Friday, September 29, 2017

A bit more from Heilbroner and Silk

Another excerpt from Leonard Silk's 1976 discussion of Robert L. Heilbroner's Business Civilization In Decline:
... in the end this mighty industrial machine spews forth so much output that it depletes the earth's resources and pollutes its environment, jeopardizing human life.

Economic growth must cease; but growth was the daemon of capitalism, and capitalism cannot survive in a nogrowth world. Without continuously increasing real income with which to buy off and pacify the lower classes, the struggle over distribution of income and wealth will intensify, nationally and internationally.
I've been doing economics since the 1970s. Untutored, yeah, but since the 1970s. And in all that time, this is the first explanation that I have seen for why growth is necessary in the capitalist system. I've heard it said a million times that growth is necessary in the capitalist system. Now I've seen it explained, once.

And I've never yet seen a careful and thorough analysis of the "growth is necessary" concept. It is always assumed to be true, whether or not you get the explanation, but there is never an analysis. Same as you get with the argument for free trade. Long as I've been interested in understanding the economy, I have never seen an analysis, no less a convincing one.

"Capitalism cannot survive in a nogrowth world." So says Silk -- expressing Heilbroner's view, I suppose.

Why can it not survive? Because capitalism needs "to buy off and pacify the lower classes", the story goes. That's not economic analysis. It's rabble-rousing.

Why can capitalism not survive in a no-growth world? Because that's how we set it up. If we set it up differently, it would work differently. If we designed economic policy for a no-growth world, we could live in a no-growth world. You see it in economic models all the time.

We're almost there now, actually. We live in an almost-no-growth world, right? And yes, things are not very good. And even I have been calling for (or predicting, actually) better growth. However, things are not very good in our no-growth world because all our policies are designed for a world of "full speed ahead" growth. Just for the record, then, the fact that economic conditions have satisfied almost no one for the past decade is not evidence that we cannot live in a no-growth world.

I can't lay it out for you today. I'm not particularly a fan of the no-growth world. I don't see it as necessary. But that's just me.

But I can lay out a parallel situation. I can lay out a no-debt-growth world:

• 1. Use credit for growth as we did, say, in the 1950s and '60s.
• 2. Use new tax incentives to accelerate repayment of the debt generated by Step 1.
• 3. Step 2 is deflationary, so the Fed should buy up some government debt.

Step 1 grows the economy; step 2 repays the debt; step 3 expands the money supply. Together these steps allow us to keep both the money-to-GDP and the debt-to-GDP ratios stable as GDP expands.

It's not magic. But it recognizes that existing policy encourages the use of credit, so that debt accumulates at an unnaturally rapid rate and reaches an unnaturally large size. It offsets that effect of policy by encouraging an unnaturally rapid repayment of debt.

Economic growth under this system is supported by credit use. Say we grow three percent. We need credit enough for that three percent. We don't need credit enough for the whole economy. We don't need to use credit for everything. We do use credit for everything, and that's the problem; but we don't have to. Let the Fed issue that money. If the economy grows 3%, let the Fed issue 3% more money by expanding its holdings of government debt. The system is essentially unchanged under the plan I describe, except the normal growth of Federal Debt held by Federal Reserve Banks is faster than before, and anti-inflation policy gets some help from the tax code.

Remember, I'm talking about encouraging the private sector to pay down debt at an accelerated rate. This doesn't have to be a punitive plan. Shouldn't be, until we can average 4% RGDP growth for a decade. Oh, and this suppression of wages to fight inflation, that has to go.

A plan similar to this, more or less, could change policy enough to make a no-growth world a pretty decent place to live.

Any question about the definitions of money and credit, see here.


Dan Lynch said...

I'm glad this subject is being discussed, but disagree with the explanation for why capitalism needs growth.

IMHO the number one reason is the stock market. What would happen to stock prices if companies announced "our revenues and profits are not growing and they never will"???

It's productivity increases.

It's population growth. The U.S. averages 1% annual population growth, guaranteeing that much GDP growth in addition to growth due to productivity.

It's inequality. Most income growth goes to the rich while the rest of us tread water.

So all those things but the big thing is the stock market. The 1% are heavily invested in the stock market so they would be the big losers if there were no growth. You and I do not need growth, we just need jobs and pensions that pay a living wage, and less inequality -- which can come from taking down the rich rather than lifting up the 99%.

The Arthurian said...

Thanks, Dan. Some good points there.

Come to think of it, the 1976 story told of the need to "pacify the lower classes". 30, 40 years later the story is just the opposite: to pacify the uppermost classes. Interesting.