Category Archives: Post Growth

Are You Thriving, Struggling or Suffering?

Posted on April 16, 2013 | Leave a comment

In my first post on that hugely exciting field of happiness studies (here), I had a look at the Cantril Ladder, a measurement system for quantifying life satisfaction that was pioneered by the psychologist Hadley Cantril.

The most comprehensive set of data relating to the Cantril Ladder is collected by Gallup, and an explanation  of their methodology is given here. The data are collected after the posing of the following question via face-to-face and telephone interview in 146 countries worldwide. How about scoring yourself?

Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?

On which step do you think you will stand about five years from now?

Gallup also further aggregate the 11 categories in three broad groups as shown below (click for larger image):

Life Evaluation jpeg

The Gallup organisation also explains the characteristics of each group:

Thriving — wellbeing that is strong, consistent, and progressing. These respondents have positive views of their present life situation (7+) and have positive views of the next five years (8+). They report significantly fewer health problems, fewer sick days, less worry, stress, sadness, anger, and more happiness, enjoyment, interest, and respect.

Struggling — wellbeing that is moderate or inconsistent. These respondents have moderate views of their present life situation OR moderate OR negative views of their future. They are either struggling in the present, or expect to struggle in the future. They report more daily stress and worry about money than the “thriving” respondents, and more than double the amount of sick days. They are more likely to smoke, and are less likely to eat healthy.

Suffering — wellbeing that is at high risk. These respondents have poor ratings of their current life situation (4 and below) AND negative views of the next five years (4 and below). They are more likely to report lacking the basics of food and shelter, more likely to have physical pain, a lot of stress, worry, sadness, and anger. They have less access to health insurance and care, and more than double the disease burden, in comparison to “thriving” respondents.

The Top 20 countries ranked by the ‘Thriving Index’ are headed by Denmark at 74% (see here). Interestingly, Ireland is well within the Top 20 despite its brutal economic beating during the credit crisis. Japan, surprisingly, comes in mid-table with only 26% of respondents categorised as ‘thriving’ despite the country’s high per capital GDP and wealth.

The EU’s southern tier countries are—perhaps as expected—well down the table, with Italy registering a ‘Thriving’ score of 23%, Spain 39%, Portugal 14%, Greece 16% and Cyprus 44% all as of the spring of 2011. I wonder how low these scores will go at the next poll after consecutive years of austerity.

Global Wellbeing 2011 jpeg

While the self-evaluation of happiness data is fascinating, it begs a lot of questions. Is it culturally centred, so perhaps the Japanese come across more gloomy than they really are? What factors make one decide that one is ‘thriving’? How does self-evaluation of wellbeing move through time. I will returns to all these questions in future posts.

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Life: What’s It All About?

Posted on April 14, 2013 | Leave a comment

Since 2007, capitalism within advanced countries has faced a growing crisis. The long-term neo-liberal prescriptions of the 1980s and 1990s appear to have stopped working: deregulation, privatization and globalization have all lost the ability to sustain an expected 2 to 3 percent rate of economic growth. Moreover, faced with a stalled growth engine, policy makers have been unable to put their economies back on an expansionary track though either the use of super loose monetary policy or large government-backed fiscal injections.

I would argue that demographics, a decline in technology-led productivity and growing resource constraints make the goal of achieving past levels of GDP growth all but unattainable. But it gets worse. Current policy is not only focusing on an outcome that cannot possibly be achieved (substantial and sustainable GDP growth), but also is worsening a whole range of other socio-economic measures that are arguably much more important than GDP.

The OECD’s 2011 publication “How’s Life? Measuring Well-Being” provides a good starting point for studying what has gone wrong. From the introduction:

Everyone aspires to the good life. But what does a “good” (or better) life mean? In recent years, concerns have emerged that standard macro-economic statistics, such as GDP, which for a long time had been used as proxies to measure well-being, failed to give a true account of people’s current and future living conditions. The ongoing economic and financial crisis has reinforced this perception and it is now widely recognized that data on GDP provide only a partial perspective on the broad range of factors that matter to people’s lives.

The report then goes on to stress that continued economic difficulties should not be an excuse to abandon any considerations other than GDP:

Even during times of economic hardship, when restoring growth matters for the achievement of many of many well-being outcomes, such as having a good job or access to affordable housing, at the core of policy action must be the needs, concerns and aspirations of people and the sustainability of our societies.

So what are the OECD’s favoured measures of well-being? They provide us with 11 metrics, divided into two categories

Material Living Conditions

  1. Income and wealth
  2. Jobs and earnings
  3. Housing

Quality of Life

  1. Health status
  2. Work and life balance
  3. Education and skills
  4. Social connections
  5. Civic engagement and governance
  6. Environmental quality
  7. Personal security
  8. Subjective well-being

The figure below shows the feedback loops between these metrics, implications for sustainability and the interaction with GDP (click for larger image).

How's Life Figure 1.2 jpeg

I find the OECD’s approach uplifting since it makes GDP a means to an end, not an end in itself. Surely, it is time that every political party from the left or right takes this fact onboard and makes well-being a central plank of their policy platform? We occasionally pay lip-service to non-growth goals, but this is not enough. Growth is not a goal in and of itself!

Moreover, policy-makers in developed countries are utterly failing to achieve their false god of GDP growth, and in the process are degrading what should be the true goals of improved living conditions and quality of life for the average citizen. Indeed, the fruits of any growth that can currently be squeezed out of the system are being funneled toward an ever-narrower section of society.

Nonetheless, I have a major problem with the OECD’s methodology. Just as GDP is a means toward improving material living conditions and quality of life, so material living conditions and quality of life are just means toward better subjective well being—in other words, ‘happiness’. In short, the category ‘subjective well-being’ has been relegated to one category among many. It’s proper place is at the apex of society’s needs and goals. Both ‘quality of life’ and ‘material living conditions’ should  be subservient to ‘happiness’.

Of course, ‘happiness’ itself is a slippery concept. The OECD report limits itself to two categories: 1) positive and negative affect, which we can think of as feelings like joy, and 2) life satisfaction, which is an evaluation of how happy we are through reflecting on our current life.

For this post, I will limit myself to a quick look at the OECD’s findings on self-reported measures of life satisfaction using the Cantril Ladder, pioneered by the psychologist Hadley Cantril. The OECD’s Cantril ladder approach is based on data taken from the Gallup World Poll (here), who in turn ask this question:

Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?

From the results of the Gallup World Poll, the OECD reports the following graph of life satisfaction by country:

Cantril Ladder jpeg

And the even more intriguing graph showing only a weak relationship between life satisfaction and GDP per capital:

Life Satisfaction versus GDP per Capita jpeg

Out of which comes the “Easterlin Paradox”. This paradox, in the words of the OECD, is that “a higher rise in personal income leads to higher subjective well-being for that person, but that a rise in average incomes for a country does not give rise to a corresponding increase in the country’s average subjective well-being.”

Against this background, I feel that the burgeoning field of ‘happiness studies’ could provide us with some theoretical tools to tackle the neoclassical economic crisis, deepening resources constraints and the looming threat of climate change. Indeed, I think such studies could provide us with a framework for a fresh political movement that goes beyond neo-liberalism and 1950s and 60s style socialism. I will return to this theme in future posts.

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Thatcher’s Legacy: Some Numbers (God Forbid)

Posted on April 11, 2013 | Leave a comment

Listening to all the eulogistic speeches since Thatcher’s death, one common thread from the right is the portrayal of the U.K. economy of the 1970s as one of stupor or worse. On the BBC, I heard one Tory grandee talk of how his American friends were offering to send food parcels in the late 1970s.

Yes, there was a three-day week for a few months—the candle-lit dinners being fantastic fun for my teenage self at the time. Moreover, we see the pictures of the dead not being buried and the refuge piling up—great stories all. But did people actually get poorer as the decade progressed?  For this is how believers in neoclassical economics (and Thatcher was one) like to keep score. Well, I guess the victors get to rewrite history. But let us for the sake of balance actually look at the numbers.

I’ve quickly put together a couple of charts that compare the 1970s (1970-79) and 1980s (1980-89) to give us quick and dirty comparison of the two decades (data taken from the Bank of England’s Three Centuries of Data spreadsheet here, click for larger image):

UK GDP Growth in the 1970s jpeg

UK GDP Growth in the 1980s jpeg

In the top graph we should note that the 1973/74 recession was due to an external shock: the 1973 Arab oil embargo. Yet despite the surge in oil prices, GDP growth never shrank by greater than 1%. By contrast, the same data set three decades later shows 2009 real GDP shrinking by just under 5%. And this was not due to an external shock but rather a monetary and deregulation-induced asset bubble (one of the greatest own goals in history).

So how much richer was Britain over the decade of the 1970s in real GDP terms, compared with the 1980s? The answer: 26% for the 1970s and 28% for the 1980s; not much in it really. At this point, you could argue that I am cherry picking the start and end points. But keep in mind that Labour’s Wilson government saw two solid years of growth in 1968 and 1969 at 4.3% and 2.3%, respectively. And in Thatcher’s final year in government, 1990, growth was a lacklustre 1%. This was followed by minus 1% in 1991 and 0.3% in 1992 for the opening years of the Major administration.

We should also not forget the impact of North Sea oil (first promoted by Labour’s Harold Wilson), a positive external shock of the highest magnitude. While Thatcher may have been smart, she was also lucky, coming to power on a rising wave of oil production. This freed her from the one constraint that was the bane of previous governments (whether of the left or right): balance of payments crises. Oil revenue also meant that she could cut taxes without slashing public expenditure. And, indeed, despite her small government aura, public spending as a percentage of GDP never fell during her time in power. It is a happy politician who has her cake and gets to eat it.

UK Oil Production jpeg

So spare a thought for David Cameron. He inherits a big government that is a direct baton pass from Thatcher, to Major, to Blair, to Brown to him. North Sea oil revenues have slumped ,and the days of 1970s style balance of payments crises lurk on the horizon. What is more, 1970s’ style underlying technology-induced productivity-led potential growth of 2% or so per annum is a distant memory. These are bad cards with which to play a hand; Thatcher would have done no better.

Finally, I hope the comparison of the pre-Thatcher revolution era to post-Thatcher revolution era highlights just how difficult it is for a government to promote growth. In short, much of growth comes from deep underlying sources within an economy; for example, energy and technological progress. When compared with such forces, monetary, fiscal and market structure initiatives play a far smaller role than one would expect.

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Links for the Week Ending 7th April

Posted on April 7, 2013 | Leave a comment
  • The Economist magazine last week carried a long article on climate sensitivity together with a leader article on the same theme here. Skeptical Science’s Dana Nuccitelli posted a rebuttal here, which captures some of my own concerns over The Economist‘s interpretation of the science. It is obvious, however, that Nuccitelli has never read The Economist, since he characterises the magazine as having strayed into the field of climate change commentary almost by accident. This is ridiculous: The Economist has been doing in-depth reporting on climate change issues for many years and has been far more consistent in its coverage than either The Wall Street Journal or The Financial Times. Moreover, The Economist does matter since it has become the house journal of the global corporate, financial and political elite.  Indeed, The Economist‘s coverage of climate change deserves a post all of its own (I am working on one).
  • If I was rather ambivalent on Skeptical Science’s treatment of The Economist, they quickly redeemed themselves with a wonderful post on the history of climate change science. The definitive book on this topic is Spencer Weart’s The Discovery of Global Warming, but John Mason has produced a great condensed version of the history including some wonderful timeline graphics.
  • Professor James Hamilton, one of the world’s top econometricians, is a rare example of an economist who understands the threat posed by oil depletion. In this post on his blog Econbrowser, he evaluates the oil supply and price prediction record (from 2005) of the cornucopians, as represented by Daniel Yergin, and the peak oilers, as represented by Boone Pickens. The conclusion? Pickens won hands down.
  • If you are curious about alternative views on economics, then I recommend having a look at such ecological economists as Herman Daly. Jushua Farley, the co-author with Daly of the iconic textbook Ecological Economics, explains the difference between ecological economics and traditional neoclassical economics here. Farley’s main complaints are with the obsessive quest for economic growth in traditional economics and the inability of neoclassical economics to accept the empirical evidence before their eyes; for example, markets are not taking us toward a stable equilibrium.
  • If you want to understand what could possibly be driving the weird weather in northern European and beyond then read this article by the leading climate scientist Stefan Rahmstorf via Eli Rabett. You reap what you sow.

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Posted in Climate Change, Peak Oil, Post Growth, Resource Constraints

Question for Japan’s Kuroda: How Shall We Bugger Off, Oh Lord?

Posted on April 6, 2013 | 2 comments

As I write this post, I am looking out at a Tokyo skyline the day after the most radical ever experiment in Japanese monetary policy was announced. The new central bank governor, Haruhiko Kuroda, has promised to double the monetary base over the course of two years and buy government bonds. And if that doesn’t do the trick of reigniting inflation, then he will buy some more.

In and of itself, doubling the monetary basis is meaningless in terms of GDP unless it translates into an expansion of credit. That is credit  to households (allowing greater consumption), to corporations (allowing greater investment) or to government (allowing greater public spending),.

The assumption behind all of this is that Japan’s current rate of economic growth—basically close to zero—is ‘unnatural’. In other words, despite Japan’s ageing demographics, stagnating productivity gains and negative exposure to the long-term upward trend in commodity prices, Kuroda believes that Japan still deserves to grow at 2% per annum or so.

In your dreams.

To be effective, Kuroda’s approach requires a transition mechanism between the monetary economy and the real economy. Given he is buying assets, that transition mechanism rests with the asset markets. But what he ultimately wants to influence is a flow, that is GDP, not a stock, that is asset prices. Putting the government to one side, Kuroda’s game is to crowd out individuals, banks and corporations from the Japanese government bond market. His clearly stated goal is to ignite 2% inflation, but his specific policy tool is to keep interest rates close to zero all along the yield curve to as far out as 40 years. So he is saying loud and clear: “Bugger off out of government bonds or else I’ll inflate you away!”

“Be careful what you wish for,” I mutter to myself.

For a start, he must be careful that they “bugger off” in an orderly fashion. If everyone “buggers off” en masse all at once—and the Japanese do love a craze— Kuroda ends up owning the Japanese bond market. Last week, the Bank of Japan published its latest ‘flow of funds’ comparing Japan with the U.S. and Euroland (click the chart for larger image). As you can see, households, particularly the elderly ones, are clustered in bank deposits. The banks, in turn, invest in Japanese government bonds. So basically the majority of household savings are invested in the equivalent of a Japanese mutual fund for bonds—just at one step removed.

Financial Assets Held by Households jpeg

So, to repeat, Kuroda wants them to “bugger off” out of their indirect Japanese bond mutual fund holdings and do something more constructive  with their money instead. Paraphrasing Monty Python’s “Life of Brian”, the question then is “How shall we bugger off, O Lord?” Continue reading →

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Cyprus: Let’s See What Happens When We Turn the Dial

Posted on April 1, 2013 | 2 comments

The rather eccentric New Zealand economist William Phillips made a hydraulic computer in 1949 out of, among other things, old bits of WW2 Lancaster bombers. The contraption—more formerly called the Monetary National Income Analogue Computer (MONIAC)—was built to mimic the British economy. If you ever find yourself in London’s Science Museum (or to be exact the museum’s history of computing gallery), you can see one of these machines (here):

MONIAC jpeg

Coloured water represents money and this flows around the hydraulic computer, just as money does within an economy. Moreover, by adjusting various valves, levers, taps and pumps, you can see what happens when various changes are made to tax, government spending, investment, savings and so on. At a time when electronic computers were still at an embryonic stage of development, the MONIAC was at the cutting edge for conducting “what if” experiments with the economy. A 1950s student could ask his or her teacher: “what happens to the economy if we turn this dial all the way to the left?”

But, of course, nowadays we don’t need simulations. Take Cyprus. In this country’s case, we are performing a real time, live experiment. We are taking the Cypriot economy and saying “Let’s see what happens when we turn this dial all the way to the left and cut off credit completely?” Continue reading →

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Higher Education: Or Should I Just Keep Chasing Pavements?

Posted on March 28, 2013 | 6 comments

And for those who don’t get the pop culture reference, ‘chasing pavements’ is the British singer Adele’s metaphor for a fruitless pursuit or forlorn hope.

Should I give up,
Or should I just keep chasing pavements?
Even if it leads nowhere,
Or would it be a waste?
Even If I knew my place should I leave it there?
Should I give up,
Or should I just keep chasing pavements?
Even if it leads nowhere

Do we live in a different economic world? Or was the credit crisis of 2007-09 just an aberration: an anomalous blip on the way to future prosperity? It’s a taxing question for everyone, but especially those just starting adulthood and thinking of a future career.

The old certainty, pre-credit crisis, was that higher education was a reliable stairway to greater employability and higher income. But in the last couple of years, a sea of student debt and rising graduate unemployment have made many question whether past returns to education still hold.

On Monday, a disquieting NBER study by three Canadian economists entitled “The Great Reversal in the Demand for Skill and Cognitive Tasks” was published that suggests we have entered a ‘new normal’ for education too. From the Abstract:

….we argue that in about the year 2000, the demand for skill (or, more specifically, for cognitive tasks often associated with high educational skill) underwent a reversal. Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow.

And if you think that wasn’t bad enough:

We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low- skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together.

The paper starts with a sweep through the employment data that shows the worsening employment picture for all U.S. workers (click for larger image):

Employment Rate with Fitted Trend jpeg

Nothing new here. Indeed, it gives me an excuse to put up Calculated Risk’s iconic  employment chart (click for larger image).

Calculated Risk Job Losses jpeg

Note that the workforce continues to expand in the U.S. due to demographic trends, so the increasingly slow job recoveries from recessions translate into lower overall employment rates. What is new here, however, is that the paper’s authors argue that circa 2000 the demand for cognitive—aka high skilled, high education jobs—shrank. Worse, this coincided with an influx of highly educated new graduates who had been reared for years on the mantra (delivered by their parents, teachers and politicians of both the left and right) that staying on at college was the only way to get ahead. Continue reading →

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Welcome, Most Americans, to a Post-Growth World

Posted on March 26, 2013 | 2 comments

The degree to which rising living standards link to happiness is something I want to return to at a later time (it’s complicated). But capitalism has always liked to keep score using money-based estimates of wealth and income. On both counts, something isn’t working for most U.S. citizens. The U.S. Census Bureau’s net worth numbers are below (hat tip to Early Warning, click for larger image, link to Census Bureau report here):

U.S. Median Net Worth jpeg

Of course, the housing slump appears to have done most of the damage. So if the housing market rebounds everything will be OK? Maybe. Unfortunately, median income trends appear more entrenched and just as dire (click for larger image, link to Census Bureau report here):

Real U.S. Median Income jpeg

For those with hazy stats, if you put all American households on a line from poorest to richest, the median would be the one in the middle. Unlike the mean, it is not skewed upward by such U.S. oligarchs as Bill Gates, Warren Buffet, Larry Ellison and the Koch brothers. Welcome, most Americans, to a post-growth world.

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Delusional Investing in a Post-Growth World (And a Possible Alternative)

Posted on March 22, 2013 | 7 comments

The internet certainly has its faults, but one can’t but admire how it has democratised information. It is now possible to get access to a multitude of private-sector reports that would only have been available to investment professionals a mere 10 years ago.

One example, with a high degree of quality, is the Credit Suisse Global Investment Returns Yearbook. You can get a pdf of the 2013 report here. Within its pages is a wealth of information on cash, bond and equity returns. Critically, the report chronicles a recent revolution in the prospects for investments. Moreover, the ‘new normal’ savers face gives off some telling signals with respect to future economic growth and, unexpectedly, provides some good news for the economics of sustainability projects.

The three authors behind the report—all from London Business School—provide a short introduction that doesn’t pull any punches in its message to the investment community:

To assume that savers can expect that the investment conditions of the 1990s will return is delusional. Many investors seem to be in denial, hoping markets will soon revert to “normal”.

The report covers cash, bonds and stocks, and all three have seen a collapse in expected returns. Let’s take a closer look at bonds, since they dominate pension-related savings in most countries. You can plainly to see that nominal yields have slumped (click for larger image):

Average Yields on Long Bond jpeg

But once we take inflation into account, things are far worse. In the chart below (taken from the full report), the authors have used inflation-protected bonds starting from the year 2000 (or equivalent where such bonds are not issued by a particular country) to see what kind of real returns investors are prepared to accept (click for larger image).

Real Yields jpeg

This kind of chart always shocks me. Continue reading →

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World GDP: No Slowdown—Yet

Posted on February 25, 2013 | 2 comments

This blog broadly looks at three factors that could usher us into a post-growth world: climate change, resource depletion and diminishing returns to technology. Nonetheless, top-level data suggest that we have yet to arrive in this post-growth world.

As can be seen in the chart below (click for larger image), global GDP has been robust in recent decades, notwithstanding the slump in 2009. Advanced economy growth appears to be exhibiting a modest downward trend, but from an empirical standpoint it is too early to draw any firm conclusions.

World GDP jpeg

Continue reading →

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