Markets versus growth

Norm rightly criticizes George Monbiot for hoping we get a recession. But there's a wrinkle here that both are missing - that recessions only inflict material hardship upon minorities. In Coping with Recession, Paul Gregg and the late Paul Geroski showed that in the 1989-91 recession 10% of firms accounted for 80% of the gross fall in sales and 85% of the gross fall in employment.Roughly half of firms expanded employment.
Even if we ignore George's arguments, recessions actually benefit many people not just because economic activity grows in many places, but also because they reduce inflation which helps almost everyone.
The hardship which recession imposes is not so much material as psychological. Recessions are bad not because they make us poorer but because they make us fearful. And this fear, as Benjamin Friedman shows, has nasty effects upon social attitudes.
This means much of the harm done by recessions could be avoided by better pooling of risks - by having insurance products that insure people against downturns in particular industries or occupations. Robert Shiller has, brilliantly, shown how.
The costs of recession are, therefore, costs of having missing markets.
But the same's true for the costs of growth, described by George (which were in fact better put by John Stuart Mill in para IV.6.5 here). Take his example, noise. This is a problem (largely, partly?) because there isn't an adequate market in noise or quiet. If people had well-defined and protected property rights in the right to quiet, they could in principle sell it if the price were high enough. The noise that results from economic growth - I write this to the sound of builders in the flat below - would then only exist if it benefited everyone. That is, if the noise maker could pay enough to compensate others for his noise; if property rights could not be well-defined, a similar result could be obtained by a Pigovian tax upon noise-makers.
In this sense, the debate about the desireability or not of aggregate growth perhaps misses the point. The point is that markets are inadequate.
If George wants to make a stronger argument against capitalism, he'd point out that many capitalists' (and goverments') commitment to free markets is fictitious - they are not interested in creating markets that would benefit the poor and vulnerable.

Comments

[dearieme]

"many capitalists' .. commitment to free markets is fictitious - they are not interested in creating markets that would benefit the poor and vulnerable": your conclusion may be correct but your logic isn't.

[Jonathan]

Highly debatable. Christopher Dow's 'Major Recessions' (OUP, 1998) shows that recessions in the UK and elsewhere have persistent negative effects. A recent IMF study found this econometrically for the great majority of countries :

http://www.imf.org/external/pubs/cat/longres.cfm?sk=18392.0

Schumpetarian notions that recessions may have beneficial creative destruction effects are currently quite fashionable. They are not, though, supported by the data.

[dsquared]

[The costs of recession are, therefore, costs of having missing markets.]

it's the inability to buy sufficient insurance that's the problem, not the market per se.

[mat]

Don't the markets already exist? To insure against recession, all you need to do is buy some countercyclical stocks.

[chris strange]

Doesn't George understand that the environment is a luxury good. The only way that people will really pay attention to it is if they are already rich enough that getting everything else that isn't a luxury isn't a problem? As an environmentalist he should be praising economic growth as it lets more and more people afford to become environmentally conscious (plus campaigning for nuclear power in order to power this growth in a way that is carbon free).