Category Archives: Economic Growth

The Crucible

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Casey Mulligan’s important post on the relative separability of the performance of the financial and non-financial sectors of the economy (among many other refreshing and illuminating posts) highlights what I think are some of the great neglected facts of the ongoing discussion about the implications of the financial crisis.

First, financial markets are a necessary instrument to wealth creation, but are not a fundamental cause of increasing prosperity. It is a tremendous problem of economics journalism that journalists and opinionators don’t really understand the mainsprings of economic growth. Financial innovation affects growth at the margin by more efficiently allocating capital to its most efficient uses, but this is obviously secondary to developments in the real economy that increase capital’s productivity. Derivatives can make us a bit richer, but productivity-enhancing technologies make us rich.

The conditions for entrepreneurial discovery, and therefore scientific and technological and organizational innovation, and therefore productivity growth, and therefore increasing prosperity and welfare remain very, very strong. Yes, if the flow of capital to would-be innovators dries up, then innovation and growth dries up. But there is in our system enormous ongoing potential for innovation, and therefore for increasing returns to capital. And there is an enormous amount of capital, the owners of which continue to want a nice return. The magnetic force between capital and innovation is so strong, and our overall institutional environment so sound, that we can be pretty sure innovation and growth will continue with barely a hitch. The financial crisis is not going to keep us from getting a hell of lot richer.    

I think it’s pretty clear that our recent troubles are primarily due to a variety of misconceived U.S. government policies intended to promote home-ownership, and secondarily due to combined financial market irrationality and regulatory failure. Suppose you agree that the government screwed up in failing to regulate leverage. What does this imply about the feasibility of relatively free-market capitalism? What does it say about the desirability of government regulatory intervention into the non-financial economy–the part that actually delivers prosperity. Very little.

What does it say about the alleged dangers of free market ideology? Again, very little, if anything. I think Ross Douthat put it extremely well in his reply to Jacob Weisberg’s silliness:

[A]rguing that a single bad economic contraction following a long period of growth permanently discredits an ideology that can be implicated in both the growth and the contraction is like arguing that, say, Weimar Germany permanently discredits partisans of democracy.

Past and furture Treasury Secretary Larry Summers does understand a something about the deeper sources of economic prosperity, and thus in his FT op-ed titled “The Pendulum Swings Toward Regulation,” he says almost nothing about regulation (just leverage, really), and concentrates on the ways government subsidies might at once soften recession and enhance the productivity of the real economy.  

So there is a need to ensure that the pressure to increase spending is directed at areas where it will have the most transformational impact. We need to identify those investments that stimulate demand in the short run and have a positive impact on productivity. These include renewable energy technologies and the infrastructure to support them, the broader application of biotechnologies and expanding broadband connectivity, an area where the US has fallen behind.

I happen to think Summers is making a mistake in believing that government has adequate information or motivation to do a very good job at identifying growth-enhancing investments (in energy, biotech, broadband, or otherwise), but the implied broader point is that financial markets are a sideshow. The real economy is where it’s at, and the best the government can do is to promote the enabling conditions of innovation and growth. The contemporary debate was and continues to be whether government spending can complement or enhance relatively free markets, not whether we will be better off if those markets are more heavily regulated and relatively less free.

Indeed, I think the evidence points to overregulation of the economic uses of many forms of “intellectual property.” More generally, the evidence that dominant firms support regulation that increases the cost of entry into their markets remains overwhelming. Thanks these sorts of regulations, we’ve foregone a lot of innovation and growth.  At a smaller scale, regulation of small business — most notably the businesses poorer people are likely to start — continues to suppress a lot of welfare-enhancing entrepreneurship. Libertarians continue to lead the way in emphasizing all this, and continue to be right about all of it. We have witnessed nothing in the financial markets to reinforce the wisdom of this kind of welfare-reducing regulation.

Libertarians and other free market cheerleaders have made huge permanent strides in convincing the world of the importance of entrepreneurial discovery, competition-driven innovation, and the role of rent-seeking regulation in hobbling these. The prevalence of these ideas has made the world much wealthier, and stands to make it wealthier still. Larry Summers might not jump at the chance to admit this, but neither do I think he would disagree. He’ll just emphasize that active government spending can nevertheless be growth-promoting. That’s not much of a “pendulum swing” back toward a more regulated economy. If we’re really in the middle of a PR nightmare for capitalism — if this is our big generational crisis of confidence — and the importance of things like infrastructure upgrades and subsidies for renewable energy is the upshot for the left-leaning economic policy establishment, then what we’re going through amounts to the fire-tempering, the locking down, the consolidation of decades of libertarian-leaning economic policy gains.

Michael Clemens for Treasury Secretary

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Michael Clemens explains, more or less, why I put a bunch of money (a bunch for me) in an index fund a couple weeks ago and now wish I’d waited a bit…

As for whether or not the current financial crisis will make much difference to income growth in the United States over time, have a look at the second graph below. This is the best estimate of real income per capita in the United States since 1820. Over these years we had violent financial crashes of various types, bank panics, piles of recessions and a huge depression, many foreign wars and one enormous domestic war, had a central bank and didn’t, were on the gold standard and weren’t, had governments topple in scandal and multiple leaders assassinated, and what did it all amount to in the medium to long run? In per-capita income terms: Nothing. The overall trend does not bend or shift. Every bad year was followed by a good year that returned us to trend. The US average growth rate of real per capita incomes over the last 190 years has been 1.8% a year, and the same rate over the last 10 years has been…. 1.8% a year. Stare at that graph: The Great Depression was traumatic in countless ways, but astonishingly, it’s not clear that we are any worse off today than we would be if the whole thing never occurred. Anyone who made such a claim in the 1930s would have been scoffed at, but that’s what happened.

Keep on truckin’, America.

[Via Cowen via Blattman]

Bourgeois Deeds

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I just discovered that Deidre McCloskey has posted on her website a draft [doc] of the second volume of her work on bourgeois virtues. For those of us who love the history and anthropology of morality and economic history and rhetoric and political economy, McCloskey’s hard to beat for interestingness value.

HT: David Boaz

More Money, More Happy, Again

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Here’s Betsey Stevenson and Justin Wolfers’ new paper [pdf] on happiness and economic growth. The bottom line:

The accumulation of more recent data (and a re-analysis of earlier data) suggests that the case for a link between economic development and happiness is quite robust. Moreover, we establish that the relationship between happiness and income within a country is similar to the relationship between happiness and national income across countries. Finally, we show that the within country relationship between economic growth and happiness is similar across countries.

And this effect shows up despite all the reasons — scale renorming, unbounded income scale vs. bounded happiness scale — that you would expect to flatten the trend. Taking the methodological considerations about surveys into account, the most reasonable conclusion is that these findings set the lower bound on the contribution of income to happiness.

The paper has all sorts of interesting findings from the Gallup World Poll that I have not seen. For example:

We next turn to a series of well-being questions contained in the Gallup World Poll. Respondents are asked to report whether they experienced “the following feeling during a lot of the day yesterday?” including enjoyment, physical pain, worry, sadness, boredom, depression, anger, and love. The middle panel of Table 4 shows that, among the positive emotions, the enjoyment-income gradient is positive and similar for both the between- and within-country estimates. More income is clearly associated with more people having enjoyment in their day. Love is less clearly related to income, although within-countries more income is associated with being more likely to experience love. Among the negative emotions, physical pain, boredom, depression, and anger all fall with rises in income, at both the national and individual level.

Beatles fans and headline writers please note relationship between income and love.

The final regressions analyze the relationship between income and some more specific experiences in people’s lives, such as feeling respected, smiling, doing interesting activities, feeling proud, and learning. Most of these assessments are related to one’s income in the within-country estimates. Fewer show signs of a similar sized effect when examining the relationship between countries. However, there are some notable exceptions. Wealthier people are more likely to say that felt that they were treated with respect yesterday and as countries get wealthier more people feel respected. Wealthier countries have people who report smiling more. This last measure is particularly interesting as smiling has been shown to be correlated with reported levels of happiness or life satisfaction. Indeed, in the data people who report smiling more, also report higher levels of life satisfaction. Finally, as countries get wealthier more people report having been able to eat good tasting food the previous day and the magnitude of the relationship is similar to that seen within countries.

All told, these alternative measures of well-being point to a robust relationship between rising
income and improvements in societal welfare.

MONEY IS GOOD FOR PEOPLE. I will continue to wait with bated breathe for conventional wisdom to catch up.

[HT: Zubin Jelvah]

Framing the World Away

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Joe Brewer of The Rockridge Institute (aka, the George Lakoff Center for a More Scientific Leftwing Propaganda) discusses the “cognitive dimension of climate policy” in “How Conservatives Have Duped Us in the Global Warming Fight.” As far as I can tell, this duping consists entirely of basic social-scientific literacy. Here’s Brewer’s expose of the enemy frame:

Idea No. 1: Protecting the environment harms the economy

This idea has been promulgated for decades by conservative think tanks like Cato Institute, Heritage Foundation, Competitive Enterprise Institute and others. It is based on the foundational claims that (1) the environment and the economy are fundamentally different things, and (2) they compete with one another in a zero-sum manner — meaning that a gain for one amounts to an equivalent loss for the other. This idea takes many forms. Here are a few that we hear all the time:

  • Environmental action will cost us jobs.
  • American companies will be burdened by additional costs.
  • Addressing global warming will put our economy at a competitive disadvantage versus the rest of the world.
  • Renewable energy must compete with traditional energy sources, like coal and oil, before it can be implemented.

This is just weird. What does (1) even mean? Does he really think anyone thinks that? And (2) is a bald-faced misrepresentation. The general market environmentalist view is that there is something like an environmental Kuznets curve (or set of curves for different pollutants and environmental goods), according to which environmental quality degrades in early stages of economic development, and then improves at later stages.

How about those bullet points? Here’s what a bona fide Cato-style market environmentalist thinks:

  • Environmental action may or may not cost jobs, depending on the action. When Chad Pegracke enlists volunteers to clean up local rivers, that’s both effective environmental action, and it doesn’t cost jobs.
  • Most environmental regulations do burden companies with additional costs. How is this wrong? Does Brewer think regulatory compliance is free? If he thinks the cost is worth it for all of us in the end, that doesn’t mean there wasn’t a cost bone disproportionately by the company and its shareholders.
  • Imposing heavy restrictions on carbon emissions will put firms using America-based production at a competitive disadvantage relative to those using foreign-based production unless we can ensure general compliance with global restrictions. And we probably cannot. China and India (not to mention all of Africa) are on the left side of the Kuznet Curve, and they are not going to kneecap themselves for the rest of us. How is this incorrect?
  • Renewable energy must be as efficient as traditional energy sources, or else using them will be more expensive, and using the more expensive alternatives leaves us with less to spend on other things. I suppose the very idea of a budget is rightwing agitprop?

Here’s Brewer’s attempt at reframing:

Idea No. 2: A healthy economy depends upon a healthy environment

The well-being of our communities (isn’t that what we mean by a healthy economy?) is intimately bound to the preservation of life-giving qualities from nature. In other words, a thriving economy depends upon protection of the environment. Separation of environment from economy is fictitious, an artifact of a flawed way of thinking.

This begs the question, “what is wealth, and where does it come from?” A progressive response might be that wealth is the well-being of individuals, society, and the earth. Wealth is more than simply material wealth. It comes in many forms — having good relationships with friends and family, maintaining physical health, and yes, living in a community where clean skies, thriving forests, and healthy streams are preserved. Clean air, drinkable water, and fertile soils are inherently valuable because our well-being depends on them — independent of markets. A consequence of this meaning is that resource preservation is wealth creation. The logic works like this:

  • Wealth is anything that increases well-being.
  • Clean air increases well-being, so it is a form of wealth.
  • Dirtying the air reduces well-being, so it is a loss of wealth.
  • Keeping the air clean is preserving wealth.

This is not an equally valid prism through which to see the issue. This is just an insistence that words come to mean what one wishes them to mean. But suppose we accept the redefinition of “wealth” as “anything that increases well-being.” It then follows that clean air is wealth only insofar as it increases well-being. If there is in fact a tradeoff in certain places between higher incomes and cleaner air, and there is, and higher incomes do more to increase well-being than cleaner air at certain stages of development, and they do, then cleaner air decreases well-being relative to the relevant alternative. And so cleaner air can be a form of poverty. QED.

The whole thing turns on denying the possibility of tradeoffs, which is just stupid. You can’t just insist that people spend more money on what you want them to spend more money on and then say that it didn’t cost them anything because it made them wealthier by your very special personal definition of wealth. Well, you can say it. And you may even manage to persuade some people. But it makes you look either foolish or dishonest to people who know better.

I’m all for availing ourselves of any useful indicator of well-being. But this can’t be merely stipulative. You need to show that something contributes to health, happiness, longevity, creativity, the realization of basic human capacities, etc. The story these indicators taken together tells us is that the greatest increases in human well-being have been a consequence of rapid economic growth, traditionally construed. This has taken a certain toll on the environment, but that hasn’t left us worse off has it? Indeed, the opposite is true. So Brewer has it backwards.

The evidence — the whole set of well-being indicators, and not just the income numbers — says that growth-based environmental changes have been associated with an increase in well-being. Historically, pollution has been side-effect of wealth, as Brewer construes wealth. Now, it is completely misleading to attempt to try to brand carbon as a pollutant, as Brewer seems to wish to do. But even so, the places that emit the largest amounts of carbon per capita are precisely the places where people tend to do best on pretty much every well-being indicator imaginable, and this relationship seems to be largely casual, and not incidental. So pretty much all the relevant evidence points to the conclusion that cutting carbon emissions in the absence of equally efficient sources of energy will reduce well-being. It will impoverish us. This is not a right-wing framing conspiracy. It’s called a considered judgment based on empirical evidence. Try it!

Now, I’m quite open to the idea that carbon taxes are an efficient method of getting folks to internalize the costs of the negative external effects of their activities. But Brewer clearly thinks that if the debate proceeds in economically-literate terms, he will not get the policies he wants.

Positive-Sum Within, Zero-Sum Without

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I was pretty impressed with Barack Obama’s speech. It struck me as unusually direct, realistic, intellectual, and mature. I’m not sure that will keep Fox News from showing Jeremiah Wright 24/7, as Obama himself more or less worried aloud, or that this won’t kill him in the general. (I’m inclined to think McCain would beat him in any case.) But it does make me think a bit more highly of him. I am extremely cynical about politics, but I do think rare, exemplary leadership can matter a great deal culturally. So, despite my cynicism, I think Obama did do something today to make the American discussion of race more frank and intelligent, which is pretty important, whether or not he goes on to the White House.

I was especially struck by Obama’s explicit use of the the idea of zero-sum games, and the way themes of positive- and zero-sumness were woven throughout the speech, always serving Obama’s rhetorical aim, but often undercutting his underlying moral message.

… in an era of stagnant wages and global competition, opportunity comes to be seen as a zero sum game, in which your dreams come at my expense. So when they are told to bus their children to a school across town; when they hear that an African American is getting an advantage in landing a good job or a spot in a good college because of an injustice that they themselves never committed; when they’re told that their fears about crime in urban neighborhoods are somehow prejudiced, resentment builds over time.

This could have come straight out of Benjamin Friedman’s The Moral Consequences of Economic Growth. And Obama’s right. The key to social amity is the sense that neither individuals nor groups succeed at the expense of others. What I have always liked about Obama (and what Paul Krugman appears to hate) is that he sees the America not as a system of antagonisms defined along race or class lines, but as a fundamentally cooperative venture for mutual advantage. What I have never liked about Obama is his apparent failure to grasp how certain kinds of market institutions promote precisely the kind of positive-sumness he is rightly looking for — a point I articulated here nearly three years ago. And I have always been struck by his rhetorically resourceful but intellectually bankrupt failure to apply the same logic of mutuality beyond our borders. So it is that he ends up saying, after denouncing the politics of superficial divisiveness (i.e., playing clips of a ranting Jeremiah Wright on TV):

This time we want to talk about the shuttered mills that once provided a decent life for men and women of every race, and the homes for sale that once belonged to Americans from every religion, every region, every walk of life. This time we want to talk about the fact that the real problem is not that someone who doesn’t look like you might take your job; it’s that the corporation you work for will ship it overseas for nothing more than a profit.

This time we want to talk about the men and women of every color and creed who serve together, and fight together, and bleed together under the same proud flag.

This is a tactic as old as time. Unify factions against a common threat. But it stinks.

Obama says the real problem is not that an American of a different ethnic background might take your job (that was the context), but that a non-American might. But let’s not dwell on that Mexican, Canadian, or Chinese guy who gets that job. Who cares about them? Well, if you think it for a second, you might care. So let’s try to remove from our thoughts the very real, yet non-American people who often gain immensely from outsourcing and pin it on all corporations. Well, Obama can’t have it both ways. It matters not to the individual American whether she has lost her job to someone in South Dakota, where it is cheaper to do business, or to someone in a whole different country. It matters not to the individual American whether he has lost his job to father of four in India or a new robot arm in North Carolina. In attacking offshore outsourcing Obama encourages in one breathe the zero-sum mentality he condemns in another. It may be possible to induce a spell of internal cooperation by framing it as part an external conflict, but it can’t last. By threatening growth, protectionism encourages internal conflict over the division of a smaller pie. As Obama evidently knows, that’s when racial lines are the most salient, when divisive zero-sum thinking prevails.

I’m convinced that Obama holds himself to a higher moral standard than the typical politician, and think that this speech was proof of that. But he guts his own aspirations when he stops short and preaches conflict at the point where preaching unity is no longer expedient.

The Supply-Side Consensus

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Brett Swanson points us to today’s WSJ op-ed by Nobel Prize-winning economist Robert Lucas:

In the past 50 years, there have been two macroeconomic policy changes in the United States that have really mattered. One of these was the supply-side reduction in marginal tax rates, initiated after Ronald Reagan was elected president in 1980 and continued and extended during the current administration. The other was the advent of “inflation targeting,” which is the term I prefer for a monetary policy focused on inflation-control to the exclusion of other objectives. As a result of these changes, steady GDP growth, low unemployment rates and low inflation rates — once thought to be an impossible combination — have been a reality in the U.S. for more than 20 years.

When I talked to my colleague Bill Niskanen  (former acting chairman of the CEA under Reagan) about Chait’s TNR excerpt, he told me exactly the same thing Lucas is saying. It should be pretty obvious that there is nothing discreditable or crackpot about the now-common observation that the supply-side revolution has become part of a broad consensus about macroeconomic policy among economists. Progressives who insist on going on and on about crazy supply-side tax cuts sound to me a lot like certain libertarians raving about the dangers of fiat currency. It’s the insistence on revisiting a debate that already soundly concluded, largely because of the way history panned out. The argument is even weirder the second time around, once you already know what actually happened.

Anyway, as OG supply-sider Bruce Bartlett put it:

Today, hardly any economist believes what the Keynesians believed in the 1970s and most accept the basic ideas of supply-side economics — that incentives matter, that high tax rates are bad for growth, and that inflation is fundamentally a monetary phenomenon. Consequently, there is no longer any meaningful difference between supply-side economics and mainstream economics.

This really doesn’t strike me as fertile ground for successful leftwing point-scoring.

Relatively Minor?

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So, I continue to be annoyed with Jonathan Chait’s book. Here’s the sort of thing I have in mind. Page 19:

From 1947 to 1973, the U.S. economy grew at a rate of nearly 4 percent a year — a massive boom, fueling growth in living standards across the board. During most of that period, from 1947 until 1964, the highest tax rate was 91 percent. For the rest of the time, it was still a hefty 70 percent. Yet the economy flourished anyway.

None of this is to say that those high tax rates caused the postwar boom. On the contrary, the economy probably expanded, despite, rather than because of those high rates. Almost no contemporary economist would endorse jacking up rates that high again. But the point is that, whatever the negative effect such high tax rates have, it’s relatively minor. [emphasis mine]

My response to this was: huh? Two things Chait either does not understand or takes pains to ignore: (1) the relevant counterfactual and (2) the compounding nature of economic growth. He concedes that these astronomical rates put a brake on growth — and for about a third of a century (i.e., the ’47 -’73 boom plus the following downturn until the ’8os cuts.) So what would the growth rate have been with much lower tax rates? I don’t know. Depends on how much lower, obviously. But, other things equal, higher. (Anyone know of a rigorous estimate?) And Chait agrees.

Now, if it had as much as 1 percent higher on average, that’s going to be close to the difference between GDP per capita tripling rather than doubling over that time span — which is to say, the difference between what we got and twice as much. Obviously, an additional doubling of GDP is not minor. Even were the increase in growth from lower taxes only a couple added decimals on the average growth rate, over 30 years it still would have added up to something much more than “relatively minor”. Does Chait think that something like a 20 or 30 percent higher average income in the lowest decile would have been “minor” for the poor? What if that amount was larger than all the money actually spent on poverty over that period?

U.S. GDP per capita is now about 30 percent higher than much of Europe’s. There is good evidence that this has to do with incentives to work, definitely including tax rates. Is this difference “relatively minor”? What do you suppose Chait would need to know to admit that the effects of high tax rates on growth and well-being are “major”?

Almost Nothing Rotten in Denmark

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My colleague Dan Mitchell complains that Denmark’s new tax cuts aren’t deep enough. That’s his job. And he’s probably right. But, I wonder: Does Denmark’s tax policy imperil its citizens’ well-being? I imagine there are a good number of Danes upset about their astronomically high taxes, but they also must be pretty popular. Also, if you don’t mind boring, or blondes, Denmark appears to be one of the best place for human beings to live in the history of world. Look at these various rankings:

GDP per capita: 7th
Human Development Index: 16th
Economic freedom: 13th
Self-reported life satisfaction: 1st
Ease of doing business: 7th

Denmark also gets top grades (not a ranking) from Freedom House for political rights and civil liberties.

Now, I think Denmark should cut their taxes. Their GDP growth is lower than the OECD average, despite their being relatively aggressive free-traders. I doubt they’ll stay so high in all these rankings if they begin to fall behind their neighbors over time, GDP-wise.

But these high taxes and slowish growth surely have something to do with this:

Welfare state and social spending as % of GDP: 1st

which leads to:

Low income inequality: 1st

And the Danes seem to like it that way. From almost all indications, the Danish model of a free-market welfare state is a stunning success. They no doubt need to fiddle with their tax rates to keep it sustainable. But it’s certainly hard to blame them if they don’t think the cuts need to be as aggressive as Dan or I think they should be.

Also, to be clear, I don’t want the U.S. to look more like Denmark in terms of tax and social policy. I also don’t think Denmark should want the U.S. to look like Denmark. The continued viability of countries like Denmark depends on the success of countries like the U.S. But, unless one insists on being ax-grindingly ideological, you’ve got to admit that both Denmark and U.S. are huge successes in terms of human flourishing. They’ll never have our levels of innovation, we’ll never have their Gini coefficient, and you know what? That’s OK.

Also, did I say that Denmark is boring?

Claim of the Day

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Over the long run income is more powerful than any ideology or religion in shaping lives. No God has commanded worshippers to their pious duties more forcefully than income as it subtly directs the fabric of our lives.

I agree, which is why Virginia’s right, and the main debate really is between dynamists, who want growth and the transformations is inevitably creates, and stasist, who don’t. The quotation, by the way, is from Gregory Clark’s forthcoming book Farewell to Alms: A Brief Economic History of the World. This a profoundly insightful work sure to raise ire and inspire further progress. Key claim: labor quality is the difference between rich and poor. Depressing claim: Sub-Saharan Africa has largely Malthusian conditions, so success in increasing health and life-spans has decreased the average material standard of living below hunter-gatherer levels. Biggest disappointment: seems evasive on the question of the cause of variations in labor quality. Why not culture? 

Well, in Clark’s contribution to the Cato Unbound discussion of the relative importance of policy, culture, and institutions in economic development, he wrote:  

… attempts to introduce culture into economic discussions so far have been generally either ad hoc, vacuous, blatantly false, or void of testability. If culture is a key to growth, the fear is that economists will be reduced to rooting about in the intellectual undergrowth with people we hold in low esteem: qualitative sociologists and cultural anthropologists. Since we have no idea of how cultures develop, or how to change cultures, to admit the primacy of culture may be to admit the defeat of the entire economics project.

It is not surprising, then, that he does not admit the primacy of culture. I’m with my old Mercatus colleague Pete Boettke on this one.

Was the Marquis de Chastellux the First Growth Fetishist?

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From the weird and fascinating An Essay on Public Happiness, published in 1774.

If, on the contrary, there should exist a nation which, without being very numerous, possesses a great quantity of well-cultivated lands; which daily increases its agriculture, and its commerce, whilst its population doth not increase in a similar proportion; and which, in short, raises a much greater measure of subsistence, without maintaining a greater number of inhabitants, I affirm that this nation must consume specifically more than other nations; and that, here the tariff of human life is higher than elsewhere. This, then, is the surest sign of the felicity of mankind.

Chastellux was third in command of the French troops at Yorktown, corresponded with Jefferson, Adams, Washington, etc., was a protege of Voltaire, and member of the Academie Francaise. Chastellux, who was also the first volunteer to be vaccinated for smallpox (there was of course a tremendous controversy over whether we should be “playing God” by curing people of horrible diseases) may have been more of a scientific materialist than his somewhat more pious yet still very science-besotted American correspondants.

Here is my favorite passage from Chastellux’s Essay: 

Anatomy hath lifted up the veil of humanity; it hath discovered an innumerable quantity of machines, which give motion to these frivolous decorations of life, and proved to us that Moses made use of extremely bold hyperbole, when he asserted that God created man after his own image. This science, at once terrible and useful, hath taught those destructive weapons, which were accustomed to deprive us of our being, the new art of preserving it, and tracing out for them, even in our very entrails, a dark, but certin road, hath enabled the artist to remedy those disorders which he could not see.

That is, when we get over Moses’ flattering lie and realize that we are meat-machines, we can transform the knife to the scalpel and actually improve human life. Chastellux plumped for a science of politics that would increase human happiness, by which he clearly meant: consumption per capita. 

Bonus: If you’d like to know what the Enlightenment French scientific elite thought of Benjamin Franklin, here you go:

A great, and magnificent discovery was reserved for these times; and this is Electricity, the terrible effects of which have placed mankind on an equality with the gods of antiquity, whilst Franklin, like another Prometheus, acquired the art of stealing the celestial fire, and rendering it docile to his laws.

That’s a good review.     

The Moral Calculus of Climate Change

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The RealClimate guys report on a conference on the ethics of climate change. Here’s their summary of Henry Shue’s presentation:

Henry Shue, a Oxford philosopher well known for his work on such issues as the moral implications of torture and pre-emptive war, made the argument that the moral implications of not dealing with climate change should be thought of not only in terms of harm, but in terms of potential harm. Unfortunately for those of us that would like to keep burning fossil fuels at our current rate, Shue argues that uncertainty — the possibility that harm caused to future generations from anthropogenic climate change will be relatively small — does not get us out of our moral obligation to change our behavior. That is, one need only recognize that business as usual will increase the risk of significant harm – a point that almost nobody debates – for it to be clear that business as usual may be unethical.

Maybe this isn’t what Shue actually said, and surely he said rather more, but I find this pretty uncompelling as stated.

First, the idea of obligations to distantly future generations strikes me as incoherent. These are people that do not actually exist, and the people who do eventually exist is a function of what we do and don’t do now, which is surely a serious complication. Even if we can imagine determinate future persons to whom we might have duties, it remains that we stand outside the Humean circumstances of justice with them, and so don’t in fact have duties with respect to them. I can make sense of an ”intergenerational chain” conception of obligations to future generations: I have obligations to my children and grandchildren; my children and grandchildren have obligations to their children and grandchildren; etc. I think this can get us a few general principles, like “leave enough and as good for the kids,” but it’s unclear how this can undergird any kind of significant sacrifice for indeterminate far-distant beneficiaries.

Second, even if we can find some ground for obligations to far-future generations, we’d need to be established that “business as usual” will in fact be a net harm to future generations. Suppose a small reduction in future warming requires a small reduction in economic growth every year from now to then. The longer the time frame, the greater the harm to future generations from reduced growth rates. At some point, the loss in standard of living will completely swamp the gains from reduced warming. And, of course, the longer the time frame for significant warming, the less likely it will be that dislocations from warming will be serious. Gradual changes in patterns of capital investment, migration, etc. will move many people out of harm’s way, and perhaps move many other into areas that will benefit from warming. And, of course, the more rapid the rate of economic growth, the more likely it is that effective technologies that will retard warming, or mitigate its effects, will come on the scene. The allegedly obligatory deviation from “business as usual” may be in the direction of doing more to accelerate economic growth. It is by no means obvious that this isn’t the best course. 

Looking at the RealClimate summaries, it seems to me that there is a bit of a bias toward emphasizing the potential harms of warming while de-emphasizing — or even arguing down — anything that might prevent or mitigate those harms. RealClimate’s Steig and Schmidt write:

one of the commentators at the conference made the argument that it was an open question whether we had any moral obligation towards future generations for our impact on the climate, since that impact could in principle be averted (for example through carbon dioxide removal via ocean iron fertilization). This is equivalent to saying that we will not have to address the issue of climate change if we address it, an argument that has no bearing whatsoever on whether we have a moral obligation. We were a bit surprised to hear it from a philosopher since it is a tautology (usually anathema to philosophers).

Sounds like the unnamed philosopher may have been saying something close to part of what I was saying above, and it doesn’t sound like a tautology to me. It sounds to me like he was saying that if we’re thinking about the probability of harm, then we also have to take into account the probability of the emergence of technologies that would prevent that harm because, otherwise, you can’t calculate the total probability of harm. Why try to avoid the obvious force of that point? Steig and Schmidt’s reply amounts to this, as far as I can tell: If the emergence of this technology is motivated by the recognition of a moral obligation to address the issue, then it weirdly self-defeating to argue that people therefore don’t have a moral obligation to address the issue. Sure, but I truly doubt that was the argument. It is confused to talk about whether “we” do or don’t address warming. Not everyone invents or even funds new technologies. If someone or other does this in the future, whatever their motivation, and that makes the problem go away, then the problem will have gone away. If the probability of this is high enough, and we know it, then the rest of us non-inventing, non-invention-financing folk, are obviously off the hook right now. Now, I don’t know the probabilities of any of these things. And neither does Steig and Schmidt or Henry Shue.

Ed Glaeser on Utility, Freedom, and Happiness

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Harvard’s Ed Glaeser essay in this month’s Cato Unbound is fresh this morning. He says lots of interesting things, but I thought I’d pick out this bit, which concerns my pet issues:

A belief in the value of liberty flows strongly through mainstream neoclassical economics. Economists frequently speak about an aim of maximizing utility levels, and this is often mistranslated as maximizing happiness. Maximizing freedom would be a better translation. The only way that economists know that utility has increased is if a person has more options to choose from, and that sounds like freedom to me. It is this attachment to liberty that makes neoclassical economists fond of political liberty and making people richer, because more wealth means more choices.

There is a recent wave of scholarship suggesting that the government can help individuals be happy by reducing their choices. While happiness may be a very nice thing, it is neither the obvious central desiderata for private or public decision-making. On a private level, I make decisions all that time that I expect to lower my level of happiness, because I have other objectives. On a public level, I can’t imagine why we would want to privilege this emotion over all other goals. A much better objective for the state is to aim at giving people the biggest range of choices possible, and then let people decide what is best for them.

Excellent. I sometimes call Glaeser’s argument, and arguments like it, ”the economist’s folk theorem for the morality of growth.” You end up with things like the “Easterlin Paradox,” if you get confused about the meaning of “utility” and think bigger choice sets are supposed to entail greater happiness. But Glaeser isn’t the least bit confused. I find his version of the economist’s folk theorem enormously compelling.

Rodrik on Procedural Fairness and Trade

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Harvard economist Dani Rodrik has joined the blogosphere. Welcome! I’m glad, because he seems like a thinker well worth disagreeing with. For instance, in this post on why people get riled by economic dislocations caused by trade, but not by technology, Rodrik writes:

[Economists conventionally] do not ask whether the trade opportunity involves an exchange that most people would consider unacceptable if it took place at home. So it is immaterial to our story if the gains from trade are created, say, by a company shutting down its factory at home and setting up a new one abroad using child labor. . . .

The thought experiment clarifies, I think, why the archetypal man on the street reacts differently to trade-induced changes in distribution than to technology-induced changes (i.e., to technological progress). Both increase the size of the economic pie, while often causing large income transfers. But a redistribution that takes place because home firms are undercut by competitors who employ deplorable labor practices, use production methods that are harmful to the environment, or enjoy government support is procedurally different than one that takes place because an innovator has come up with a better product through hard work or ingenuity.

 

I think Rodrik is either thinking too hard or not hard enough. First, I suspect many people don’t really grasp how it is that the surplus from trade is increased by either comparative advantage or technological advance, so a change in the allocation of the surplus intuitively strikes these people as involving a new winner and a new loser. The main concern, then, is who the winner is: us or them.

 

The key word in Rodrik’s anaylsis is “home” and the key phrase is “home firms,” members of our national coalition. If you watch Lou Dobbs for about five minutes, you’ll see that the animating emotional force behind his protectionism is simple in-group/out-group coalitional solidarity. If it turns out that the other, who is so much poorer than us, happens to employ labor practices less luxurious than ours, or pollutes at a higher rate than we do, then so much the better for illustrating and reinforcing the differences between the enlightened at home and those miserable, dirty, slave-driving foreign savages who want to steal our jobs and undermine our way of life. Never mind if their next best alternative to the factory is worse for them. Never mind that they are making the same kind of trade-off between growth and environmental quality we made at a similar stage of development. Because, not to put too fine a point on it, we don’t actually care about them.

 

The “archetypical man in the street” doesn’t blink in the face of technology-driven distributional changes not because those changes are less procedurally unfair, but because there is no apparently competing out-group against which to galvanize visceral coalitional sentiments. Different states within the U.S. have different labor laws and environmental regs. When a firm in one state is undercut by a firm in another state, the difference in regulatory environments is often a part of the story. But this tends not to get anyone keyed up about “procedural fairness,” and I think that’s largely because Minnesotans don’t see Oklahomansthe same way Lou Dobbs’s American audience sees the Chinese — as a threat. So there is no need to dress up tribal ugliness in the language of fairness.

 

Learning to “not ask whether the trade opportunity involves an exchange that most people would consider unacceptable if it took place at home,” is part of moral progress, not moral blindness, because our judgments of what is “acceptable at home” are myopic, reflecting our constraints, and the tastes that flourish within them, not theirs. But it is the constrainsts and desires of the people actually entering into the exchange that matter. If we aspire to be cosmopolitan humanitarians, instead of narrowly parochial self-serving moralizers, we will not attempt to see their choices through the lens of our circumstances. No doubt many people consider it “unacceptable” to exchange sex for money, because they cannot imagine any circumstances in which they would find that anything but degrading. But a failure of sympathy and moral imagination is not the way to a winning moral argument.