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Economic Shrink

Here’s a comment from the thread of my recent posting at Facebook of Deirdre McCloskey’s superb New York Times essay – in which Deirdre argues that the poor are sustainably enriched only by market-tested economic growth:

Only in a ponzi scheme do you need constant growth to solve problems, shrink can just as well benefit the poor.

Sigh.  This commenter (one Matthijis Krempel) suggests that economic growth of the sort that Deirdre celebrates is a Ponzi scheme – meaning that this growth is destined to be revealed to be unsustainable.  This notion is nonsense, although I gather that it is widely believed by many “Progressives” who know neither economics nor history.

But of course economic growth of the sort that much of humanity has enjoyed over the past 250 or so years is no Ponzi scheme.  The very real gains enjoyed by billions of people over these past few centuries are not the fruits of prepaid sacrifices by even larger numbers of people.  The economic growth that Deirdre rightly celebrates is the result of wealth creation – wealth created by market-tested innovation and spread (and further encouraged) by open, private-property markets.  Contrary to what Mr. Krempel likely believes, the material prosperity widely enjoyed today is not being paid for by unsustainable extractions and uses of resources today.  (Oh how I wish that Julian Simon had not died so prematurely.)

As for Mr. Krempel’s “economic shrink” comment, it reveals ignorance not only of economics and of history but also of arithmetic: shrinking the numerator relative to the denominator necessarily yields a lower value.  And if Mr. Krempel would reply that the poor might still nevertheless be benefitted, in the face of “economic shrink,” by forcible transfers of wealth from the current rich to the current poor, he obviously has no understanding of how much the rich have in total compared to the number of poor.