November 26, 2005
A review of Benjamin Friedman's The Moral Consequences of Economic Growth by Joseph Stiglitz.
The general position of Australian economists is one of a strong aversion to advocating government intervention because the basic presumption is often that markets generally work by themselves and that there are just a few limited instances in which government action is needed to correct market failure. Government economic policy, the thinking goes, should include only minimal intervention to ensure economic efficiency through competition. As Friedman observes:
"When we talk about microeconomic issues in economics, the conversation boils down to efficiency: How can we best organize economic activity---production, buying, selling, consuming---in order to keep the economy as close as possible to the frontier that represents the maximum possible production and satisfaction of the desires of all. Maximizing the use of our productive capacity dominates the microeconomic side of what economists do. Then, when we switch to macroeconomics, we are dealing with the use of government policies, in the first instance, to minimize the effect of recessions, in which business falls below the productive capacity of the economy, and then, even more important, to achieve economic growth, expanding that frontier of production over time."
It is true that there is acknowledgement of market failures that go well beyond externalities and some Understanding of the limitations of the market that leads to an understanding of the necessary role of government in promoting growth and making sure that it is the right kind.
However, in this economic discourse one rarely hears a discussion about ethics and economic growth as the political debate is pretty much about polarized around being for growth versus being against growth. What is usually missing is a moral perspective to the ongoing debate on the effects of economic growth and economic globalization and about whether economic growth actually benefits or harms society. As Joseph Stilglitz says:
In short, the debate should not be centered on whether one is in favor of growth or against it. The question should be, are there policies that can promote what might be called moral growth -- growth that is sustainable, that increases living standards not just today but for future generations as well, and that leads to a more tolerant, open society? Also, what can be done to ensure that the benefits of growth are shared equitably, creating a society with more social justice and solidarity rather than one with deep rifts and cleavages of the kind that became so apparent in New Orleans in the aftermath of Hurricane Katrina?
The debate should be about the right kind of economic growth.
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Market growth, or market imbalance? If we talk of imbalance then suddenly monopolies and other economic power inequities are included in the language.