Saturday, May 31, 2014

Growth...What is it Good For?

The old "War" song comes to mind - war, what is it good for? "Absolutely nothing!" And like too many wars, the loss of growth feels almost as inevitable as of late. But how did general acceptance in a lowered growth trend for economic activity come about - an acceptance which spans ideological divides? In a post some days back which touched on zero sum mindsets, I neglected to link to a recent post from Ed Dolan. In the nineties, Dolan taught Russian students at a business school in Moscow, and he recalls:
...the hardest thing for some of them to grasp was the idea that business could be something other than a zero sum game...who is going to get the best of whom?...The question reflects a belief that every human interaction with outsiders necessarily has a winner and a loser.
Granted, in the nineties there was considerable contrast between this attitude, and the exuberance of so many in the U.S. But what about now? Only consider how many believe - for instance - that more money printing by the Fed would not really assist aggregate demand. Supposedly, it would only put more money in the hands of the "winners" instead of everyone else, i.e. not positively affect overall outcomes. How much difference exists between this "logic" and what Ed Dolan encountered among his Russian students?

I might have forgotten to return to his post, but then he followed it with this one, "Why the Correct Answer to 'What Should We Do About Slowing Growth' is 'Nothing'". Wait, what, absolutely nothing? If we are going down the road of assuming less growth isn't problematic, more individuals could very well take the attitude those students held. Indeed, it seems that some can scarcely wait and are more than ready to start the winner-loser public multiple ways.

Or course, Dolan's post is far more considered than his title implies. Any readers concerned about this topic might check out Delong's referenced article, which has a number of good links as well. Another related link is a podcast featuring James Pethokoukis with Brink Lindsey, "Why is fast growth getting harder for the US economy?" Delong's article also pointed out that Paul Krugman forecast an eventual slowing of the U.S. growth pattern back in the nineties, when hardly anyone even noticed - yup, the same growth pattern which dated back to the post Civil War economy.

In a response to Ed Dolan's post, Dietz Vollrath asks, "Who cares how fast GDP grows? Vollrath summarizes:
The ultimate point of Ed Dolan's post, and this one, is that there is nothing inherently desirable about rising GDP. It is simply a statistical construct capturing the total value of currently produced goods and services. If we prefer things that are not currently produced goods and services, then who cares if GDP rises or falls?
Just the same, GDP represents the labor participation rate to a greater degree than it may seem. If income isn't there, goods and services (output) will also decline. Part of the rationale which has emerged is that a falling participation rate is okay - perhaps even to be expected. But the way it is taking place is misleading, because previous lower participation rates in the formal economy, coexisted alongside agrarian roles in which family members both young and old, still participated. The fact that automation replaced the agrarian economy in the developed world, means no alternative equilibrium exists for a considerable portion of the population. It is this missing equilibrium that the marketplace needs to redefine on new terms.

What's more, the recent (formal) role of women in the marketplace was a factor which was far more recent than the reliable growth trajectory which emerged after the Civil War. That calls the rationale of the one off economic gain, into question. Business and government brought women in to assist the war effort as the agrarian economy changed. This indicates their hidden presence in the earlier agrarian economy, and the economic smoothing it represented for the trend line of growth. Indeed, women began entering the formal workplace, only after they were not needed on the farm.

Just as important, children were part of the informal equilibrium (yes my Dad picked cotton, long before his college degree), and their economic contribution to land production was gradually replaced through their consumer roles in educational formation - another economic smoothing effect. In other words, not just women were contributing to an informal agrarian economy all along, but youth were also represented in the economic balance over time.

An important corollary for labor force participation is the fact that as education moves into the digital realm (making today's education formation a smaller GDP component as well), economic representation of students after the age of twelve in knowledge and skills participation will also be needed. In other words, when they are allowed to produce from what they have consumed in educational terms, the economic balance of education in GDP will not be lost. They can be brought into the formal economy (monetary compensation) for incremental or stair step education among peers, as well as diverse skills sets in local community. This way, the digital realm would not become isolated learning environments to replace classrooms, and time use in education sharing would become actual product.

Only consider the growing fragility of school environments today, where youth spends far too many years without actual ability to interact responsibly with others. The reality is that the genesis of this process of participation should emerge prior to one's teenage years. It should be what the first years of education prepare students for. When students are left in a dependent state for too long - especially in an economy which no longer exists at full potential - it's hard for a zero sum mentality not to emerge.

There's a good reason why the age of twelve feels traumatic. After all, one has outgrown a certain phase of childhood, yet nothing has really changed for the student otherwise in their immediate environment. Today's student is still needlessly left in a dependent state, despite a lot of focused preparation for one's future which has already taken place. Instead of real reciprocation with peers and adults at the appropriate age of twelve, students have been left dependent on adults and in competitive environments with peers for too long. Economic participation after the age of twelve needs to be a rite of passage, not only for economic balance but also the restoration of purpose in many a student's life.

Many readers are aware that I consider lifelong participation in the formal economy a necessity for both economic stability and individual aspirations. Fortunately, the gains in automation of recent memory give people the option to do this on the knowledge and skills based terms most significant, to them. I realize this post seemed to ramble a bit, but it needed to capture some of the missing elements of economic equilibrium which otherwise might not have been considered in this context.

My line of reasoning suggests that workforce participation has not really been this low in anyone's memory, even if some participation was of a hidden nature. To accept this present state of affairs as inevitable, would likely lead to deflation and a gradual unwinding of many economic gains, over time. While GDP is certainly not a perfect indicator, it tells no lies re whether or not a population is adequately represented in economic terms. No solution in this regard is complete, without the inclusion of a larger percentage of populations in economic life for the long run.

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