Productivity Growth in a Post-Growth Society

In Robert Solow‘s (in)famous growth model, perhaps the most important part was what is now called the “Solow residual” or “Total Factor Productivity” (TFP)–the part of economic growth that cannot be explained by changes in the input of the factors “capital” and “labour”, which is, in effect, the result of technological progress. In other words, TFP is a reflection of us learning how to produce more with the same amount of input. A recurrent theme in this blog is that quantitative GDP growth is highly problematic, mainly due to the related pressures on natural ecosystems. However, even if we decide to stop growing–or, better, to stop focusing on growth–, it is not obvious that we can actually achieve it. And TFP is one of the reasons why this isn’t as simple as many in the degrowth movement seem to believe.

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A plea to our leaders

One of the (implicit) messages of my blog is that to achieve sustainability, we have first to figure out what we want as a society. The open letter below is a call for just that.

Halt and Reflect

Whether you are a national leader, a journalist, an engaged religious person, or a school headmaster – this letter is directed to all of you who have a special voice in your community.

As global citizens and scholars, we urge the world’s societal leaders, at all scales, to instigate discussions on the simple question: “What is it that we value?”

We are a group of scholars with formal academic training. Many (though not all) of us would consider themselves “next generation scientists” – that is, many of us will be senior academics in the not too distant future. A minority of us already work in senior academic positions.

Traditionally, many people chose science as a career path because they were interested in how the world works. Many insights have now been obtained on this. Young people still enter scholarly training because they want to understand the world – but increasingly…

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A Basic Income Research Programme

It is a great vision, particularly popular among the political Left: that the citizen could enjoy the freedom of doing with his life whatever she wants. Work, make arts or devote oneself to family or the community. Of course, basic income would not bring with itself the total freedom, but it would make the unconstrained choice of one’s way of living much easier. So far the assumptions, at least. It would be interesting to know, however, whether and–if yes–how this idea can become reality. For so far the vision of basic income is not much more than that–a vision. A beautiful one, but largely lacking an empirical and scientific basis.

The Case for A-Growth, Not De-Growth

It is always a very nice feeling when you find thoughts similar to yours in an influential publication. Once upon a time, some 1 1/2 years ago, I published here a text entitled Stop Debating Growth and Focus on What Is Important (yeah, I admit that titles are not quite a strength of mine). Today I read a paper by Jeroen van den Bergh, published two years ago in the Ecological Economics journal, entitled Environment versus growth — A criticism of “degrowth” and a plea for “a-growth”. To my pleasure, his credo is very similar to what I wanted to emphasize in the Stop Debating text.

Economic Possibilities for Keynes’s Grandchildren

83 years ago John Maynard Keynes, the great economist of the first half of the 20th century, wrote a short essay entitled Economic Possibilities of Our Grandchildren. Even though the word and the very discipline of futurology had not been invented yet at that time, this is exactly what Keynes engaged in. He wrote down in the essay what he thought the world would look like around 100 years later. Although there are still some 15 years left, I guess it is fair enough to assume that no great, revolutionary changes in societal or economic affairs will take place until 2030. Let us therefore take a look at Keynes’s vision, for we can learn a lot from it about our own time.

Entitlements: Why Income-Based Measures of Poverty Are Not Enough

In this blog, I repeatedly criticized the use of income-based indicators of well-being in rich countries. Probably the most important reason why their use is inappropriate is the so-called Easterlin paradox, viz. the fact that people seem not to become happier as they become richer in absolute terms (above a certain threshold level). In measuring the well-being of poor people or societies, income seems to be of much more merit. However, here also there are reasons to be sceptical. One of the main problems has been identified by Amartya Sen, who stressed that income (or, more generally, command over commodities) alone does not generate well-being if the individual in question lacks entitlements.

21st Century Enlightenment

A great animation by RSA Animate:

Limitations of GDP as Welfare Indicator

GDP (and its derivatives) is a measure of economic activity, actually. Narrowly understood economic activity, one should add. However, this does not prevent economists and policy makers from making welfare comparisons across countries and across time on its basis. The argument goes as follows: GDP is a good proxy of the consumption possibilities people have, and consumption is a good proxy of well-being/welfare. Therefore, we allegedly can use GDP per capita for comparing welfare between countries and GDP growth as an indicator of social progress within a society. This may sound compelling to many and, indeed, we are used to this rhetoric from authorities and the media. But it is wrong to assume that GDP or any of its common derivatives provides a measure of social welfare, for a number of reasons.

Stop Debating Growth and Focus on What Is Important

For years already, there is a debate ongoing about the role of economic growth (in terms of GDP and related measures) with regard to well-being and environmental sustainability. While some claim that GDP growth is a well-suited tool for economic policy-making and should not be questioned as a social indicator as well, most see this as problematic. It is widely believed that within the current economic system, economic growth causes disruptions both in social and environmental systems – in the latter particularly. But this let to another debate emerge, regarding whether GDP growth and environmental impacts can be decoupled or whether a transition to a no-growth economy is the only solution of anthropogenic environmental problems. But is this ongoing debate not detracting our attention from more real problems?

Ideas Lost in Time

The process of societal change – in attitudes, institutions, values, relationship patterns etc. – is accelerating steadily in modern societies. Their members are losing their ability to accommodate to these changes. Furthermore, since our basic needs are fulfilled, we engage more and more in competition for goods that some can have – but not all at the same time, not without serious quality deterioration at least. Moreover, we are working much to be able to pay for consumer goods that we cannot really consume because our time budget does not allow for it any more. This does not stop us from desiring even more consumer foods and from uselessly working to earn the money we need to pay for them. At the same time, whereas GDP has been growing continuously (with only minor periods of regress) for years, the satisfaction we draw from our lives has been at best stable in that time, since our aspirations change as fast as the economy (and our incomes) grows. Last but not least, this growth in production and consumption, as well as population, has led to a terrible, unsustainable level of use of Nature’s resources and services, which can in effect lead to a break down of the world economy.

What do these insights have in common? They were all made some 40 years ago, and little seems to have changed to the better – rather the contrary.

Is Happiness a Good Indicator of Quality of Life?

In 1972 the King of the Himalayan nation of Bhutan introduced a fairly new and unconventional concept of social and economic progress measurement – Gross National Happiness. It is a symbol and a manifestation of the ever more widespread belief that GDP and its derivatives (GNP, GDI, GNI etc.) don’t provide what was long thought they do – an imperfect but nevertheless sensible proxy for a nation’s well-being. However, this raises the question: is happiness a better measure. There are reasons to believe that it is not.

Jeffrey Sachs on Economic Growth and Happiness

[H]appiness is achieved through a balanced approach to life by both individuals and societies. As individuals, we are unhappy if we are denied our basic material needs, but we are also unhappy if the pursuit of higher incomes replaces our focus on family, friends, community, compassion, and maintaining internal balance. As a society, it is one thing to organize economic policies to keep living standards on the rise, but quite another to subordinate all of society’s values to the pursuit of profit. [more]

Why Economics of Climate Change?

Anthropogenic climate change is a scientific fact. It may be regarded as the greatest challenge humanity has ever imposed over itself. Yet, it is an extremely complex challenge. It has, of course, a scientific component – without the advances in science, especially in climatology (but also, e.g., physics and geology), we probably wouldn’t be aware of the problem we face. Furthermore, as Kristen Sheeran rightly notes,

[m]any will argue that, at its core, the climate crisis is about ethics, rights, and responsibilities.

But, why is there economics of climate change? Do we need it? And if yes, what for?

Living in the Over-developed World

While reading the collection of essays “Economics, Ecology, Ethics” edited by Herman Daly, in “Humanity at the Crossroads” by Paul and Anne Ehrlich I found a very interesting term – overdeveloped countries. Normally, when we speak about, say, the U.S. or Japan or the member states of the European Union, we call them “developed countries” or, as a whole, the “developed world” – in contrast to the “developing world”, consisting mainly of African, Latin American and Asian countries.

Can any country “overdevelop”, as the Ehrlichs implicitly claim? I would argue that yes: not only is this possible – it is actually the reality in many richer societies of this world. So, instead of calling them “developed”, we maybe should use the term “overdeveloped” instead.

On What Depends Happiness?

It isn’t straightforward for an economic research institute to evaluate a study on happiness. But, on the other hand, as you can read in my last post, it is a failure of modern economics to concentrate only on market efficiency and similar measures. Fortunately, there are economists who care about a broader spectrum of themes: for example the DIW (Deutsches Institut für Wirtschaftsforschung). In its new publication it evaluates a German long term study (25 years) on happiness. And they found out for which factors seem to positively affect the way we value our lives.

Efficiency vs. Well-Being

Many of today’s economists seem to forget what their actual quest are: they’re concentrating fully on efficiency of markets, instead on how to increase the well-being of societies. In this context you mostly think on the so called neoliberals, but this is a widespread disease, unfortunately.