Notes on Stubborn Attachments by Tyler Cowen

This is a short (110 page) book by the libertarian economist Tyler Cowen. He's a professor at George Mason University in the US, but most famous for his podcast (Conversations with Tyler) where he grills a wide variety of interesting people on their work. I highly recommend it: like all great interviewers, he does a vast amount of background research on his guests - it’s common for them to ask him in amazement how we knew some obscure fact about their life or work.

This book is a summary of some of his core views. Here are four interesting questions that it raises:

1. How good is economic growth?

Our societies operate with the assumption that economic growth is a very good thing. Maximising GDP growth is a core goal of a government; being in recession (two quarters of negative growth) is perceived to be something very bad. Why?

It's not obvious why our societies should need to constantly be growing. Since we're already wealthy, can't we just be happy with what we have? Indeed, this is actually a common line of argument from proponents of degrowth, usually along environmental lines: maybe we should aim to reduce economic growth along with consumption, or pull a Bhutan and track Gross National Happiness instead.

To answer that question, consider the wealthiest societies of the world in the late 19th century:

25% of US households had running water
12% had gas or electricity
US High school graduation rate was 6%
Typical US worker did 60 hour weeks at a physically arduous job
Western European life expectancy was around 40 years

A century of economic growth produced the conditions we enjoy today.

But because economic growth relies on compounding over time, tiny changes in the rate of growth produce vastly different outcomes:

For instance, a two percent rate of economic growth, as opposed to a one percent rate, makes only a small difference across the time horizon of a single year. But as time passes, the higher growth rate eventually brings about a very large boost to well-being. To make this concrete, here's an experiment: redo U.S. history, but assume the country's economy had grown one percentage point less each year between 1870 and 1990. In that scenario, the United States of 1990 would be no richer than the Mexico of 1990

Now it makes sense why governments worry about GDP figures. In fact, they should probably worry more: every one per cent of growth lost costs our descendants dearly.

2. Does money bring happiness?

OK, so growth matters. But readers in Bhutan might still protest that wellbeing matters more. What’s the point in being rich when it doesn’t make us happy anyway?

The relationship between money and happiness is complex. Tyler spends a fair amount of time dissecting the evidence on it. In general, it seems that money does continue to lead to happiness, including at higher levels of earnings. But there is also survey data indicating a ‘hedonic treadmill’ effect, whereby wealth boosts happiness up to a point, but then trails off.

What’s particularly clear is that while the relationship between money and happiness is non-linear, what more wealth is particularly effective at is preventing unhappiness. It’s true that getting a 10% raise is unlikely to result in a 10% rise in wellbeing. But having a well-developed economy massively reduces the probability of dying, being incapacitated by your manual labour job, or having your loved one suffer from a life-threatening illness, and any number of rare events that tank your happiness levels.

This is true at the individual level, but also at the societal level. 10 years ago, it was common to argue that once a country attained about the level of wealth found in Greece, happiness flatlined, and that there was no need to pursue further growth. Yet since then, Greece has suffered an economic crisis, high unemployment, and political extremism. If Greece had been wealthier, it would have had spare capacity to respond to catastrophe.

Because literature on happiness relies on survey data, it misses this: surveys exclude individuals that are dead or hospitalised, the population of which is far larger in poorer countries.

3. Is there a tradeoff between growth and equality?

Although global poverty has declined massively, a common worry is that inequality has risen. We might be more concerned about promoting economic growth if a side effect of that is increased inequality within countries.

For example, it might be the case that the spoils of economic growth had overwhelmingly accreted to the wealthiest in society. That would mean that that standards of living improved for a small subset of society, but that the poor remained poor.

But in fact, we don’t see that: the poorest 20% in America are far better off than the poorest 20% elsewhere.

Still, even though living standards have improved for all, haven’t they disproportionately improved for the rich? Maybe. But another effect of economic growth is that it democratises quality of life improvements. In the 19th century, the richest could afford to live vastly different lives from the poor. Yet today, most luxuries are affordable in some form to all of us:

Imagine that a time traveller paid a visit to Bill Gates today. He would find televisions, automobiles, refrigerators, central heating, antibiotics, plentiful food, flush toilets, cell phones, personal computers, and affordable air travel, among other remarkable benefits. The most impressive features of Gates's life, seen from the point of view of a person from the eighteenth century, are those shared by most citizens of wealthy countries today.

4. How much should we value the future?

The most interesting takeaway from Stubborn Attachments for me was the notion that decisions about economic growth today affect the world hundreds of years into the future. In fact, Tyler points out that there is evidence that the prosperity of a region well before 0BC strongly predicts its prosperity today.

To make matters more complicated, economic growth can take a long time to work. In fact, in the early English industrial revolution it took a number of decades for the benefits of economic growth to accrue to the poor. But if redistributive policies had been implemented earlier, the total amount of economic growth might have been lessened, harming more people in the long run.

The actual attitudes required to induce an acceptance of such long time horizons are, in psychological terms, much closer to a kind of faith. We cannot see these very distant expected gains, but we must believe in them nonetheless, and we must hold those beliefs near and dear to our hearts. In this sense, we should strongly reject the modern secular tendency to claim that a good politics can or should be devoid of faith.

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Stubborn Attachments is available to buy now from Stripe Press.