Allister Heath wants more "good" GDP growth:
Good growth is sustainable in the strict sense of the world: it is the kind of activity that would continue in the absence of subsidies and if the cost of money rose again to properly reflect the supply and demand of funds, long-term output expansion, expected inflation and other risks.
This, though, under-rates the benefits of "unsustainable" economic activity. I'm not just thinking of the trivial fact that a temporary income is better than none, but of other mechanisms:
- Temporary booms can leave positive legacies, as Daniel Gross has pointed out; they can leave us with a useful infrastructure of railways, broadband connections and (sometimes) housing that we wouldn't otherwise have.
- Even "bad" businesses can be useful learning experiences, which equip entrepreneurs to go onto success. Thomas Edison said: "I have not failed. I've just found 10,000 ways that won't work."
- Apparently "bad" businesses might become good ones, if there are learning by doing effects. "Fake it till you make it" isn't a great business strategy, but it's a possible one.
- Temporary spells of employment can improve workers' skills and working habits and so make them productive later, thus avoiding hysteresis effects whereby the temporarily unemployed can become permanently deskilled.
But there's another issue here. How can we distinguish between "artificial" economic activity created by loose monetary policy and that arising from over-optimism, bad business plans or plain bad luck? In normal times there is a massive amount of creative destruction; on one estimate (pdf), the UK economy created and destroyed around 50,000 jobs each week between 1997 and 2007. How can we tell how many of the 50,000 jobs created are "sustainable"?
You might think we can't, until after they've disappeared: as Warren Buffett said, it's only when the tide goes out that you can see who's been swimming naked. But even this won't do. In their study of the 1990-91 recession Paul Gregg and Paul Geroski point out that there was little correlation between firms' pre-recessionary efficiency and their vulnerability to recession. There is, they say, a "large random component" affecting who gets hurt in a recession. The best way to ensure that firms are efficient is to ensure vigorous competition, not to hit them with occasional recessions.
Worrying about "sustainable" or "unsustainable" economic activity is, therefore, pointless. We can't distinguish the two, and it doesn't matter.
I say all this to raise a paradox. Mr Heath is generally seen as a man of the right, whilst I'm a Marxist. But it's Mr Heath who looks like a Guardianista fretting about "good" and "bad" activity whilst the Marxist is reminding him of the virtues of tumultuous market activity.
This is, of course, not simply a matter of his and my idiosyncracies. If you're looking for people who believe in old-style central planning, you'll find them among CEOs who think they can manage sprawling multinationals from a head office, and among fund managers who think - contrary to most facts - that they can spot good investments better than the market. We Marxists, however, have learned from our mistakes and are interested in ways of decentralizing economic activity. A belief in central planning these days is to be found in boardrooms and in fund managers' offices more than on the thoughtful left.