The Moral Consequences Of Economic Growth.

Still, growth has had its critics. There is a well-developed populist antigrowth literature concerned with, among other things, the impact of growth on the environment and on poverty. In this major work, The Moral Consequences of Economic Growth, Benjamin Friedman takes on such critics, positing that growth has not only obvious economic benefits, but moral benefits as well. He argues that it has the potential to improve the environment, reduce poverty, promote democracy, and make for a more open and tolerant society. But this is not to say that Friedman, a professor of economics at Harvard University, is simply a naive cheerleader for the market economy. His message is nuanced (though not, in some respects, as nuanced as I would have liked), and he realizes that growth has not always brought the promised benefits. The market economy does not automatically guarantee growth, social justice, or even economic efficiency; achieving those ends requires that government play an important role. LET IT GROW Historically, economists have questioned whether, at least in the early stages of development, growth is accompanied by societal goods such as greater equality and a better environment. Nobel Prize-winning economist Simon Kuznets argued, based on experiences largely before World War II, that there is an increase in inequality in the early stages of development. Arthur Lewis, another Nobel economist, went further: greater inequality, he argued, is necessary to generate the savings that growth requires. A later generation of economists has posited the existence of an environmental Kuznets curve: the early stages of growth cause environmental degradation, not environmental health. Kuznets and his descendants held out the prospect that eventually growth would bring more social justice (greater equality, less poverty) and a better environment. But there is nothing inevitable about this -- which means that even if it has been true in the past, it may not be in the future. Inequality did seem to fall in the United States after the Great Depression, but in the last 30 years it has increased enormously. Many forms of pollution have gone down as richer countries have turned their mind to air-quality issues, but greenhouse gas emissions -- with all the dangers they present for global warming -- have continued to increase with economic growth, especially in the United States. Friedman emphasizes in particular the importance of externalities -- instances in which an economic actor's actions have consequences for others for which that actor does not pay (negative externalities) or for which he is not compensated (positive externalities). Almost everyone recognizes these "market failures" (when markets on their own do not produce efficient outcomes) and their implications, most notably damage to the environment. The United States' production of greenhouse gases imposes staggering costs on others -- especially low-lying islands that will be inundated in the not-too-distant future -- but American firms and consumers do not pay for these costs. Correcting such a market failure does not require subsidies to oil companies to increase oil production (there is no market failure in that direction); it requires more conservation. But externalities imply a more general argument as well: if growth has broad-based societal benefits that go beyond those captured by each individual or firm, then there is a role for government in promoting growth. http://www.foreignaffairs.org/20051101fareviewessay84612/joseph-e-stiglitz/the-ethical-economist.html?mode=print

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