Friday, June 08, 2012

The savings trap

A friend attacked me today for advocating economic growth. We must, she said, reduce our human footprint on the sole planet we now inhabit. I happen to agree with her, but it doesn't detract from my point.

Regardless of current problems, we happen to live in the wealthiest phase of human existence measured by the basic measures of food, health and housing. If you want a comparison, try reading Homer. Do we really want to engage in war over a handful of cattle, some jars of olive oil?  Or engage at all?

I support economic growth because is gives us choices, because it raises billions out of the grinding poverty that has been the norm since we (the human race) discovered farming with its capacity to generate surpluses that could be expropriated by the top few. Do we want to go back to ages when old men were in their late twenties?

But what do I mean by economic growth? Not the statistical construct that actually counts costs as growth. Rather, a focus on the quality not quantity of life. Winton Bates tries to explore some of these issues in his Freedom & Flourishing blog. I am more simple minded than Winton and also, at times, have a different focus.

When I think about it, I keep coming back to a simple issue. The quantum of things that could improve the basic texture of life for the ordinary person seems inexhaustible, and that quantum does not require ever added quantities of physical consumption. It requires a reordering in the way we do things.

It was the Canadian born economist John Kenneth Galbraith who coined the phase private affluence, public squalor. He's pretty right actually. Ayn Rand, and that's a contrast!, actually had something of the same idea, for in Atlas Shrugged we see the collapse of the social structure in the face of greed and a belief in entitlement.

To be opposed to an entitlement culture, bread and circuses was the Roman equivalent, does not mean opposition to state action. In fact, in circumstances where policy leads to a Galbraithian outcomes, there is every justification for demanding public action for the common good.

Now at the moment we are caught in what I call the savings trap.

Lots of people are saving, freeing resources for investment in our future. But the returns on investment and hence on saving have collapsed. Why? There is no way of channeling savings into the things that will give us a real social return, while real investment opportunities have declined.  The millions of Australians saving for their future just won't get the returns they need to meet their retirement needs. The rest of us won't get the society that we need.

That's another part of my charge against current attitudes and structures. They just don't work. We need new approaches. 


Rummuser said...

I would once again urge you to read the Rational Optimist by Matt Ridley.

Jim Belshaw said...

I will Ramana, I promise!

Winton Bates said...

It is certainly worth reading, Jim.

I must look at the CEDA report just published about ways to increase economic growth. The press reports suggest it might be a bit like a Soviet plan to make more people work harder and longer. I wonder if they are also proposing to make people save more.

Thanks for the plug.

Evan said...

Do you know Steve Keen and his Debt Watch blog? His book (second edition recently out) is Debunking Economics. He shows that neo-classical economics is contradictory even when its assumptions are granted. It is a devastating critique.

He proposes a jubillee and shares having a limited life.

I'm a greenie who doesn't see economic growth as necessarily a threat because the money can be used to purchase services. There is no reason why food, health care and education can't be free while the values of Damien Hirst 'works of art' inflate astronomically and so drive economic growth. That is I think there is some distance between economics and real life and this could possibly become a good thing.

Jim Belshaw said...

Winton, a lot of the stuff on ways to increase economic growth carries the expectation that we will all work harder. It's one of the things that gives "growth" a bad name.

There is something here worth writing on I think, the changing concept of scarcity.

Evan, I hadn't seen Keen's blog. I have book marked it for later reference.

Winton Bates said...

Steve Keen has some interesting ideas, but his ability to attract attention to them is truly admirable. I think he is wrong about many things, including real estate prices.

Winton Bates said...

In my first comment I meant to refer to the Gratton Institute rather than CEDA. No wonder I couldn't find the report on the net!

Jim Belshaw said...

Hi Winton.I wondered whether or not you meant Gratton. Will be interested to see if our views on Keens coincide once I have actually read some of his stuff.