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The Church of GDP
Washington Post
By Robert J. Samuelson
January 12, 2006

What's the dominant religion of the past 100 years? The answer isn't Christianity with its 2.1 billion followers, or Islam with its 1.3 billion. It's the idea of economic growth, the Church of GDP. Countless countries have embraced rapid growth as a cure to their ills. Getting richer is now an almost universal craving. And yet the worship of growth inspires enormous ambivalence. It is widely seen -- especially in already wealthy societies -- as morally corrupting: the mindless pursuit of empty materialism (do flat-panel TVs really make us better off?) that drains life of spiritual meaning and also wrecks the environment.

Exactly wrong, says Benjamin Friedman.

Friedman, a Harvard economist, has written a hugely provocative book ("The Moral Consequences of Economic Growth") arguing that rapid growth is morally uplifting. "Economic growth -- meaning a rising standard of living for the clear majority of citizens -- more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy," he writes. Further, the opposite is true. Poor growth feeds prejudice, class conflict and antidemocratic tendencies.

Look at history, he says. In the United States, exploding economic growth after World War II coincided with a broad expansion of rights for women, blacks and the poor. During the prosperous Progressive Era, from roughly 1895 to 1919, the "idea of mass high school education first took hold." In 1912 the federal government created a Children's Bureau to discourage child labor. The same year, Congress passed the 17th Amendment, switching the election of senators from state legislatures to popular vote. In 1919 it passed the 19th Amendment, giving women the vote.

Good times often played out similarly in Europe. From 1850 to 1870, Britain's per capita income rose 35 percent. In 1870 the government opened civil service jobs -- until then reserved "for candidates with family connections" -- to competitive testing. Comparable reforms broadened the military's officer corps. Religious tolerance improved; no longer was membership in the Church of England required to teach at Oxford and Cambridge. After the Franco-Prussian War of 1870, France also prospered: In 1875 it adopted universal male voting; in 1881 and 1882 it embraced compulsory schooling up to age 13.

Nazi Germany is, of course, the classic case of the converse: that growth's absence is morally destructive. From 1929 to 1932, German industrial production dropped 42 percent; in 1932 unemployment was 44 percent. The rest is history. Friedman offers other examples. The Ku Klux Klan (anti-Catholic and anti-Jewish as well as anti-black) flourished in the 1920s, which he describes as a period of disappointing growth.

People, Friedman argues, instinctively compare themselves to "two separate benchmarks: their own (or their family's) past experience, and how they see people around them living." When living standards rise rapidly, more people feel optimistic, unthreatened and tolerant. Friedman also cites Adam Smith's insight that commerce fosters trust, civility, mutual dependence and legal protections (contracts, property rights). Economic growth isn't mainly about greed and exploitation.

Case closed? Well, not exactly.

One problem with Friedman is Friedman. His meticulous scholarship unearths much contrary evidence. In the United States, the Great Depression didn't diminish democracy; instead, it "fostered a broader commitment to opportunity and mobility for all citizens." Britain passed momentous reforms (unemployment insurance, old-age pensions) from 1908 to 1911, a period of weak growth. Among poorer countries, many (Chile, South Korea, China) first achieved rapid growth under authoritarian regimes, though Chile and South Korea are now democratic.

Friedman's view of the 1920s is also dubious. Agriculture aside, America was mainly prosperous. The KKK's strength reflected raw prejudice -- and perhaps a sense of a threat created by economic growth, which left farms and small towns behind.

Friedman has identified a tendency, not an iron law. Still, his moral case for economic growth is solid. It's true that growth alone rarely creates happiness. Beyond a certain income, happiness depends on family relationships, a sense of belonging, personal beliefs. But growth surely can cure misery. In the 1700s, life expectancy in France was 25 years, and about 30 percent of infants died before their first birthday. Now life expectancy in advanced countries is almost 80 years, and infant mortality is usually less than 1 percent. Anyone who cares about world poverty must favor economic growth.

Another moral plus: Societies whose politics focus on the gaining and sharing of prosperity can promote their own stability. First, everyone can win. Second, though remaining economic conflicts can be nasty, they're easier to mediate than religious or ethnic differences -- where one side must face eternal damnation or discrimination. It's no accident that the United States and Britain are the oldest successful democracies.

But Friedman mostly misses the real growth predicament facing most advanced societies. It's not environmental spoilage. As he notes, most rich societies protect their environments through tougher antipollution regulations. In the past two decades, U.S. emissions of sulfur dioxide are down 54 percent, he reports. Whether global warming will break this environmental truce remains to be seen.

The immediate dilemma involves the welfare state. It requires fast economic growth to generate the income and government revenue to pay all the promised benefits. But the mounting costs of those benefits -- especially as populations age in the United States, Europe and Japan -- may stifle growth through higher taxes and budget deficits. If so, the welfare state may cause the stagnation and strains against which Friedman warns. The dilemma for most rich societies is that they are wedded both to advancing materialism and to policies threatening that advance. Friedman would have strengthened his point by clearly saying so.

There are many flaws in logic, so let's look at one. Growth is almost always good (except during periods of high inflation). What is important is how we get that growth. If growth comes from borrowing money (as during the Reagan and now Bush years), it's irresponsible and irreparable. The debt under Reagan was $1.6 trillion. In 25 years we haven't paid back a single penny of that debt. Generations that are still unborn will be refinancing and re-refinancing the Reagan/Bush debt.

Is growth good? Of course it is. But only if we can grow without creating massive deficits. Deficits are future taxes plus interest or unpaid taxes plus interest. Only a complete fool thinks passing taxes to the next generation is good economic policy (i.e.:there is no such thing as a tax cut when it creates deficits.)

Btw, when our founding fathers were paying the bills, do you think any of them compared our debt to GDP? Hell no. They paid their bills because it was the right thing to do. They didn't have to rationalize not paying their bills like current economists and politicians.

The Reagan Revolution was indeed a revolution. Reagan and his conservative congress believed we no longer had to pay our bills. We could simply borrow from our children and give tax cuts to the very wealthy inter-generational war. No generation has created as much debt as this generation. In just 25 years, we went from less than $1 trillion of debt to over $8.1 trillion. It began with the Reagan Revolution - $1.6 trillion of debt in just eight years.