Ben Friedman's, "The Moral Consequences of Economic Growth"

My review of Ben Friedman's The Moral Consequences of Economic Growth http://www.amazon.com/exec/obido/asin/0679448918/braddelong00 is up at Harvard Magazine http://www.harvardmagazine.com/:

Growth is Good: An economist's take on the moral consequences of material progress; by J. Bradfold Delong

Economists have always been very good at detailing the material consequences of modern economic growth. It makes us taller: we are perhaps seven inches taller than our preindustrial ancestors. It makes us healthier: babies today have life expectancies in the seventies, not the twenties (and more than half that improvement is not directly related to better medical technology, narrowly defined). It provides us with leisure: eight-hour workdays (rather than “Man’s work is from sun to sun, and woman’s work is never done.”) It provides us with enough clothing that we are not cold, enough shelter that we are not wet, and enough food that we are not hungry. It provides us with amusements and diversions, so that there is more to do in the evenings than huddle around the village campfire and listen yet again to that blind poet from the other side of the Aegean tell the only long story he knows—the one about Achilles and Agamemnon. As time passes, what were luxuries become, first, conveniences, and then necessities; what were utopian dreams become first luxuries and then conveniences; and what was unimagined even in wild fantasy becomes first utopian dreams and then luxuries.

Economists have been less good at detailing the moral consequences of economic growth. There are occasional apothegms: John Maynard Keynes observed that it is better for a man to tyrannize over his bank balance than his fellows (a rich society has an upper class that focuses on its wealth as power-over-nature, rather than on its power as power-over-people). Adam Smith wrote about how wealth made it attractive for the British aristocracy to abandon their feudal armies and private wars and move to London to take up positions in society and at court. Voltaire (who not even I can claim was an economist) observed that people who in other circumstances would try to kill each other for worshipping the wrong god (or the right god in the wrong way) were perfectly polite and civil when they met each other as potential trading partners on the floor of the London Exchange. Albert Hirschman (who is an economist) wrote a brilliant little book, The Passions and the Interests, about the eighteenth-century idea that commercial society made humans “sweet”: polite, courteous, and civilized, viewing one another as potential partners in mutually beneficial market exchanges, rather than as clan members to be helped, clan enemies to be killed, or strangers to be robbed. But focus on the moral consequences of economic growth has—from the economists’ side, at least—been rare.

Benjamin M. Friedman ’66, Jf ’71, Ph.D. ’71, Maier professor of political economy, now fills in this gap: he makes a powerful argument that—politically and sociologically—modern society is a bicycle, with economic growth being the forward momentum that keeps the wheels spinning. As long as the wheels of a bicycle are spinning rapidly, it is a very stable vehicle indeed. But, he argues, when the wheels stop—even as the result of economic stagnation, rather than a downturn or a depression—political democracy, individual liberty, and social tolerance are then greatly at risk even in countries where the absolute level of material prosperity remains high....

Consider just one of his examples—a calculation he picks up from his colleague Alberto Alesina, Ropes professor of political economy, and others: in an average country in the late twentieth century, real per capita income is falling by 1.4 percent in the year in which a military coup occurs; it is rising by 1.4 percent in the year in which there is a legitimate constitutional transfer of political power; and it is rising by 2.7 percent in the year in which no major transfer of political power takes place. If you want all kinds of non-economic good things, Friedman says—like openness of opportunity, tolerance, economic and social mobility, fairness, and democracy—rapid economic growth makes it much, much easier to get them; and economic stagnation makes getting and maintaining them nearly impossible.

The book is a delight to read, probing relatively deeply into individual topics and yet managing to hurry along from discussions of political order in Africa to economic growth and the environment, to growth and equality, to the Enlightenment thinkers of eighteenth-century Europe, to the twentieth-century histories of the major European countries, to a host of other subjects. Yet each topic’s relationship to the central thesis of the book is clear: the subchapters show the virtuous circles (by which economic growth and sociopolitical progress and liberty reinforce each other) and the vicious circles (by which stagnation breeds violence and dictatorship) in action. Where growth is rapid, the movement toward democracy is easier and societies become freer and more tolerant. And societies that are free and more tolerant (albeit not necessarily democratic) find it easier to attain rapid economic growth.

Friedman is not afraid to charge head-on at the major twentieth-century counterexample to his thesis: the Great Depression in the United States. Elsewhere in the world, that catastrophe offers no challenge to his point of view. Rising unemployment and declining incomes in Japan in the 1930s certainly played a role in the assassinations and silent coups by which that country went from a functioning constitutional monarchy with representative institutions in 1930 to a fascist military dictatorship in 1940—a dictatorship that, tied down in a quagmire of a land war in Asia as a result of its attack on China, thought it was a good idea to attack, and thus add to its enemies, the two superpowers of Britain and the United States. In western Europe the calculus is equally simple: no Great Depression, no Hitler. The saddest book on my shelf is a 1928 volume called Republican Germany: An Economic and Political Survey, the thesis of which is that after a decade of post-World War I political turmoil, Germany had finally become a stable, legitimate, democratic republic. And only the fact that the Great Depression came and offered Hitler his opportunity made it wrong.

In the United States, however, things were different—and not favorable to Friedman’s broad thesis. The 1930s were an extraordinarily painful economic shock to this country, but also a decade during which our nation strengthened its commitment to the liberal values that are its best nature. Admittedly, things might have gone otherwise: consider Huey Long in Louisiana, Father Coughlin over the airwaves, California’s treatment of Depression-era migrants from other states that we read about today only in The Grapes of Wrath, and the white-hot hatred for Roosevelt as a class traitor that puts today’s shrill, unbalanced critics of Bush and Clinton in the shade. (Up until his dying day six months ago, my 98-year-old grandfather would still say the country was lucky to have survived FDR.) All these examples show us signs of an America that could have gone the other way in the 1930s. Yet, as Friedman writes, “America during the Great Depression strengthened its commitment to these positive values [of openness, tolerance, and democracy], and, moreover, did so in ways that proved lasting.” The New Deal was a:

chaos of experimentation...to mobilize the effective energy of government to spread economic opportunity as widely as possible—to include those whom birth and the tide of events had left out of the distribution of America’s economic dividends. Rather than seeking scapegoats to exclude...the route America took in the 1930s was deliberately pluralist and inclusive, seeking input and participation from a more diverse collection of constituencies than ever before. And the intent of all this political activism was not just restored economic prosperity but more equal economic opportunity.

The line I use in my American economic-history lectures starts by suggesting that before the Great Depression, America’s rural, small town, and urban (and overwhelmingly Protestant) middle classes—farmers, druggists, merchants, and so forth—did not really believe that they had interests in common with the non-white rural and the not-quite-white (and Jewish and Catholic) urban-immigrant working classes. The Great Depression impoverished enough people who thought they had it made to convince enough of the middle class that they had enough interests in common with the working class to make it worthwhile to push for equality of opportunity for everyone—or at least for some people who weren’t white, northern-European Protestants. This is my best guess, but it is only a guess. Friedman does not really know why the Great Depression did not make America a less democratic, less tolerant, less free country. But he does not apologize: he concludes his chapter by quoting the noted Harvard economic historian Alexander Gerschenkron—“Historical hypotheses are not...universal....They cannot be falsified by a single exception.”

Friedman has not written his version of economic history and moral philosophy just for the sake of antiquarians like me who like to read about the strange and faraway places that are our own past. He takes historical patterns and draws from them immediate and powerful lessons for the present.

Consider China. There are those today in Washington, D.C., who look forward to a future in which China is America’s enemy: they believe it will in some way increase our “national greatness” to wage a new Cold War in Asia—albeit against an enemy weaker than Stalin’s Soviet Union was. There are those in Vice President Cheney’s office who think that trade with China is a bad idea: it creates a pro-China lobby that will stop any attempts by the United States to slow down China’s growth and acquisition of technology. Better, they think, to try to keep China as poor and barefoot as possible for as long as possible.

From Friedman’s perspective—and from mine—this is simply insane. In all likelihood, China a century from now will be a full-fledged post-industrial superpower whatever the policies of the United States. Do you want to maximize the likelihood that that superpower will have a representative government presiding over an open, free society? Then work to maximize economic growth, says Friedman. (And I would add: Does it really improve the national security of the United States for schoolchildren in China to be taught that the United States sought to keep them as poor as possible for as long as possible?)

In fact, the China policy of the Clinton administration was to do whatever we could to speed China’s growth in the expectation that rapid economic growth will introduce the political cuckoo’s egg of democracy into the nest. A rapidly growing, prosperous middle class will be interested in liberty and opportunity, and will be a much more powerful force for democratization and personal freedom in China than a battalion of lecturing neoconservative think-tanks or a host of remotely guided cruise missiles.

Consider the developing world more broadly. Friedman is—as I am—a card-carrying neoliberal. We economists do not understand very much about how knowledge of modern technologies and effective organizations and institutions diffuses from region to region around the globe. We do know that it diffuses appallingly slowly: there are still three billion people throughout the world whose lives are largely preindustrial (even if theyare far above the Malthusian poverty in which most of our preindustrial ancestors lived). We suspect that maximizing contact—economic, social, and cultural—is a powerful way to transfer ideas and practices. Hence the neoliberal imperative: do whatever you can to maximize economic growth in the developing world, and hope that rapid growth generates in its train the strong local pressures for social, environmental, cultural, and political advance that are needed if non-economic forms of progress are to be stable and durable.

There is a criticism of the neoliberal view that holds that higher material incomes cannot be the cure to poverty, for poverty is also a lack of voice in society, a lack of security in one’s position, and a lack of respect. With all this Friedman agrees. But he adds that faster material progress is the best way to generate pressures to produce voice, security, and respect.

Hence the neoliberal imperative: lower barriers to trade and contact; lower barriers of all kinds; lower barriers in the expectation that faster economic growth will itself generate countervailing pressures that will undo and cure the bad social and distributional side-effects of faster growth. Friedman’s reading of the moral consequences of economic growth provides a powerful piece of support to this neoliberal imperative. (Support so powerful, in fact, that Joseph E. Stiglitz, our Nobel Prize-winning non-neoliberal friend, has an attack on The Moral Consequences of Economic Growth in the November-December 2005 issue of Foreign Affairs.)

Consider the United States today. For a generation now, the benefits of economic growth have been concentrated in those slots in American society that are at or near the top. To the extent that any of America’s working class is richer today in inflation-adjusted terms than the nation’s workers were in the early 1970s, it is because today’s households have fewer children and a greater proportion of their members out earning money. America’s middle class today does live better than the middle class lived in 1970 (and a bunch of the children of the 1970s working class are in today’s middle class). But today the gap between America’s middle class and its upper class yawns extremely wide, at levels not seen since before the stock market crash of 1929.

Friedman is very worried that unequally distributed prosperity is not really prosperity at all. During the past generation we have seen the U.S. government place its thumb on the scales on the side of making the distribution of income and wealth in America more unequal. Some of this has been for reasons of economic efficiency: withdrawing the regulatory umbrellas that allowed some unions to turn blue-collar jobs into occupations with middle-class salaries, or reducing tax rates while eliminating loopholes. Some has been for reasons of moral purity: the replacement of the idea that being a single mother raising children was an important social task that deserved support with the idea that single mothers ought to work. Some is simply a naked wealth grab by the politically powerful.

What will the moral consequences of unequally distributed prosperity be? Friedman fears, and perhaps for good reason, that they will resemble the consequences of economic stagnation. People who feel that they are living no better, or not much better, than their parents will search for enemies: Hollywood writers, foreigners, people of “loose” morals, and Harvard graduates. And America will become a less free and less democratic society. The argument follows the lines of the argument in Thomas Frank’s What’s the Matter with Kansas? Those for whom the American market economy is not delivering increasing prosperity do not reach for the right answer: policies to strengthen the safety net, provide security through social insurance, and improve opportunity through better education. Instead, they reach for the wrong answers: closing down society and denouncing enemies—anti-Hollywoodism as the social democracy of fools, one might say.

I find myself more optimistic. This is not to say that I disagree with the political program for America today that can be drawn out of Friedman’s book: the pro-growth, pro-opportunity, pro-social-insurance policies of today’s national Democratic Party are mother’s milk to me. But I do not think we look forward to the generation of stagnation in the working and the middle classes that Friedman fears. Yes, the past generation has been a distributional disaster for America. Yes, at some point in the future the “outsourcing” of jobs made possible by modern telecommunications and computer technologies will produce enormous structural change in the American economy. But the population of the United States is growing slowly. The desirability of the United States as a place in which to locate economic activity is growing rapidly: the underlying engine of technological progress is spinning faster than it has in at least a generation. I see rising working- and middle-class incomes in America during the next generation generating what is in Friedman’s terms a virtuous, not a vicious, circle.

Comments

[Rebecca Allen, RN, PhD]

The virtuous circle you suggest won't happen without a radical change in government. As long as the current Republican party stays in power, they will ensure that all gains go to their corporate buddies.

[BroD]

"As long as the current Republican party stays in power, they will ensure that all gains go to their corporate buddies."

Well, then, let's kick their sorry asses out.

[david]

"Friedman’s reading of the moral consequences of economic growth provides a powerful piece of support to this neoliberal imperative. (Support so powerful, in fact, that Joseph E. Stiglitz, our Nobel Prize-winning non-neoliberal friend, has an attack on The Moral Consequences of Economic Growth in the November-December 2005 issue of Foreign Affairs.)"

It's great to have a theory for which refutation serves as proof. So strong!

Madrick's pretty polite in the NYRB, but he makes it sound like Friedman's Great Depression problem is greater than you think it is. I look forward to reading the book.

Anyway, I thought Thomas Frank dropped to the bottom of the pile when he pointed out Kerry was a really rich plutocrat. When did he rise back to the top?

[JO'N]

"J. Bradfold Delong"??? It's spelled that way in the print version by-line, too. Oddly, the short author bio at the end of the article has it spelled correctly.

[Walt]

Why isn't the data equally compatible with the thesis that economic growth preserves the status quo government? That would imply a much different destiny for an ever-growing China.

[kaleidescope]

All of what you project assumes that the carrying capacity of the earth will not be reached, and soon. By carrying capacity, I mean the planet's ability to continue carrying the kind of prosperity neo-liberalism creates. As ocean currents change, as permafrost melts and Siberia exhales a giant burp of methane, and grain belts disappear in countries armed with nuclear weapons -- consequences, if ever there were any, of neo-liberalism -- will the trends toward longer life, increased stature and political freedom you project actually continue?

Will neo-liberalism be better able to mediate the approaching ecological meltdown than the Easter Islanders' belief in bigger sculpture-idols was at mediating the loss of the last giant palm tree?

[P.M.Lawrence]

Even that idea that economic growth has helped modern living conditions is largely illusory. Those comparative figures, e.g. on height and life expectancy, are accurate but omit the fact that they are comparing to the effects of early industrialisation and the later agricultural period. The recent improvements have more or less put us back in the life style measurables of, say, the pre-Russian Aleuts or the pre-Maori Chatham Islanders. What is more, the known costs of those lifestyles are associated with their sustainability, and we simply don't yet know what costs we ought to factor in for that for our own modern lifestyles.

[Ralph]

The test for the (trickle down) efficacy of neo-liberalism on moral behavior especially a strengthening of democracy will more easily be determined outside of the US. The evidence so far has been mixed. India's democratic heritage is attributable to its tutelage under the British Empire but this has not been uniformly the case in Africa or the Middle East (Iraq is a case in point having retrogressed since the fifties and hence the need for a booster phase under direct US/British tutelage). East Asia has responded the best to economic stimulation with many adopting democratic institutions after decades of authoritarian rule. China will be a question mark for many more decades to come. Eastern Europe is responding well after its conversion from Soviet satellites to neo-liberal economic regimes but it is too early to say how durable this will be. Latin America is a very mixed picture. Early attempts to make the transition to successful neo-liberal economies have failed badly almost everywhere except Chile. Democratically elected governments are floundering in many countries. My view is similar to Stiglitz's in that I do not think neo-liberalism is well thought out in a rigorous economic sense but is more of a wishful hopeful ideology. Thus it is no surprise that it works in some cases but not in others. As a liberal, I strongly agree that a better distributed income level and the emergence of a strong middle class is basic to the "moral" rise of democracies and perhaps this is why in lands where racial conflicts are historically strong (a non-economic consideration) like Latin America, economic ideologies alone are unlikely to have "morally" good outcomes.

[still working it out]

I completely agree with the thesis that rising material wealth is what drives our rising moral standards. To that end the failure to raise living standards for the past 20 years is the cause of the increasing intolerance and decreasing compassion and social capitol we see today.

I don't think the left-wing critics of neo-liberalism disagree with the thesis either. But they would argue that blind neo-liberalism is not the best or only way to create morality producing economic growth. The counter-argument against neo-liberalism is it actually produces quite poor economic growth a lot of the time. Secondly, it usually produces unevenly distributed growth which does not have the morality raising effects we are talking about here.

The frustration of the critics of neo-liberalism is provoked by the kind of thinking reflected in this quote.
"But I do not think we look forward to the generation of stagnation in the working and the middle classes that Friedman fears. Yes, the past generation has been a distributional disaster for America.The desirability of the United States as a place in which to locate economic activity is growing rapidly...
...I see rising working- and middle-class incomes in America during the next generation generating what is in Friedman’s terms a virtuous, not a vicious, circle."

How I interpret this statement:
"I know how to make economic growth. I have no idea why neo-liberal policies result in increased inequality. I believe that growth will eventually be distributed but I refuse to explain how or why."

[Thomas]

Friedman presented this book in an interesting speech at the World Bank a while back. You can watch it at http://info.worldbank.org/etools/bspan/EventView.asp?PID=1649&EID=800

[Ari]

Ralph

"India's democratic heritage is attributable to its tutelage under the British Empire but this has not been uniformly the case in Africa or the Middle East (Iraq is a case in point having retrogressed since the fifties and hence the need for a booster phase under direct US/British tutelage)."

What we really need then is a return to colonialism to foster democracy. What offensive self-serving rubbish. The British taught India about repression, which is what colonialism was about.

[Ari]

Possibly the comments on the benign effects of colonialism were meant in sarcasm, but that should be clear. Gandhi certainly did not find the British teaching Indians about the meaning of democracy.

[Bostoniangirl]

The national Democratic party does not talk enough about the importance of social insurance. It's not mother's milk to me for that reason. They need to tackle health care in a big way. Genetically, I got good genes and some bad health. Outside of a few states I can't purchase health insurance. This is a huge problem. With decent healthcare I'm a productive member of society; without it, I'm not.

[anne]

Actually John Kerry repeatedly offered a fine proposal for catastrophic helath care coverage that would have allowed for substantial cost reductions in health care policies, but what was covered were issues about the war and domestic policy was neglected. Democrats have indeed been pushing for broader health care coverage.

[a different chris]

>We suspect that maximizing contact—economic, social, and cultural—is a powerful way to transfer ideas and practices.

Or not. See Americans, Native.

[anne]

http://www.nytimes.com/2004/07/09/opinion/09KRUG.html?ex=1247198400&en=03486596e9b6302d&ei=5090&partner=rssuserland

July 9, 2004

Health Versus Wealth
By PAUL KRUGMAN

Will actual policy issues play any role in this election? Not if the White House can help it. But if some policy substance does manage to be heard over the clanging of conveniently timed terror alerts, voters will realize that they face some stark choices. Here's one of them: tax cuts for the very well-off versus health insurance.

John Kerry has proposed an ambitious health care plan that would extend coverage to tens of millions of uninsured Americans, while reducing premiums for the insured. To pay for that plan, Mr. Kerry wants to rescind recent tax cuts for the roughly 3 percent of the population with incomes above $200,000.

George Bush regards those tax cuts as sacrosanct. I'll talk about his health care policies, such as they are, in another column.

Considering its scope, Mr. Kerry's health plan has received remarkably little attention. So let me talk about two of its key elements.

First, the Kerry plan raises the maximum incomes under which both children and parents are eligible to receive benefits from Medicaid and the State Children's Health Insurance Program. This would extend coverage to many working-class families, who often fall into a painful gap: they earn too much money to qualify for government help, but not enough to pay for health insurance. As a result, the Kerry plan would probably end a national scandal, the large number of uninsured American children.

Second, the Kerry plan would provide "reinsurance" for private health plans, picking up 75 percent of the medical bills exceeding $50,000 a year. Although catastrophic medical expenses strike only a tiny fraction of Americans each year, they account for a sizeable fraction of health care costs.

By relieving insurance companies and H.M.O.'s of this risk, the government would drive down premiums by 10 percent or more.

This is a truly good idea. Our society tries to protect its members from the consequences of random misfortune; that's why we aid the victims of hurricanes, earthquakes and terrorist attacks. Catastrophic health expenses, which can easily drive a family into bankruptcy, fall into the same category. Yet private insurers try hard, and often successfully, to avoid covering such expenses. (That's not a moral condemnation; they are, after all, in business.)

All this does is pass the buck: in the end, the Americans who can't afford to pay huge medical bills usually get treatment anyway, through a mixture of private and public charity. But this happens only after treatments are delayed, families are driven into bankruptcy and insurers spend billions trying not to provide care.

By directly assuming much of the risk of catastrophic illness, the government can avoid all of this waste, and it can eliminate a lot of suffering while actually reducing the amount that the nation spends on health care....

[Adam Sacarny]

still working it out:

My guess is that Brad believes that the economy is now capable of sustaining more productivity growth than we used to think possible. Since productivity growth is the long run sustainable engine for economic growth, and wages are a function of productivity...

Absent constant decreases in the labor share of national income, sustained productivity growth will lead to real wage growth. If we are now capable of supporting 3% productivity growth a year, things could be looking up for workers.

Adam

[Barry]

Adam: "Absent constant decreases in the labor share of national income, sustained productivity growth will lead to real wage growth. If we are now capable of supporting 3% productivity growth a year, things could be looking up for workers."

That's a pretty big assumption to start off with, considering that, IIRC, labor's share of national income has been declining for a while now.

[UberIcarus]

It seems to me that the neo-liberal strategy will be forever hit and miss in the long run. Primarily because it does not take into account GDP power disparity between the OECD countries and those countries they're trying to "enlighten" as it were.

While I agree that barriers should be lifted to trade, many of these countries have far from competitive industries, in the global sense. And are especially subsceptible to capital and financial predidation and speculation. Ergo, I think the emphasis needs to be more on transitional "fair trade" (in the sense of balancing the infancy of industry, development and technical skill, not as in "fair-trade coffee) rather than free trade (loosely defined as slaughtering of social services and the opening of all economic spheres to foreign capital in the name of "fiscal discipline").

I think the sheer economic (and thus real power) disparity between OECD and developing countries belies any attempt at "free-trade" to be anything but free. Can a serf equally and mutually deal with a lord?

It is noteable that the asian economies did so well primarily by rejecting certain wide portions of neo-liberal philosophy. China for instance has advanced primarily through export subsidies and capital stimulus. Of course, if it continues along that path too long it will likely create a bloated beurocratic morass. But in the meantime it jumped to the 6th largest economy. It shows that at least some protectionism and/or subsidy is warranted to help gain equal footing with a larger economic power.

Personally I think South America would be MUCH better off if it organized a trade pact and federation (ala the EU), before it entered into any "free-trade" agreements with the U.S.

Just my 2 cents. And Mr. Bradford, I'll be seeing you in class in a few years. =P

[UberIcarus]

An Addendum: Admittedly, much of my criticism has to do with how international trade bodies (like the WTO) are structured. Where for instance voting power is defined by relative GDP. Which essentially means that those allready well endowed with economic strength and vitality get to dictate the terms to those who are less fortunate.

Essentially other countries have no option but to agree to terms then and hope they will be in a better bargaining position eventually. Otherwise they risk becoming a cuba or north korea...shut out entirely (by choice or another country's policy).

[Arun Khanna]

"Modern society is a bicycle, with economic growth being the forward momentum that keeps the wheels spinning. As long as the wheels of a bicycle are spinning rapidly, it is a very stable vehicle indeed."
I would say modern society in a developed country is a bicycle. Modern society in a developing country or emerging market is more like an unicycle. One needs economic growth and a great sense of balance (for competing interest groups) to cross the threshold towards becoming a modern society like a bicycle.

[Arun Khanna]

"India's democratic heritage is attributable to its tutelage under the British Empire"
India had democratic city states nearly as old as Greek city states in modern day Bihar and northern Orissa region. That's India's democratic heritage. India's modern democracy does owe a debt to Britain's Westminister model. However once we net it out from the debt United Kingdom owes India for colonialism, India deserves at the very least to get Kohinoor diamond back from Tower of London to National Museum in New Delhi.
Also, I don't know who slick is but I like his poem. Quite creative.

[Sandwichman]

Brad Delong wrote, "(Support so powerful, in fact, that Joseph E. Stiglitz, our Nobel Prize-winning non-neoliberal friend, has an attack on The Moral Consequences of Economic Growth in the November-December 2005 issue of Foreign Affairs.)"

Brad, did you read Stiglitz's "attack" on the book? It basically consists of the reservation that, although nuanced, Friedman's message is "not, in some respects, as nuanced as I would have liked." And here's Stiglitz's closing paragraph:

"Friedman's book is thus an important antidote to the populist antigrowth movement and also to those who say that the free market is all we need. It joins a growing chorus calling for a change in the direction of U.S. economic policy -- toward achieving growth that is stronger and more sustainable. Whether or not you agree with Friedman's particular policy prescriptions, this much is clear: this kind of reasoned analysis is precisely what is necessary to put the United States back on the right track."

And you think that's an attack?

[Hinheckle Jones]

A micro perspective is needed here. Workers work if and only if they receive most of the benefits of their labour, and are allowed to enjoy those benefits. To the extent that government interferes, people quit working as hard as they might, and the whole economy goes into a slump.

If people do not have anything better to do (work) they will kill their neighbours over religious beliefs etc.

So it is a virtous circle. If people trust their government, and each other, and if the parties in question deserve the trust (questionable) then people work rather than harrass their neighbours, they treat minorities as potential customers (nicely) and all (or most people) are happy.

[mike]

Interesting post.

There should be a link to the Stiglitz article. Here it is:

http://www.foreignaffairs.org/20051101fareviewessay84612/joseph-e-stiglitz/the-ethical-economist.html

[Sandwichman]

Hinheckle Jones wrote, "If people do not have anything better to do (work) they will kill their neighbours over religious beliefs etc."

I agree this is the widespread fear. There are two alternatives to it, although they both amount to the same thing. One is to find something else that is better to do than work. The other is to take that something else and call it work. Neither has to pass through that turnstile-that-used-to-be-a-turbine called economic exchange.

[andres]

Remo: You might just want to mention that practically all of the growth since 2002 has been recovery: ie. putting the unemployed back to work and bringing unused capacity back into operation. Now that unemployment is back to late 1990's levels (which are still high) we'll see how fast Argentina grows in the next few years.

As for GDP per capita, this is as always a highly misleading indicator of economic well-being. I don't have any figures with me at this moment, but I think I can make a decent wager that _median_ income today is below what it was in 2000. Deep recessions tend to have that effect.

[Adam Sacarny]

Remo, I believe you see the same pattern in the US during the great depression, although I rarely hear someone talk about how great life was in 1935. Which is to say that GDP could be quite misleading.

(Anyway, the kind of thing that Argentina got to do -- defaulting on its gov't bonds, forcing its lenders to take a big hit -- you only get to do once. Once in a while, anyway.)

[remo@yahoo.com]

Gee , I dont know, I thought comparing The Great Depression unemployment rate with the Argentina bust of 2002/03 was sort o informative:

Argentina went from 15% to 18% and is now at 15% or so.

The US experienced 3% unemployment in the 1990s and shot up to 8 years of near or over 20% unemployment.

Krugman and Stiglitz will never write about Argentina's improvement, and for whatever reason, DeLong just deletes.

Is this suppposed to be a state secret?

[Susan Boskey]

I believe that Friedman is on track regarding the impact of economic growth or stagnation. That said, without going to the root of the problem, which is the fact of a debt-based currency that depreciates exponentially over time,(exponentially increasing the cost of living resulting in the exponential loss of purchasing power) none of his information really helps anyone. Even the boom and bust cycle of macro economics is not going to change the fact that money depreciates like your car (far greater than 1-4% touted by the government). The average American and world citizen need new guidelines for earning, spending, investing and saving if they are to maintain or regain their quality of life going forward. We need real economics for real people.

[s h a r o n]

Would someone please tell me what economic "growth" means? Can this be answered by addressing what the "economy" (quotes imply a black-box term) is doing when it is "growing"?

Do we need increasing population to have "growth"? Or do we just need more "markets" for goods that people can buy more of?

I'm not a crank and I am not intending to be flip. Friedman's entire thesis is so full of "black-box" terms, I don't really know what he's saying. This is especially rankling in his section on education and the apparent direct link between number of years of schooling, HS graduation, and liklihood of "jobs". There's way too much that must be accepted on faith here for me to understand--much less judge the veridicality of his thesis.

Thank you.

[anne]

Possibly a simple way in which to think of economic growth is "more" being produced per person; more in quantity or better in quality. When "most" of a people are able to take advantage of growth in production, then Benjamin Friedman would term growth healthy and contributing to meeting democratic ideals in which the most influential of political groups sets policy as inclusively as possible.