How We Talk About Economic Growth
In the last few years of the Obama administration, The Wall Street Journal relentlessly criticized the administration’s failure to achieve sufficient economic growth. That newspaper complained that Obama’s over-regulated economy was to blame for a GDP growth rate of 2.1% — tepid compared to recoveries in the past.
The Journal is, of course, the voice of business people who often favor the conservative agenda of low taxes and lower regulation. But the Journal was on to something. The need for economic growth is hugely important and one thing both conservative business people and progressives should be able to agree on.
Progressives can rally behind strong economic growth because material prosperity improves the quality of life and opportunity for everyone. Unfortunately, as with so many other things, conservatives and progressives are each mired in their own rhetoric. Every issue seems to have its predictable arguments. A proposal for raising the minimum wage will inevitably be met with the argument that employers will have to cut jobs. A proposed international trade deal will be opposed by arguments that globalization harms the little guy.
But neither side talks about the social and political benefits that accrue to a country with a steadily growing economy. These non-economic benefits must be counted along with the hard financial and environmental factors when we evaluate any serious policy question. Doing so may actually tip the scale in favor of some policies that will promote growth versus the predictable counter arguments.
In his 2005 book The Moral Consequences of Economic Growth, Benjamin Friedman catalogues the social and political benefits of growth: openness, tolerance of different ethnicities and points of view, philanthropy, and a satisfaction with the democratic process, if not always its results. A stagnating economy, on the other hand, leads to rising intolerance and incivility, defensiveness, eroding generosity, rigidity of institutions, and a disrespect for the democratic process.
The mechanism for this effect is psychological. Economic growth, or the lack of it, drives a person’s perception of whether he is getting ahead or falling behind. There are two benchmarks for this. One is a person’s current economic situation compared to his past situation. The other is a person’s current economic situation versus the current situation of other people. These two benchmarks can be substitutes for each other. In a steadily growing economy, a person’s satisfaction with being better off than he was in the past can mitigate his impulse to be better off than his neighbors.
On the other hand, when an economy stagnates and a person is not better off than he was in the past, his need to be better off than his neighbor (or people of color, or immigrants) intensifies. His view of the economic pie becomes zero sum – his situation can only improve if someone else’s declines. If someone else seems to be getting ahead, he assumes it must be at his expense. Both the positive effects of a growing economy and the negative ones of a stagnating economy are magnified when people consider the opportunities available for their children.
This is not some pop social theory. American history provides many examples to confirm its accuracy. Between 1880 and 1895, real income per capita grew by only .7% per annum. In the same period Jim Crow laws, segregation in every aspect of life and appalling violence became the norm in the South. In rural America populism led to nativism, ethnic intolerance and open religious bigotry. In the West, riots protested the use of Chinese labor for railroad construction and immigration laws were tightened.
Contrast this with the post-WW II expansion. With the exception of several brief but painless recessions in the Eisenhower years, Americans enjoyed uninterrupted economic growth from the end of the war to 1973. Over the prolonged period from 1948 to 1970 real income growth per capita averaged 2.4% per annum. Home ownership became a realistic possibility for most Americans and white collar jobs opened to many. It is no coincidence that during this period political and economic democracy was extended to non-whites. Brown v. Board of Education mandated school desegregation and a decade later the Civil Rights Act of 1964 outlawed discrimination in employment, public accommodations and housing.
While none of the foregoing changes – good or bad – happened overnight, political change is possible when only a small number of voters change their minds. The recent shift in public sentiment about gay marriage comes to mind. Likewise, a stagnating economy need only influence a small segment of the populace to produce unfortunate results. Many political analysts have said that fewer than 20,000 economically frustrated voters in Michigan and Wisconsin elected the incompetent Donald Trump with his agenda of anti-Muslim animus and disregard for environmental and social justice.
Economic growth is a good thing. It strengthens not only our material prosperity but it permits the kind of positive social and political behavior we all want to see in our country. This is not to say that bad policies – ones that would irreparably harm the environment, for example – should be adopted simply because they are said to promote growth. What it does mean is that we should evaluate our economic policy choices by also considering the indirect non-economic benefits of growth. In the end, this may lead progressives to be less instinctively critical of pro-growth policies and bring the left and the right together toward a common economic agenda.
