Tag Archives: growth

Municipal grandeur and balanced growth

Posted on by

One of the inspiring things about Tristram Hunt’s book [amazon_link id=”075381983X” target=”_blank” ]Building Jerusalem: The Rise and Fall of the Victorian City[/amazon_link] is reading about the energy and optimism of leading citizens in the newly industrialising cities.

[amazon_image id=”075381983X” link=”true” target=”_blank” size=”medium” ]Building Jerusalem: The Rise and Fall of the Victorian City[/amazon_image]

It was an era when Britain’s cities other than London, for all the misery and squalor of the working classes, had a sense of control over their own destiny. I do agree with Hunt when he says in the Introduction: “[T]he policies of successive British governments have served to castrate civic autonomy. Unintelligible and ideas-free history [of urban growth] has gone hand in hand with rate-capping, surcharging and centralisation to render local government and civic pride a forlorn part of the historical landscape.”

He points out that Lord Palmerston defended the grand designs for a new Foreign Office building in Whitehall on the basis that it could not be less impressive than Leeds Town Hall. The unpleasant John Ruskin criticised the ugliness of the northern cities – as apparently Peter Hall did too – but it would surely require mental blinkers not to appreciate the glory of Manchester Town Hall or St George’s Hall in Liverpool, or the streets of handsome warehouses in any of the Victorian industrial centres. Hunt writes: “Britain was a land of great cities, each one playing a part in the political process and preventing the unstable accumulation of too much power in the capital.” Commentators at the time contrasted Britain’s stability favourably with the continuing upheaval in over-centralised France.

It is a weakness of the British economy now that it runs on only one engine, albeit a super-sized one, in London. Nobody sensible wants to see London weakened, but surely everybody sensible would like to see other cities have the capacity to grow faster than they have for the past 50 years or more. When people talk about the desirability of rebalancing the economy so that manufacturing and exports grow faster than financial and other services, that’s equivalent to hoping for faster growth in the industrial centres outside the south east, because that’s where most of the manufacturing is located. Economies are not abstractions, they consist of people in places.

I was involved in the Manchester Independent Economic Review, looking at how the city could regain some of that Victorian dynamism, which requires regaining a stronger voice over some of the influences on growth, such as transport and other infrastructure links, planning (an area where the issues in south and north are entirely different), and skills.

It’s a slow process achieving these things, though. Not only is the centre naturally unwilling to cede any decision-making territory, there is also the tyranny of the so-called ‘postcode lottery’. Still, the experience of the devolved nations suggest it is possible to come to terms with difference, so I think it is worthwhile looking for inspiration in the Victorian cities.

Victoriana

The quantified (Victorian) life

Posted on by

The next of my holiday reads deserves a couple of posts. It was Tristram Hunt’s [amazon_link id=”075381983X” target=”_blank” ]Building Jerusalem: The Rise and Fall of the Victorian City[/amazon_link]. As someone who believes the UK economy is over-centralised around London, to the detriment of the whole economy including the capital, the era from the early 19th to early 20th centuries when many other major cities were growing rapidly is obviously intriguing. The UK stands out globally now for the extreme degree to which the economy depends on the capital – see for example the maps at the Geographically-based Economic Data website. France used to compete but there has been a significant devolution of both political power and economic growth (they go hand in hand of course) since the 1980s.

[amazon_image id=”075381983X” link=”true” target=”_blank” size=”medium” ]Building Jerusalem: The Rise and Fall of the Victorian City[/amazon_image]

Tomorrow’s post will discuss the economics. Today is for philosophy.

Hunt has a fascinating section about the intellectual currents of the 19th century, and in particular the romantic reaction against industrialisation and the growing dominance of what Thomas Carlyle described as the cash nexus. Carlyle wrote: “We call it a Society, and go about professing openly the totalest separation, isolation. Our life is not a mutual helpfulness; but rather, cloaked under due laws-of-war named “fair competition” and so forth, it is a mutual hostility. We have profoundly forgotten everywhere that Cash payment is not the sole relation of human beings.” He was one among many – prominent among the other anti-market, anti-economics intellectuals of the day was John Ruskin, whose [amazon_link id=”0140432116″ target=”_blank” ]Unto This Last[/amazon_link] is one of the books I love to hate. And this tradition continues today, the charge led by Michael Sandel’s [amazon_link id=”0241954487″ target=”_blank” ]What Money Can’t Buy.[/amazon_link]

I was interested to read in Hunt’s account that the Utilitarians, particularly Bentham, were held to blame for the spread of market (im)morality. That’s not too surprising – after all, the utilitarian calculus was about counting and calculating, as caricatured by Dickens in the person of Mr Gradgrind in [amazon_link id=”014143967X” target=”_blank” ]Hard Times[/amazon_link]. Sandel is no fan of utilitarianism either, whereas modern economics still rests in principle on the notion of ‘utility curves’.

There is, though, a paradox in the fact that today’s ‘well-being’ or ‘happiness’ economics, which makes much of the idea that money and markets should not be the sole drivers of public policy, is rooted in a version of utilitarianism. Here is Richard Layard in 2009 making this explicit:

“[E]very human being wants to be happy, and everybody counts equally. It follows that progress is measured by the overall scale of human happiness and misery. And the right action is the one that produces the greatest happiness in the world and (especially) the least misery.”

This is the utilitarian calculus, measured in quanta of happiness rather than money. For all that its advocates do not believe economic growth is the path to progress, the happiness approach would certainly fall foul of the belief of Carlyle and the other Romantics in the pre-eminence of emotions, institutions and tradition in society.

What is different, and what isn’t

Posted on by

I’ve been a bit mystified by Excel-gate (see this good, balanced summary by Gavyn Davies). Bravo for Thomas Herndon, the graduate student who uncovered the error in the now-notorious paper by Carmen Reinhardt and Kenneth Rogoff; his job prospects will be rightly enhanced by this episode.

But the glee with which anti-Austerians pounced on this episode to ‘prove’ that austerity doesn’t work seems to involve an assumption that the original Reinhardt-Rogoff paper of 2010 ‘proved’ anything to the contrary in the first place. There are lots of papers about the impact of debt/GDP ratios on growth, and they demonstrate all kinds of different things – see for example this BIS paper by Cecchetti and others, or this IMF paper (pdf) from last year on the Caribbean economies, or this Fed paper published in December (pdf), or this much-cited 2010 paper by Koehler-Geib and others, or for that matter the new paper debunking Reinhardt and Rogoff’s 90% as it too finds the same correlation albeit with different numbers.

Well, you get the idea. Taking these together, we ‘know’ there might be a threshold for sovereign debt, but it varies over time and across countries, it’s a correlation whose causal direction and mechanism is unclear, and there isn’t enough data for any estimates to be robust (because history only runs once). All of which only goes to underline how little is known about the macroeconomy, not to mention how hard any macroeconomists and their camp followers find it to resist claiming certainty where there is none.

No doubt Reinhardt and Rogoff were tempted into over-claiming for their work by the politicisation of the debt threshold issue. But the underlying message of their big 2009 book, [amazon_link id=”0691152640″ target=”_blank” ]This Time is Different[/amazon_link], is unscathed: unlike the later paper, it makes it absolutely clear that debt ‘thresholds’ above which increasing borrowing is correlated with lower growth vary widely in different countries and at different times (no magic 90% here); and that the historical record indicates it generally takes a long time for growth to recover after banking crises involving debt overhangs.

[amazon_image id=”0691152640″ link=”true” target=”_blank” size=”medium” ]This Time Is Different: Eight Centuries of Financial Folly[/amazon_image]

Demography as destiny?

Posted on by

There was an intriguing short letter in the Financial Times this morning, urging that more attention be paid to the problem of a low birth rate and the adverse demography of an ageing society.  The writer evidently believes the welfare system should be encouraging people to have more children, rather than penalising them for large families. He cites a 1947 book, [amazon_link id=”B00195GT00″ target=”_blank” ]The Population of Britain[/amazon_link] by Eva Hubback.

[amazon_image id=”B00195GT00″ link=”true” target=”_blank” size=”medium” ]The Population of Great Britain[/amazon_image]

Looking her up, Wikpipedia tells me Eva Hubback was a suffragist, head of economics at Newnham and Girton during the First World War, and advocate of birth control and eugenics. However, her book clearly advocates the national benefits of population growth. This is an intriguing combination of beliefs, very much of its time.

It has long seemed to me that economics doesn’t pay enough attention to demography. Obviously, people studying pensions and the fiscal implications do put the ageing trend at centre stage, and relative demographic trends crop up in work on international migration. But demography is surely fundamental for growth as well. One question is whether an older (on average) population will be as productive and innovative as a younger one. And if so, what does this imply for, say, predictions of Chinese economic power?

Another is simply the numbers game. Endogenous growth models imply that the growth rate is increasing in population, at an accelerating rate because of their increasing returns feature. Ideas live in people’s heads, and the combinatorial arithmetic makes more people generate many more ideas. This is something modern economists (although clearly not Eva Hubback) seem to gloss over with mild embarrassment.

The best book I’ve read including demography, although in a broader context than economic growth, was Emmanuel Todd’s 2001 [amazon_link id=”1845290585″ target=”_blank” ]After the Empire[/amazon_link]. He was looking ahead to the multipolar world. But I’d be interested to hear other recommendations.

[amazon_image id=”1845290585″ link=”true” target=”_blank” size=”medium” ]After the Empire[/amazon_image]

Gross Domestic Problem

Posted on by

Here’s a book title that wears its heart on its cover. Lorenzo Fioramonti’s[amazon_link id=”1780322739″ target=”_blank” ] Gross Domestic Problem: the politics behind the world’s most powerful number[/amazon_link] gives you the essence of the argument upfront. If I had to sum it up as an elevator pitch, it would be Tim Jackson’s [amazon_link id=”1849713235″ target=”_blank” ]Prosperity Without Growth[/amazon_link] view (that economic growth is environmentally unaffordable and unnecessary for welfare) meets the left-wing belief that the military-industrial complex is in control of the economy for its own purposes. I don’t agree with either, although my disagreement is sympathetic.

[amazon_image id=”1780322739″ link=”true” target=”_blank” size=”medium” ]Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number (Economic Controversies)[/amazon_image]

Start with growth and the environmental costs. It is surely obvious to all but a small minority that measuring better the impact of economic activity on the environment is vital. My preference is to monitor the depletion of natural assets of all kinds, a balance sheet approach automatically injecting the longer-term perspective necessary for sustainability – there is much on this in [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough[/amazon_link]. But any kind of environmental dashboard would be welcome. What drives me to distraction is the persistent belief that we should just stop economic growth because it’s not making us happy. This is simply incorrect – this book cites no research on the question later than 1997. Subsequent research has clearly established a strong link between GDP per capita growth and measured ‘happiness’ – see for example this recent paper on happiness and GDP, and the references in it. Besides, just think – no growth means no innovation, no redistribution (it has never happened outside a rapidly growing economy), rising unemployment (unless companies are banned from improving their productivity ever). The misguided belief that growth won’t make people happier is dangerous because it will prevent any practical politics of sustainability.

On the book’s political arguments, it’s obvious post-crisis that conventional, mainstream economics has been wrong to ignore the politics of finance and the lobbying power of the banking industry. Brett Christophers’ new book, [amazon_link id=”1444338285″ target=”_blank” ]Banking Across Borders[/amazon_link], is a fascinating historical account of how that power developed – including its use of the mantra of GDP – in the post-war era. By contrast, Gross Domestic Problem offers some assertions: “GDP served the interests of political and economic elites for several decades”  – OK; “European member states came to accept that only if GDP went up could they afford to pay for schools, hospitals and social security” – er, the Stability and Growth Pact to which this refers aimed to cap government deficits, but raising taxes to pay for public services was never ruled out, certainly not by reference to GDP; “Between 1948 and 1989 American economic growth was largely dependent on military spending” – really? I agree the military budget is high but is it really true that every innovation in the post-war period had no impact on growth? Utterly implausible.

One particular confusion that many commentators on GDP make is muddling up this measure of economic activity with the measurement of economic welfare. Economics has always been clear about the distinction. Simon Kuznets, one of the creators of GDP and the national accounts, advocated a measure of welfare instead but lost the argument – this book presents his work as criticism of the definition of GDP, but the quotes here date from a 1937 book in which he was pitching for a welfare approach instead. The production demands of the war – when the military-industrial complex was indeed powerful – swung it in favour of GDP instead.

I do think these seemingly dry questions of measurement are important, and that measurement choices affect the way people behave. However, Gross Domestic Problem is an unsubtle and confused take on the question of GDP. GDP is one measure of economic growth – there could be others, and economic growth is highly desirable, in my view, subject to the huge challenge of moving towards sustainability. Measuring the economy’s size differs from measuring society’s welfare, but they are linked. It’s high time political economy was revived, but understanding how elites acquire economic power deserves some serious social science research rather than conventional assertions.