Brave New World: Economics

Earlier this year I read Aldous Huxley’s novel Brave New World. Written in 1932, it’s turned out to be a disturbingly accurate prediction of where society has been heading since then.

Three inter-related aspects of the Brave New World particularly struck me as insightful views of the way people think 80 years on. Here’s part 1:

Economics

Firstly, there’s the economy that depends on people consuming more than they need.

((Disclaimer: I’ve not formally studied economics, and may well be wrong about some of this. If so I hope someone will educate me, although it seems like a lot of it is still up for debate anyway.))

The Brave New World’s government wants to sustain perpetual economic growth, which means they need people to continually spend, spend, spend. They persuaded people to consume transport to the country, but they eventually reached a point where the transport market could not grow any more, so to maintain further growth they had to encourage people, once they got to the country, to participate in more and more expensive activities.

In the UK in 2012, politicians use John Maynard Keynes’ ideas to justify similar policies. This article discusses whether Keynes himself would support these “Keynesian” policies, and suggests he would have argued that “the market was made for human beings – not human beings to serve the market.” (Some readers will recognise this line as a play on Jesus’ teaching on the Sabbath.)

I could be wrong, but I reckon many people who talk about the need for government spending to stimulate economic growth don’t really know why they want economic growth, they just take the media’s word for it that a recession is a disaster.

Let’s have a think about what economic growth means.

Constant GDP growth means that the country as a whole always spends more money in a 3 month period than it did in the previous 3 months. Is that sustainable?

If we just take one product as an example: every September, a new iPhone is released, and there’s usually a huge rush of people that go out and buy millions of them in the first three months (Sept-Nov). If the iPhone market is going to sustain perpetual growth, Apple has to sell even more iPhones between December and February than they did when all the enthusiastic early adopters rushed out to get one first. Ok, that may be do-able over Christmas, but then between March and May they have to sell even more than they did over Christmas, and even more again from June to August! And then obviously each year they have to sell more than they did the previous year until eventually everyone in the world has to buy more than one per year to keep the market growing. Does the world need that many iPhones? No.

Obviously other products are available, and we’re a long way from everyone in the world having enough food, let alone an iPhone, but I think this illustrates how unnecessary and unsustainable perpetual economic growth is.

I started writing this post before I knew about Muse’s new song which relates the 2nd Law of thermodynamics to the unsustainability of economic growth, but I think they’re right about this.

The lack of distinction between one person having enough food and another person buying a new iPhone every year is part of the problem with using a single GDP figure to decide whether a country is making good progress. It doesn’t distinguish between necessary spending and luxury spending, or even just plain wasteful spending.

For example, one year, the government could spend £500 trillion upgrading our schools, and GDP would be high in that year. The next year, you would hope we wouldn’t need to spend anywhere near as much on schools again, but then the GDP would be much lower than the year when we spent loads; the economy would recede. Does that mean we’d be worse off? No. Our education system would have vastly improved resources. The fact that we didn’t spend £500 trillion plus on schools again the next year and even more the year after wouldn’t mean our schools got worse. Recession is not necessarily a bad thing.

If you buy a house, you don’t feel poor just because 3 months later you don’t have 2 houses, and another 3 months later you don’t have a 3rd house, and each one more expensive than the last. Similarly, for the country as a whole to go for a period where they don’t spend as much as they did in the previous 3 months is not necessarily as disastrous as people make out.

On the other hand, the government could borrow £500 trillion to build the world’s largest chocolate teapot, and then borrow more to build a bigger one every three months to make sure we hold onto the world record; we’d avoid recession, but the investment would be about as much use as an inflatable dartboard, and the government would be in a huge amount of debt. Economic growth is not necessarily a good thing.

A project to build the world’s largest chocolate teapot would probably create a few jobs. Of course it’s good that people have the opportunity to work to earn a living, but creating jobs just for the sake of handing out salaries to people doesn’t help the economy.  They have to be doing something that people want and are willing to pay for, otherwise no one will pay (either they won’t buy the product, or they’ll find ways to avoid paying taxes). If a company keeps paying people to make a product or provide a service that no one is willing to pay for, they’ll go bankrupt. The same applies to the government.

This video includes the illustration that one way of achieving zero unemployment is to conscript everyone to fight in a war, but since wars are not a productive way to employ people, we may have full employment, but we’d have nothing to eat.

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