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5 August 2013

The new era of low growth will change our politics forever

Previously on the Deep End, we’ve explored the idea that the western world has entered a period of permanent low growth.  The latest GDP figures may allay such fears, but it remains to be seen whether anything like a ‘normal’ rate of growth can be sustained without massive amounts of quantitative easing and public borrowing.

In a fascinating piece for New York magazine, Benjamin Wallace-Wells introduces us to the work of Robert Gordon and other ultra-pessimistic economists:

  • “For at least the next fifteen years or so, Gordon argues, our economy will grow at less than half the rate it has averaged since the late-nineteenth century because of a set of structural headwinds that Gordon believes will be even more severe than most other economists do: the aging of the American population; the stagnation in educational achievement; the fiscal tightening to fix our public and private debt; the costs of health care and energy; the pressures of globalization and growing inequality.”

If that were not grim enough, Gordon believes that the previous era in which living standards doubled with every generation is gone forever. The high growth typical of the 20th century was a blip, the product of one-off, never-to-be-repeated transformative events like electrification and the introduction of public sewers.

If he’s right, then the consequences won’t just be economic. That's because rapid growth doesn't only make us richer, it also facilitates and inspires social change. For instance, feminist ideas have been around since the days of Mary Wollstonecraft, but a certain level of material progress was required before traditional gender roles could be permanently transformed:

  • “The labors that housework required in the nineteenth century were so consuming that housewives in North Carolina walked 148 miles a year carrying 35 tons of water for nonautomated chores. It took until the fifties for household appliances to decline so much in price that they were ubiquitous; the next decade was the one of women’s liberation.”

Similarly, the idea of racial equality is not an invention of the 20th century, but it wasn’t until the post-war period that the civil rghts movement could draw upon sufficient support from that hotbed of revolutions – the middle class:

  • “The prospects for African-American employment increased most dramatically during World War II and in the period just after: 16.4 percent of black men held middle-class jobs in 1950; by 1960 it was 24 percent; by 1970, 35 percent. Progressives will often describe the history of social liberation by quoting Martin Luther King Jr.’s line that the arc of the moral universe bends toward justice; the implication is that metaphysics are somehow involved. But this history has also taken place during unique economic times, and perhaps that is not coincidence.”

Martin Luther King also said “I have a dream”, echoing and expanding the idea of the “American Dream”. But as Wallace-Wells points out, this latter phrase was only coined in 1931 – i.e. once Americans had come to expect continual improvements in their prosperity. 

To foresee an end to rapid growth is not to predict a reversion to a new dark age – but rather an end to the assumption that “things can only get better”.

The end of economic optimism will have a profound impact on our political development. For instance, if voters stop believing that growth will automatically deal with our debts, then that's bad news for the borrow-and-spend politics of the left. But the right will also need to rethink its message – especially on the issue of inequality. If the cake stops getting bigger, then there will be a lot more concern about the size of the slice taken by the rich.

These shifts in opinion are already underway – as shown by the public anger directed at bankers on the one hand and welfare claimants on the other. In other words, when new opportunities are hard to come by, it's not liberty or equality that people care most about, but fairness.


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