-1990s on material flow accounts, on which I based my book. Alan Greenspan even made a speech about it in 1996. It’s a noteworthy phenomenon so I hope McAfee does alert new readers to it. He puts far more emphasis on environmental challenges than I did back in the more innocent 1990s; my focus was more on the socio-economic consequences of a dematerializing economy.

However, the weightlessness or dematerialization phenomenon doesn’t deliver a knockout blow to the degrowth argument that it is not enough to have a reduced but still positive material intensity to growth. Tim Jackson is the most thoughtful advocate of this argument – see this recent essay in Science. It may be that we need to find a way to read more lightly on the planet in absolute terms as well as relative ones, although I’ll welcome weightless growth as better than the weighty alternative. And – as even no growth is politically divisive, never mind degrowth – the issues raised in More From Less are difficult and important ones.

41xPYgyWjVL._SX331_BO1,204,203,200_

Share

Growth, no growth, degrowth

I just read the 2nd edition of Tim Jackson’s now-classic Prosperity Without Growth, which has been out for a few months, and it’s a book I’d recommend to anyone but especially economics students. Although most students do now learn about environmental constraints and trade-offs, we do socialize them quickly into thinking about economic growth as the objective of policy. It is all too clear that the failure to take account of externalities and the depletion of natural capital assets means we’ve paid a high price for past growth. Measuring these better to ensure they’re incorporated in the choices society makes is part of my own research.

Havings said this, and commending the book, I have one central problem with its argument, as with some others making similar arguments. And that turns on the understanding of what (GDP) growth consists in. Even those who acknowledge the importance of services in the economy – as Tim Jackson does – then consistently talk about growth as consumer demand for material products, for stuff: “How is it that with so much stuff already we still hunger for more? Would it not be better to halt the relentless pursuit of growth in the advanced economies and concentrate instead on sharing out the available resources more equitably?” So stuff and growth are conflated.

As I’ve been pointing out for 20 years, growth in the advanced economies is increasingly non-material – accepting that we import stuff embodied in goods, which must be accounted for. The archetype of modern growth is a new idea – that an aspirin can avert cardio-vascular problems as well as cure headaches; that apps on one device can replace multiple material objects.

This is why indicators like the Genuine Progress Indicator, that flatline from the 1970s on while GDP rises, are so unpersuasive. I disagree with Tim when he writes: “[T]he continued pursuit of economic growth doesn’t appear to advance and may impede human happiness.” So although I agree completely that the usefulness of GDP as a welfare measure is declining, I don’t think we know how to weigh against each other the environmental minuses and innovation pluses. This is why I’m obsessed with how we conceptualise and measure society’s economic welfare, including measuring assets to give us a handle on sustainability; but many of the innovations do advance human well-being. I remember the 1970s, and though the music was better, many aspects of life were far less satisfying. Patti Smith and Siouxsie & the Banshees aren’t enough to make me want to turn the clock back.

This is an important, possibly existential debate, so I hope the book is being widely read. I also appreciate its (only slightly lukewarm) defence of economics: contrary to the impression some environmetalists seem to give, many economists care passionately about our environment and sustainability, & we think our intellectual tools can make a useful contribution.

Share

True wealth

I’ve been meaning to write about National Wealth: What is Missing, Why it Matters edited by Cameron Hepburn and Kirk Hamilton. This volume (in which I have a chapter, The Political Economy of National Statistics) looks at different types of wealth from a number of perspectives. The opening set of chapters look at the link between wealth and sustainability (measurement of assets being essential to take the future into account) and the link between wealth and well-being, as well as my paper looking at how one might move from a GDP/income flow to a wealth measurement standard. Part two covers the historical perspective on wealth. Part 3 looks in more detail at the measurement of specific components of wealth, and part 4 at sustainability.

As the editors write, “Policies that create wealth go beyond increasing output; they involve investments today for returns in the future … A focus on wealth generation … shifts policy away from supporting immediate consumption.” There are plenty of ideas and an increasing amount of data making it possible to start accounting for wealth, and specifically the change in real wealth. The challenge is the policy challenge of getting consensus about the need to change the focus.

With my co-author Benjamin Mitra-Kahn, we suggested how to go about this as our entry for the inaugural Indigo Prize, which we were honoured to win jointly with Jonathan Haskel and his colleagues. Their ideas for improving GDP are excellent; but Ben and I still think priority needs to be given to the sustainability-enhancing potential of a wealth focus rather than an amended GDP focus. Wealth and sustainability are “joined at the hip,” as National Wealth puts it.

Share