Editor’s comment: It seems appropriate that since my book of the month is one that departs from traditional economic theory, this article of the month should be of similar ilk. Thanks to my good friend, Carl Falb, for passing this along to me. Warsh’s writing is a bit rangy but absolutely fascinating to me in that he incorporates social as well as economic theory into his work.  Just the challenging of our measures and the implications of same makes this excerpt a fascinating read. For the entire text of this September 14th article, and much more, go to www.EconomicPrinciples.com.  

The concept of citizenship had been evolving in England since at least the late seventeenth century, Marshall wrote, which meant that the growth of citizenship coincided with the rise of capitalism in that nation. The concepts seemed in near-total opposition. Capitalism was all about inequality, the creation of new classes. Citizenship bestowed equal status on all members of the community, rich and poor alike. Capitalism was about creating new classes. Citizenship was about class-abatement.

Were they related?  Certainly rights seemed to have grown hand-in-hand with GDP (starting long before there was any such statistical index of capitalism). Sometimes citizenship advanced in alliance with economic growth, other times in opposition.

This political narrative is very well known – far better than the narrative of, say, the Industrial Revolution. Civil rights, those associated with personal liberty, were established mostly in the eighteenth century, by a series of democratic revolutions; political rights in the nineteenth; social rights in the twentieth. Marshall described them thus:

[Civil rights include] freedom of speech, thought and faith, the right to own property and to conclude valid contracts, and the right to justice. The last is of a different order from the others, because it is the right to defend and assert all one’s rights on terms of equality with others and by due process of law. This shows us that the institutions most directly associated with civil rights are the courts of justice.

By the political element I mean the right to participate in the exercise of political power, as a member of a body invested with political authority or as an elector of the members of such a body. The corresponding institutions are parliament and councils of 1ocal government.

By the social element I mean the whole range from the right to a modicum of economic welfare and security to the right to share to the fuIl in the social heritage and to live the life of a civilized being according to the standards prevailing in the society. The institutions most closely connected with it are the educational system and the social services.

In 1950 Britain, social rights had to do with extending the welfare state. It seems to me that the second half of the century had to do with bringing economic rights within the meaning of the term, especially in nations formerly deemed to have been socialist. Thrashing out the balance between the right to participate in markets and to share in their fruits, against non-market rights to education, health care, lifetime employment and retirement income, seems to have been what much of the shouting of the last fifty years has been about – in slightly different ways, in the First, Second and Third Worlds (unless, of course, you think that the broadening of the meaning of citizenship was finally settled, once and for all, sometime in the mid-century.

On this (admittedly idiosyncratic) argument, it seems to me that citizenship in the twenty-first century is likely to have to do with the extension of environmental rights to an ever-increasing community of citizens – not just clean air and clear water, which is where the movement began, but the rights to a temperate and at most slowly changing climate; relatively stable borders; and a thoughtfully managed biota.

Now here’s the thing: for the last three hundred and fifty years or so, the battle for expanded rights has led the way. We make our wish list in the political sphere; growth follows in its train. At the moment the top item on the list probably has to do with curbing slowing, then managing climate change. This is not just a matter of  “climate week,” the demonstrations in New York, or the UN preparations there for next year’s conference in Paris.  Businesses all over the world for years have been incorporating reduced carbon emissions in their spending decisions.

Eventually we can be expected to change the definition of economic success – that is, change the calculation of growth in the GDP – to include the expense of the maintenance of the atmosphere. (Solid waste and water pollution can come later.) In a recent article in Science by Nicholas Muller, of Middlebury College, a faculty research fellow of the National Bureau of Economic Research, showed how such adjustments would increase GDP growth, not diminish it, in periods when the air pollution intensity of output was decreasing — estimated gross external damages (GED) from greenhouse gases fell by half in the US, from 6.4 percent to 3.2 percent of GDP, between 1999 and 2008.

In the meantime, it is hard to know how much slow GDP growth may eventually be interpreted as measurement error. Northwestern’s Gordon acknowledges as much. He writes,

… GDP has always been understated. Henry Ford reduced the price of his Model T from $900 in 1910 to $265 in 1923 while improving its quality. Yet autos were not included in the CPI until 1935. Think of what GDP misses: the value of the transition from gas lights, that produced dim light and pollution and were a fire hazard, to much brighter electric lights turned on by the flick of a switch; the elevator that bypassed flights of stairs; the electric subway that could travel at 40mph compared to the 5mph of the horse-drawn streetcar; the replacement of the urban horse by the motor vehicle that emitted no manure; the end of disgusting jobs of human beings required to remove the manure; the networking of the home between 1870 and 1940 by five new types of connections (electricity, telephone, gas, water, and sewer); the invention of mass marketing through the department store and mail order catalogue; and the development of the American South made possible by the invention of air conditioning. Perhaps the most important omission from real GDP was the conquest of infant mortality, which by one estimate added more unmeasured value to GDP in the 20th century, particularly in its first half, than all measured consumption.

In other words, the New Normal is going to take some getting used-to.  Capitalism in the twenty-first century is obviously going to be different from capitalism in the twentieth century.  More fundamentally, so too the rights of humankind.