In the past year, I’ve had an increasing number of friends ask me questions about some of the controversies of economics. I’m pleased, because it is far too important a subject to be left to economists.
For the benefit of friends who might be interested, here are my thoughts on two big debates that are occurring at the moment. I’m sure plenty of people will tell me that what I’m saying is obvious, but I see these points contradicted often enough that I believe they’re worth stating.
I hear some people, particularly on the left, arguing that we have to end our obsession with growth in order to save the planet. To what extent is that true?
I definitely agree that we are currently using up an unsustainable quantity of natural resources. If we keep our resource mix as it is now, and grow it, we’ll have a big problem on our hands. So in that sense, yes, continued growth, all else being the same, is a problem.
But growth, as it is properly measured, means growth in value, which doesn’t have to require growth in resources. If people value cleaner neighbourhoods, longer lasting clothes and consumer goods, more sustainable and tastier food, and better entertainment, that is still growth. We need to ensure any growth we are getting is making our lives more sustainable.
That isn’t to say that we should always want more value. If the value we produce is less than what we give up to get that value, it doesn’t make sense to chase after it. For example, there’s a movement going on to work towards a 4-day week. If this were to improve people’s lives, I’d think it was a good thing, even if it reduced growth.
So, I want to see a sustainable improvement in wellbeing, and believe that growth is a way to get there, we just need to make sure that it is the right kind of growth.
Modern Monetary Theory
The second debate in economics is labelled Modern Monetary Theory. I see this as MMTers arguing that governments can spend money they don’t have, and that the conservatives were wrong. However, I’m not aware of any conservatives that actually believe that the government can’t spend money they don’t have, just that it will inevitably/likely/all things being equal lead to increased inflation.
One resolution to this debate is for the MMTers to agree that increasing spending leads to inflation, and that they don’t care. Perhaps some conservative economists care about inflation more than they should, but I do believe we should care about inflation, especially if it is long-term and out of control.
The more interesting resolution to the debate is whether there are circumstances where increased government spending doesn’t lead to significant inflation. And I definitely believe there are many cases where that is the case —these are things we call good investments — cases where spending more money now earns us future money (or reduces future costs).
I’ve never met a conservative economist who genuinely thought that good investments by the government were technically impossible. A more charitable interpretation of what they are saying is that they are merely unlikely, perhaps as a result of the political process.
A less charitable interpretation is that the gains from government investment will benefit other people more than them. I obviously would never draw this conclusion, but I do believe that distributional effects matter. For example, printing money to fund a universal basic income does, will, all things being equal, lower the value of the currency, therefore redistributing value from the wealthier to the less wealthy. Perhaps redistribution could increase the overall value in such a way that the wealthy ended up even wealthier, in value terms, than before (for example, by increasing access to good art, or by reducing the cost of policing). But we need to understand that people will tend to assume that won’t be the case.
So, I believe the way to resolve this debate is to talk about the specific investments, and build consensus around which ones are worthwhile. We need to acknowledge the part that redistribution plays in our spending plans, and get a better understanding of how redistribution can best increase the overall value. To my mind, this discussion will be far more worthwhile than going back and forth on whether governments can or can’t spend money.