Guardian Debunked: Economic growth doesn't create jobs, it destroys them
Graeme Maxton wrote an article in the Guardian saying:
Increasing productivity may decrease the jobs in the industry that gets more productive, but you cannot conclude that all of those jobs are lost, because this does not account for lower prices, and jobs created from investment of profits. If an increase in productivity causes a company to no longer need 50% of its workforce, and there were 2 000 workers in an economy with 1 000 000 workers, this will lower the cost of labour and the cost of the products produced by the company. The supply of money into the labour market will be reduced by 0.1% (assuming average wages) and the wages will decrease until the labour market absorbs the 1 000 workers. This will decrease the costs of the companies, so they will be able compete better, lowering their prices, until they are at the same profit margins as before the company invested in automation. Because the economy is producing 0.1% more, everyone's purchasing power increases by 0.1%. As long as people are more productive, there will be cheaper prices, which will increase the purchasing power, despite lower wages. Economic growth doesn't destroy jobs, it transfers jobs that are taken away from more productivity to do other things. It is important not to forget lower prices in economics. More information is available from our infographic on economics coming soon, or The Economics of Spending.
Yes unemployment went up, but so have programs to help the unemployed which encourage people to be unemployed, and wages in the OECD have increased from $33 530 in 1990 to $41 253 in 2015, adjusted for prices and inflation. Public unemployment spending has nearly doubled in the OECD from 0.5% to 0.9% of GDP from 1980 to 2015.7 There isn't any data for the entire OECD for social benefits to households, which also incentivises unemployment, but you can see from this chart that it has gone up substantially in most countries, and has only gone down in a few countries. For example, the US spending on social benefits to households went from 6.7% of GDP in 1970 to 14.7% in 2015.6
There has been a massive lifting of people out of poverty with economic growth. An increase in the gap between the rich and poor isn't a bad thing, what would be a bad thing would be if the poor got poorer, but the truth is that in 1981 41.9% of people were in extreme poverty and in 2013 10.7% of people were living in extreme poverty.3 It isn't true that in rich countries wages have stagnated or fallen since 2008, the only rich country to have fallen significantly was the UK, and most of the others have risen significantly.6
While economic does not usually solve environmental problems, it can solve environmental problems in certain situations. For example, air pollution in Chinese cities had gone down because economic growth has allowed resources to be allocated towards solving the problem, such as Beijing, where the concentrations of particulate matter pollution dropped by about 40%, carbon monoxide dropped about 57%, sulfur dioxide dropped by 75%, and nitrogen dioxide dropped by 27% from 1998 to 2013.5 It is the same in the US, where pollution emissions of the six most common pollutants have gone down by 70% from 1970 to 2015.4 It is interesting how he says we should develop policies to ensure everyone has enough to live on, when the way for people to have more, is for people to produce more, thus increasing productivity. With a world GDP per capita of $8 000 per year, and some countries at less than $500 per year, the idea of everyone having enough to live on without economic growth is impossible. Subsistence farmers cannot get more food without growing more food. Some environmental issues cannot be solved without economic growth, because, for example, pollution control systems cannot be installed on factories if they can't afford it.
But this article is not the worst of Graeme Maxton. It is a wonder why the Guardian lets him write, when he has a blog with offensive content, calling people in the fertilizer industry, "mass-murders":
Of course he can't cite anything saying that the fossil fuel industry kills more lives than it saves, because our modern technologies that allow the life expectancy to be more than double what was in the pre-fossil-fuel age is based on fossil fuels. Are people in the cement industry killing people? Cement accounts for about 5% of carbon dioxide emissions, and saves lives, as a World Bank study says, "Specifically, we find that a complete substitution of dirt floors by cement floors in a house leads to a 78 percent reduction in parasitic infestations, 49 percent reduction in diarrhea, 81 percent reduction in anemia and a 36 to 96 percent improvement in cognitive development. Additionally, we find that replacing dirt floors by cement floors significantly improves adult welfare, as measured by increased satisfaction with their housing and quality of life, as well as significantly lower rates of depression and perceived stress." 1 I'm not sure why he focuses on nitrate fertilizers, but without fertilizers, the food supply would be 40-60% 2 less than if fertilizers were not used, so they save billions of lives. Even if he is right that tens of millions of people will die because of these industries because of environmental problems, that is nothing compared to the billions of lives they save.
Sources:
"It's time to face up to the fact that economic growth does not create jobs, does not reduce inequality and does not solve environmental problems
"The constant drive to increase productivity, which is what economic growth really is, requires manufacturers to steadily reduce input costs. Economic growth destroys jobs.
Increasing productivity may decrease the jobs in the industry that gets more productive, but you cannot conclude that all of those jobs are lost, because this does not account for lower prices, and jobs created from investment of profits. If an increase in productivity causes a company to no longer need 50% of its workforce, and there were 2 000 workers in an economy with 1 000 000 workers, this will lower the cost of labour and the cost of the products produced by the company. The supply of money into the labour market will be reduced by 0.1% (assuming average wages) and the wages will decrease until the labour market absorbs the 1 000 workers. This will decrease the costs of the companies, so they will be able compete better, lowering their prices, until they are at the same profit margins as before the company invested in automation. Because the economy is producing 0.1% more, everyone's purchasing power increases by 0.1%. As long as people are more productive, there will be cheaper prices, which will increase the purchasing power, despite lower wages. Economic growth doesn't destroy jobs, it transfers jobs that are taken away from more productivity to do other things. It is important not to forget lower prices in economics. More information is available from our infographic on economics coming soon, or The Economics of Spending.
"1. Growth does not create jobs In the last 35 years, the world has experienced the fastest economic growth in human history. Yet, according to the Organisation for Economic Co-operation and Development (OECD), unemployment went up.
Yes unemployment went up, but so have programs to help the unemployed which encourage people to be unemployed, and wages in the OECD have increased from $33 530 in 1990 to $41 253 in 2015, adjusted for prices and inflation. Public unemployment spending has nearly doubled in the OECD from 0.5% to 0.9% of GDP from 1980 to 2015.7 There isn't any data for the entire OECD for social benefits to households, which also incentivises unemployment, but you can see from this chart that it has gone up substantially in most countries, and has only gone down in a few countries. For example, the US spending on social benefits to households went from 6.7% of GDP in 1970 to 14.7% in 2015.6
"2. Economic growth does not reduce inequality Because the system is designed to reward those who already have money and assets, the free market economic model takes wealth from the poor and gives it to the rich. This is especially true since 2008 as government and consumer debts in the rich world have risen and average incomes have stagnated or fallen. The gap between the rich and poor is bigger today than in 1914. The gap between rich countries and poor ones is also much greater.
There has been a massive lifting of people out of poverty with economic growth. An increase in the gap between the rich and poor isn't a bad thing, what would be a bad thing would be if the poor got poorer, but the truth is that in 1981 41.9% of people were in extreme poverty and in 2013 10.7% of people were living in extreme poverty.3 It isn't true that in rich countries wages have stagnated or fallen since 2008, the only rich country to have fallen significantly was the UK, and most of the others have risen significantly.6
"3. Boosting growth is not the way to solve environmental problems Rather then pursuing economic growth then, we should tackle our problems head on. We should develop policies to ensure that everyone has enough money to live on, because it leads to healthier and more stable societies. We should plan to reduce the gap between rich and poor, and we need to stop prevaricating when it comes to the environment and actually do something.
While economic does not usually solve environmental problems, it can solve environmental problems in certain situations. For example, air pollution in Chinese cities had gone down because economic growth has allowed resources to be allocated towards solving the problem, such as Beijing, where the concentrations of particulate matter pollution dropped by about 40%, carbon monoxide dropped about 57%, sulfur dioxide dropped by 75%, and nitrogen dioxide dropped by 27% from 1998 to 2013.5 It is the same in the US, where pollution emissions of the six most common pollutants have gone down by 70% from 1970 to 2015.4 It is interesting how he says we should develop policies to ensure everyone has enough to live on, when the way for people to have more, is for people to produce more, thus increasing productivity. With a world GDP per capita of $8 000 per year, and some countries at less than $500 per year, the idea of everyone having enough to live on without economic growth is impossible. Subsistence farmers cannot get more food without growing more food. Some environmental issues cannot be solved without economic growth, because, for example, pollution control systems cannot be installed on factories if they can't afford it.
But this article is not the worst of Graeme Maxton. It is a wonder why the Guardian lets him write, when he has a blog with offensive content, calling people in the fertilizer industry, "mass-murders":
"What's that? You're not a mass-murderer who's going to be sued by future generations for what you have done?
Perhaps you are.
If you work in the fossil fuel business or the cement industry, you most certainly are. If you work in the conventional car, bus or truck business, you are too. If you work in aviation, in container shipping or the palm-oil business, count yourself in. And if you produce those ubiquitous nitrate fertilizers, you are most certainly part of the problem. For you will be responsible for tens of millions of deaths in the next 25 years.
Not your boss. Not your company. Not the system.
But you.
Just ask your kids, before you kill them.
Of course he can't cite anything saying that the fossil fuel industry kills more lives than it saves, because our modern technologies that allow the life expectancy to be more than double what was in the pre-fossil-fuel age is based on fossil fuels. Are people in the cement industry killing people? Cement accounts for about 5% of carbon dioxide emissions, and saves lives, as a World Bank study says, "Specifically, we find that a complete substitution of dirt floors by cement floors in a house leads to a 78 percent reduction in parasitic infestations, 49 percent reduction in diarrhea, 81 percent reduction in anemia and a 36 to 96 percent improvement in cognitive development. Additionally, we find that replacing dirt floors by cement floors significantly improves adult welfare, as measured by increased satisfaction with their housing and quality of life, as well as significantly lower rates of depression and perceived stress." 1 I'm not sure why he focuses on nitrate fertilizers, but without fertilizers, the food supply would be 40-60% 2 less than if fertilizers were not used, so they save billions of lives. Even if he is right that tens of millions of people will die because of these industries because of environmental problems, that is nothing compared to the billions of lives they save.
Sources:
- https://openknowledge.worldbank.org/bitstream/handle/10986/7295/wps421401update1.pdf;sequence=1
- https://books.google.ca/books?id=W0zXCQAAQBAJ&pg=PA86&lpg=PA86&dq=40-60%25+world+food+fertilizer&source=bl&ots=Ow8yk5NvVR&sig=6hN34LIqHx0CUwHZUGcOucYx_9k&hl=en&sa=X&ved=0ahUKEwi56PO0htnTAhUC7oMKHZSyCwgQ6AEITTAI#v=onepage&q=40-60%25%20world%20food%20fertilizer&f=false
- http://data.worldbank.org/indicator/SI.POV.DDAY
- https://www.epa.gov/clean-air-act-overview/progress-cleaning-air-and-improving-peoples-health
- http://www.bjepb.gov.cn/bjepb/323265/340674/4389403/2016052511264687868.pdf
- OECD (2017), Average wages (indicator). doi: 10.1787/cc3e1387-en (Accessed on 09 May 2017)
- OECD (2017), Public unemployment spending (indicator). doi: 10.1787/55557fd4-en (Accessed on 11 May 2017)
Related:
The Economics of Spending
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