[MrBill]

We have seen these type of questions debated in the context of peak oil and the morality of a culture of consumption, so it looks like this book may be of interest to many regular posters here? Here is the write-up from The Economist.

$this->bbcode_second_pass_quote('', '[')b]Why the rich must get richer Nov 10th 2005, From The Economist print edition:
Do industrial countries care too much about growth? No, they ought to care more
The Moral Consequences of Economic GrowthBy Benjamin M. Friedman:
Knopf; 592 pages; $35

DEBATES about economic growth usually turn on the tension between material benefits and moral drawbacks. Rising living standards are fine in themselves, but the endless quest for them tends to be morally compromising—or so goes a commonly expressed point of view.

Anti-globalists and other critics of capitalism press the point hardest, but even proponents of growth often cast the issue this way. Growth is worth having, especially in the developing countries, where poverty kills people, but in the rich world, the case is less clear. After a certain point, the pursuit of more wealth may be futile and morally enervating, especially if it burdens other people and future generations. There is more to life, liberty and the pursuit of happiness than a faster car and an iPod nano.

Benjamin Friedman, a professor of economics at Harvard University, would doubtless agree with much of this—but not with the recurring contrast that is drawn between material benefits and moral costs. “The Moral Consequences of Economic Growth” is a thorough, historically detailed, accessible exploration of an argument that was made (as Mr Friedman points out) by Adam Smith in the 18th century, and subsequently neglected. A society experiencing economic growth is likely to be happier and more successful than another that is not, even if the no-growth society has achieved a higher (but stagnant) standard of living. In Smith's words, it is “in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the great body of the people seems to be the happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state.”

Mr Friedman argues that conventional thinking about economic growth is too narrow: it neglects its moral and political benefits. “The value of a rising standard of living lies not just in the concrete improvements it brings to how individuals live but in how it shapes the social, political and ultimately the moral character of a people.” Growing prosperity, history suggests, makes people more tolerant, more willing to settle disputes peacefully, more inclined to favour democracy. Stagnation and economic decline are associated with intolerance, ethnic strife and dictatorship.

It is not obvious that this should be true, so why has this tended in practice to happen? Mr Friedman's explanation is that people's sense of well-being is essentially relative. They become accustomed to any fixed standard of living, rich or poor. They are happiest if they feel their standard of living is rising (something that, in principle, all members of a society can experience at once), or if they feel that they are better off than their peers (which is divisive and not an aspiration that everyone can realise at once).

The key thing is the way these two standards of comparison—the potentially harmonious and the socially self-defeating—interact. If people are becoming better off relative to their own past standard of living, they will care less about where they stand in relation to others. If they are not growing better off relative to their own past standard of living, they will care more about their placing in relation to others—and the result is frustration, intolerance and social friction. Growth, in short, has moral as well as material benefits.

This, as the author notes, has an intriguing implication. Throughout the book, Mr Friedman gives due emphasis to the role of economic externalities, such as pollution. He also emphasises that economic policy needs to take account of these if growth is to provide the maximum social and economic benefit.

But if he is right about the moral benefits of economic growth, then growth itself involves an externality—not a negative one, like pollution, but a positive one. The material benefits of growth, chiefly in the form of extra goods and services, are priced in the market; the social and political spin-off is not. Left to their own devices, market forces will therefore provide too little growth. Adam Smith does not have it all his own way. In principle, the analysis favours a range of pro-growth interventions.

The book brings together an absorbing and unusual mixture of material. It ranges over economic principles; empirical material to support those arguments; the history of ideas (the notion that economic growth is morally tainted is far from new); historical accounts of growth and political change in America and Europe; and discussion of ethics and economic development, with particular reference to equality and the environment.

A concluding chapter looks at policies to promote growth in the United States. Much of what Mr Friedman has to say on this accords with mainstream thinking, but it no doubt bears repeating. He underlines the need to curb the fiscal deficit in order to encourage private capital formation, and discusses at length how to do this. He argues that limits on public spending and the reversal of some of the Bush administration's tax cuts will both be needed, together with changes to Social Security and Medicare. More controversially, he advocates competition among America's schools as a way to improve sagging educational standards.

These ideas for raising America's rate of growth, though mostly orthodox, are lent a strange new vitality by the rest of this unorthodox book. Rich as it is, America still needs to grow—not for faster cars and iPods, but to “find the energy, the wherewithal, and most importantly the human attitudes that together sustain an open, tolerant and democratic society.”

The Moral Consequences of Economic Growth.By Benjamin M. Friedman.
Knopf; 592 pages; $35

[mark]

So, so much to say! However, to challenge a professor who has written such a book requires a lot of thought and effort. I'll just say now that he has his head so far up his ass it appears he hasn't drawn a breath of fresh air in years. Coincidentally, I've been working on such a topic for a while now and hope to post soon.

Conventional thinking itsn't going to get us out of the mess we're in.

[CARVER]

I haven't read this book, so please correct me if I'm wrong:

It seems he says that economic growth involves externalities, both positive and negative ones. Usually the negative ones (like pollution) get a lot of attention, it seems the writer wants to show that there are also positive ones.

I agree with this and it just shows that the economy (economic growth) focusses only on a subset of capital: Financial and Physical capital, and it ignores other forms of capital: Social and Natural capital. Ofcourse in the real world they do count. Bernard Lietaer goes into this in his book The Future of Money. (It is also mentioned in this paper, starting on page 8: How a Dual Currency supports Cultural Stability)

So it seems the writer thinks that economic policy needs to take account of these externalities to provide the maximum social and economic benefit. Well ofcourse you need to take these into account when you try to achieve these benefits in reality instead of just in our simplified economic model of the world! It seems the writer proposes to do this by all sorts of government policies that will intervene in the economy (markets).

He thinks that economic growth is needed to remain a tolerant, peaceful, democracy. (I think it is questionable whether the US is a tolerant, peaceful, democracy at the moment). I think we are happier when there is progress and in those times we might not take a close look at the rules of the game we play, because we don't care at that time. Economic growth can result in progress, but where does it say that the only way to get progress, is to increase consumption (economic growth)?

[MrBill]

$this->bbcode_second_pass_quote('', 'E')conomic growth can result in progress, but where does it say that the only way to get progress, is to increase consumption (economic growth)?

[CARVER]

$this->bbcode_second_pass_quote('MrBill', 'C')arver you equate growth with consumption, but in a value based society growth can equally be wealth creation used for quality of life issues (clean air, clean water, walkable communities, car free zones, green areas like parks, etc.) rather than consumerism.

[Petrodollar]

I actually bought The Moral Consequences of Economic Growth earlier this month, but I have not yet had the time to begin reading it. (At 600 pages, it looks a little imposing sitting on my desk...but I'll start reading it next month on an upcoming international flight).

One other book on a related topic that I want to read is by John Ikerd, Sustainable Capitalism: A Matter of Common Sense. I heard Mr. Ikerd speak back in Sept. at the Community Solutions Peak Oil conference in Ohio. He was inspiring, and I subsequently had lunch with him. I am quite impressed with his vision of a "moral economic system" that takes into account the ecological limitations of the biosphere. Here's the link for those interested:

http://www.amazon.com/exec/obidos/tg/de ... s&n=507846

So, hopefully within the next 2 months I can find the time to read both Friedman's and Ikerd's books about a "moral" economic system. I'll post some review comments at that point.

[gg3]

The review mentions in passing, "If people are becoming better off relative to their own past standard of living, they will care less about where they stand in relation to others. If they are not growing better off relative to their own past standard of living, they will care more about their placing in relation to others—and the result is frustration, intolerance and social friction."

Translation:

Giving you a few more toys every year is a way of distracting you from realizing that you're being screwed.

And that, my friends, is probably a good part of the game, right there.

---

This also sounds remarkably like what happens in drug addiction:

First comes tolerance: the need for a steadily increasing dose to get the same high. Then comes addiction: can't give up the crap no matter how much harm it's doing. Eventually there is a risk that the trend-line of the increasing tolerance, will cross over the threshold of overdose.

So, just like a drug addict, the economy has to keep straining for "more" and "more" and "more," until it ODs and crashes.