I hadn\’t thought of it this way

But of course, it is true:

For in Western economies, to keep the level of employment constant, with normal increases in productivity, GDP must grow by 2pc-3pc.

This is the flip side of all those arguments that increased economic wealth does not make us all happier.

We do actually know that the presence of economic growth, of increases in that wealth, does make people happier….or perhaps the correct way of putting it is that the absence of such growth makes people unhappier.

Bootle has here provided the reason why this is so. Labour productivity increases over time. Thus, if output stays static, less labour is required. So an economy with the usual rise in labour productivity but with static output (ie, the steady state economy) will have an ever increasing unemployment rate. It\’s not that difficult to see that this could lead to a tad of unhappiness.

There\’s nothing wrong with voluntary unemployment of course, another name for this is leisure. But involuntary unemployment really isn\’t a happy state.

All of which leads us to an interesting point about such a steady state economy. We sould have to find, in order to have such a steady state economy, a way of choking off any form of improvemnt in labour productivity. We would have to stop people inventing new machines, inventing new ways of employing labour which are more efficient, even, stop people launching new businesses (for many of those are indeed employing new insights into how labour can be used more efficiently).

All of which rather makes the dream of a steady state economy a fail. Can you imagine the sort of police state that would be required to root out even a new method of turnip weeding?

Quite.

So, sorry, that dream don\’t work.

4 thoughts on “I hadn\’t thought of it this way”

  1. it’s hard to say what this would me “in practice” because in practice there is probably no way of holding output constant whilst productivity is improving, but still, it’s notable that under a free market I suspect under a “no growth” scenario, we would not coordinate a widespread increase in leisure, an acceleration in the decline of working hours, as opposed to complete involuntary unemployment for some and continued long working hours for others. The former might be “welfare maximizing”, the latter, arranged by the decentralized decisions of individuals, might make us collectively less happy. Why, it’s almost an argument for central planning.

    you might like Sam Brittan on this theme:

    http://w01-0095.web.dircon.net/text101_p.html

    (n.b. some jargon pedantry – in models of economic growth, ‘steady-state’ refers to a dynamic equilibrium where output is growing at the rate of productivity growth, and certain ratios (say, capital / labour) have become constants. It doesn’t mean “no growth”)

  2. Pingback: I hadn't thought of it this way

  3. Sorry Tim, badly written. I’m agreeing with you when you say it would lead to involuntary unemployment, but perhaps where you write: “We should have to find … a way of choking off any form of improvement in labour productivity” you could add “or a way of sharing out the work so that everybody works less”

  4. I tried to use exactly Tim’s arguement to my socialist and communist fellow students in the 60’s and 70’s. They either didn’t understand the concepts or they thought I was crazy. A fter all, the Russian soviet system was so superior they informed this ignoramus!

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