One interesting tidbit of Piketty’s Capital is his rather sober accounting of the causes of cross-national economic growth differences and growth differences over time. He writes amused at the extent to which Americans seemed to think in the 1980s that the higher growth rates of countries elsewhere mean an imminent eclipsing of the American economy. These comparisons made no sense, Piketty explains, because they failed to take into consideration the catch-up growth that drove the differences in growth rates. Once other countries had caught up to the technological frontier, growth rates converged:
Concretely, the crucial fact is that the rate of per capita GDP growth has been almost exactly the same in all the rich countries since 1980. In contrast to what many people in Britain and the United States believe, the true figures on growth (as best one can judge from official national accounts data) show that Britain and the United States have not grown any more rapidly since 1980 than Germany, France, Japan, Denmark, or Sweden.
Lane Kenworthy makes a similar point in his book “Social Democratic America” about the strikingly similar growth rates of a whole variety of developed countries. From the robust Nordic social democracies to the relatively ascetic American brand of “cutthroat capitalism”, it appears that growth rates hardly differ at all.
This is an important fact to keep in mind for the purposes of digesting mainstream American political discourse. So much of what almost anyone talks about in economic policy debates is growth. Pass this policy and we will have faster growth. Pass that policy and growth will plummet. Tim Pawlenty ran for president claiming, rather hilariously, that he would bring with him an era of 5 percent economic growth. One of the most prominent right-wing organizations is even called “Club for Growth.”
If Piketty and Kenworthy are right though, this talk about policy-induced growth is almost entirely baseless.
In exceptional circumstances, growth can be quite high for countries that are way behind some others in development. Implementing decades or even centuries of accumulated technologies within a short period of years tends to spike growth rates to astronomical levels, something we saw even in the Soviet Union and the socialist Yugoslavian experiment.
Once a country gets caught up though, that goes away and growth rates appear to be pretty similar across developed countries. At the technological frontier, growth is slow-going, and not any faster-going in countries like the U.S. that have implemented a dramatic slate of supply-side reforms specifically intended to juice growth rates.
When you join Piketty’s observations together with recent IMF research showing that high levels of national debt do not reduce growth and recent IMF research showing that inequality-reducing redistribution is associated with higher growth, it becomes pretty clear that political rhetoric around growth is primarily habituated aping, not genuine policy arguments. People, especially on the Right, form their policy preferences on totally other grounds (e.g. we should cut taxes on the rich because they are not getting as much money as they deserve to get) and then mobilize growth rhetoric behind those preferences in a totally post-hoc fashion.
This is part of an ongoing PolicyShop series on Piketty’s Capital.