Economics

When the growth model fails

In this rather metaphysical piece, Daniel Cohen grapples with the constant search for economic growth. He suggests we, as a population, “set aside greed and fear” and invest in the economy without worry. Unfortunately, he notes that most of us are driven by capitalism into a constant need for a higher salary. The environment of constant competition produces the inaccessibility of contentment. Wealth hoarding by the rich, and constant worry about the future by the poor means hardly anyone invests in our economy, leading to stangnation. Cohen also tackles the question of labour in am increasingly mechanized world. He observes that unhappy workers don’t invest in economy, and thus, the happiness of workers is essential to economic growth.

Read an excerpt of the article written by Daniel Cohen:

PARIS — Economic growth is the religion of the modern world, the elixir that eases the pain of conflicts, the promise of indefinite progress. It is the solution to our perennial worries about not getting what we don’t have. And yet, at least in the West, the growth model is now as fleeting as Proust’s Albertine Simonet: Coming and going, with busts following booms and booms following busts, while an ideal world of steady, inclusive, long-lasting growth fades away. In the United States, 80 percent of the population has seen no growth in purchasing power over the last 30 years. In France, annual per capita growth has dropped steadily from 3 percent in the 1970s to less than zero in 2013. In the interim, the political class has been flummoxed by stagnation, a hesitation that has opened the doors to populists of various stripes. But in its desperate search for scapegoats, the West skirts the key question: What would happen if our quest for never-ending economic growth has become a mirage? Would we find a suitable replacement for the system, or sink into despair and violence? John Maynard Keynes, writing at the outset of the economic crisis of the 1930s, warned against misdiagnosing the situation. In his famous article ‘‘Economic Possibilities for Our Grandchildren,’’ he declared that a period of exceptional prosperity was at hand and that the world’s ‘‘economic problem’’ would soon be resolved — just as, in the preceding century, strong growth and food safety arrived on a wave of technical innovation. To wring all we can out of the economic growth model, he said, the world must set aside greed and fear, outdated characteristics of a bygone era of misery. Instead, we must learn to enjoy ourselves — and above all to consume, without restraint and without worrying about tomorrow. Ultimately, Keynes believed that we would end up working only three hours a day and after turn to the truly important tasks of art, culture and religion. Sadly, such metaphysical pursuits have not come to be the world’s priority at this point in history; instead, we still live in fear of poverty, inequality and joblessness. The perpetual quest for material wealth remains our primary goal, despite the fact that we in the West are six times richer than we were in the 1930s. Thus it must be said that Keynes, an intellectual giant of economics, erred: The vast accumulation of wealth hasn’t at all satisfied or moderated the appetites of our materialist society. The so-called Easterlin paradox helps explain Keynes’s mistake. According to the economist Richard Easterlin, wealth does not correlate to happiness. A higher salary is obviously always desirable, yet once we’ve reached that target it is never enough: We fall victim to a process of habituation of which we are largely unaware. Similarly, as we each set goals for ourselves driven by our current desires, we fail to take into account how our desires change over time and in new circumstances. This explains why economic growth, more than pure wealth, is the key to the functioning of our society: It provides each of us with the hope that we can rise above our present condition, even though this dream remains ever elusive. Which brings us to the fundamental question: Will economic growth return, and if it doesn’t, what then? Experts are sharply divided. The pessimists, led by the economist Robert Gordon, believe that the potential for economic growth is now much lower than in the last century. The new industrial revolution may have given us the smartphone, but that hardly compares, in his thinking, to the great advances of the 20th century: electricity, the automobile, the airplane, movies, television, antibiotics. On the other hand, optimists like Erik Brynjolfsson and Andrew McAfee tell us in their book ‘‘The Second Machine Age’’ that Moore’s Law is going to allow ‘‘the digitization of just about everything.’’ Already, Google is experimenting with driverless cars, and robots are caring for the elderly in Japan: Another burst of growth appears to be at hand. To decide who is right, one must first recognize that the two camps aren’t focusing on the same things: For the pessimists, it’s the consumer who counts; for the optimists, it’s the machines. ...Read more

 

Why 2014 is a big deal

The drastic drop in crude oil prices does increase the purchasing power of the public. But it also reduces the demand for healthy alternatives like electric cars. The articles talks about the radical changes 2014 brought with it including major weather alterations and important decisions for a cleaner environment. The article written by Thomas L. Friedman talks about how fracking (a modern technique to extract oil) is reducing the oil prices and intern cause greater pollution. The notes that the same people who invent various methods to reduce environmental degradation are the ones who invent techniques like fracking. After much pondering, the author comes to a conclusion that the year 2014 can be a year of both technological advancement as well as environment sustainability. 

Read an excerpt of the article written by Thomas L. Friedman: 

I was just about to go with a column that started like this: When they write the history of the global response to climate change, 2014 could well be seen as the moment when the balance between action and denial tipped decisively toward action. That’s thanks to the convergence of four giant forces: São Paulo, Brazil, went dry; China and the United States together went green; solar panels went cheap; and Google and Apple went home. But before I could go further, the bottom fell out of the world oil price, and the energy economist Phil Verleger wrote me, saying: ‘‘Fracking is a technological breakthrough like the introduction of the PC. Low-cost producers such as the Saudis will respond to the threat of these increased supplies by holding prices down’’ — hoping the price falls below the cost of fracking and knocks some of those American frackers out. In the meantime, though, he added, sustained low prices for oil and gas would ‘‘retard’’ efforts to sell more climate-friendly, fuel-efficient vehicles that are helped by high oil prices and slow the shift to more climate-friendly electricity generation by wind and solar that is helped by high gas prices. So I guess the lead I have to go with now is: When they write the history of the global response to climate change, 2014 surely would have been seen as the moment when the climate debate ended. Alas, though, world crude oil prices collapsed, making it less likely that the world will do what the International Energy Agency recently told us we must: keep most of the world’s proven oil and gas reserves in the ground. As the I.E.A. warned, ‘‘no more than one-third of proven reserves of fossil fuels can be consumed prior to 2050’’ — otherwise we’ll bust through the limit of a 2-degree Celsius rise in average temperature that scientists believe will unleash truly disruptive ice melt, sea level rise and weather extremes. ...Read more