Sunday, April 29, 2018

David Pilling — Rethinking Economic Growth: A Review Of “The Growth Delusion”

Conventional economics prioritizes "growth" measured chiefly by per capita real GDP, assuming that increasing per capita real GDP increases the standard of living of a society. However, per capita real GDP is not a metric of the standard of living since it does not include distribution. They becomes crucial as inequality of income and net worth increases. A small segment of the population can be getting better off, while most of the society either languishes or declines.

The typical argument based on conventional economic reasoning is that "growth" makes everyone better off by increasing national wealth regardless of distributional effects, because "a rising tide lifts all boats." 

This is called "trickle down." According to Margaret Thatcher, "there is no alternative" (TINA) for achieving growth other than trickle down.

The assumption of trickle-down is used to justify prioritizing capital as a factor of production, folding land into capital. Prioritizing capital over labor is assumed to increase capital formation, which is in turn assumed to be the most important factor in growth and growth rate flow.

Now the push is to include "human capital" in capital, assuming that labor power is determined by knowledge and skill, which is workers' "capital."
It is also imperative to seriously rethink the nature, composition, and distribution of economic growth in order to make growth, and its GDP measure, humane. Economic thinkers belonging to the “classical school” of economic thought believed that the question of distribution of surplus couldn’t be separated from production, as the contribution of different economic classes to social production was dictated by the prior distribution of endowments among them. To turn the focus back to ‘distribution’ we can draw inspiration and insights from the classical school.
The classical school culminated in the work of Karl Marx and Friedrich Engels. Arguably it was continued by Thorstein Veblen and the institutional economics he inspired by continuing the exploration of the effect of class and class endowments. But for all practical purposes, the classical approach was sidelined by the rise of marginalism and the neoclassical approach based on it.

Raghunath Nageswaran

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