BOOK REVIEWS The Moral Consequences of…

                          BOOK REVIEWS

The Moral Consequences of Economic Growth
Benjamin M. Friedman
New York: Alfred A. Knopf, 2005, 570 pp.
   Benjamin Friedman's The Moral Consequences of Economic Growth is
magnificent and flawed. It is a work of astounding scholarship and ex-
hilarating intellectual imagination as well as disappointing partisanship
and theoretical fragility.
   Moral Consequences is primarily an extended defense of the hypoth-
esis that steady economic growth "fosters greater opportunity, tolerance
of diversity, social mobility, commitment to fairness and dedication to
democracy" (p. 4). The hypothesis is defended with a spectacular range
of evidence from disciplines including economic and political history as
well as popular culture and literature. However, as the book proceeds, it
becomes increasingly difficult to say what exactly Friedman means by
"moral consequences." And that in a nutshell is the big problem for this
big book. As Friedman shifts without comment or justification from a
broad Enlightenment conception of moral progress to a rather parochial
American welfare-statist conception of political morality, the nature and
importance of the dependent variable in Friedman's equation becomes
ever more elusive. Without a rather more rigorous normative framework,
the reader is left arguing with the author about whether the examples he
has chosen to prove his point really count for or against it.
   Moral Consequences has five parts. Part One sets out the idea of
growth, traces the historical connection between the idea and reality of
growth to the Enlightenment ideology of moral progress, and lays the
micro-level psychological foundations for his macro-level argument. Part
Two defends the hypothesis in the context of American economic and
political history, attempting to show that economic expansion has been
associated with openness, tolerance, and democracy, while contraction
has been associated with xenophobia, protectionism, and political exclu-
sion. Part Three tests the hypothesis in the context of the histories of
Britain, France, and Germany. Part Four tackles issues of economic
development and globalization. Part Five contains a litany of policy rec-
ommendations for promoting growth in America.


  Cato Journal, Vol. 26, No. 1 (Winter 2006). Copyright © Cato Institute. All rights
reserved.

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   The psychological mechanisms discussed in Part One that create the
basis of Friedman's larger argument deserve special attention. Zero-sum
games bring out the worst in us. If I believe your gain is my loss, I may
become aggressive in ensuring that you do not gain. The principal moral
consequence of economic growth is that it transforms society into a
"cooperative venture for mutual advantage," to use John Rawls's phrase.
Indeed, it may appear that positive-sum growth is a precondition for
much of morality, insofar as morality concerns social cooperation. Fried-
man advances our understanding of the relationship between economic
growth and our willingness to cooperate by drawing on literature in
behavioral economics to point out the crucial importance of increases
versus decreases in the rate of economic growth.
   In a number of experiments it has been shown that people place extra
value on things they have simply because they have them, are more
pained by losses than buoyed by gains, quickly become accustomed to
new levels of comfort and recalibrate their expectations accordingly. All
this creates a powerful one-way ratchet effect in which a decrease in the
rate of growth can seem like a loss, eliciting our propensity to jealously
guard our own holdings and advantages, as if in a zero-sum game. An
economic slowdown can cause us to close the gates and bolt them, even
if the economy, and each individual share, continues to grow.
   In addition, Friedman argues that we track our progress through two
kinds of social comparison. On the one hand, we compare our economic
condition with that of our family and our past, gauging how well we are
doing relative to our parents at the same age, or relative to ourselves
some years ago. On the other hand, we compare ourselves with our
neighbors and fellow citizens. Friedman suggests that these two forms of
comparison are partial substitutes. As long as we take ourselves to be
doing well relative to our parents and our younger selves, we are less
inclined to check how we are doing relative to the Joneses, and will not
feel threatened by the upward mobility of those below us. But if we feel
that we're stalled relative to where we were in our past, we become
envious of our relative position in the broader distribution of wealth, and
may become disposed to consolidate our own advantages and cut off
opportunities for others.
   Friedman's micro-foundations are a profound contribution to our un-
derstanding of the relationship between economic growth and the psy-
chological mechanisms that open us to a broader sphere of cooperation
and mutual benefit. It is too bad, then, that he applies these insights
unevenly throughout Moral Consequences. Friedman provides numerous
examples of questionable moral judgment that may or may not be con-
sistent with his stated micro-foundations.
   In "Great Depression, Great Exception" (Chapter 7), Friedman dwells
on what appears to be a serious historical counterexample to his thesis:
the emergence of Roosevelt's New Deal from the depths of the Great
Depression. For Friedman, a welfare-liberal, the New Deal represents
an enormous moral advance in American politics. Yet demand for New

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Deal policies appears to be rooted in the experience of America's most
severe economic downturn. Friedman is persuasive in arguing that the
Great Depression was a global phenomenon and had deeply negative
moral and political effects internationally. He then avers that a single
counterexample from American history--even a very large one--cannot
overthrow a hypothesis about a complex historical process. Friedman
could have saved himself some trouble by denying that the emergence
of the New Deal from the Great Depression is an exception to his
hypothesis. But Friedman doesn't even consider that the conventional
wisdom about the moral blessings of New Deal might be mistaken, and
so is left trying to shrug off the importance of an apparently giant
anomaly.
   Here is another example. Friedman is in favor of racial quota pro-
grams. So opposition to affirmative action in the 1980s and 1990s is
described as an erosion of "society's inclusiveness with respect to non-
white citizens" (p. 201) coincident with the slow growth that began in the
early 1970s. However, a fair inspection of the cultural climate might have
found Americans increasingly nonchalant about interracial marriage
and a large and growing presence of celebrated minorities in popular
culture.
   Unless we have some independent standard for judging whether the
moral climate of a society did in fact improve in any period of history, we
can only guess whether events support or undermine Friedman's thesis.
Too often, Friedman simply asserts a moral gloss on events and then links
them anecdotally to his thesis about growth rather than providing evi-
dence that economic trends have affected citizens' psychology in a man-
ner that his micro-foundation would predict--say, a reduction in their
sense of inclusion. Instead he often seems to infer the workings of the
psychological mechanisms that link growth to moral consequence
from the fact that he has judged something morally suspect. But that
won't do. Even if Friedman's moral sense is unerring, praiseworthy sen-
timents and noble motives do not necessarily entail morally good conse-
quences.
   In general, Friedman characterizes any push for limited, constitutional
government as embodying a "diminished sense of public responsibility
for the nation's affairs." (p. 205) In the epigraph to his chapter on "De-
mocracy in America" (Chapter 8), Friedman uses Ronald Reagan's claim
in his first Inaugural Address that "government is not the solution to our
problem; government is the problem" as an example of regrettable re-
treat from the hopeful moral ambition of Johnson's Great Society. But
those who believe Reagan was right are unlikely to concur with Fried-
man's increasingly subjective and flexible definition of morality.
   The Moral Consequences of Economic Growth is an enormously am-
bitious book that suffers from a lack of ambition, like the Sistine ceiling
in black and white. The overarching logic--Adam Smith's logic--is im-
peccable. Friedman deserves credit for marshaling a huge quantity of
historical evidence to flesh out the case for growth. But his rigorous

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economic and historical scholarship is in the end undermined by
theoretical laxity on the normative side of the equation. Someday some-
one will write the book on the moral dimensions of economic growth.
Unfortunately, this book isn't it.
                                                        Will Wilkinson
                                                        Cato Institute




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