Saturday, May 2, 2009

GROAT! (it rhymes with bloat)

by the Sandwichman

The "concept of growth" concedes too much emotional appeal to a notion that is actually more about delusions of grandeur and bloating than it is about the kinds of organic processes we associate with children, grass, trees and gardens.

Economic growth becomes an oxymoron when it is orchestrated by elected officials for the sake of their incumbency with the rules of the game dictated by career investment bankers serving out their revolving-door appointments. Such a concept doesn't deserve to be called growth with all of that term's positive connotations. What's growth got to do with it, anyway?

After pondering for several days about a substitute for the word growth, I stumbled across "groat". It sounds like how growth might be pronounced in some dialects. A groat, though, is an English four-penny coin, introduced in the 13th century. Similarly named coins had been introduced earlier in the same century in Venice (grosso, meaning large or thick), Holland (groot, meaning great or large) and France (gros tournois).

The names of the coins referred to the fact that they were thick silver coins in contrast to the thin pennies or deniers already in circulation. A higher denomination coin is a response to debasement of the currency. To the extent that coins were the currency in the 13th century, economic growth became the public policy "coin of the realm" in the second half of the 20th century. And successive governments globally have predictably debased that currency by parlaying the GDP into Gross Domestic Ponzi-schemes in which debt-fueled economic growth is supposed to generate the tax revenues to perpetually service the accumulated debt.

Debasing coinage is what governments do. Gresham's law: bad money drives out good. Grass grows. Trees grow. Children grow. Governments debase money.

Another feature recommending groat as a critical terminological substitute for growth is the fact that the coin evolved into an exclusively ceremonial token, given out by the sovereign as symbolic alms to the poor each year on Maundy Thursday (and, of course, groat rhymes with bloat and with gloat).

Peter Victor's chapter on the history of the idea of economic growth relies heavily on H.W. Arndt's Rise and Fall of Economic Growth: a study in contemporary thought. A pivotal element in the evolution of thinking about economic policy was the argument put forward by R. Harrod in 1939 and E. Domar in 1946 that economic growth, defined as annual increase in national income, was indispensable to maintaining full employment.

Although Harrod's and Domar's argument is commonly misrepresented as "Keynesian", Keynes himself viewed government growth stimulus policies as only one of the possible strategies for addressing with the problem full employment and one that was only applicable for a limited period of time (Keynes estimated a best-by date on the growth stimulus policy of about 15 years after the end of the World War II). The "ultimate solution", Keynes stated in a 1943 Treasury Department memorandum and again in a 1945 letter to T.S. Eliot was "working less".

John R. Hicks – whose 1937 mathematical 'interpretation' of Keynes (featuring his famous "IS/LM curve") was crucial to Harrod's and Domar's efforts – subsequently (1975) repudiated that earlier contribution as too static and unhistorical. Similarly, Simon Kuznets, who developed the national income accounts relied on to measure economic growth, warned "The welfare of a nation can scarcely be inferred from a measurement of national income... Goals for 'more' growth should specify of what and for what."

Economic growth is thus today thoroughly debased and effaced from its original conception. To continue to call it growth is to circulate a counterfeit. Let's call it economic groat.


Robert D Feinman said...

Groat is also a wholesome grain:

I've always hated the phrase "grow the business". What's wrong with expand or enlarge?

To my mind only living things grow. Of course some businesses lately have been acting as if they had a mind of their own.

John Booke said...

I equate "economic growth" with printing money. You print the money and give it to banks and the economy grows. Its really an elegant thing. And so simple too.

gordon said...

Though he is talking more about productivity than growth, Prof. Krugman seems to be inching towards a similar idea with this post about service sector productivity:

"First of all, how do we even measure output of financial services? If I read this BEA paper correctly, we more or less use “checks cashed” — or, more broadly, the number of transactions undertaken. This may be the best we can do, but it’s a pretty weak measure of actual work done by the financial system.

And given recent events, are we even sure that the expansion of the financial system was doing anything productive at all?

In short, how much of the apparent US productivity miracle, a miracle not shared by Europe, was a statistical illusion created by our bloated finance industry?"

Max Sawicky said...

This might inspire The Sandwichman to greater heights of umbrage, from Tyler Cowen's forthcoming macro textbook:

"In the United States, diarrhea is a pain, an annoyance, and of course an embarrassment. In much of the developing world, diarrhea
is a killer, especially of children. Every year 1.8 million
children die from diarrhea. Ending the premature deaths of these
children does not require any scientific breakthroughs, nor does it require new drugs or fancy medical devices. Preventing these deaths requires only one thing: economic growth."

Eleanor said...

One hardly knows where to begin re the Tyler Cowan quote. I think I will leave this to the Sandwichman.

Sandwichman said...

...inspire The Sandwichman to greater heights of umbrage...

That's why we need to call attention to the inappropriateness of the word 'growth' to refer to increase of the GDP. By any reasonable definition of growth, Cowen would be right. But by the actual definition of mere increase in production of goods and services, he's DEAD wrong (and so will be those 1.8 million children if none of the GDP expansion includes improved health care, sanitation and nutrition for THEM -- Kuznet's "growth of what and for what").