WHAT IS A GOOD ECONOMY
Economics tries to explain how the economy works. But economists are equally (and justifiably) concerned with trying to make it work better. This inherently requires the economist (and every citizen) to make value judgments about what kind of economy is more desirable. Most economists, unfortunately, are not honest about those value judgments; they like to pretend that their profession is “scientific” and hence value-free, but this is a charade.
Deciding what economic goals to pursue will reflect the priorities and interests of different individuals, communities, and classes. It is an inherently subjective choice.
Here is my list of key economic goals. In my view, the more of these goals an economy achieves, the better it is:
An economy should produce enough goods and services to support its citizens and allow them to enjoy life to the fullest. Prosperity does not just mean having more “stuff.” It means enjoying a good balance between private consumption, public services, and leisure time. (Incidentally, leisure time is another valuable thing that doesn’t appear in GDP statistics.)
The members of an economy should be confident that their economic conditions are reasonably stable. They shouldn’t have to worry about being able to support themselves (so long as they work if they’re able), to keep their home, and to pass on decent economic opportunities to their children. The economic insecurity and turmoil experienced by billions of people today impose real costs on them. Even people who may never lose their job or home spend a great deal of time and energy worrying that they might. That fear is costly. By the same token, economic security – being able to sleep at night without worrying about your livelihood – is valuable in its own right.
Economic progress requires us to think continuously about how to make our work more productive. This innovation includes imagining new goods and services (products), and better ways of producing them (processes). An economy should be organized in a way that promotes and facilitates innovative behavior, or else it will eventually run out of creative energy and forward momentum.
Individuals have different preferences, hopes, and dreams (although those preferences are strongly shaped by social pressures). They should have a reasonable ability to make economic decisions – including the sort of work they do, where they live, and what they consume – in line with those preferences. There is a gigantic, ideological myth that only free-market economies truly respect individual “choice.” This is obviously wrong: the choices of billions of human beings are brutally suppressed by the economic hardship and social divisions which are a natural outcome of global capitalism. Moreover, the services offered by the public sector (schools, health care, culture, parks) substantially expand the choices available to people (especially those with lower incomes). I accept that individual choice is an important economic goal – and I argue there are better ways to enhance true choice than through free-market capitalism.
Inequality is harmful if it means that large numbers of people are deprived of the ability to work and enjoy their lives. In this sense, the goal of equality is bound up with the goal of prosperity (so long as we define “prosperity” correctly, as widespread wellbeing, rather than equating it with the growth of GDP). But I am also convinced that inequality is inherently negative in its own right. Even if those at the bottom of the economic spectrum still enjoyed some decent minimum standard of living, a concentration of wealth at the top will nevertheless undermine social cohesion, well being, and democracy. For example, economists have identified a phenomenon called “positional consumption,” by which people’s emotional well-being is negatively influenced by unfavorable self-comparisons to the lifestyles of the rich and famous. When this occurs, inequality carries distinct negative consequences, quite apart from the consequences of poverty. To this end, limiting the economic distance between rich and poor is an important economic goal. Equality also requires decent provisions to support those members of society who cannot work.
Humans depend on their natural environment. It directly enhances our quality of life (through the air we breathe,
and the spaces we inhabit). And it provides needed inputs that are essential to the work we do in every single industry. All production involves the application of human work to “add value” to something we got from nature. Maintaining the environment is important in its own right (all the more so if we accept that humans have some responsibility to the other species which inhabit our planet). It is also important in a more narrowly economic sense since our ability to continue producing goods and services in the future will depend on finding sustainable ways to harvest (without continuously depleting or polluting) the natural inputs we need.
7. Democracy and accountability
We’ve seen that the economy is an inherently social undertaking. Different people perform different functions. Some individuals and organizations have great decision-making power, while others have very little. How do we ensure that economic decisions, and the overall evolution of the economy, reflect our collective desires and preferences? And how do we monitor and ensure that people and institutions are doing the work they are supposed to? Modern capitalism has a well-developed but narrow notion of business accountability, through which corporations are compelled to maximize the wealth of their shareholders. Competitive markets also impose another narrow form of accountability, enforced through the threat of lost sales and ultimate bankruptcy for companies that produce shoddy or unduly expensive products. Democratic elections allow citizens to exert some influence (through their governments) over economic trends – although the ability of elected governments to manage a capitalist economy is fundamentally limited by the unelected power of businesses and investors. None of these limited forms of accountability provide for thorough or consistent ways of subjecting the economy to democratic control. Yet given the overarching importance of the economy to our general social condition, we are entitled to more genuine and far-reaching forms of economic democracy and accountability.
Is our present economy a good economy? In some ways, modern capitalism has done better than any previous arrangement in advancing each of these goals. In other ways, it fails my “good economy” test miserably. The rest of this book will endeavor to explain how the capitalist economy functions, the extent to which it meets (and fails to meet) these fundamental goals – and whether or not there are any better ways to do the job.
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