Missing the Economic Big Picture: No Longer so Fresh at Project Syndicate
Missing the Economic Big Picture: As former WTO Director-General Pascal Lamy said earlier this month in my hearing, quoting from a conversation between Wu Jincang and Chinese Sixth Buddhist Patriarch Huineng:
"When the philosopher points at the moon, the fool looks at the finger". Market capitalism is the moon. Globalization is the finger.
Between the Little Englanders' BREXIT vote and those currently installing Donald Trump in the American presidency in the belief that he will make America great again by negotiating very different "trade deals", there has been a lot of finger-watching this year.
Let's orient ourselves by looking at the economic growth, economic inequality, and economic policy moon today:
Our technologies continue to leap forward at a remarkable pace, primarily in information processing but we hope, soon, in biotechnology as well.
The measured pace of productivity growth in the North Atlantic at the frontier has fallen from the 2%/year we had grown used to expect since 1870 to about 1%/year. That is the average amount by which the real resources of making this year what we made last year declines.
While Robert Gordon maintains that all of the true "game changers"--electric power, flight, modern sanitation--have been invented, he is almost surely wrong. Game changers change how we live and are, by and large, missed by the standard measurements of economic growth. Expect more game changers.
Both measured productivity growth and game changers refer to production destined for the market. But a great deal of our true wealth lies within the household, as we combine market goods and services, our time, information, and communication to accomplish our ends. While the measured pace of productivity growth has fallen, all indicators are that the truest productivity growth--an increase in the ability of people to live lives they like--has been leaping forward due to synergies between information and communication technologies on the one hand and the goods and services we can produce for the market on the other.
However, low-pressure economies plus the fact that we are making insufficient efforts in education mean that nearly everyone below the 80%-ile of the income distribution in a North Atlantic country has missed out on what measured economic growth (1) we have had for more than a generation. They have still benefited from (3), however.
The fact that nearly everyone below the 80%-ile has missed out on (1) we have had has created strong Polanyiesque disappointed expectations: market capitalism has not delivered what it was expected to deliver and was supposed to deliver in terms of making a 1980-style life more affordable.
The past thirty years have seen the rise of an Overclass that exercises more relative economic power than even the robber barons of the Gilded Age. The reasons for its rise are not clear.
While China has joined and India is joining the Pacific Rim in converging to North Atlantic levels of productivity and prosperity the rest of the world continues to lag behind: if it is no longer falling further behind the North Atlantic, it is only growing as fast as the North Atlantic, and not closing the productivity and prosperity gap.
These seven features of how market capitalism curbed and aided by social democracy are doing together make up the moon. Their combined and uneven development creates both elation and distress. Determining how to successfully manage the global trade system is an element, but only a relatively small element in context, of the social democratic task of managing market capitalism. And individual trade negotiations? They are definitely not the moon. Focus on the moon.
