It is good to be reminded that the rate of economic growth
is not constant, that it has varied a good deal in the past, and that it may
decline over the indefinite future, as feared by Robert Gordon in the study
discussed critically by Becker. I agree with the criticisms, of which the
central one is that the future is unpredictable, including not only the
technological future but also the political future and the future of personal
tastes and preferences. Moreover, almost all prediction is extrapolation from
current conditions, so pessimism is characteristic of economic predictions made
during a period of economic depression, such as the United States remains in.
The material standard of living of many Americans is very high; roughly 20 percent of American households have an annual income in excess of $100,000. At that level, desire for leisure (including early retirement), or for goods and services that are labor-intensive, making productivity gains (from capital substitution) difficult to achieve, may retard economic growth yet increase economic welfare. At the same time, growing inequality of income may reduce the demand for goods and services in lower household-income quintiles, with negative effects on economic growth. Although it seems unlikely, one can at least imagine a situation in which growing inequality of income produces a rich upper crust satiated with material possessions and a vast underclass unable to afford many such possessions, and this would be a pattern inimical to economic growth.
For reasons explained by Keynes, consumption drives the economy (by stimulating supply and hence employment, which in turn provides income for further consumption), and so if the desire for consumption flags, the economy would grow very slowly, or not at all, or would decline, unless government picked up the slack. Yet if the flagging of desire for consumption represented simply a satiation with material possessions and a resulting preference for leisure, economic welfare might actually increase rather than decrease. Europeans, judging from the average length of the work week in Europe relative to the United States, place a higher value on leisure than Americans, and maybe we will grow more like Europeans, once our economy recovers from its present doldrums.
Of course we mustn’t press the idea of material satiation too far—as Keynes did in his 1930 essay “Economic Possibilities for Our Grandchildren.” It predicts that barring another world war or some comparable tragedy, a century hence per capita income would be four to eight times greater because of continued capital investment. So far, so good; despite another world war, GDP per capita in the United States has increased almost six-fold since 1930 (and Britain’s per capita income about the same), and we still have 18 years to go before the century is up. Keynes thought the increase in per capita production would lead to a dramatic fall in the hours of work; by 2030 a person would have to work only 15 hours a week to maintain his standard of living. The “economic problem” would have been solved and the challenge would be to fill up people’s leisure time with rewarding leisure activities. Unlikely! People in wealthy countries like the United States
and Britain are working fewer hours per week on average than in 1930: roughly 40 rather than 50. But Keynes thought that by 2010 the average would be 20. Material
satiation is not in the offing, but there is no iron law of economics that the
work week shall not fall below 40 hours; increased substitution of leisure for
work may continue as incomes continue to rise.
Probably economic growth is not something to worry about,
but rather concern should focus on correcting inefficient practices, such as
reluctance to allow the immigration of highly qualified scientists and
engineers because of the competition they would offer to our citizens in
technical careers; or nepotism in higher education; or neglect of
infrastructure; or excessive criminalization; or our screwed-up tax system—the
list goes on and on. Correcting inefficiencies will enable more rapid economic
growth—or less, if people’s preferences are for goods, services, or activities
(or inactivity) in which productivity is difficult or impossible to increase.
Economic growth should be thought of not as a goal, but as a byproduct of an
efficient economy; the focus of policy should be on means rather than ends.