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The Progressive Economics Forum

Is Slow “Growth” Inevitable?

Most of the world economy (including Canada’s) has performed sluggishly since the Global Financial Crisis of 2008-09.  And many economic and fiscal projections now accept this pattern of slow growth as more-or-less inevitable, as a “new normal.” This argument is typically invoked to justify a ratcheting down of expectations regarding job prospects, incomes, and public services.

In my view it’s important for progressives to dig beneath the observed reality of prolonged stagnation, identify its causes (which I attribute largely to sustained weakness in the dynamism of private business investment), and then identify progressive, relevant responses — instead of assuming that stagnation is inevitable or even (in the eyes of some) beneficial.  Of course, while we do this, “growth” has to be correctly defined and measured, and we must always be crystal clear that lifting living, social, and environmental standards — not “growth” for its own sake — is our goal.  In this context, I prefer to discuss “work” rather than “growth,” since after all human productive activity (“work,” broadly defined) is the only thing that adds value to the natural resources we harvest (hopefully in a sustainable fashion) from the environment.  It is obvious that there is plenty of work to be done out there (caring for ourselves, our communities, and the environment), and millions of underutilized people with the desire and ability to do it.

By connecting these dots in an ambitious, expansionary vision of renewed full employment (which would indeed translate into economic “growth,” but that’s not the goal), I believe that progressives could provide a relevant and effective alternative to the divisive and dangerous backlash against prolonged stagnation that we are seeing with the Brexit and Trump phenomena.

Here is a longer piece on this topic I recently prepared for the June edition of the CCPA’s Monitor.  That edition also featured several other thoughtful views on growth and jobs from other writers (including Armine Yalnizyan and Seth Klein); check out the whole issue here.

A Progressive Response to Sustained Stagnation

The global economy cannot seem to regain any sustained momentum, even eight years after the financial crisis and worldwide recession that broke out in 2008. Economic growth continues to underperform and forecasts are continually revised downward. Government budgets around the world (including in Canada) are undermined by the stagnation in output, incomes…and tax revenues. Much of the blame for this year’s expected $30-billion federal deficit, for example, is due to the fact that, in the wake of last year’s recession, Canadian economic growth is so much weaker than predicted in previous forecasts.

Many economists have concluded that this sluggish state of affairs is somehow a “new normal” for the economy. They argue that slow growth (and the fiscal pressures that result) is more or less inevitable, reflecting a range of supposedly rational causes including slower population growth, sluggish productivity, weak investor confidence, etc. Their policy conclusion is dismal: we all must ratchet down our expectations, including what we expect from government, to reflect this gritty reality. Even some progressives seem to accept that slow growth is an inevitable feature of the economic outlook. Some with an environmentalist perspective may actually welcome it, since they associate economic growth with ecological destruction, and hence less growth must mean less destruction.

I disagree on all counts. I do not think that slow growth is natural, inevitable or desirable. I do not think that stagnation and recession will fix environmental problems; more likely, they will make things worse. I think we should expect, and indeed demand, more from our economy, from employers and from government—not less. By advancing and winning concrete demands for more incomes, more services and more sustainability we can simultaneously fix the stagnation, unemployment and underemployment that are damaging communities across the country.

Part of the issue here is understanding what we mean by growth; what is it, and where does it come from? In my book, Economics for Everyone (a second edition was recently co-published by the CCPA), I actually try to dispense with the term “growth.” I prefer to discuss “work.” Because it is ultimately productive human activity (a.k.a. work, in all its varied forms) that determines the quantity and quality of the goods and services we collectively produce.

Conventionally, economic growth refers to an expansion in the value of real (or inflation-adjusted) GDP. In terms of its impact on the labour market, real GDP needs to grow by 2% per year or more just to keep up with normal population and productivity growth. Any slower than that, and unemployment will grow, whether reflected explicitly in official data or unofficially in underemployment, precarious work and non-participation.

In terms of its impact on living standards, the effects of growth depend totally on how new GDP is produced and what it is used for. If higher GDP is associated with higher profit margins, which in turn are accumulated in undistributed corporate cash hoards or paid out in fat dividends to well-off investors, then growth may accomplish nothing. And if higher GDP is generated through extensive resource exploitation, sucking more value out of a non-renewable resource base and ignoring the need for conservation and amelioration, then it will certainly be associated with continued environmental degradation.

On the other hand, there are many other ways in which an economy can “grow,” and a country’s real GDP increase. It could happen, for example, through a major expansion in human services delivery (e.g., child care, elder care, education and culture). Proper programs in these areas would create hundreds of thousands of new jobs, tens of billions of dollars in new incomes, and many billions in revenues for government—not to mention delivering services that are valuable and life-enhancing in their own regard. GDP might also grow because of huge investments in public capital and physical infrastructure—things like utilities, affordable housing, education and cultural facilities, and parks.

Properly managed, these types of growth are largely benign in their environmental impact. Even better, real GDP could also be increased through environmental enhancements such as energy-saving building retrofits, renewable energy supplies, cleaning up pollution and creating or expanding public transit. These activities generate “value-added,” employment, incomes and taxes as surely as any bitumen mine or smoke-belching factory would, yet they leave the environment in better shape, not worse.

There is no shortage of work to do in our society, a lot of it related to caring for each other and the environment. And there is no shortage of people who want—and need—to perform that work; people who are hungry for decent jobs and the economic security, self-worth and social connection that good work brings. So let’s imagine an ambitious economic recovery plan predicated simply on matching unmet needs with our capacity to work and produce. If we do that, the economy (measured by real GDP) will “grow,” but growth will be a side effect, not the motive, for the work we are doing.

Ultimately, there are only two constraints stopping us from achieving that better future. One is the natural environment: we need access to natural resources as inputs for all the work we do, and we need a sustainable, healthy environment in which to live and work. So our economic recovery plan has to value the environment and its resources, and regulate both production and consumption decisions to reflect and preserve environmental wealth.

The other constraint is our willingness and availability to work. We are more educated and productive than ever before. But counting underemployment and hidden unemployment, there are at least 2.5 million people unemployed in Canada today. Giving them productive, useful jobs would power a 15% increase in total employment, generate around $300 billion per year in extra value-added, and add around $100 billion per year to government revenues. We are miles away from a situation where our capacity to produce is truly constrained by a shortage of labour.

Modern-day capitalism is certainly not managed in order to maximize growth—quite the opposite. The top goal of current economic governance is to reinforce the wealth and power of well-off people, and the companies and institutions they own. In fact, “growth” has been consistently sacrificed to those other priorities since the dawn of neoliberalism nearly four decades ago. Interest rates are cranked up whenever growth gets “out of hand,” workers are structurally disempowered through de-unionization and precarious work, and endless austerity is imposed in the public sphere. These are all anti-growth policies.

Our response to the resulting hardships and outrages should not be to reify “growth” or seek expansion for its own sake. Instead, we should simply demand our right to work for the things we need in life: the goods and services we need to consume, the services and facilities we need in our communities and public spaces, and the sustainability we need in our environment.

There is an apt historical precedent for the type of recovery plan I am imagining. The last time the whole world was engulfed by a breakdown of speculative finance, the global economy limped through what would have felt like an endless decade of painful recession. That was, of course, the 1929 stock market crash and subsequent Great Depression. Conventional policy responses repeatedly failed to rekindle economic momentum. A decade of hopelessness and hardship produced political polarization, intolerance, and ultimately war. (This is already sounding frighteningly familiar to anyone who has been following the U.S. primaries.)

Ironically, but tragically for the millions of soldiers and civilians killed, the outbreak of world war actually led to an improvement in incomes, living conditions and health for average people back on the western home front. How? Government sidestepped the normal logic of economic decision-making under capitalism: namely, that something should be done only if it is profitable for a private company to do it. Instead, things were being done because they were considered to be essential. The overarching importance of defeating fascism created a political consensus that all possible resources had to be directed to the war effort. Need, not profit, guided production decisions. (Of course, the Second World War was profitable for many private businesses—in both the fighting and the subsequent reconstruction—but that is not ultimately why that war was fought.)

Government planners threw every resource available at the war effort. Unemployment disappeared within months. New sources of labour supply were identified and mobilized—women in particular, whose formal paid work now supplemented the unpaid work they were doing at home. Despite the taxes and rationing associated with the wartime economy, incomes grew, nutrition improved and life expectancy (again, for non-combatants) grew. Money was never a constraint on what could be done. Innovative financing methods were developed to pay the bills. The only factor limiting production was the availability of labour. Far-reaching economic planning and regulations (encouraged by feisty trade unionists, women, workers of colour, and other traditionally exploited groups) helped to distribute incomes fairly, and to allocate both scarce resources and consumer goods.

Money is no constraint on what our economy could accomplish today, either. We have learned, in recent years, that private financial institutions create unconstrained amounts of credit money out of thin air, whenever it suits their profit-driven lending business to do so. Under quantitative easing, it was proven once and for all that public credit institutions can do the same thing. (As yet, that public credit-creating power has not been applied in truly democratic or productive ways, probably for fear of offending traditional sensibilities about private property rights and “hard budget constraints”.)

New talk of “helicopter money” strategies (whereby a central bank would create new credit and directly inject it into the real economy, to support investment, government programs, or consumption) confirms that if we collectively decide we need it, and enforce our will on our political and monetary leaders, we could create all the money needed to finance real, productive work. So long as millions are languishing without a job, there does not appear to be a good argument against doing so. To the contrary, if it helps us put an end to pollution (including greenhouse gases) and poverty, an all-out war-like mobilization seems like a no-brainer. Living standards would grow, taxes would be paid, the environment would be protected, and real GDP would grow rapidly, though that’s not the point.

Of course, there are many problems and challenges associated with an all-out economic mobilization of the sort associated with World War II.  But the basic point that every economic resource, and every willing worker, can be put to work when society decided it is important enough to do so, is valid in every economic context.  And short of a desperate national effort like the war, there are many incremental ways in which economic policy could be reformed to prioritize job creation and the mobilization of idle resources, thus giving unemployed and underemployed Canadians the opportunity to work and produce to their fullest possible extent. Many of them can be found in the Alternative Federal Budget.

All of these measures are motivated by our common goals of creating jobs, fostering work, generating incomes, and wisely using the wealth that we subsequently produce to improve human and environmental well-being.

In sum, demanding our right to work, to produce valuable goods and services, to generate incomes and pay our taxes, fundamentally challenges the failures of the current economy—and the current economic decision-making process—to mobilize resources and meet our human and environmental needs. The prevailing pessimism of existing economic forecasts can and should be rejected. We don’t need to accept a world in which unemployment, underemployment and stagnation are the norm. They certainly are not inevitable. And we can expect more from our economy, and the elites who are running it.

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Comments

Comment from Larry Kazdan
Time: July 27, 2016, 6:32 pm

In his blog, Jim rightly calls for an all-out economic mobilization:

“New talk of “helicopter money” strategies (whereby a central bank would create new credit and directly inject it into the real economy, to support investment, government programs, or consumption) confirms that if we collectively decide we need it, and enforce our will on our political and monetary leaders, we could create all the money needed to finance real, productive work. So long as millions are languishing without a job, there does not appear to be a good argument against doing so. To the contrary, if it helps us put an end to pollution (including greenhouse gases) and poverty, an all-out war-like mobilization seems like a no-brainer. Living standards would grow, taxes would be paid, the environment would be protected, and real GDP would grow rapidly, though that’s not the point.
Of course, there are many problems and challenges associated with an all-out economic mobilization of the sort associated with World War II. But the basic point that every economic resource, and every willing worker, can be put to work when society decided it is important enough to do so, is valid in every economic context.”

Indeed! But while the 2016 Alternative Federal Budget has many admirable features, the plan for a full-employment economy is conspicuously missing. See p.16, where the AFB projects an unemployment rate in 2018 of 6% (equivalent to 1,239.000 unemployed). This does not include underemployment nor discouraged workers, and constitutes a difference between Finance Canada’s Base Case projection of only 4/10ths of 1 percent. (See p.14) Does this seem like “an ambitious, expansionary vision of renewed full employment” as Jim calls for?

Especially since providing jobs is one of the most effective means of reducing poverty, why would we tolerate mass joblessness with its waste of human talent and its infliction of distress? An estimated 2/3 of poverty could be eliminated simply by offering jobs to all those who want one. Despite AFB’s admonition “We shouldn’t let the idea of federal deficits, even relatively large ones, scare us off making much needed investments in Canada..”, the AFB does not actually advocate robust initiatives sufficient to put the mass of unemployed back to work quickly. What is the explanation for this glaring omission? Is AFB sacrificing the well-being of more than a million Canadians just to preserve conservative notions of “fiscal room” and “debt-to-GDP ratios”?

L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City, Research Director with the Center for Full Employment and Price Stability and Senior Research Scholar at The Levy Economics Institute.
http://www.nakedcapitalism.com/2014/04/mmt-policy.html

“Well it’s very easy to reduce the inequality that results from low income, from poverty, from low wages; all you have to do is offer jobs. Minsky did a calculation [in] 1974 and Professor Kelton and I did one around 2000. We showed that if you just give a job to anyone who wants to work you will eliminate two thirds of all poverty, even if you pay only the minimum wage. We would like to see the job pay more than that, but even at a minimum wage you eliminate two-thirds of all poverty. So most poverty is due to joblessness. People who cannot get jobs or maybe they get jobs that last a few months and then they are unemployed again. We need permanent jobs that pay a decent wage and you’ll eliminate most poverty. You’ll still need some kinds of anti-poverty programs but the jobs are the best anti-poverty programs there are, then you need something else to fill the gaps.”

Comment from Gareth Park
Time: September 5, 2016, 1:53 pm

The idea that money be created out of thin air to do good feels deeply counter-intuitive. But the main concern cited, inflation, seems to be dormant. Thanks for making the case for a bolder initiative. Are there particular parameters that should surround this? Is this possible only in conditions like we have today of sluggish demand and risk of deflation?

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