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What happens if economic growth is a thing of the past?

October 15, 2012 7:36 am

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John Clarke

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The end of economic growth in the West is being discussed as a serious possibility. Some are predicting a world where living standards do not rise in the way they used to and there is no growing pie for people to divide. If this happens what does it mean for politics in the UK? The theory has become somewhat fashionable as economists search in vain for an explanation for the sustained nature of the economic crisis. It is something that seems more plausible as the Office for Budget Responsibility continually extends the date at which austerity will end (currently 2018) and the International Monetary Fund reports predict anaemic growth for advanced economies. The long term outlook seems grim.

The idea has been kicking around for a while and was recently highlighted by the Financial Times columnist Martin Wolf. The argument says we cannot assume economies will continue to grow forever. Prior to the 18^th Century most economic growth came about because of population growth and in the mid-18^th Century until recently innovations, such as electricity and sewage, meant growth went beyond that brought about by population increases. The innovations that we see today, such as smartphones and the internet, are not enough to drive growth. The main champion of this argument is Professor Robert Gordon of Northwestern University. His paper on this topic argues that large step changes in technology, like the change from using animal power to motor power or oil and gas replacing coal, were one offs and we will not see their like again. Advances in computer technologies, although seemingly dramatic in our personal lives, do not go as far. As Wolf neatly puts it, he would happily give up every innovation since 1970 if it meant going without running water.

While this is just a theory, the sluggish economic performance is making it an attractive explanation for what is happening to Western economies. Some even believe that having a “’steady state’ economy should be a policy goal as it will bring a stop to endless increases in production and consumption. The problem is that economies without growth would have a terrible impact on the debt ridden Western world. As Andrew Sissons of the Work Foundation points out, we need growth to solve three of the biggest problems facing us: unemployment, debt (public and private) and the ageing society. Tony Blair’s former health adviser, Paul Corrigan, argues that if there is no growth there will not be enough cash to pay for increases in the health budget.

If a steady state economy becomes a reality Labour, the Conservatives and even the Liberal Democrats will need to reassess how they approach policy. While in Labour circles there is some discussion of how to be a social democratic (or democratic socialist) party in an era of low growth, what will it be like in an era of no growth? What does it mean for Keynesian arguments that government should be borrowing to invest if there is no prospect of a growing economy to pay off the debt? It is too early to tell whether we are experiencing the development of a steady state economy. It is also impossible to predict the future. People are generally inventive and new innovations continue to occur. Nonetheless, it is a possibility and if it does come to pass it will have profound consequences for politics in Britain.

The author blogs at johnmichaelclarke.wordpress.com

DanMcCurry

This is the silliest article I’ve seen for a while. We know why the economy is sluggish. It’s due to a lack of demand, caused by the austerity policy of George Osborne.
Mark, why are you publishing an argument that the Tories would love to see? This article lets George Osborne off the hook. Isn’t that the complete opposite of the purpose of this blog?
Dave Postles

Interesting – and it’s interesting that some development economists are reconsidering the impact of income distribution on economic development which we should consider in the context of your piece.
- johnmclarke
  
  Thanks Dave,
  
  There some interesting work in that area.
  
  John
charles.ward

Malthusians, proven wrong for 200 years but they still won’t shut up.
markfergusonuk

The purpose of this blog is – in part – to have interesting debates between Labour people. John makes a coherent argument.
- johnmclarke
  
  Thanks Mark.
- DanMcCurry
  
  It’s an argument that says that George Osborne was right after all, and that Ed Balls and Rachael Reeves were wrong. It argues that the reason we are ahead in the polls is because we managed to hoodwink the electorate with a wrong economic argument.
  It is based on absolutely no economic argument. It is the stuff of a soothsayer. To describe it as “serious” is silly.
  
  It would be an interesting argument on a Tory or Lib Dem blog, but it is very strange to put it on here because it undermines our aims and policy.
johnmclarke

Thanks for your comment Dan. While you may know why the economy is sluggish it’s not a question that has been fully answered in the field of academic economics.

As Mark points out this is a blog that provides a forum to ideas, etc. that are relevant to the Labour Party and its future. It is independent of the Labour Party and provides a valuable platform for such discussions to happen.

I believe for the Labour Party to be a strong movement it needs to be aware of ideas (and theories such as this) that could have an impact on a future Labour government and politics in the UK. The alternative is a party with its head in the sand.
PeterBarnard

I think that this article (and some of the people and institutions quoted therein) assumes the economic fallacy that “the private sector pays for the public sector.”

The purpose and function of an economy is to provide sufficient goods and services via the mechanisms of production, distribution and exchange, to satisfy the needs and desires of the population. In terms of human subsistence and propagation of the species, needs are still basic : water, food, clothing, protection from the elements (ie an abode) and warmth. Everything else that we produce is extra, and falls into the desires category.

One problem is that after a few centuries of (not much less than brainwashing), (i) the economic fallacy described above pervades most minds, and (ii) public goods – defence, the constabulary, justice itself, infrastructure, healthcare, education, flood protection (the list is almost endless) – are regarded as “costs,” invariably paid for by taxation, and everybody knows that taxation is intrinsically a bad thing. “How are we going to pay for it?” is the inevitable response when government expenditure is discussed (Mr Corrigan, in the article, seems to be that way minded).

The answer is simple – but deeply unpalatable to many minds : “Instead of paying a £ for some unneeded trivia, you pay a £ for care of the elderly (or a policeman/whatever). The result is the same – someone is employed.”

As for our present economic circumstances and the effect in the long term, perhaps, as Zhou Enlai is quoted as responding when asked for his assessment of the French Revolution, “It is too early to say.” Certainly, the army of economists, world wide, don’t know and the appropriate response to their pronouncements is to reach for the shovel and a sack of salt.
- MrSauce
  
  “the private sector pays for the public sector”
  I don’t think that is an economic fallacy at all.
  To me it looks like a clear statement of fact.
  Public services are valuable, have a cost, and they need to be paid for.
  
  If you want to know what an economy with little growth looks like, try Japan.
  - PeterBarnard
    
    Mr Sauce,
    
    Read http://timharford.com/2011/12/youre-wrong-we-are-all-wealth-creators/
    
    “Try Japan” … (i) have the trains stopped running? (ii) are the people starving? (iii) have the hospitals and ambulances shut down? (iv) are they all on candle light now?
    - PeterBarnard
      
      Also, Mr Sauce (re Japan), see http://www.economist.com/node/21538745
    - MrSauce
      
      Yes, that was an interesting reflection on the inter-connectedness of the economy, and makes some good points about the value of the public sector, but it doesn’t address the question of who pays the bills.
      If you reason that money put into the public sector is spent in the private sector and returns as tax which pays back that initial govt. spend, then there would be no such thing as a public debt. Every time the govt spends more money it gets it back as tax.
      We have £1 trillion of accumulated public debt that disproves that model.
      The question of affordability has not been addressed.
      Recognising that we have built up a debt, can someone who’s wages are paid through taxation make a net cash contribution to paying for that debt? Clearly not. So where does the money come from to make the interest payments?
      
      I agree about Japan.
    - MrSauce
      
      Yes, that was an interesting reflection on the inter-connectedness of the economy, and makes some good points about the value of the public sector, but it doesn’t address the question of who pays the bills.
      If you reason that money put into the public sector is spent in the private sector and returns as tax which pays back that initial govt. spend, then there would be no such thing as a public debt. Every time the govt spends more money it gets it back as tax.
      We have £1 trillion of accumulated public debt that disproves that model.
      The question of affordability has not been addressed.
      Recognising that we have built up a debt, can someone who’s wages are paid through taxation make a net cash contribution to paying for that debt? Clearly not. So where does the money come from to make the interest payments?
      
      I agree about Japan.
      - PeterBarnard
        
        Tim Harford’s article does address the question of who pays the bills, hp (your old name on these pages) : we all pay for each other’s bills.
        
        When a company employs private sector security guards to patrol its premises, the private sector is doing (in part) the same as the police in the public sector, but you don’t seem to ask, “Who pays the bills?” The answer is that the purchasers of the company’s product are actually “paying the bills.”
        
        There is no essential difference in function and output between BBC TV and Sky TV, but you don’t ask who actually “pays the bill?” for Sky TV …
      - MrSauce
        
        That’s fine, then.
        Can every typical taxpayer (not receiving a wage from the govt), like me, now receive a typical civil service pension?
        Or do we need to employ more civil servants to make it all affordable?
      - jaime taurosangastre candelas
        
        Peter,
        
        I follow Harford’s argument as a theory, but does it not somewhat degrade when you consider practical implementation?
        
        e.g any publicly paid person consumes money (not literally, but arithmetically). For every £1,000 paid, only a proportion is returned in taxes. Ultimately, using Harford’s example, a 100% public sector economy can only fail: the Government would have to create money from thin air to replenish money consumed, and unless the entire world is run as a single public sector economy, we as a nation would rapidly find that no one wanted to trade with us when the money is so fraudulent.
        
        Of course, there are other aspects, but they seem to me to be centred on vectors and ratios of efficiency. If I consume 50% of my publicly sourced money, returning the rest in various taxes, does any good I do for others make up for the lost 50%? Maybe or maybe not, and the answer is probably dynamic, certainly varies between individuals and their role.
        
        Alternatively (if my estimate of 50% is right), pay me only half of what I currently am, but impose no taxes on me while continuing to tax those in the private sector. There is no difference, apart from the fact that it is politically preposterous.
        
        You have the same essential argument but about the costs on public money incurred when private sector people fall ill: have they paid enough taxes to cover the cost of their treatment (or use of a new motorway, or the services of the police)? But this endless calculus of “worth” is not what we should ever try to do.
        
        I find this quite interesting, but am not an economist. My instinct is that the best solution is to be found in balance, and I suspect that whatever the balance is, in Western Europe there is actually little difference in between the agreed positions of social democrats and reasonably minded tories: a few percent one way or the other.
      - PeterBarnard
        
        What Tim Harford wrote isn’t “theory,” Jaime, because quite demonstrably all employees are in the business of producing, distributing and exchanging goods and services, whether they are in the public or private sector.
        
        Your basic premise is flawed because any public sector employee does not “consume money,” as you describe it. The public sector employee provides a service by the application of hand or brain, or both, and it is this service (or rather, in aggregate, the total services) that is “returned” to the taxpayer.
        
        Back to basics : “output = income = expenditure.” In accounting terms, the mechanism by which payment is effected – taxes or not taxes – is immaterial.
      - PeterBarnard
        
        What Tim Harford wrote isn’t “theory,” Jaime, because quite demonstrably all employees are in the business of producing, distributing and exchanging goods and services, whether they are in the public or private sector.
        
        Your basic premise is flawed because any public sector employee does not “consume money,” as you describe it. The public sector employee provides a service by the application of hand or brain, or both, and it is this service (or rather, in aggregate, the total services) that is “returned” to the taxpayer.
        
        Back to basics : “output = income = expenditure.” In accounting terms, the mechanism by which payment is effected – taxes or not taxes – is immaterial.
      - jaime taurosangastre candelas
        
        We may have to agree to differ Peter. It may be accepted practice to you and indeed very many others, but let us face it, economics is unable to model the real world very well, and indeed there are competing philosophies of economics. They cannot all be correct, and even those most well accepted are not entirely correct.
        
        By the definitions I was taught, that means that no economic thesis can be more than a theory, because the results are so random (and random because not everything can be modelled, particularly mass human behaviour). However, I accept that those definitions come from the world of chemistry, physics and mathematics, and those sciences have the luxury of a degree of certainty that economics cannot approach.
        
        {I edited out something that on reflection make no real sense}
      - jaime taurosangastre candelas
        
        We may have to agree to differ Peter. It may be accepted practice to you and indeed very many others, but let us face it, economics is unable to model the real world very well, and indeed there are competing philosophies of economics. They cannot all be correct, and even those most well accepted are not entirely correct.
        
        By the definitions I was taught, that means that no economic thesis can be more than a theory, because the results are so random (and random because not everything can be modelled, particularly mass human behaviour). However, I accept that those definitions come from the world of chemistry, physics and mathematics, and those sciences have the luxury of a degree of certainty that economics cannot approach.
        
        {I edited out something that on reflection make no real sense}
      - PeterBarnard
        
        It isn’t economics, Jaime – it’s called accounting or, more accurately, National Accounting.
        
        See UK National Accounts – a short guide, published by ONS
    - http://twitter.com/waterwards dave stone
      
      Excellent link (timharford), Peter, thanks. It’s great to be able to come on here and get educated!
      - PeterBarnard
        
        Thanks, Dave S (“It’s great to be able to come on here and get educated!”)
        
        Makes a change to being brainwashed by the right-wing press …
        
        Y’know, that Deep Throat character in “All the President’s Men” was spot on : “follow the money … “
derekemery

See The Seven Varieties of Deflation at http://www.ritholtz.com/blog/2012/10/seven-varieties-of-deflation/

This has a US slant but points out:-
[My forecast is that the unfolding global slump will initiate worldwide
chronic deflation. A number of indicators point in that direction. Sure,
much of the recent weakness in the PPI and CPI has been due to falling
energy and food prices. Excluding these volatile items, prices are still
rising but at slowing rates (Charts 2 and 3). Consumer price inflation
is also falling abroad in the U.K. and the eurozone.]

..The deleveraging, especially in the global financial sector and among
U.S. consumers, will be completed in another five to seven years at the
rate it is progressing…

Much of the EU has problems due to rising unfunded future liabilities from ageing demographics see http://www.bis.org/publ/work300.pdf. See p10 for graphs of public debt/GDP projections.

At the same time the consumer markets of China and India will triple over the course of this decade and amount to $10 trillion annually by 2020 see https://www.bcgperspectives.com/10TrillionPrize.

The projections are that there will be significant growth in the consumer markets in India and China over the next decade and that meaningful growth will return to the US in 5-7 years time after deleveraging . The EU’s structural problems associated with the ever-rising costs from age-related spending will reduce growth in the EU and cannot be magicked away.
aracataca

This is an excellent piece. IMHO we are facing a decade or two of very slow growth.
The crisis we face is the archetypal crisis that results from letting the free market economy rip as we have done for the last 30 years. Firstly, we face a collapse in demand and secondly, we face the real prospect of deflation which is incredibly difficult to get out of.
IMHO we need a heavy dose of the medicine prescribed by JM Keynes although we will have to adapt it to the realities of the new global networked economy-enter Professors Stiglitz and Krugman.
PaulHalsall

I don’t see the end of *material* growth as a bad thing as long as everyone has access to healthcare, education, nutrition, and intellectual stimulation.

The resources of the world are limited, so we cannot have eternal growth.

What we can do is work for the redistribution of excessive wealth from the too wealthy.
Apparently 2/5ths of all human economic productivity has occurred in the last 30 years. Why on earth you that mostly have been nabbed by the already rich?Furthermore, human population is probably already too high. As we bring about a slow decrease, that will mean, necessarily, a shrinking economy.
- charles.ward
  
  “The resources of the world are limited, so we cannot have eternal growth.”
  
  This is only true if growth requires increased use of resources which is simply not true. In fact growth usually comes from the more efficient use of resources.
  - PeterBarnard
    
    It does not matter whether we use resources “more efficiently,” or not. There is a finite volume of crude oil in the bowels of the earth, and by definition a finite quantity must, one day, be depleted to zero unless a substitute for the energy derived from crude oil is discovered.
    
    Growth actually results from the application of capital, human and physical, and natural resources.
    - charles.ward
      
      The point is that we we have already found alternatives to oil and when oil becomes scarce we will transition to these alternatives. Human ingenuity is what drives long term growth and that is unlimited.
      
      We live next to a star that generates over a million million times our current energy usage, one day we will find an efficient way to tap that energy.
      
      The stone age didn’t end because we ran out of stone.
      - PeterBarnard
        
        Perhaps so, CW, but it does sound a little Mr Micawberish (“something will turn up …”). We can only wait and see, especially if China and India, to name but two, reach present-day US levels of consumption, per capita, of raw materials.
        
        As the purveyors of investments say, “Past performance is no guarantee of future performance.”
Jeremy_Preece

Economic growth is a thing of the past and will reamain so until the failed austerity measures, particulary of the UK and Germany, are ended.
- MrSauce
  
  Fear not!
  The French have voted for Mr. Holland and now their economic troubles are over.
  Their economic miracle has started and France has entered a golden age.
  Oh, hang on, it doesn’t seem to be as simple as that…
Forlornehope

The World economy is continuing to grow. What we are seeing is two-thirds of the globe joining the developed world. As this happens, there is quite likely to be some “levelling down” happening in the “rich” nations. Give it another fifty years or so and this discussion will look like so many in the past as the global economy settle down to 2% a year or so of growth. BTW, I spent a career in engineering and manufacturing. True, there are step changes due to major innovations but most productivity growth comes from grinding out a few percent each year through sheer human ingenuity. It’s been like that since at least the neolithic and I don’t see any reason why it won’t continue.
MrSauce

The thing is, we probably have all had the benefit of a free education and have brains.
So the ‘it’s all George’s fault’ line looks a bit silly.
http://twitter.com/RF_McCarthy Roger McCarthy

1) At the library (assuming you still have one) all of the book checkouts are now done by machines with remaining human staff relegated to shelf stackers and councils trying to make even these unpaid volunteers

2) In supermarkets there is increasing pressure to drive you into the self-service lane – which if carried to its logical conclusion will ultimately eliminate hundreds of thousands of jobs and again leave the major human staff requirement as minimum wage or fake apprentice or work experience scheme shelf stackers and security guards

3) If railway companies get their way every ticket office will be replaced by machines – again eliminating many thousands of jobs.

4) In hospitals and warehouses many functions that once required porters and fork lift drivers are now done by robotic trolleys.

5) Many skilled office jobs are becoming increasingly defunct – once every manager and salesman required a secretary now these can all write their own letters and secretaries are primarily status symbols for only the highest managers - while many research tasks that once required many man-hours to complete can be done in minutes using google.

All these workers who once made reasonable wages are systematically being rendered redundant and as their savings run out no longer have money to buy stuff and produce demand and thus growth.

And yet while entering a workless utopia we continue to demand that everyone works longer and longer hours and to retire later and later – while those who cannot work are punished and impoverished pour encourager les autres.

The only solution is to develop new ways of redistributing wealth back into the hands of people who will actually spend it by such means as a minimum guaranteed income or negative income tax – but other than the rightly derided Greens nobody in politics is willing to advocate this.
- charles.ward
  
  The loss of those jobs is a good thing, it means that the products and services are being provided more efficiently. This means that the customer gets their goods for less money and they have more money to spend on other things. This in turn creates more jobs with the added bonus of cheaper goods and services.
  
  Do you really think we would be richer if we abandoned technology and did everything by hand?
  - AlanGiles
    
    Good God Charles: the loss of these jobs is a “good thing”? – even when those who lose their jobs cannot find new ones, or when they do can often only get part time or temporary work. You have former full time workers with less money to “spend on other things” – not least because the prices in the self service supermarkets rise by the week, and energy bills will rise heavily in December
    
    To be frank, I don’t know what you’re on, but perhaps we should all have some – it seems to turn you into Pollyanna.
  - AlanGiles
    
    Good God Charles: the loss of these jobs is a “good thing”? – even when those who lose their jobs cannot find new ones, or when they do can often only get part time or temporary work. You have former full time workers with less money to “spend on other things” – not least because the prices in the self service supermarkets rise by the week, and energy bills will rise heavily in December
    
    To be frank, I don’t know what you’re on, but perhaps we should all have some – it seems to turn you into Pollyanna.
    - charles.ward
      
      So we should smash the ticket machines at railway stations, throw away the robots that build our cars, rip out the ATMs and destroy our computers and printers?
      
      If people are employed to do these jobs instead then they need to be paid. And who pays their wages? Everybody else. Cars, rail tickets and everything else that could use these technologies are more expensive.
      
      This means that they we all have less money to spend on things we want which would create useful employment.
      
      Labour saving devices have increased our standard of living more than anything else. Can you name a single example of a civilisation that abandoned technology and improved their standard of living?
      
      Instead of posting a reply to this comment why don’t you write you reply longhand, employ a team of scribes to make multiple copies, employ private investigators to find all the people who read LabourList and employ even more people to deliver your response to all who are interested. Or would you rather all that labour were not involved and embrace the technology that allows you to post your ill informed opinions at a fraction of the cost.
      
      “To be frank, I don’t know what you’re on, but perhaps we should all have some …”
      
      Unfortunately there’s no medication for stupidity.
      - http://twitter.com/RF_McCarthy Roger McCarthy
        
        Jesus – does nobody ever actually read these comments?
        
        I did very specifically say we are entering a workless utopia – which is a self-evidently a good thing – but that our distribution model is still based on forcing everyone who is not a capitalist rentier to work harder and harder for less and less even as the jobs are systematically abolished.
        
        I also believe that this trend is underpinning the ever diminishing share of wages in GDP (see graph attached as image) which in turn depresses total demand for goods and services and thus growth within the UK.
        
        Thus my specifically mentioning a minimum guaranteed income as the only solution (short the overthrow of capitalism etc) which can address this problem.
        
        Force the parasitic global elite to pay their taxes (even if this requires us to invade and occupy every corrupt little island and principality where they hide their money) and use the money to pay for an MGI to every citizen equivalent to the minimum wage and we straight away resolve our demand problems by giving money to people who will actually spend rather than save it.
        
        This also allows us to happily wave goodbye to every job that can be automated and will force employers to pay a decent above MGI wage for every job that can’t be.
        
        Unthinkable as this is politically I literally can see no other solution (the world war which was required to get us out of the last great depression no longer being an option if you care about the survival of the human race).
        
        And because the one plausible solution is politically unthinkable we are almost certainly doomed – the recession will continue, austerity will be imposed on all countries that still resist it and democracy will be everywhere whittled away in favour of new technocratic models of dictatorship from Russia and China which the global plutocrats increasingly favour.
      - charles.ward
        
        See here.
        
        ”So, far from the labour share being reduced by the capitalists getting all the money in profits, what we actually have is a slight change in
        the workforce, self- as opposed to direct employment, plus we have a rise in taxes. These explain the fall in the labour share of income.”
      - AlanGiles
        
        ”Unfortunately there’s no medication for stupidity”
        
        Sadly not, Mr Ward, because I think you would need to take a good strong dose yourself.
        
        At a time when we have 2 and a half million unemployed you make the crass statement:
        
        “The loss of those jobs is a good thing,”.
        
        I am quite sure you would be the first in the queue to complain about the increase in payment of JSA and other benefits, because you sort always are.
      - charles.ward
        
        What you don’t seem to be able to grasp is that if you employ people to (for example) sell rail tickets rather than sell from machines then their wages will have to be paid for in higher prices. This means that every person who buys a rail ticket has less money to spend on other things. They may not go out to a restaurant, for example, which deprives the waiter and chef of employment.
        
        When you employ someone to do something that could be more efficiently done by a machine you destroy jobs elsewhere in the economy.
        
        You seem to think that I don’t care about unemployment which is the opposite of the truth.
        
        It is not enough to care about unemployment, you also have to understand it. Which is why every Labour government has left office with more unemployed than they started with. Anyone who thinks that employing people inefficiently helps keep unemployment down doesn’t understand the reasons for unemployment.
      - AlanGiles
        
        Well, according to Tory nitwits in the mid 90s privatisation was going to make rail travel so cheap, it would be even less expensive to travel by train than by bike. We all know what happened there.
        
        The point is if you do get rid of jobs – like selling rail tickets – and lets be frank these days personnel do more than just sit in a cubicle selling tickets - they will find it hard to find another job – especially if they are in the later part of their working lives. If they manage to find a part time job shelf stacking at a supermarket, especially on a “no hours” contract, that will be one group who won’t be able to go out for an evening at a restaurant – the occassional burger or fish and chips will have to suffice.
        
        You can’t have it both ways – you either want people in work, or you have to be tolerant if they are unable to find work and have to rely on state benefits.
        
        As I said not everybody can be self employed – it hasn’t worked up to now, and in the current climate it is unlikely to work now.
        
        I think too many politicians of the Norman Tebbitt/Duncan-Smith and Purnell/Byrne school took Alvin Toffler’s 1970 book “Future Shock” too seriously. It is worth revisiting that book 42 years on to see how that wonderful world where everyone would have leisure and the wherewithall to enjoy it, while robots danced round our homes and freed us from drudgery, was so stupidly, simplisticly wrong.
      - charles.ward
        
        ”Well, according to Tory nitwits in the mid 90s privatisation was going
        to make rail travel so cheap, it would be even less expensive to travel
        by train than by bike. We all know what happened there.”
        
        This has nothing to do with privatisation, people can be employed efficiently and inefficiently in the private and public sectors.
        
        “The point is if you do get rid of jobs – like selling rail tickets – and
        lets be frank these days personnel do more than just sit in a cubicle
        selling tickets …”
        
        If they are doing more than selling tickets then some of them will obviouly be kept on to do the work that needs to be done.
        
        ” - they will find it hard to find another job – especially if they are
        in the later part of their working lives. If they manage to find a part
        time job shelf stacking at a supermarket, especially on a “no hours”
        contract, that will be one group who won’t be able to go out for an
        evening at a restaurant – the occassional burger or fish and chips will
        have to suffice.”
        
        Which ever way you look at it if someone is employed to do work that doesn’t need to be done or work that can be done more efficiently by a machine then this is a net drain on the economy.
        
        Just as in the Broken Window Falacy when you add up all the effects you are always left with the net effect being minus the cost of one window.
        
        “You can’t have it both ways – you either want people in work, or you
        have to be tolerant if they are unable to find work and have to rely on
        state benefits.”
        
        But doing work more efficiently creates employment. This is what you seem unable to grasp.
        
        If we did it your way we would still employ people to light gas lamps and shovel horseshit off the streets. How would that be good for the economy?
      - AlanGiles
        
        When floundering use a coarse word for excrement – a tactic used by a former LL poster, and used by you in the final para of this latest message. Lovely.
        
        “doing work more efficently CREATES employment”.
        
        Does it?. The main employment “created” by the current government seems to be making people who find themselves unemployed working for their benefits for companies like Poundland and Tesco – in other words charity work for organisations that don’t need charity.
        
        Either we accept that there are not enough jobs, and those that can only find part time ones or none at all will have to receive state benefit, or we stop gloating about people doing what you perhaps regard as “menial” work, losing their jobs, and then complaining when the unemployment figures rise each month. The problem is right-wingers of both main parties don’t liek either idea.
      - AlanGiles
        
        When floundering use a coarse word for excrement – a tactic used by a former LL poster, and used by you in the final para of this latest message. Lovely.
        
        “doing work more efficently CREATES employment”.
        
        Does it?. The main employment “created” by the current government seems to be making people who find themselves unemployed working for their benefits for companies like Poundland and Tesco – in other words charity work for organisations that don’t need charity.
        
        Either we accept that there are not enough jobs, and those that can only find part time ones or none at all will have to receive state benefit, or we stop gloating about people doing what you perhaps regard as “menial” work, losing their jobs, and then complaining when the unemployment figures rise each month. The problem is right-wingers of both main parties don’t liek either idea.
      - charles.ward
        
        I’m not the one floundering Alan. You have continually avoided the central issue, instead talking about privatisation, “no hours” contracts, self employment, energy bills, JSA, and constructing a strawman caracature of me as an uncaring monster who wants higher unemployment.
        
        How about addressing the central point? Can you present any evidence that employing people to do unproductive work is helpful to the economy. And if it is why don’t we go further and employ gas lamp lighters and horse manure shovellers?
        
        When you pay someone to do unproductive work their wages have to come from somewhere and that means that there is less money to pay people to do productive work. This is not a difficult concept.
      - AlanGiles
        
        The reason I pointed out the very real issues of “no hour contracts” (beloved by Tesco), is because I thought you might hve not realised sitting in your ivory tower that such things exist.
        
        I repeat, if you are happy to see people unemployed because they do jobs you consider non-productive. You said right at the start of this dreary pipedream of yours:
        
        ” This means that the customer gets their goods for less money and they have more money to spend on other things. This in turn creates more jobs with the added bonus of cheaper goods and services.”
        
        Cheaper goods and services – IF it results in “more jobs” will obviously not be very well paid.
        
        Are things at your local supermarket any cheaper now because you are encouraged to use an automatic checkout rather thaan a human assistant?. Of course they are not.
        
        You seem to be like Mrs Thatcher and Blair who believed in the “trickle down” effect.
        
        I repeat, if people cannot find work, or are reduced to working for a pittance part-time, we have to accept they will need to be in receipt of benefits in order to survive, and that means we don’t need the likes of Duncan-Smith and Byrne and right wing scribblers demonising them.
      - PeterBarnard
        
        And, of course, the Conservatives 1979-1997 had a wonderful record on unemployment :
        
        April, 1979 : 1,405,000 unemployed
        Nov, 1990* : 2,158,000 unemployed
        April, 1997 : 2,050,000 unemployed
        
        Unemployment > 3m : 53 months
        Unemployment between 2.5m and 3m : 73 months.
        Between Oct 1980 and April, 1997, unemployment was never less than 2 million.
        
        * when Thatcher left office
      - Christopher Robinson
        
        While I agree that replacing humans with capital doesnt necessarily lead to more unemployment, your argument assumes that any cost savings or cost increases are passed onto the rail user in your example. The raiways are a good example of monopsonies where price is largely indeterminate of cost, and therefore any cost savings to the suppliers are usually swallowed up in higher profits rather than lower prices.
        
        I know that the railway is just one example, but I would argue that due to wide ranging market failures the benefits from improvements in efficiency havent been spread evenly over the last half century, that is why they have largely led to increased profits and wealth for those at the top rather than lower prices, increased wages or improved standard of living for the rest. Therefore, letting people go unemployed for the sake of efficiency can have a real detrimental impact on many peoples lives.
      - Alexwilliamz
        
        Yep less money to spend on foreign imports. A disaster? More money paid to employ people rather than paying unemployment benefit. Surely the point is not accumulating more stuff we probably don’t even want that much but making our experiences more pleasant is an improvement. People sell rail tickets would probably reduce the number of fare dodges (this also increases costs) would be able to help direct you to correct platform, time of next train, without you having to find it out yourself (costing you your own time). It might make smaller stations safer (especially at night) and more usable. Will allow people to spot problems and direct to earlier intervention. Basically employing a person creates the potential for more than just the single function machines perform, if we added all these things together and valued them we might find we are all living in a better place.
  - Alexwilliamz
    
    Step forward Mr Norman Lamont
- AlanGiles
  
  I agree with nearly all of what you said Roger, with the exception of the “rightly derided Greens” remark.
  
  It seems to me “extending privelege” (Cameron) McCurry on LL saying that global warming had been “refined”, Mitchell’s recent “learn your place” tantrum and any number of dissembling and contradictory statements by Liam Byrne and Harriet Harman’s recent comedy turn at the last day of the Labour Conference deserve more derision than the Greens.
- AlanGiles
  
  I agree with nearly all of what you said Roger, with the exception of the “rightly derided Greens” remark.
  
  It seems to me “extending privelege” (Cameron) McCurry on LL saying that global warming had been “refined”, Mitchell’s recent “learn your place” tantrum and any number of dissembling and contradictory statements by Liam Byrne and Harriet Harman’s recent comedy turn at the last day of the Labour Conference deserve more derision than the Greens.
- Alexwilliamz
  
  Marx was right all along!
JeevanJones

It’s an interesting point, John, but I’ll just share a brief thought.

In the long term, there may well be a good point that indefinite growth is either impossible, or difficult to attain.

However, if we’re talking about our current predicament, don’t forget that the economic growth we’re talking about (and indeed clamouring for) isn’t necessarily “new” growth. The UK economy is still operating at around 90% of its peak before the financial crisis. There is considerable spare capacity in the British labour market, shown by 8% unemployment. What we need is catchup growth just to return to the output the economy produced before the crash in 2008.

Once we’re back to where we were, perhaps then it’s worth discussing whether we can achieve any more economic growth.
NT86

Steady state economics can only work if the entire globe agrees to it. Our economy is so intrinsically tied to other world economies that it’s virtually impossible. We can take steps on a domestic scale like re-mutualising, encouraging things like cooperatives and employee ownership but no growth is the crankish view of the anti-science Greens amongst others.
NT86

Steady state economics can only work if the entire globe agrees to it. Our economy is so intrinsically tied to other world economies that it’s virtually impossible. We can take steps on a domestic scale like re-mutualising, encouraging things like cooperatives and employee ownership but no growth is the crankish view of the anti-science Greens amongst others.
http://twitter.com/RF_McCarthy Roger McCarthy

Wow – no idea that Osborne is a colossus bestriding the world whose policies need bear no relation whatsoever to global economic trends – and that if only he had a Keynsesian brainwave and changed those polices everything would be magically restored to the way it was….
markfergusonuk

Sorry Dan, I disagree
johnmclarke

Hi Dan,

The economic argument can be found here: http://www.nber.org/papers/w18315.pdf?new_window=1

It’s a paper Professor Robert Gordon produced to the National Bureau of Economic Research. It’s a US based institution and 22 Nobel prize winners have worked there at some point in their career. I don’t think the author would care which side of a political debate in the UK his works does or does not support.

It is a theory. It may be wrong or it may be right. However, given its background and growing support from serious commentators it needs to be taken seriously.

John
- DanMcCurry
  
  I’m not some idiot trying to stamp on someone else’s argument without reason.
  In the summer of 2009 the Tories managed to persuade the electorate that Gordon Brown was a “deficit denier”, when Labour was silent to their allegation.
  Behind closed doors in Downing St, Alistair Darling was arguing with Gordon Brown about the high level of govt debt. As a result, we were silent for months because they couldn’t agree. This helped the Tories win the election in 2010, and since then Alistair has been proved wrong.
  This post is just one post, but if there was regular undermining of the Keynesian position, it would be travelling that same path again.
  I repeat what I said at the start. The reason the economy is sluggish is due to lack of demand, caused by austerity. 90% of economists now agree with this.
  Please don’t undermine it or try to argue that it’s not the case. That’s what the Tories would like to do.
Brumanuensis

Bit late to the party, but I’ll throw in a few thoughts:

First, Krugman’s view on Gordon – http://krugman.blogs.nytimes.com/2012/08/28/is-economic-growth-going-down-the-drain/

Second, Flip-Chart Fairy Tales and Chris Dillow’s respective takes –

http://flipchartfairytales.wordpress.com/2012/10/01/the-post-growth-economy/

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/07/producitivty-growth-the-long-term.html

A related point, via the excellent people at the Washington Post’s ‘Wonkblog’ – http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/14/why-were-facing-a-mcjob-recovery/

Finally, a thought. We should be careful not to ignore the potential influence of economic hysteresis – i.e. past high unemployment may have become structurally embedded into the economy.
Brumanuensis

Bit late to the party, but I’ll throw in a few thoughts:

First, Krugman’s view on Gordon – http://krugman.blogs.nytimes.com/2012/08/28/is-economic-growth-going-down-the-drain/

Second, Flip-Chart Fairy Tales and Chris Dillow’s respective takes –

http://flipchartfairytales.wordpress.com/2012/10/01/the-post-growth-economy/

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/07/producitivty-growth-the-long-term.html

A related point, via the excellent people at the Washington Post’s ‘Wonkblog’ – http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/14/why-were-facing-a-mcjob-recovery/

Finally, a thought. We should be careful not to ignore the potential influence of economic hysteresis – i.e. past high unemployment may have become structurally embedded into the economy.
Brumanuensis

Bit late to the party, but I’ll throw in a few thoughts:

First, Krugman’s view on Gordon – http://krugman.blogs.nytimes.com/2012/08/28/is-economic-growth-going-down-the-drain/

Second, Flip-Chart Fairy Tales and Chris Dillow’s respective takes –

http://flipchartfairytales.wordpress.com/2012/10/01/the-post-growth-economy/

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/07/producitivty-growth-the-long-term.html

A related point, via the excellent people at the Washington Post’s ‘Wonkblog’ – http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/14/why-were-facing-a-mcjob-recovery/

Finally, a thought. We should be careful not to ignore the potential influence of economic hysteresis – i.e. past high unemployment may have become structurally embedded into the economy.
Brumanuensis

Bit late to the party, but I’ll throw in a few thoughts:

First, Krugman’s view on Gordon – http://krugman.blogs.nytimes.com/2012/08/28/is-economic-growth-going-down-the-drain/

Second, Flip-Chart Fairy Tales and Chris Dillow’s respective takes –

http://flipchartfairytales.wordpress.com/2012/10/01/the-post-growth-economy/

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/07/producitivty-growth-the-long-term.html

A related point, via the excellent people at the Washington Post’s ‘Wonkblog’ – http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/14/why-were-facing-a-mcjob-recovery/

Finally, a thought. We should be careful not to ignore the potential influence of economic hysteresis – i.e. past high unemployment may have become structurally embedded into the economy.
Brumanuensis

Bit late to the party, but I’ll throw in a few thoughts:

First, Krugman’s view on Gordon – http://krugman.blogs.nytimes.com/2012/08/28/is-economic-growth-going-down-the-drain/

Second, Flip-Chart Fairy Tales and Chris Dillow’s respective takes –

http://flipchartfairytales.wordpress.com/2012/10/01/the-post-growth-economy/

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/07/producitivty-growth-the-long-term.html

A related point, via the excellent people at the Washington Post’s ‘Wonkblog’ – http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/14/why-were-facing-a-mcjob-recovery/

Finally, a thought. We should be careful not to ignore the potential influence of economic hysteresis – i.e. past high unemployment may have become structurally embedded into the economy.
Brumanuensis

Bit late to the party, but I’ll throw in a few thoughts:

First, Krugman’s view on Gordon – http://krugman.blogs.nytimes.com/2012/08/28/is-economic-growth-going-down-the-drain/

Second, Flip-Chart Fairy Tales and Chris Dillow’s respective takes –

http://flipchartfairytales.wordpress.com/2012/10/01/the-post-growth-economy/

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/07/producitivty-growth-the-long-term.html

A related point, via the excellent people at the Washington Post’s ‘Wonkblog’ – http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/14/why-were-facing-a-mcjob-recovery/

Finally, a thought. We should be careful not to ignore the potential influence of economic hysteresis – i.e. past high unemployment may have become structurally embedded into the economy.
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