August 7, 2022

Economix: Book Chat | ‘The Economics of Enough’

Book Chat

Diane Coyle is a British economist who blogs at The Enlightened Economist and is an active Twitter user. Her previous book, “The Soulful Science,” examined the revival of economics as a field relevant to the rest of us, and her latest book is called “The Economics of Enough.”

Diane Coyle, author of Courtesy of Alex SedgwickDiane Coyle, author of “The Economics of Enough.”

The Financial Times, The Independent (of London) and The New York Times, among others, recently reviewed “The Economics of Enough.” In an interview with the British site The Browser, Ms. Coyle listed her own favorite economics books. My exchange with Ms. Coyle follows.

Q. Your book, as you write, is about “how to make sure what we achieve in the present doesn’t come at the expense of the future … how to run the economy as if the future matters.” One big challenge seems to be getting people to sacrifice for the future at a time when the present isn’t very good. How do you think about the politics of “the economics of enough”?

Ms. Coyle: Looking to the long term is difficult enough in business and finance, and it’s all the more so in the realm of politics. Voters are disillusioned, and part of the explanation is that public policy is so clearly failing to tackle the complexities and uncertainties of the modern economy. There is too much cynicism about politicians, I think. Most people go into public life because they start out with the noble ambition making things a bit better for their fellow citizens. So why do they all seem to end up doing short-term pork-barrel politics?

One answer is that politicians and voters alike are unaware of the extent of the economic problems. Believe it or not, the government debt is much worse than it looks because it currently excludes the implied promises of future Medicaid and Social Security payments as the population gets older. To take another example, there are no official statistics on the depletion of the country’s natural resources. One of the main measures we look at, gross domestic product, indicates how much income the national economy produces in a year, but we don’t know how much of the nation’s capital — in the widest sense, including natural resources — has been eaten to generate it. Statistics need to be tailored to their era, and developing official measures of the nation’s wealth, as well as its income year to year, would give politicians both the information and the ammunition they need in order to build a solid economic legacy.

Princeton University Press

A second reason we lack the “politics of enough” is that people are unlikely to make sacrifices for the future if the future looks likely to be as unfair as the present. The decline in the real incomes of millions of families, especially in the U.S., while the very rich have grown much richer make it unlikely that a majority of voters would have any confidence about benefiting from future growth. This is a question of politics, and the extent of the power certain groups such as bankers have been allowed to develop; and it’s also for me a question of morality, the strong ethical commitment to one’s fellows needed for the market economy to work well.

Q. In the context of the huge long-term deficits facing rich countries, you say that recent generations have been living beyond their means. What do you think is the one kind of tax increase that would best help us live within our means? And, similarly, the one kind of spending cut?

Ms. Coyle: The current system of taxes and government spending encourages consumption and the over-use of resources today and creates too little incentive to save and invest. The one tax to increase now is a carbon tax. You don’t even have to worry about climate change to accept it has many benefits. In particular, it will encourage innovation in noncarbon-based energy supplies from renewables to nuclear. This is a field in which the U.S. and other Western economies could build on their strong science base to build an area of technological strength for the future, and at the same time reduce dependence on oil and gas imports from overseas. There are multiple good reasons for introducing a carbon tax.

Government spending needs to be redirected away from massive corporate subsidies — including to the financial sector but also big companies in health care and agribusiness — and instead towards infrastructure investment and education (which is infrastructure of a different kind for the digital economy). But the really painful cut in expenditure needs to be in government support for older people. Across the Western economies, retirement ages and the age threshold for benefits from the government will have to increase. If not, healthy and active over-60s benefiting from the taxes of a declining proportion of working people in the population are going to bankrupt the government and undermine the arrangement of mutual benefit that keeps any society stable. And, yes, I’m fully planning on working until I’m 70.

Q. And how should we be spending money in ways that we are not now — or not doing enough of now?

Ms. Coyle: Governments are what we have to take decisions for all of us, and that means there are three ways governments should spend our tax dollars. One is in making judgments about which groups need support from the rest of the society. This is why democracy is so important, to legitimize choices between spending on one group rather than another. A second is when there are what an economist calls public goods, which mean that private spending overlooks the wider benefits of some activity and therefore expenditure would be too low. Examples range from defense spending to public parks. The third is when it’s important that the government can take decisions over a longer time horizon than any private business or individual can.

In my book I focus on the first and the third. The first because in a society whose average age is rising, which is the case in all Western democracies, voters will have a growing tendency to favor programs for older people at the expense of the young. Yet the younger people do most of the work, drive the growth of the economy, and pay the taxes that fund government expenditure. This could become extremely divisive politically, especially given the scale of the cuts in deficit spending currently needed to restore the government’s finances to a sustainable state. In the U.K., the coalition government has gone ahead with brave — and controversial — public spending cuts, but these are likely to fall more heavily on younger age groups, while some subsidies for the elderly are politically untouchable because older people are more likely to vote. So I argue we need to make a generational assessment of government expenditure.

On the question of the time horizon for investments to pay back, any business raising money through the financial markets or the banks will need to be earning a return on investment within two or three years, but the advanced economies need investments that might not pay back for 20 or 50 years. Investment in basic research is another example, where spending might not earn its return for decades, if at all. But who could argue that past investment has not served America well, putting the country at the global frontier for science and technology? In the U.S. and U.K., investments made in the 1950s and 1960s (or even the 1890s), such as the highways and ports, are still serving us well. Government spending needs switching from current needs to investment anyway, and the question needs to be: which projects are so long-term that future generations will be the ones to benefit from the investment? What is the current legacy for the nation going to be?

Q. I may be grasping for optimism here, but is there any good reason to think we’ll be able to make this transition?

Ms. Coyle: The triumph of democracy, in the end, is that it offers a path for difficult transitions. People know things have to change, and I think are both ready and eager for the political debate that requires, a different kind of debate from politics as usual. So I’m definitely an optimist about it — as long as we do everything we can to put the tools in place for that process to start.

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