Another couple of bozos try to invent a new economics

Usual stuff: let\’s not have growth, eh? Be all cuddly and nice to fluffy kittens instead.

And it is the usual stuff: they have no clue at all on what they\’re talking about As I commented there:.

\”Our main indicator of progress, GDP, is a measure of economic activity—of money changing hands.\”

No, it isn\’t. It\’s the value of all final goods and services produced at market prices.

For example, $1.5 trillion changes hands every day in the London foreign exchange market. This does not count as part of GDP: obviously not, for UK GDP is only £1.5 trillion for the whole year.

What is part of GDP is the commissions that the brokers charge for the money changing hands. A very much smaller number of course.

GDP simply is not a measure of money changing hands.

\”Perhaps the biggest fear that most people have when they hear \”no growth\” is \”no jobs\”, but the evidence for a relationship between economic growth and job creation is much weaker than you would expect and varies remarkably between countries. In the US, for example, a 3% increase in GDP tends to be accompanied by a 1% fall in unemployment. In France, the same amount of GDP growth reduces unemployment by only half a percent. In Japan, there is no relationship whatsoever. Clearly it is possible to break the connection between economic growth and unemployment; we just need the right economic policies.\”

That\’s a remarkably stupid comment. Without economic growth there would be ever rising unemployment. For labour productivity increases as technology advances. Average rate is 1 to 2% a year. Thus, for a static output we require 1-2% less labour each and every year. If you hold output static then there will be increasing unemployment.

Unless you\’re suggesting that no one ever be allowed to invent anything again?

You\’ve not even understood what steady state means. It doesn\’t mean static output. It means static *inputs*. So we don\’t go off and rape Gaia for ever more stuff to process: and thus the only economic growth we have is that 1-2% that comes from technological advance allowing us to create more value from our static inputs.

It\’s not a good start to a \”new economics\” if you don\’t understand the very basics of that new economics you\’re intending to write about.

Why do people do this? Even I, as the pig running capitalst neoliberal dog that I am, could write a better guide to green economics than this tosh.

22 thoughts on “Another couple of bozos try to invent a new economics”

  1. It’s well worth looking at the comment below Tim’s


    Hallelujah. Everytime I hear the word “growth” on the news when applied to the UK or the US, I wince. Where is this growth coming from? At who’s expense? Apparently we would need 3 earths to sustain everyone in the world at UK standards of consumption, we would need 11 earths to sustain them at US levels. We need to shrink, not grow.


    That’s the market they write for.

  2. I’m not so sure the steady-state means static inputs. In a dynamic steady-state – i.e. along the “balanced growth path” certain ratios are constant – i.e. the capital output ratio, or the quantity of capital-per-technology-adjusted-worker.

    As you say, in steady-state, growth comes from the 1-2% technological advance that allows to create more value from a given quantity of inputs, but the absolute quantity of physical capital (the only input that’s chosen in the simplest models, assuming exogenous labour force) is growing in steady-state – if the capital input was constant, the capital-output ratio would tend to zero over time.

    Although I suppose this just relocates the question – what quantity of physical resources are required to construct this ever-growing stock of physical capital. And this is before adding actual inputs (materials) to the model. Anyway, I wouldn’t be so confident steady-state with growth from technological progress entails constant physical inputs.

    a more sensible version of their “money changing hands” complaint would be that GDP is only based on expenditure the market economy, not home production. At least, I think that’s the case. This is, of course, a well known point.

  3. also, whilst I might end up with egg on my face, I expect this claim: “in the US, for example, a 3% increase in GDP tends to be accompanied by a 1% fall in unemployment.” is false.

  4. Luis Enrique: The GDP/unemployment thing is a quote from the article, not a comment by Tim.

  5. When did growth become a dirty word to lefties? They used to boast that their scientific central planning would quickly overtake chaotic unplanned markets.

  6. Matthew L

    yes and I’m saying it’s probably false. What made you think I thought Tim wrote it?

  7. When did growth become a dirty word to lefties? They used to boast that their scientific central planning would quickly overtake chaotic unplanned markets.


    When it didn’t

  8. Luis

    I think they are talking about this:

    “The law has indeed “evolved,” or changed over time to fit the current economic climate and employment trends at the time. One version of Okun’s law has stated very simply that when unemployment falls by 1%, GNP rises by 3%. Another version of Okun’s Law focuses on a relationship between unemployment and GDP, whereby a percentage increase in unemployment causes a 2% fall in GDP.”

    Panel of 10 major countries:

    Although this doesnt agree with the original new economics piece Japan statement.

    Bottom line: They are bozos

  9. ken,

    oh cripes, I completely mis-read them. For some reason I’d read them as making the very stupid claim that 3% growth is associated with a 1% fall in employment in the USA, not unemployment. Duh, me.

    right, well having understood them correctly now, I hope, I don’t think that claim is false, but neither do I think that’s a surprisingly weak relationship between growth and employment. As Tim points out, you’d expect output growth rates to outpace employment growth rates.

  10. Rob, Yup. Growth in countries that have restrictive labour laws will be more driven by capital accumulation and productivity.

  11. ‘This tosh’ doesn’t even begin to cut it when taken alongside my local Green Party Manifesto.

  12. If we followed the Grauniad logic of including overnight cash flows in GDP, then that implies we should include all bank loans and mortgages (and not just profits made on their interest). Which would of course be absurd.

  13. Hi Luis

    I agree with your observations about steady state (as in the balanced growth path in endogenous growth theory), but in this case Tim is closer:

    Their version is about no more inputs beyond a certain point. So tech progress is allowed, but they want to match costs to benefits while including eco-system etc. I am of the view that generally the costs are still massively outweighed by the benefits, but the tree huggers might disagree.

  14. It’s remarkable how every “new economics” seems to come out exactly the same as the last one.

    I am reminded in fact very strongly of Ritchie’s sadly abandoned “Enough Economics” project.

  15. I think that Sam’s Second Law of Revolutionary Politics can be applied here, which states when people demand a ‘new democracy’ what they are demanding inevitably turns out either not to be ‘new’ or not to be ‘democracy’

    reckon the same is true of economics.

  16. They also claim they are opposed to ‘austerity’. I think this must just be the leftist equivalent of being against sin, a simple statement of a political position devoid of meaning.

    Because clearly they are in favour of a massive austerity programme. Zero growth in government expenditure must presumably be part of their zero growth programme. But zero forever wildly exceeds any austerity proposed or imagined by the driest Tories out there.

    It’s odd that the left is still prepared to give an audience to the zero-growthers. Zero growth is what we’ve had for the last few years. And they hate it – zero growth in public expenditure is routinely described as an ‘assault’.

  17. Ah but Flat Eric, zero growth in public expeniture is a “cut”. Inflation sees to that.

    They are “progressive” you see and so their gravy trains must always “progress”.

    The sooner we can get away from the sin of “using up the budget” the better public governance in theUK might be.

    I was always told that falls in unemployment lagged a long way behind GDP growth. Is that still true ?

  18. The man is insane. And he’s working in my institution, which is depressing.

    So this jobs ‘n’ growth line he’s pushing: the Japanese have apparently achieved the feat, in some ways enviable and in others not, of getting jobless growth. And this demonstrates that it is possible to get growthless jobs? Argh!

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