Neocornucopianism and the Steady State: Part I

The cornucopia is an age-old symbol of celebrating plenty. Today, the world has plenty and a new goal is needed. (Image credit: Yzrael. Image used under Creative Commons Attribution-Share Alike 3.0 Unported license.)

By Josh Farley

Perhaps the main reason people reject the need for a steady state economy is some form of cornucopianism, the belief that technological progress will overcome all ecological and physical limits, allowing endless economic growth into the indefinite future. Cornucopianism has several flavors, and I will describe three: mainstream economics, eco-modernism, and singularity theory.

Mainstream Economics Fuels Cornucopian Ideas

First, let’s examine how mainstream economics feeds a belief in cornucopianism. Most mainstream economists argue that as resources become scarce, their prices increase and that this incentivizes suppliers to produce more, innovators to develop substitutes, and consumers to demand less. They claim centuries of empirical support for their beliefs. Take for example the need for energy sources to fuel societies. The English economist William Stanley Jevons once said there was no conceivable substitute for increasingly scarce supplies of coal, but then we discovered oil. Oil production in the U.S. peaked in the 1970s, declining rapidly thereafter, and global production would inevitably peak sometime around 2012. Then the oil industry found deep sea deposits and refined hydraulic fracturing, while innovators developed alternative energy technologies. Oil production in the U.S. has surged back to its previous levels, global production has continued to rise, and solar energy prices are plunging.

To mainstream economists, climate change is a bit pesky, but it just requires internalizing ecological costs into market prices. They argue that technological advance, together with economic growth, will save us from any scarcity. But the folly in this idea is that demand does not stabilize or reduce just because new innovative sources (of fuel, for one example) become available. Demand continues to rise in parallel as new sources are found, new technologies are created, and economic growth is pushed to accelerate—to find more and use more. Demand becomes a runaway train, one that drives not an overflowing cornucopia of supplies (fuels, products, or anything else humans need), but rather drives a perpetual cycle of endless need that is never satisfied, an overflowing cornucopia with food going rotten.

Eco-Modernism as Cornucopianism

The second flavor of cornucopianism I want to explore is eco-modernism. Eco-modernists recognize that human impacts on our global ecosystems are currently unacceptable, but they believe that humanity can refocus technological progress to reduce these impacts. Eco-modernism believes that technology can end our reliance on nature. That we can use nuclear power to extract atmospheric gases and terrestrial minerals to build food in a laboratory, eliminating the ecological damage from agriculture. That we can extract carbon from the atmosphere and convert it directly into hydrocarbons.  That if the climate grows too hot too fast, we can geo-engineer some cooling by throwing aerosols into the atmosphere. In their own words, eco-modernists say: “we affirm one long-standing environmental ideal, that humanity must shrink its impacts on the environment to make more room for nature, while we reject another, that human societies must harmonize with nature to avoid economic and ecological collapse,” (see the ecomodernism manifesto). They are saying that we need to accelerate, not move toward a steady state.

Singularity as Cornucopianism

Perhaps the most extreme flavor of cornucopianism is singularity theory. Singularity theorists are not concerned by the exponentially growing impacts of human activities on global ecosystems, because they say knowledge is growing super-exponentially, which means the power of human knowledge will become infinite by 2045.  With infinite knowledge, they say, we can undo all the previous harm done to earth’s ecosystems, or simply abandon the earth and even our human bodies all together. We can download our consciousness into solar powered computers floating in space and virtually experience any reality we choose. This may sound far-fetched, but the idea has gained traction among Silicon Valley hotshots.

Truly novel technologies are inherently unpredictable: Since we can’t know what will emerge, we can’t possibly know the odds that it will emerge on time or truly address the problems we think it might. Betting the future of civilization and biodiversity on gambles with unknown odds is unwise to say the least. Rather than arguing over an unpredictable future, I propose neo-cornucopianism as a new argument for a steady state economy.

Neocornucopianism: We Already Have Plenty

I coin the term “neocornucopianism” to describe the recognition that, in wealthy nations, the horn of plenty is already overflowing, so the desire to establish an endless plenty is an empty, misplaced, and problematic desire.

The average American home has nearly doubled in size since the 1950s, and consumption has grown even faster: Americans rent an average of 21 square feet of storage space per person and generate more than 250 million tons of garbage per year, including 40% of the food we purchase. It’s to the point where we are actually paying to get rid of useful things. Additional production now makes us worse off.

A growing awareness of these trends leads to neocornucopianism: an idea, a mindset, and a lifestyle. Neocornucopians recognize that many of the new things they want will be thrown away within a week. So wanting and demanding less (instead of the endless pursuit of more) makes sense for personal choices, individual finances, local, state and national policies and for the larger global economic system.

Want to learn more? Stay tuned for future essays on this topic at the Steady State Herald, including articles in which Farley will provide examples of cornucopian wealth, with insights into the extreme inefficiency, injustice and unsustainability of our current system, as well as exploring a just and sustainable steady state alternative.


An Act of Congress for the Steady-State Timeline

By Brian Czech

Some years down the road—probably decades—we’ll pass the Full and Sustainable Employment Act, calling for a steady state economy in the USA. This is our vision at CASSE. When that day comes, scholars and commentators will construct a timeline demarcating the major steps along the way. On that timeline, August 28, 2018 will be duly noted. This was the day when the Measuring Real Income Growth Act, “MRIGA,” was introduced in the U.S. Senate by Chuck Schumer (D-NY) and Martin Heinrich (D-NM).

Even if MRIGA is never enacted, the Senate bill will belong on the timeline. It recognizes one crucial point on the way to a steady state economy: namely, that something is wrong with using GDP as an indicator of success. It represents an American paradigm shift, away from the bankrupt notion that “a rising tide lifts all boats” to the reality that some boats are falling to pieces while others are accruing new decks.

Now it’s true that MRIGA is far from a Full and Sustainable Employment Act. It’s all about a more equitable distribution of wealth, and says nothing about limits to growth. And that is precisely why it will be an early mark on the steady-state timeline, as opposed to the culmination of steady state economics.

Steady state economics centers around the themes of sustainability, distribution of wealth, and allocation of resources. When asked for advice, the steady state economist will prescribe stabilized GDP (for sustainability), an equitable distribution of wealth, and efficient allocation of resources using a variety of approaches. In contrast, conventional economics deals almost entirely with the allocation of resources by prescribing especially the “free market.”

Similarly, American political history has favored the free market. The American Constitution was conducive to the fast track of a capitalist economy. The founding fathers – and certainly subsequent politicians – emphasized economic freedom over issues of fairness and sustainability.

As we start bumping up against limits to growth in the 21st century, some cold hard facts reveal themselves. One is the accelerating pace of environmental deterioration. Another is that a rising tide no longer lifts all boats. When it takes drastic measures to grow the economy – including the revocation of longstanding environmental protections – the benefits accrue to fewer individuals, such as oil and chemical company executives.

Chuck Schumer explaining the bill on C-SPAN.

Environmental deterioration is noticed by ecologists and overlooked by most others, while the general inability to get ahead financially is experienced by the vast majority of individuals. Therefore we can expect political action on the distribution of wealth before any action on protecting the environment, much less any steady statesmanship to intentionally limit the size of the economy. And this is precisely what we are seeing in MRIGA: political action on the distribution of wealth, with no heed paid to sustainability (in the current bill at least).

So we suffer no illusions that Schumer and Heinrich are attacking GDP out of a concern for environmental protection or even long-term economic welfare. Even their apparent concern for the current distribution of wealth doesn’t hide the obvious fact that MRIGA is a political response to President Trump’s braggadocio over GDP growth rates. Nevertheless, the mere fact that Schumer and Heinrich focused in on GDP, rather than for example a progressive tax reform, will help us immensely as we raise awareness of the trade-off between GDP growth and environmental protection, economic sustainability, national security, and international stability.

Thankful to be Back in the Steady-State Saddle

By Brian Czech

One thing about American holidays – there’s no mincing of words. Thanksgiving Day is as self-explanatory as it gets. And from where I write, it happens to be easy, giving thanks this time around. For starters, it’s a crisp fall day in Virginia!

But I’ve a bonus to be thankful for. Twenty days and three hours ago, I turned in my retirement papers at U.S. Fish and Wildlife Service headquarters and immediately went to work as CASSE’s executive director. In a way, I feel back in the saddle. Let me explain…

A long, long time ago I rode horseback from Benson, Arizona to Kuna, Idaho. With no company apart from Red and Jake (my late horses), my mind wandered to whatever I observed. And that’s how I started thinking about the problem of economic growth.

I could see the economy – especially its infrastructure and extractive sectors – seeping into the basins and deserts of the Southwest. I could hear it too, up in the air, down in the towns, and off on the distant highways. I’d wanted wilderness, not the economy; that’s why I rode out of Benson to begin with. You might say (with music optional) I fought the economy, but the economy won.

Well, I’m back in the saddle again, thinking about the problem of economic growth and seeking to address it from new angles. This is a far cry from Fish and Wildlife Service headquarters, where I was prohibited from even talking about economic growth. It’s good to be back on a meaningful, big-picture journey.

I am also thankful to you, readers of the Daly News, for your patience as the blog went dormant for the past two years. In case you’re not aware, CASSE is a tiny non-profit organization. (It may not seem that way to casual visitors, due to our large volunteer presence.) When I filed CASSE’s incorporation papers in 2004, becoming the first CASSE volunteer, I ran it on nights and weekends. Eventually we developed a modest budget, and over the years we’ve had four full-time paid employees – never more than two at once – and I make the fifth.

CASSE has been through the ups and downs of most tiny non-profits as they struggle for traction. But some things never change. My reason for establishing CASSE 13 years ago is the exact same reason I took an early retirement 3 weeks ago. The U.S. Fish and Wildlife Service issued a gag order a few years into my FWS career, prohibiting me from talking about the trade-off between economic growth and wildlife conservation. So I established CASSE in order to “speak truth to power.”

Serving also as a visiting professor in Virginia Tech’s National Capitol Region, I had three distinctive hats to wear, depending on topic and venue. Always, though, the topic that kept me awake at night and motivated my activities by day was the conflict between economic growth and environmental protection, economic sustainability, national security, and international stability. But my daylight hours were dogged by the FWS gag orders.

Over the years at FWS, the gag orders never really expired. Instead, I accumulated a collection! The pressure to ignore the “800-pound gorilla” was intense in recent years. I’ll have a lot more to say about this in the book I nearly completed while still working for FWS. But for now, I am just thankful; thankful to be working for CASSE, thankful for Daly News readers, and thankful for a crisp fall Virginia day.

Unfortunately it won’t be easy for any of us to be thankful in the coming years of the 21st century, unless we succeed with steady statesmanship. Problems will abound as nations pull out all the stops for economic growth, far exceeding their ecological capacities. So let’s do our best to steer them otherwise with common sense and steady state economics.

Meanwhile, let’s be thankful for that opportunity.

Happy Thanksgiving!

No Mere Resolution: The Vermont Legislature and the Steady State Economy

By Brian Czech

Brian CzechHere’s a day to remember: May 6, 2016. That’s the day when, late in the afternoon, the Legislature of the State of Vermont passed H.C.R. 412, “House Concurrent Resolution Honoring the Center for the Advancement of the Steady State Economy for Its Important Work.” In a nation where acts of steady statesmanship – political support for a steady state economy – have only just begun, the Vermont Legislature has offered a perfect and prescient precedent.

Some may scoff at the idea that any resolution could be momentous. It’s true that, typically, a resolution isn’t as distinguished as a statute, an executive order, or a Supreme Court decision. H.C.R. 412 was one of 47 resolutions passed on that adjourning day of the 2015/2016 Vermont Legislature. True, too, that the legislature didn’t resolve to reform any economic policy with H.C.R. 412.

Now that we’ve looked the donut squarely in the hole, let’s consider what the Vermont Legislature did accomplish:

1) The steady state economy – the only sustainable alternative to unsustainable growth or recession – was brought out of its academic niche into mainstream political dialog. We’re not talking about the ramblings of a quirky county commissioner or misfiring mayor. A state legislature represents the second-highest lawmaking level in the land. In Vermont, a famously beautiful and progressive land that has also offered us a viable presidential candidate, there was virtually unanimous support in the legislature for recognizing limits to economic growth, the problems caused by growth, and the solutions inherent to a steady state economy.

2) Vermonters have proven the phrase “steady state economy” is not the bogeyman it was thought to be by the architects and activists of the “new economy” movement. If a state legislature can stomach, reprint, and even honor the phrase, it’s time to stop the hand-wringing in futile attempts to come up with a warmer and fuzzier phrase that would connote an economy of stabilized size. “Steady state economy” is perfectly clear with no connotations necessary. Let’s just tell it like it is, and thank you Vermont.

3) H.C.R. 412 is loaded with implications for future adjustments to tax codes, budgets, program goals and incentives of all kinds. Meanwhile, it provides leadership that is immediately relevant to consumers. Consumers are citizens who constitute the demand side of the economy. Any citizen mulling the construction of a new home, the purchase of a new vehicle, or the development of a new wardrobe has a decision to make. To illustrate by extreme: Hummer or hybrid? Conscientious, widespread tempering of demand toward sustainable levels starts with leadership, such as provided in H.C.R. 412.

Suddenly, doesn’t the donut look bigger than the hole?

H.C.R. 412 was introduced by Representative Curt McCormack of Burlington. The Burlington connection makes a lot of sense, given the long-running leadership in steady state economics coming out of the University of Vermont and its Gund Institute for Ecological Economics. In fact, McCormack is on the UVM Board of Trustees.

It’s refreshing that, in the political days of short-term memory and “small hands” rhetoric, some politicians are doing their homework on the big picture and the long term. The perpetual push for increasing GDP is a growing threat to the environment, the economy, national security, and international stability, but the threat is clear only for those who stop to think about it. Led by McCormack, May 6 was the day a state legislature stopped to think about it. It’s a day worth remembering.

Appropriate Scarcity

By Robert A. Herendeen

  … appealing to people to restrain themselves [by] self-enforced abstinence alone is a waste of time. By and large, we consume as much as our incomes allow…. changes… cannot take place without constraints that apply to everyone rather than everyone else. Manmade global warming cannot be restrained unless we persuade the government to force us to change the way we live.

—George Monbiot, Heat (2006/2009)

The results indicate that the likelihood of paying a positive amount for supporting renewable energy is higher under a mandatory scheme compared to a voluntary payment option in the UK.

—Elcin Akcura, “Mandatory vs. voluntary payment for green electricity,” Ecological Economics (2015)

 

herendeen.3I believe Monbiot says it true. And Akcura (who knew?) provides research-based confirmation.

I envision fulfilling, challenging, joyful lives within environmental constraints, but I can’t imagine that happening without societal signals to reinforce consistent behavior. If level of consumption is a problem, then scarcity is a necessary part of the solution. In the least disruptive and potentially fairest sense, this means using prices to determine demand. To cut to the conclusion: my favorite example is a carbon tax.

Monbiot’s statement is frightening, Draconian, and an apparent non-starter politically… almost. But the consequence of denying it leads to several futile proposals and viewpoints which permeate the literature, both scholarly and public. They are futile because they do not produce results that are big enough and fast enough to beat back anthropogenic climate change. Hearing them repeatedly frustrates me. These are:

1. We citizens are being sold the idea that economic growth (especially GDP) is good by government bureaucracies that need it to stay alive, and by corporations that want it because they are greedy (e.g., “the 1%”).

2. We are personally acquisitive because of intensive advertising. Otherwise, we would readily embrace “enough is plenty.”

3. A steady state economy will only be achieved when a new human consciousness emerges. That is not exactly imminent, but it’s in sight.

4. Peer pressure will solve the classic (game theoretic?) problems of free riders, defection, and over-riding competitive ambition in general.

The Temple to Ramesses II at Abu Simbel (II)

The Temple to Ramesses II at Abu Simbel (II). Photo Credit: Institute for the Study of the Ancient World.

The human beings that I observe, work and live with, and love, largely don’t fit these principles. This includes me. We need help. So, about these points:

1. Most of us don’t know or care what GDP is. However, we do have explicit or implicit desires for material/experiential growth at the personal or familial level. Such as: a larger house, a vacation cottage, a new car, a foreign eco-tour, increased travel to visit the grandkids, a secure college fund or retirement package, some new clothes—probably before the old ones wear out. Sum these aspirations over the population and you have pressure for overall growth.

Recently I asked who in my circle at the edge of academia in a progressive college town wants zero personal or professional economic growth. Not soon-to-graduate students looking for the first job. Not immigrants who arrive with almost nothing. Not newlyweds considering starting a family. Not academics building research programs or pursuing tenure. Not college presidents. Not development officers of green non-profit organizations. Not the mayor or city council. And of course not the usual suspects in the business community. I finally concluded that some well-off retirees seem to want zero growth….that’s about it.

2. Watch a TV auto ad and it’s difficult not to suspect—and resent—advertising’s role in fanning the flames of demand. (Mmmmm, a lone car on an otherwise unoccupied road accelerating against the shriek of the engine and the announcer’s deep n’ throaty voice…). But what advertising seduced Pharaoh Ramesses II into carving four 65-foot-tall likenesses of himself from native rock at Abu Simbel ca. 1250 BC? Or the government of Dubai into erecting the 2,722 foot (i.e, 0.52 mile) Burj Khalifa Tower in 2009 AD? I believe essentially all of us are hard-wired to want more of something for some reason. If there is good evidence that advertising is the culprit in overall consumption growth and not just in choosing between spending options, let’s see it.

3. Given the three-millennia separation of the two above construction projects, I think it is wishful thinking to expect Homo sapiens to spontaneously embrace zero growth collectively any time soon.

4. But even if 99+% of us do that, what about the non-cooperators? To the extent that the world is zero-sum (a politically incorrect but applicable description if there really are limits), it takes only a few competitively acquisitive individuals to produce a mess. If the few want more, sooner or later they will destabilize a group of otherwise modest, cooperative individuals. Envy kicks in, or defensive measures to avoid losing. An example of the latter: What to do when the tax bill on your modest abode skyrockets when Ringo Starr and Mick Jagger move in next door (aka the “Aspen effect”)? Try to maintain your modest lifestyle and move 40 miles downriver, or do what it takes to get into the high production/consumption game yourself?

All this brings me back to Monbiot’s bald and bold statement: there is negligible action without effective, broadly felt, implementable…scarcity. In other words, “appropriate scarcity” is not optional; it is necessary. Yes, increasing the price of “bads” is a frequent theme on these pages, but often only as one item in a longish list of principles based on Herman Daly’s powerful writings. Rather, it should be at the top of the list.

There is no question that accomplishing scarcity (for fossil energy, say) by caps and/or taxes is politically, socially, economically, and humanly difficult—a global top-ten red flag. I believe that at the U. S. national level at least, it is feasible. Equity impacts can be minimized by income tax rebates to lower-income households. Other impacts, especially regional, are tougher. In general, moving slowly reduces disruption, but we have scant time. What I hope for is national-level appropriate scarcity of fossil fuels. Done right (a daunting task, to be sure), we can reinforce our own behavior in doing what we (say we) must do to restrain global warming, and have good lives doing it.

 

Dr. Robert Herendeen is a fellow at the Gund Institute for Ecological Economics at the University of Vermont. His research interests include energy consumption, quantitative analysis of environmental issues, and environmental bookkeeping. He is a physicist who conducts economic input-output analyses to determine resource requirements and other impacts of consumption, following the parallels between economic and ecological systems and analysis of perturbed ecosystems. His most recent work covers the connection between net energy and the price of all consumer products.

rherende@uvm.edu

 

What is Wrong with a Zero Interest Rate?

by Herman Daly

Herman DalyThe stock market took a dip, so the Fed will likely continue to keep the interest rate at zero, in conformity with its goal of supporting asset prices by quantitative easing. What is wrong with a zero interest rate? Doesn’t it boost investment, growth, and employment?

There are many things wrong with a zero interest rate. Remember that the interest rate is a price paid to savers by borrowing investors. At a zero price, savers will save less and receive less return on past savings. Savers and pensioners are penalized. At a near zero price for borrowed funds, investors are being subsidized and will invest in just about anything, leading to many poor investments and negative returns, furthering the economy’s already advanced transition from economic to uneconomic growth. Zero interest promotes an infinite demand for savings with zero new supply. But the “supply” is provided artificially by the Fed printing money. The infinite demand would be checked by the rising costs of natural resources and environmental damage if those costs were internalized, but they are not. Yet the environmental costs are real and do not disappear just because they are not counted. With free money and uncounted environmental costs, why not invest heavily in fracking? A very unequal distribution of income does check demand, at least for non-luxury goods. Rich people have an increasing surplus of money to invest, which also helps hold down the interest rate. Yes, mortgage rates fall, and that benefits citizens as home buyers, but they lose more in terms of their retirement accounts. And there is still a significant spread between the zero rate paid to savers and the positive rates charged on credit card and other debt, so the banks are doing quite well.

Also think for a moment about the calculation of present value in finance—a perpetual stream of future income divided by the interest rate gives its capitalized value. If the interest rate is zero, then the capitalized present value of any positive perpetual income stream becomes infinite. To put it another way, a zero interest rate is equivalent to saying that a hypothetical stream of income into the infinite future is all totally available today. Supply of financial capital in terms of its present value is infinite. But financial capital is supposed to be a measure of real capital, which is not infinite. Furthermore, the interest rate, to a significant degree, reflects the risk of loss. With infinite capital it matters little if you lose some, so risk too is uncounted.

U.S. Treasury.Elfboy

U.S. Department of the Treasury, Washington, D.C. Photo Credit: Elfboy

Zero interest rates encourage aggregate growth in scale of the macro-economy to ecologically unsustainable, as well as uneconomic, levels. Zero interest rates also neglect risk of loss, while encouraging microeconomic misallocation to stupid projects. At the same time, it redistributes income inequitably. Does all this make you think that something might be screwy with the policy of zero interest rates? Economists pride themselves on their knowledge of advanced mathematics, but they don’t seem to mind the fact that their policies imply dividing by zero!

Granted that with severe unemployment it is worthwhile, as Keynes said, to hire people just to dig holes and fill them up again in order to increase spending. However, this would better be done by the Treasury paying the hole diggers with new Treasury money than by the Fed doing it by distorting the scale, distribution, and resource allocation of the whole economy with zero interest rates in order to create new bank money. Also, the money created by the Treasury costs no interest to the public, while the money created by the Fed costs us the positive rate charged to borrowers, not the zero rate paid to depositors. Money is a public utility like a road. Should private banks be allowed to set up a tollbooth and charge us for using public roads? By the way, the Fed is owned by its member private banks.

How does the Fed keep the interest rate at zero? By printing money—quantitative easing, so called. Some hyper-Keynesians want a negative nominal interest rate (we already have a negative real rate when corrected for inflation) because we still don’t have full employment even at a zero interest rate. But this is so crazy that it requires a separate discussion of its own.

Why has this huge monetary expansion not led to more inflation? For one, because the dollar is a reserve currency and other nations hold large dollar assets. Also, other major currencies, following the same expansionary policy, have been depreciating relative to the dollar. This will not likely continue. Furthermore, there really has been inflation, but of a hidden kind. Instead of stimulating new production and employment, the new money has increased the demand for existing assets such as stocks, houses, art, etc., providing little employment and leading to speculative bubbles. The Consumer Price Index (CPI), the official measure of inflation, does not include capital assets. And concurrent cheap-labor policies—off-shoring of production and tolerance of illegal immigration—depress wages, holding inflation in check. In addition, the externalization of increasing environmental costs keeps prices lower than they should be. Further, as any consumer can testify, the quantity per package of food is getting less, and the quality of service of airlines, internet providers, public utilities, etc. is deteriorating. Our leading newspaper, the New York Times, now repeats many of the same articles over and over for weeks at a time. Getting less quantity or quality or more repetition for the same price is equivalent to a price increase—hidden inflation. So the claim that quantitative easing has not yet led to inflation is at best only half true—it has certainly led to inflationary substitutes not measured by the CPI. Some official versions of the CPI even exclude such basics as energy, food, and housing (too “volatile” is the excuse). Do you ever feel that you are being lied to?

It is a bad idea to manipulate the interest rate as a policy variable—it has too many side effects cutting in too many different directions, especially in a fractional reserve monetary system. Better to control the money supply directly by moving to a full reserve banking system. We should abolish the Fed, let the Treasury directly control the money supply, constrained by avoiding inflation, not by a budget. An entity that can create money does not face a budget constraint, and has no need to borrow. But it does have a price-index constraint, and must be disciplined by avoidance of inflation (or deflation). As long as the public wants to hold more money, the Treasury can keep creating and spending it. When the public wants to hold more real goods and less money, they will exchange money for goods driving the price index up, which is the signal to the Treasury to stop issuing money, and if necessary to withdraw some. Money, in a full reserve banking system, becomes non interest-bearing government debt rather than interest-bearing private debt. Seigniorage (profit from creating token money at negligible cost and receiving its face value in exchange) will go entirely to the government, not largely to private banks. Also, banks no longer have the extortionary power to crash the entire payments system that fractional reserves gives them. The interest rate, like other prices, can take care of itself, determined by supply and demand. The policy focus should be to manage the money supply, constrained by a constant price index. In effect, the real value of the dollar is backed by all the commodities in the price index, rather than gold, or the “full faith and credit of the US government.” (See Nationalize Money, Not Banks)

Policies of this general kind, but elaborated on in much more detail, are currently suggested by the British NGO known as Positive Money. They are reviving and updating the sound monetary economics of Frederick Soddy, Irving Fisher, Frank Knight, and other leading economists of the 1920s. Fractional reserve banking supports the whole pyramid structure of Ponzi finance, and we badly need to move toward a full reserve banking system to escape instability.

 

A Sustainable True-Cost Economy Promises an Escape from Massive Water Pollution

by Brent Blackwelder

Brent Blackwelder

A year ago, I wrote about how a true-cost steady state economy would deal with water pollution. Last August, the alarming green slime at the west end of Lake Erie was so bad that it shut down Toledo’s water supply for half a million people. Who would pay the tremendous damages caused by the green slime? Certainly not the industrial agricultural interests who were responsible for about two-thirds of the problem!

Our current U.S. economy routinely lets polluters off the hook and even rewards them with subsidies, and the same is generally true for the global economy. During the past twelve months, water pollution has gone from bad to worse as exploding rail freight trains loaded with tar sands oil have caught on fire, causing derailments and spilling contaminants into rivers.

Many people are under the mistaken impression that violations of the Clean Water Act are rare. The Potomac Riverkeeper Network has just completed an analysis of water pollution violators in a section of the Potomac River Basin. (full report forthcoming; for background, see the Potomac Riverkeeper Network’s Upper Potomac River Basin campaigns.) Basin wide, there are over 2000 facilities with permits to discharge pollutants into the Potomac River. Of the 293 facilities in the Upper Potomac region, more than 10% had violated their permit conditions during the last three years! Just think of the increased enforcement costs if a region jumps from 5% to 10% non-compliance. The enforcement workload doubles!

Reports from the Pacific coast, from California to Alaska, are disturbing because they indicate that some fisheries and shell fisheries may be on the tipping point of collapse. Worldwide, we are seeing industrial civilization screw up clean water through nutrient loading from gigantic crop monocultures and animal factory slums. It’s a recipe for catastrophe. Several dead zones at the mouths of great rivers like the Mississippi have gained notoriety, but the public is not aware that there are now hundreds of such zones worldwide.

Animas River.Schatzl and Pickles

The Animas River before the toxic metals of the Gold King Mine spill turned it bright orange. Photo Credit: Schatzl and Pickles.

The latest water pollution debacle occurred just this month (August 2015) in the Colorado Rockies. A state of emergency was declared as the Animas River turned orange when millions of gallons of toxic heavy metals and carcinogens from the Gold King Mine spilled and created a hazardous mess at the very peak of summer recreation.

Recreation in this part of Colorado is a crucial component of the economy. One river outfitter has had to lay off over twenty employees. Agencies have allowed the leakage at gold mines like the Gold King Mine to persist for years without being cleaned up.

These accidents would be far less likely to occur in a sustainable steady state economy. A steady state economy would not incentivize pollution. It would not allow externalization of pollution and health costs, and it would eliminate subsidies for extraction of hardrock minerals and fossil fuels. Globally, an estimated $600 billion per year in subsidies is provided annually to the fossil fuels industry, in contrast to $100 billion for wind, solar, and other renewable energies.

A sustainable economy would place genuine value on the many benefits provided by clean water and free flowing rivers, including diverse fisheries, a variety of recreation activities, beautiful scenery, and a healthy water supply. The global economy looks upon water more as a commodity, and trade agreements attempt to facilitate the privatization of water. A sustainable true-cost economy, on the other hand, does not externalize pollution impacts or exclude from economic calculation the numerous but less tangible benefits obtained from free-flowing rivers.

A sustainable true-cost economy holds so much promise, but the immense challenge of transitioning to such an economy can seem daunting. Tackling our water pollution crisis illuminates some highly actionable steps we could take immediately to start making a steady state economy a reality.

The Securities and Exchange Commission (SEC) could take an initial step toward a true-cost economy by requiring the many companies reporting to it to disclose their pollution impacts (externalities). Impossible you say? A few years ago it seemed impossible to get the SEC to require disclosure of CEO salaries. But guess what? It just happened—thanks to leadership by Senator Elizabeth Warren (D-Mass) along with tremendous grassroots pressure.

The SEC will now require publicly-owned corporations to disclose how much their CEOs make compared with the median wage of their workers. The Washington Post reported that the pay gap between executives and unskilled workers is about 300 to 1, not 30 to 1 as most Americans think. This precedent-setting action by the SEC should be followed by other campaigns directed at the SEC, starting with action on externalities.

In a true-cost economy, the price tag for goods and services that cause serious damage to life support systems would be so high that such products would not be produced. We would do well to recall that there is no economy on a dead planet. Critics who say that civilizations are nowhere close to causing ecosystem collapses do not consider the scientific evidence on planetary boundaries, nor the lessons from past collapses of societies. I think we should seize on the outrage over all the water pollution disasters in 2014 and 2015 and push for new economic structures that will provide long-term solutions.

What About Innovating Beyond the Growth Trap? A Challenge to the Ecofiscal Commission’s Growth Fixation

By James Magnus-Johnston

James Magnus-JohnstonA new voice has emerged recently in Canada called the “Ecofiscal Commission,” which could have the funding, clout, and determination to steer the country in a more promising direction. The group includes high-profile economists, former political leaders, and high-powered financiers. They define “ecofiscal policy” as something that “corrects market price signals to encourage the economic activities we do want (job creation, investment, and innovation) while reducing those we don’t want (greenhouse gas emissions and the pollution of our land, air, and water).” There seems to be a semblance of steady state thinking among this otherwise rather conventional lot.

Not so fast. The Ecofiscal Commission recently clarified that it “believes that our economies can continue to grow, even as we improve the environment by polluting less and using our natural resources more efficiently.” I found it noteworthy that this group of high-profile individuals decided that it was necessary to address the question of growth. Perhaps that’s because folks like myself don’t believe their policies are sufficient to address 21st century challenges, such as anthropogenic climate change and mass extinction.

One of their commission members, Dr. Dick Lipsey, is a “renowned expert in the field of economics and innovation,” and Professor Emeritus of Simon Fraser’s Department of Economics. In a recent Ecofiscal blog post, he rehearsed a standard narrative of innovation and technological progress that many ecological economists are familiar with. His narrative makes mention of neither the rebound effect nor of exactly what technologies will systematically reduce our material footprint. He even seems to suggest that if we don’t grow the economy, our health outcomes will decline due to a lack of medical innovation.

Locomotive.SMU, Central Univ. Libraries, DeGolyer Library

“It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth.” -William Stanley Jevons. Photo Credit: Southern Methodist University, Central University Libraries, DeGolyer Library.

He goes on to write about how “those who, like this commentator, think only of today’s commodities and today’s technologies, do not see the possibilities of raising living standards, while also dealing with pollution, through technological advance.” This seems straightforward enough—we don’t know what we don’t know. New technologies will emerge over time. He then proceeded to make a sweeping claim by listing a number of technologies that have made life more convenient, including “dental and medical equipment, antibiotics, bypass operations, safe births, control of genetically transmitted diseases, personal computers, compact discs, television sets, automobiles, opportunities for fast and cheap world-wide travel, air conditioning…” And so on. For the record, I’m quite happy for all of these advances, yet I still don’t see how anything on this list is addressing our self-inflicted mass extinction, though I suppose it’s making us comfortable in the meantime.

I could spend time addressing the factual basis of his claim that innovation requires growth, but we’ve been doing that since the 1970s, when Henry Wallich discounted the findings of Limits to Growth (DH Meadows et al.), arguing that technology would save us from the ecological crisis. We’re still waiting for this claim to ring true, and there’s a raging contemporary debate, which speaks to some lingering uncertainty about the claim. For my part, I see the invention of new technology as a response to a specific technical problem (or set of problems) rather than merely the offspring of pro-growth economic conditions.

What I find far more curious is (a) why Dr. Lipsey’s sweeping claim avoids mention of mass extinction or climate change; and (b) how this opinion can reflect the voice of so many high-profile public figures. It is true that, as Lipsey writes, “…our Victorian ancestors could not have imagined what to do with ten times as much of all of the goods that they knew about.” Yet it is also true that we have far more than ten times the goods that they knew about, and that our aggregate material footprint is still going up. Efficiency gains are a “feel good” story, but the gains have yet to reduce our aggregate material footprint at the global level.

I’m not an ideological enemy of innovation or entrepreneurship. In fact, I’m a bit of a techno-geek—I (rather shamefully) like new technologies and toys. I get irrationally excited when I see developments in green technology and transportation, and I’ve started a business. I can’t wait to use a hyperloop. But, as Lewis and Conaty write in The Resilience Imperative, I embrace the principle that efficiency without sufficiency is lost. Or to put it another way, it feels intellectually dishonest to suggest that efficiency has the potential to deliver us from a cultural propensity for overconsumption. I’m not certain why we should focus our energy on miniaturizing goods or “cleaning” our production process to the exclusion of simply consuming less. We need both.

Underpinning some of Dr. Lipsey’s claims is the epistemological assumption that innovation is merely a technological, material, or financial phenomenon. What precludes us from innovating ethically and socially, towards more desirable ends? John Maynard Keynes considered the day when society could focus on happiness and well-being rather than economic growth. He wrote, “The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems—the problems of life and of human relations, of creation and behavior and religion.” If innovation is so predetermined, why might one suggest it is possible to innovate technologically, but not towards a more sustainable economic size? That is, after all, what this growth debate is really all about.

I can’t also help but wonder whether or not Dr. Lipsey recognizes that his narrative emerged during a time when one could not see or feel the effects of a deteriorating planetary life support system. I don’t blame him for his choice to rehearse this narrative—like many 20th century thinkers, his whole identity has been constructed to promote the idea of growth. But at some point, we will all need to accept our planetary prognosis and act accordingly. It’s become exceedingly clear that price signals alone won’t preserve forests, oceans, or climate stability. Peter Victor has argued that while D.H. Meadows et al. possibly underestimated the price-mechanism’s role in adjusting economic outcomes, their critics have overestimated it.1 By the time we’ve settled on a carbon price, the planet will already have become several degrees warmer and we’ll no longer have the luxury of technocratic tinkering. Behavioral economists have also debunked the myth that humans are motivated only by price signals. Human beings are complex, irrational actors who are influenced by far more than just the almighty dollar. Many of us have given up on the neoclassical paradigm precisely because of this new knowledge. Call it innovation.

It’s not necessarily true anymore that economic growth increases our incomes and always transforms our lives for the better. Today, some features of economic growth are increasing the incomes of the richest, stagnating the incomes of the poorest, and depleting the innovative spirit of the economy. Who has the time to worry about climate change and mass extinction when they’re just getting by or more concerned about how to cash their next pension check? Ask any Greek citizen.

Perhaps we can be thankful that growth didn’t stop in 1900 or 1950, as Dr. Lipsey argues. But this isn’t 1950. We have to solve a new set of problems. There’s never been a better time to innovate the discipline of economics, and with it, our definition of progress.

 

 

The Future History of Political Economy – Part 1

Economics Ignores Thermodynamics

by Eric Zencey

Editor’s Note: An earlier version of this essay appeared as a comment in the Great Transition Network Forum, which will appear on the Great Transition Initiative website next week along with a new essay by Herman Daly, “Economics for a Full World.”

Eric ZenceyEcological Economics and its corollary, Steady State Economic thinking, represent a step forward for the discipline of economics and also a return to how it was practiced in the past. In the nineteenth century, economics was a part of a larger enterprise: political economy, the integrated treatment of morals and economics, ultimate ends and efficient means. Late in that century economics calved off from political economy, leaving behind political science and political philosophy as the residuum. It did this in service to the ideal of becoming rigorously scientific.

It’s odd, then, that alone among disciplines with any pretense to analytic rigor, economics has steadfastly resisted the thermodynamic revolution that swept physical and life sciences in the nineteenth and early twentieth centuries. Physics, biology, chemistry, geology, even the study of history were transformed, but not economics.

I think we can blame this on bad timing, willful ignorance, and oil.

Bad timing

In the late nineteenth century the archetypal science was physics and physics was Newtonian mechanism. Ignorant of what a young thermodynamic theorist named Albert Einstein would soon do to the Newtonian paradigm they emulated, Stanley Jevons and other economic “scientists” set about mathematically modeling the economy as sets and subsets of self-contained, equal-and-opposite actions and reactions, happily (and explicitly) assuming that all economic activity consists of ahistorical, which is to say completely reversible, processes. No one who has a nodding acquaintance with the law of entropy could have countenanced this. Entropy is Time’s Arrow, the law of irreversibility; it describes the one-way flow of energy use. A purely mechanical process can be run forward or backwards, but we’ll never invent a machine that can suck in exhaust gases, heat and motion and transform them into gasoline. The entropy law can tell you why. Newton couldn’t.

Just as a consumer might choose to keep a recently purchased appliance even though a newer, better model has been brought onto the market, neoclassical economists weren’t about to re-tool their brand-new thinking to reflect changes in the underlying metaphysics they had been so keen to adopt. It didn’t seem to them that there was any reason to.

“Seem” is the operative word here. Because the entropy process is time’s arrow, and because Ecological Economics places the entropy process at the center of its analysis, it’s entirely appropriate for Ecological Economics to understand its subject matter and itself as a discipline in historical terms. Like other paradigm-defining insights, this one seems obvious once it has been stated: elements of the neoclassical model that could pass for true on a large and forgiving planet a hundred years ago are obviously not true today, when the planet’s source-and-sink services are severely taxed, when natural capital is the limiting factor in production, when there are seven billion of us and our economic wants, capacities and expectations have been amplified by our access to the ancient sunshine of fossil fuels.

Willful ignorance

By modeling the economy as a closed and circular system, neoclassical economists have encouraged themselves to operate in a methodologically enforced state of denial about the physical roots and ecological consequences of our wealth-creating activities. And yet economics has experienced no paradigm-shaking crisis as a result. Neither climate change nor any of the other source-and-sink catastrophes facing civilization have been laid at the feet of bad economic theory. One reason: Neoclassical economists succeed in treating environmental costs as “externalities.” How could environmental degradation be the result of economic activity if it’s external to the economy?

Midas.Giovanni Caselli from the Age of Fable

The power to create wealth gave Midas an unsustainable life as a complete solipsist. Oil’s power to create wealth has had a similar effect on Neoclassical economics. Illustration by Giovanni Caselli from The Age of Fable.

In its self-confirming isolation of the economy from nature and theory from reality, neoclassical economics amounts to a highly principled practice of solipsism. When this pathology is manifest in an individual it produces unpleasant consequences that might eventually prompt some reflection and personal growth. Not so with the collective delusion of mainstream economists. Evidence of our ongoing ecological catastrophe falls far from their purview—not just disciplinarily but geographically, as the wealthier nations (wherein the vast majority of economists reside) export their ecological footprint to the impoverished nations of the world. And for several generations (at least since Reagan defeated Carter, removed Carter’s solar panels from the White House and ushered in an era of GDP growth through de-regulation of the social and ecological consequences of economic activity), there has been a strong self-selection among students of economics. Undergraduates with any kind of deep personal connection to natural systems tend to find the study of standard economics unattractive, displeasing, even soul-deadening. This leaves the field to those most willing to bracket off as irrelevant to their professional purpose any question about the moral and ethical consequences of economic activity, any question about the health and maintenance of nature, any question about the economy’s relation to the larger social and natural systems within which it operates.

Oil

Even so, you might expect that a discipline with such a demonstrably deficient view of its subject matter would fail of its object—would fail to offer wise counsel about the collective project of augmenting the stock of wealth that humans can enjoy. But economics has had much apparent success. Despite regular downturns and financial crises, the wealth produced by our economies has grown and grown and grown. I think there’s a ready explanation that becomes visible through the conceptual lens of Ecological Economics, which tells us that energy isn’t a commodity like any other but a fundamental factor of production (part of a trio: matter, energy and human design intelligence). When your economy operates on an energy source that cranks out wealth-making value in a ratio of 100 to 1 or better—the estimated Energy Return on Energy Invested that petroleum offered us in the early 20th Century—you can believe any damn thing you want about how economies operate and your economy will still generate a great deal of wealth.

Which is to say, high-EROI oil granted the new science of economics immunity from being proven false by events. But falsifiability of principles and propositions is one solid measure of a science. (Non-falsifiable beliefs are called faiths.)

In effect the discipline of economics has a free rider problem—it’s been given a free pass by the enormous power of oil to misunderstand itself and its subject matter. You could also call it a Midas Problem, after the legendary king whose touch turned everything he touched into gold, including his dinner and his daughter. The power of wealth-generation that oil granted to our economy made it impossible for the discipline of economics to connect in any fundamental way with otherness, including the otherness of the planet and its role in the very processes that economics presumes to model.

 

Seismic Political Shifts Reveal Desire for Serious Change

by James Magnus-Johnston

If you demonstrate to people that the NDP [New Democratic Party] can win in Alberta, suddenly anything seems possible. —Paul Fairie, University of Calgary political scientist

 

James Magnus-JohnstonOn the problematic political spectrum, neither the right nor the left have become wholesale champions of the steady state economy. Then again, embracing something perceived as ‘new’ has never been the strong suit of the politician. It takes years of ideological evolution among the grassroots before seemingly new and different ideas become politically palatable. Seismic political shifts like the one in Alberta suggest that big ideological evolutions are underway in the unlikeliest of places, and that steady state solutions may not be far behind.

The Canadian province of Alberta—which includes Canada’s oil patch—revealed its desire for serious change in its election of an NDP government last week. While the social democratic NDP doesn’t have an explicitly ‘green’ agenda, some policy shifts acknowledge the limits to growth—growth in the oil patch, growth in debt, growth in inequality, growth in carbon emissions, and growth in overall environmental costs. Growing the oil patch at all costs has left the province vulnerable to swings in the petroleum economy, and it isn’t building a stable economy for generations to come.

Alberta’s newly-elected NDP premier, Rachel Notley. Photo Credit: Dave Cournoyer via Flickr, Creative Commons

Alberta’s newly-elected NDP premier, Rachel Notley. Photo Credit: Dave Cournoyer via Flickr, Creative Commons

The political shift represents a strong movement away from a half-century of Alberta’s Conservative ‘conventional thinking,’ including relaxed regulations for the oil and gas industry as well as an export-first policy designed for economic growth as if there were truly no tomorrow. Time will tell whether or not Premier Notley will introduce measures to supplant carbon-intensive growth with a renewable steady state, but there are signs of movement in this direction.

In March, as opposition leader, Notley introduced a motion calling on the government of Alberta to phase out the use of coal for electric power generation in Alberta. Alberta’s oil sector produces almost as many GHG emissions as do the mining and extraction of oil from the oilsands.

This week, one of the largest oil and gas companies in Canada called upon Premier Notley to introduce a carbon tax, a measure which sits at number two on Herman Daly’s top ten list of steady state policies. The call counts as either a brilliant coordinated manoeuvre on the part of the NDP and the oil patch, or the beginning of a serious change in the way Canada’s oil and gas industry perceives its responsibilities in the face of climate change.

The NDP victory also signals a willingness to tackle point three on Mr. Daly’s top ten list—limiting the range of inequality in income distribution. While Premier Notley has not signalled a willingness to institute a ‘maximum income’ level, she has designs on raising the minimum wage to $15 per hour from the country’s second lowest minimum wage of $10.20. The NDP have also vowed to reintroduce progressive income taxes, and raise corporate taxes.

This is not a promotion for social democracy per se. Social democratic governments in different jurisdictions, like my home province of Manitoba, can sometimes reflect neoliberal economic thinking rather than focus on designing an economy for fairness. But in Alberta’s example, folks have acknowledged the problems associated with half a century of growth in the extractive industry, environmental degradation, and inequality. As the political pendulum shifts in other jurisdictions, there is an opportunity for political parties of various stripes to reconsider how they can respond to growing grassroots frustration with a debt-ridden, environmentally destructive, inequitable economy.

As the costs of uneconomic growth continue to escalate, and as a new generation prepares to bear those costs, we can be sure that further movement in the direction of a steady state economy will not only become more palatable, but absolutely essential.