Economic Change and Wellbeing: The True Cost of Creative Destruction and Globalization (Routledge Frontiers of Political Economy)

Technological progress and globalization have generated indisputable benefits, but also relevant costs, such as growing economic inequality, economic fluctuations, and financial instability. Mainstream economics has usually considered these costs as temporary, evenly distributed, and more than compensated by the gains of the phases of economic expansion. In this book, which focuses mainly (though not only) on the labor market, the authors contend that the major costs of the intensified process of creative destruction, through which economic change proceeded, have been ignored and the benefits overrated, thus incorrectly estimating the net impact of economic growth on subjective wellbeing. The book argues that the positive consequences of economic change and globalization may not compensate for the negatives, because psychological losses are felt more strongly than gains (due to loss aversion) and the costs are unequally distributed (those on low incomes disproportionately suffer more). The result is an overall reduction in wellbeing and therefore appropriate policies are necessary to allow more people to enjoy the benefits of technological progress without suffering the costs. The authors develop a comprehensive framework in which the socio-psychological context and educational level of a community determine the most suitable policies both for the short and for the long run. The book makes an invaluable contribution to the literature on economic growth and development, labor economics, the economics of wellbeing, and applications of behavioral economics. The readers that may be interested in this book are economists and other social scientists, but also general readers, since the analysis is maintained simple and accessible. University teachers can use the book for courses on economic growth and development, on labor economics, on the economics of human capital, on the economics of wellbeing, and on applications of behavioral economics. Cover 1 Half Title 2 Series Page 3 Title Page 4 Copyright Page 5 Contents 6 List of illustrations 9 Introduction 12 1 Causes and consequences of economic change 15 1.1 Causes of economic change 16 1.1.1 Shocks: industrial revolutions (and the pandemic) 16 1.1.2 Policies 20 1.1.3 Globalization 25 1.2 Consequences for the labor market 29 1.2.1 Temporary employment, labor income share, efficiency, and collective bargaining 29 1.2.2 Job and wage polarization 33 1.2.3 Increasing skill and educational mismatches 34 1.3 Other consequences 35 1.3.1 Rising inequality and diverging trends in social mobility 36 1.3.2 The rise of populism and protectionism 42 2 Traditional (optimistic) theories: growth without regret 49 2.1 The traditional (maximizing) approach 50 2.2 The theoretical foundations of globalization and deregulation 53 2.2.1 “Downturns are temporary and neutral” 53 2.2.2 “Growth is good for the poor” 56 2.3 The labor market 57 2.3.1 “If product demand increases enough there is no unemployment effect of technological progress” 57 2.4 Inequality and populism 61 2.4.1 Inequality boosts growth 62 2.4.2 “Counteracting inequality reduces growth” 63 2.4.3 The POUM hypothesis 64 3 The true costs of economic change 67 3.1 The main weaknesses of the traditional (maximizing) approach 68 3.2 Creative destruction revisited 70 3.2.1 The social reward of innovation when cannibalization is pervasive: a more formal treatment 73 3.3 The impact of change on individuals: a sociopsychological perspective (by Albertina Oliverio) 75 3.4 Labor market: the costs of flexibility 80 3.4.1 Pecuniary and nonpecuniary costs of flexibility 81 3.4.2 Hedonic adaptation to unemployment status? 84 3.4.3 The cultural determinants of loss aversion and hedonic adaptation 86 3.4.4 Economic change and the cost of geographical mobility: a neglected issue 87 3.5 The disproportionate impact of creative destruction on those who have less 87 4 Some recipes to increase the social return of creative destruction 92 4.1 The labor market: different policies for different countries and social groups 94 4.2 The basis of our recipes 98 4.3 Changing incentives: microregulation revisited 98 4.3.1 Enhancing people’s flexibility: education, training, and labor market policy revisited 99 4.3.2 Industrial policy revisited: lessons from the Asian Miracle 102 4.3.3 Antitrust and consumer protection policy 107 4.4 Back to the future: macroregulation policy revisited 108 4.4.1 Back to fiscal policy for full employment? 108 4.4.2 Chicago plan, helicopter money, e-money: the new role(s) of monetary policy 111 4.4.3 Fighting tax havens and fiscal dumping 117 5 Conclusions: looking for sustainable economic change 121 5.1 Towards a behavioral economic theory of the long run 124 References 127 Index 141 Consequences,for,the,labor,market;,The,labor,market;,Creative,destruction,revisited;,The,labor,market;,The,basis,of,our,recipes Consequences for the labor market,The labor market,Creative destruction revisited,The labor market,The basis of our recipes "Technological progress and globalization have generated indisputable benefits, but also relevant costs, such as growing economic inequality, economic fluctuations and financial instability. Mainstream economics has usually considered these costs as temporary, evenly distributed and more than compensated by the gains of the phases of economic expansion. In this book, which focuses mainly (though not only) on the labor market, the authors contend that the major costs of the intensified process of creative destruction, through which economic change proceeded, have been ignored and the benefits overrated, thus incorrectly estimating the net impact of economic growth on subjective wellbeing. The book argues that the positive consequences of economic change and globalization do not compensate for the negatives, because psychological losses are felt more strongly than gains (due to loss aversion) and the costs are unequally distributed (those on low incomes disproportionately suffer more). The result is an overall reduction in well-being and therefore appropriate policies are necessary to allow more people to enjoy the benefits of technological progress without suffering the costs. The authors develop a comprehensive framework in which the socio-psychological context and educational level of a community determine the most suitable policies both for the short and for the long run. The book makes an invaluable contribution to the literature on economic growth and development, labor economics, the economics of well-being, and applications of behavioral economics. The readers that may be interested in this book are economists and other social scientists, but also general readers, since the analysis is maintained simple and accessible. University teachers can use the book for courses on economic growth and development, on labor economics, on economics of human capital, on economics of well-being, and on applications of behavioral economics"-- Provided by publisher