If the twenty first century has produced a extra prescient e book, I’ve not seen it. I’m considering of The Ethical Penalties of Financial Development, by Harvard economics professor Benjamin Friedman. The e book was revealed in late 2005, making it the identical age as this column.
Friedman’s argument was wide-ranging however the backside line is simple to summarise: “Financial progress — which means a rising lifestyle for the clear majority of residents — as a rule fosters higher alternative, tolerance of variety, social mobility, dedication to equity, and dedication to democracy.”
Friedman famous {that a} thriving economic system may need quite a few welcome side-effects, penalties which we’d name ethical progress. For instance, if jobs have been plentiful and staff have been scarce, discrimination on the grounds of race, intercourse or faith “most frequently offers option to the sheer must get the work accomplished”.
But for Friedman, the important thing to unlocking the virtues he admired was not jobs however a rise in broad-based materials residing requirements, which is measured — or a minimum of proxied — by GDP per individual. He argued that we naturally choose how issues are going by making comparisons, and two varieties of comparability are available. The primary is to match ourselves with others. The second is to match our present state of affairs with our personal previous experiences. If residing requirements have been briskly growing, then we might discover that we have been comfortably richer than we had been a decade in the past. If residing requirements have been stagnating or falling, then we might cease making contended comparisons with our former selves, and our envious gazes would flip to the lives of others.
Such zero-sum considering is more likely to be poisonous and counter-productive. In any case, as Friedman writes, “Nothing can allow the vast majority of the inhabitants to be higher off than everybody else. However not solely is it potential for most individuals to be higher off than they was, that’s exactly what financial progress means.”
On the time, Friedman was criticised from the left for being too reductive about what financial progress meant (what about inequality? What about environmental sustainability?) and from the libertarian proper for complicated ethical progress with centrist beliefs equivalent to an inclusive, redistributive welfare state (what about rewarding excellence? What about freedom?).
These critiques have misplaced their chew. The occasions of the previous twenty years have proved that on the large questions, Friedman was unnervingly, tragically right. The twenty first century has been an period of financial trauma, and the results for our attitudes and our politics have change into all too apparent.
The US economic system has definitely grown over the previous 25 years, however the progress has been uneven, unsure and repeatedly interrupted. The century started with the unnerving popping of the dotcom bubble, adopted by the post-9/11 recession, which blurred into the “China shock”, an inflow of Chinese language imports that for a couple of years inflicted localised however traumatic injury on US communities depending on manufacturing. All that was made to look tame by the banking disaster of 2007-08, which depressed progress charges for years afterwards, in addition to draining the US financial system of legitimacy. The ultimate one-two punch was the Covid-19 lockdown adopted by the surge in inflation of the previous few years.
What does all this drama appear like within the financial knowledge? Easy. Over the quarter-century starting in 1950, actual GDP per individual grew virtually 80 per cent. Over the next quarter-century, 1975-1999, actual progress per individual was once more slightly below 80 per cent. However from 2000-2024, whole actual progress per individual halved, to only underneath 40 per cent.
Or take into account the expertise of the finance-heavy UK economic system, wherein the banking disaster looms even bigger. That disaster was adopted by an anaemic restoration — not helped by the tax rises and spending cuts of the coalition authorities — after which, in 2016, the vote for Brexit. The info, once more, tells the story: between the height of 2007 and the final full yr earlier than the referendum, 2015, the UK’s actual financial output per individual grew by a grand whole of 1 per cent. Since 2016 the common remains to be properly in need of 1 per cent a yr. For context, within the Nineties, actual per capita progress was extra like 1 per cent each six months.
Friedman’s primary thesis was that sturdy, broad-based progress would encourage tolerance, social mobility, equity and a dedication to democratic values. Ought to we be stunned that an financial slowdown has given us the alternative?
Since The Ethical Penalties of Financial Development was revealed, economists have investigated its thesis with a extra quantitative lens. Lewis Davis and Matthew Knauss checked out greater than 80 international locations between 1989 and 2007. They discovered that individuals have been extra longing for governments to “take extra accountability to make sure that everyone seems to be offered for” the place the expansion fee had lately been rising and revenue inequality had lately been falling.
That’s an intriguing discovering, significantly the counterintuitive proposition that individuals need extra authorities provision in locations the place revenue inequality is falling. And never everybody would agree that there’s something “ethical” about wanting authorities to take an even bigger function as a supplier. Nonetheless, it’s putting that Davis and Knauss discover that in economies which are misfiring, with falling progress and rising inequality, the everyday response is: each man for himself.
In January, Timothy Besley, Christopher Dann and Sacha Dray revealed a examine of “Development Experiences and Belief in Authorities”, and concluded that people who had skilled greater GDP progress since they have been born “are extra susceptible to belief their governments”. Once more, trusting your authorities just isn’t fairly the identical factor as ethical rectitude, however Besley and colleagues are pointing to a number of the similar basic points as Friedman was: when financial progress sags, it doesn’t simply change what we will afford — it adjustments what we worth, what we consider and who we belief.
We shouldn’t be reductive about this hyperlink between materials flourishing and ethical flourishing. There are definitely moments, such because the Nice Melancholy within the US, when each the federal government and the individuals appeared to rise to the problem reasonably than sinking into infighting and recrimination. And the growing energy and a focus given to unsavoury political characters across the democratic world is unquestionably about greater than merely low progress. Nonetheless: low progress issues, not simply because it empties out our buying baggage, however as a result of it hollows out our character.
Written for and first revealed within the Monetary Instances on 18 Feb 2026.
I’m operating the London Marathon in April in help of an excellent trigger. For those who felt capable of contribute one thing, I’d be extraordinarily grateful.
