Malthus, Marx, and modern growth

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CAMBRIDGE – The promise that each generation  will be better off than the last is a fundamental tenet of modern society. By  and large, most advanced economies have fulfilled this promise, with living  standards rising over recent generations, despite setbacks from wars and  financial crises.

In the developing world, too, the vast majority of people  have started to experience sustained improvement in living standards and are  rapidly developing similar growth expectations. But will future generations,  particularly in advanced economies, realize such expectations? Though the likely  answer is yes, the downside risks seem higher than they did a few decades  ago.

So far, every prediction in the modern era that mankind’s  lot will worsen, from Thomas Malthus to Karl Marx, has turned out to be  spectacularly wrong. Technological progress has trumped obstacles to economic  growth. Periodic political rebalancing, sometimes peaceful, sometimes not, has  ensured that the vast majority of people have benefited, albeit some far more  than others.

As a result, Malthus’s concerns about mass starvation have  failed to materialize in any peaceful capitalist economy. And, despite a  disconcerting fall in labor’s share of income in recent decades, the long-run  picture still defies Marx’s prediction that capitalism would prove immiserating  for workers. Living standards around the world continue to rise.

But past growth performance is no guarantee that a broadly  similar trajectory can be maintained throughout this century. Leaving aside  potential geopolitical disruptions, there are some formidable challenges to  overcome, mostly stemming from political underperformance and dysfunction.

The first set of issues includes slow-burn problems  involving externalities, the leading example being environmental degradation.  When property rights are ill-defined, as in the case of air and water,  government must step in to provide appropriate regulation. I do not envy future  generations for having to address the possible ramifications of global warming  and fresh-water depletion.

A second set of problems concerns the need to ensure that  the economic system is perceived as fundamentally fair, which is the key to its  political sustainability. This perception can no longer be taken for granted, as  the interaction of technology and globalization has exacerbated income and  wealth inequality within countries, even as cross-country gaps have  narrowed.

Until now, our societies have proved remarkably adept at  adjusting to disruptive technologies; but the pace of change in recent decades  has caused tremendous strains, reflected in huge income disparities within  countries, with near-record gaps between the wealthiest and the rest. Inequality  can corrupt and paralyze a country’s political system – and economic growth  along with it.

The third problem is that of aging populations, an issue  that would pose tough challenges even for the best-designed political system.  How will resources be allocated to care for the elderly, especially in  slow-growing economies where existing public pension schemes and old-age health  plans are patently unsustainable? Soaring public debts surely exacerbate the  problem, because future generations are being asked both to service our debt and  to pay for our retirements.

The final challenge concerns a wide array of issues that  require regulation of rapidly evolving technologies by governments that do not  necessarily have the competence or resources to do so effectively. We have  already seen where poor regulation of rapidly evolving financial markets can  lead. There are parallel shortcomings in many other markets.

A leading example is food supply – an area where technology  has continually produced ever-more highly processed and genetically refined food  that scientists are only beginning to assess. What is known so far is that  childhood obesity has become an epidemic in many countries, with an alarming  rise in rates of type 2 diabetes and coronary disease implying a significant  negative impact on life expectancy in future generations.

Many leading health researchers, including Kelly Brownell,  David Ludwig, and Walter Willett, have documented these problems. Government  interventions to date, mainly in the form of enhanced education, have proved  largely ineffective. Self-destructive addiction to processed foods, which  economists would describe as an “internality,” can lower quality of life for  those afflicted, and can eventually lead to externalities for society, such as  higher health-care costs. Again, despite a rising chorus of concern from  researchers, political markets have seemed frozen.

All of these problems have solutions, at least in the short  to medium run. A global carbon tax would mitigate climate risks while  alleviating government debt burdens. Addressing inequality requires greater  redistribution through national tax systems, together with enhanced programs for  adult education, presumably making heavy use of new technologies. The negative  effects of falling population growth can be mitigated by easing restrictions on  international migration, and by encouraging more women and retirees to enter or  stay in the workforce. But how long it will take for governments to act is a  wide-open question.

Capitalist economies have been spectacularly efficient at  enabling growing consumption of private goods, at least over the long run. When  it comes to public goods – such as education, the environment, health care, and  equal opportunity – the record is not quite as impressive, and the political  obstacles to improvement have seemed to grow as capitalist economies have  matured.

Will each future generation continue to enjoy a better  quality of life than its immediate predecessor? In developing countries that  have not yet reached the technological frontier, the answer is almost certainly  yes. In advanced economies, though the answer should still be yes, the  challenges are becoming formidable.

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Kenneth  Rogoff

Kenneth Rogoff, Professor of Economics and Public  Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in  Financial Economics, was the chief economist of the International Monetary Fund  from 2001 to 2003. His most recent book, co-authored with Carmen M. Reinhart, is  This read  more

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