What Kind of Future Does Your Degree Prepare You For?

by James Magnus-Johnston

James Magnus-JohnstonAs the fall chill sets into the air and farmers begin to harvest, universities invite another wave of impressionable young minds to think about the future—of society, and of their place in it. But preparation for the future requires us to consider exactly what kind of future we think we’re in for, and far too many schools are preparing students for a fictional business-as-usual future.

Do your universities and instructors acknowledge that the global temperature will likely rise by at least two degrees this century? Do they invite you to reflect on the kind of droughts that some argue have hastened Syria’s civil war and caused mass migration? Are you asked to draw connections and present solutions to these challenges, or are you instead invited to rehearse standard narratives and become job-bearing cogs in the growth economy?

Steady state economics acknowledges some unsettling facts, but very few undergraduates will be exposed to anything resembling steady state economics. They’ll be lucky if the name Herman Daly graces the syllabus of their economics class. The lack of interest in post-growth thought more generally signals a curious rot in the academy away from creativity and the synthesis of new ideas, in favour of what’s couched as “critical thinking” within conventional, rigidly defined, and well-rehearsed disciplinary frameworks.

Patrick Finn, author of Critical Condition: Replacing Critical Thinking with Creativity, argues that the contemporary academy provides us with “advanced mental tactics that can be taught for a price,” when we should rather be provided with opportunities to foster creativity through a kind of “loving thinking.” By “loving thinking,” Finn means that we should connect dots from a position of hope and realism rather than merely rehearse advanced mental tactics. Karim Lakhani, a thinker with the Harvard Business School, cautions, however, that new paradigms and ideas that synthesize strands of research from different disciplines face an uphill battle.

VA Tech campus.VA Tech

Virginia Tech campus, Blacksburg, VA. Photo Credit: Virginia Polytechnic Institute and State University

Ecological economics—the branch of thinking that includes steady state economics—is one such discipline. Some have labelled it a transdisciplinary field of research (Norgaard, 1989; Costanza et al., 1997; Costanza and King, 1999), which applies a wide array of techniques to analyse relevant issues from different disciplines. While we may face an uphill battle, I believe that steady state economics invites students to start working from a position of hope precisely because it invites cross-disciplinary thinking. There may not be a perfect consensus surrounding some steady state economic concepts, but the transdisciplinary framework is sufficiently open to foster adaptive, synthetic thinking without losing sight of important questions.

The charge that creative thinking is too general or “unproven” is not historically uncommon. For instance, in a review of Kenneth Boulding’s 1950 work A Reconstruction of Economics, reviewer Ralph Turvey charges that “the problem is that Professor Boulding touches on so many matters and makes so many stimulating or provocative remarks that another book would be required for an adequate discussion” (Turvey, 1951, p. 205). The same charge might be levelled against this author, or any other theorist concerned with the application of theory across and through disciplinary lines.

It is clear that what is acceptable to one discipline (such as environmental science) may be unacceptable to another (such as economics). Yet by understanding what sort of future we’re in for, and by knowing the stakes of the present moment, we cannot claim neutrality or indifference to the consequences of our arguments. Rather, we should work harder to understand the big picture economy-environment dynamics, and overcome inherent disciplinary biases.

Given the biosphere’s depleted regenerative capacity, Daly suggests that it’s too risky to simply research and develop further warrants for steady state economic reform before encouraging a transition. He explains:

As important as empirical measurement is, it is worth remembering that when one jumps out of an airplane, a parachute is more beneficial than an altimeter. First principles make it abundantly clear that we need an economic parachute. Casual empiricism makes it clear that we need it sooner rather than later. More precise information, though not to be disdained, is not necessary, and waiting for it may prove very costly (Daly, 2007, p.22).

Every discipline, and every student, should be (re)considering what kind of future they think they’re preparing for. A creative, unconventional framework is exactly what we need.

Progress Toward a True-Cost Economy Now Comes From Developments in Renewable Energy

by Brent Blackwelder

Brent BlackwelderA renewable energy revolution is sweeping the planet. This revolution has profound implications because it signals that the global economy is moving to stop the growth of our human carbon footprint.

The global economy has run for a century primarily on fossil fuels but is now undergoing a rapid transition to a global economy based significantly on rooftop solar, wind, and efficiency. This is a tangible movement toward a steady state economy because with wind and solar, the amount we use today does not affect tomorrow’s supply; and unlike fossil fuels, the pollution externalities are small and do not harm fellow competitors or the public.

This revolution is more than a technical fix because it is shifting the ingredients of the material products and services of the economy from toxic, polluting, non-renewable substances and ingredients to ones that are renewable and dramatically lower in pollution. It is demonstrating that renewable energy can avoid imposing dangerous impacts onto the public or onto future generations.

Skeptics over the last two decades have argued that renewable sources such as wind and solar are trivial and simply incapable of providing the power needed by the global economy—that all they will ever do is provide only a small percentage of the world’s electricity. I remember the days when utility executives belittled renewables, warning that more than about 5% of wind or solar electricity in a region would crash the grid!

Photo Credit: janie.hernandez55

The renewable energy revolution is a stepping stone toward a sustainable true-cost economy. Photo Credit: janie.hernandez55

I want to present a few startling and uplifting facts that demonstrate the dramatic progress recently made by solar and wind power around the world. 1 These facts give the lie to the phony assertions made by utilities in their efforts to block renewable energy.

Rooftop solar is growing worldwide by 50% per year. In 1985 solar cost $12 per watt, but today’s prices are closer to 36 cents per watt. Every five hours the world adds 23 MW of solar—which was the global installed capacity in 1985.

In January of 2014 Denmark got 62% of its electricity from wind. In 2013 Ireland got 17% of its electricity from wind, and Spain and Portugal both exceeded 20% from wind. Today China gets more electricity from wind (91,000 MW) than it does from nuclear reactors. The United States is second in the world in installed wind turbines, with South Dakota and Iowa obtaining over 26% of their electricity from wind.

As we look to achieve a true-cost, steady state economy, questions are constantly raised about the behavior of other powerful nations that might appear to have no interest in a sustainable economy. The renewable energy revolution provides breakthrough opportunities here. China is already putting its energy future into more and more renewable energy. It plans to more than double its current wind capacity with an expansion goal of 200,000 MW by the year 2020.

Even the French, who rely on nuclear reactors for 75% of their electricity, are planning on increasing their wind generating capacity to 25,000 MW from their present 8,300 MW.

The renewable energy revolution will enable civilization to stop the growth of highly polluting fossil fuels. It will enable society to leave the majority of the remaining reserves of fossil fuels alone and unburned. Acceleration of this revolution helps in solving many problems and is a key to restoring and maintaining the life support systems of the earth.

For a number of reasons, this renewable energy revolution is a stepping stone toward a sustainable  true-cost economy. First, unlike fossil fuels, the footprint of wind and rooftop solar is minimal. Wind turbines erected on farmland use very little land and allow farming to continue. Rooftop solar can be placed on flat commercial and industrial roofs in metropolitan areas where connections to the grid are available.

In comparison, extraction of fossil fuels can create some of the worst pollution and habitat destruction ever seen. Consider the devastation being caused in the biologically diverse mountain forests of West Virginia by mountaintop removal coal mining. Or look at the obliteration of Alberta’s landscape and contamination of its lakes and rivers from tar sands mining.

This point is substantial because far too many of the products of the global economy involve externalization of enormous pollution costs.

Second, the usage of wind and solar today does not affect the amount of wind and solar available tomorrow. They are renewable. Furthermore, wind and rooftop solar are basically waterless technologies, whereas fossil fuel and nuclear power plants use enormous quantities of water for cooling. As water shortages multiply worldwide as a result of population and industrial growth, and climate disruption, this benefit will become even more significant.

Third, wind and solar are big job creators. In Germany the number of jobs in wind and solar is about 400,000 versus 200,000 in coal and conventional fuels. This amazing boost in clean energy jobs has happened in the last decade. Job creation is a major concern in any transition to a sustainable economy.2

Those who are serious about getting to a true–cost economy should help accelerate the renewable energy revolution as a way to achieve it.

 

Notes

  1. See The Great Transition by Lester Brown and colleagues at the Earth Policy Institute for a superb account of the global renewable energy revolution that offers hope to all.
  1. See Energiewende for the job figures; see also Peter Victor in Tim Jackson’s Prosperity Without Growth for a discussion of transition scenarios and jobs.

A Business Built for Resilience

by James Magnus-Johnston

Johnston_photoWhat does business look like in a steady state economy? I’m often asked whether or not a steady state economy would somehow lead to the stagnation of free enterprise. Yet all around us today, we’re witnessing the flourishing of ‘social enterprise,’ a business model designed to maximize human and environmental wellbeing rather than accumulate profits for shareholders. From not-for-profit and cooperative models to the birth of the B Corp (benefit corporation), we find ourselves in the midst of a profound shift in business–away from growth and profit as an organizing principle, and towards one that respects the social and ecological limits to growth. With a planet under profound stress and a Ponzi-inspired economy poised for decline, there’s no harm in trying something a little different.

As policymakers waste time hand-wringing about embracing alternatives to growth, social enterprise provides individuals and communities with the ability to demonstrate the viability of the post-growth paradigm. Measuring social and ecological outcomes can be challenging, but some models (such as the B Corp) have adopted a specific method to measure outcomes using a point-based system. Others are using simple tools to reduce waste and ensure a fairer, more equitable working environment.

Fools&Horses

I have recently been involved in starting a pair of social enterprises, which stand as humble examples of business models for resilience rather than growth. The first is RISE Urban Incubator, which promotes and mainstreams innovations to reduce waste; the other is Fools & Horses, a coffee shop with a triple bottom line. Both businesses have been structured according to a relatively simple principle–do more good than harm–by tackling problems such as inequality and environmental degradation. Fools & Horses was named after the beloved British sitcom Only Fools and Horses, about a group of people who spend all their time trying to come up with “get rich quick schemes” and, ironically, work all the time. What better way is there to describe an economy designed for growth-at-all-costs?

Our Fools & Horses wants to demonstrate the benefits of a more flexible, equitable work arrangement for its employees. Workers earn a living wage when they join us, are invited to have a say in how the business should be run, and are given the opportunity to become owners. Worker-owners look forward to more than the accumulation of money and a periodic hike in their hourly rate. They are given greater autonomy in their work, freedom to experiment and innovate according to their talents, and enough flexibility in their schedule to pursue other interests or spend time with family and friends. Autonomy and flexibility are not just tolerated, they are encouraged.

More interestingly, perhaps, the coffee shop is designed to provide the incubator with the cash it needs to experiment with projects that systemically reduce waste, including the use of permeable pavement and solar technology. Any waste streams we do have are audited so the businesses will offset more waste and emissions than they create.

The businesses have also been designed to provide benefits to the local economy by keeping dollars circulating locally. Fools & Horses is designed to re-localize the economy wherever possible by supporting budding entrepreneurs in the local food industry, including farmers, bakers, craft brewers and roasters, and chefs. Eventually, we hope to help foster a network of local suppliers, which also helps reduce fossil fuel requirements. Each of our producers offers only the highest-quality products, fostering an economy of quality rather than an economy of quantity.

There are other sustainable business models out there, and people doing far more important and captivating things to shift the economy in a new direction. But this is one example of a small effort to demonstrate the shift in thinking at the macro level. One of the other, less intangible things Fools & Horses will foster is a sense of conviviality and good living. In Dutch, it’s called ‘gezellig,’ and in German, it’s called ‘gemütlichkeit,’ both of which connote a sense of warmth, coziness, and belonging. In a steady state economy, what we need to accomplish above all else is the re-connection of people with one another. Perhaps it says more about the present state of business–and the prevalence of monopolies–that it’s considered novel to do so.

The Puzzling Flattening of Carbon Emissions and the Problem of Global Growth

by Kurt Cobb

Editor’s Note: the below was originally published by Resource Insights.

Kurt CobbLast week we learned that maybe, just maybe, global carbon emissions were flat in 2014 even though the global economy supposedly grew by 3 percent. As Brad Plumer of Vox (whose work I greatly respect) points out, carbon emissions have moved up almost in lockstep with economic growth for the entire industrial age except during recessions and one year of growth 40 years ago.

This is why I use “supposedly” when referring to the global economic growth number. It’s because there is another obvious and plausible explanation for the flat carbon emissions, namely, that the global economy did not grow by the stated percentage, that it may have grown only a fraction of that amount or not at all.

Economic measures are constantly being revised, and I think it is very likely that the global economic growth number for 2014 will be revised downward. Probably not to zero, but downward nonetheless. It’s also possible that estimates of carbon emissions are too low. Plumer cites “notoriously unreliable” Chinese emission numbers as one reason to be skeptical.

But, even if 2014 turns out to be a year of growth without rising emissions, we shouldn’t get particularly exercised. Nor should we be particularly excited if it continues for a time. This is because the only trend that will actually address climate change is a RAPID DECLINE in worldwide emissions (as Plumer rightly points out).

Plumer makes one very telling statement in this regard:

If we ever hope to stop global warming, we’ll have to sever that relationship [of economic growth to emissions] — and figure out how to have economic growth while reducing emissions. (Alternatively, we could halt economic growth, but no one wants that.)

“Alternatively, we could halt economic growth, but no one wants that.” Two questions arise from this observation: Is it true that “no one wants that”? Who specifically wants economic growth to continue and why?

The answer to the first question is no; there is, in fact, a small minority of people advocating an end to growth. Herman Daly, former World Bank senior economist, is the acknowledged dean of the steady state economy movement. In a September 2005 Scientific American piece, “Economics in A Full World,” he outlined his case for why there is little room for economic growth and why growth in recent decades has been uneconomic, that is, the cost of such growth has outweighed the benefits.

There are also the deep ecologists who value other species on the planet as much as our own, a view which implies not only an end to economic growth but a serious rollback of industrial civilization. Perhaps Derrick Jensen is the best known of the deep ecologists whose views about how to achieve the proper role for humans on planet Earth varies greatly.

Given that there are people who want to halt or even reverse economic growth, we must now ask the second question: Who wants growth and why?

If we follow Herman Daly’s logic, we have long since passed the point of economic growth and now have “uneconomic growth,” growth that imposes costs greater than the growth is worth: social costs in terms of inequality and environmental costs that undermine the long-term sustainability of human society.

So, who benefits from such growth? We now have a name for this group, the one percent. Those with the highest incomes and greatest financial wealth continue to benefit from such growth since they can both reap disproportionate rewards from it and insulate themselves from the costs associated with it–leaving others to bear them.

When Plumer says that no one wants economic growth to end, what he is unwittingly saying is that the power elite in the world does not want to face the grand implication of a steady state economy–namely, that lower-income groups cannot be assured of a better material existence through economic growth and so such betterment would, of necessity, have to come from the redistribution of wealth.

As long as the chimera of perpetual growth can be sold to the masses, no one will have to deal with the thorny issue of redistribution as the primary method for the economic betterment of the middle and lower classes.

And yet, growth ended for many people around the globe in 2008. According to the International Labour Organization (ILO), if you earn the median wage in Kenya, your real income has declined 26 percent from 2008 through 2013. For Greece, the decline has been 24 percent. For prosperous Singapore and Japan the number is minus 1 percent. Egyptian real median income declined 10 percent; the United Kingdom declined 7 percent; Iceland and Italy, 6 percent; Taiwan, 5 percent; Spain and the Netherlands, 3 percent; Ireland, 2 percent; Austria, Luxembourg and the Philippines, all hovered around zero percent growth.

Of course, some prospered. Median wages in Romania, Panama, Paraguay, Norway, Jordan, Poland, Vietnam and Morocco all rose more than 10 percent from 2008 onward. There were standouts: The Brazilian median wage grew by 21 percent; Thailand by 26 percent; China by 74 percent; Mongolia by 75 percent. Ukrainian workers enjoyed a media wage increase of 43 percent through 2013 though it is likely that much of that has since been wiped out by the war and currency crisis there. In the United States, the median wage registered a one percent increase according to the ILO, though homegrown analysis suggests a decline.

The metaphorical tide of economic growth that is supposed to lift all boats is lifting far fewer people much more selectively than before.

On the other hand, if you possess substantial financial assets, you have prospered quite nicely as financial markets post daily records in the face of ever more precarious economic growth numbers around the world. But, only a small portion of the world’s people have any financial assets at all. The fate of a large number of the others has been stagnant or falling incomes or unemployment in an increasingly uncertain world.

Whether economic growth for all the world’s people will return is an open question. The system by which we’ve governed the world economy, a system dependent on central banking, central government spending, the build-up of huge and unsustainable debt, and the ever more rapid depletion of fossil fuels and other resources is showing its decrepitude.

Six years of pedal-to-the-metal monetary policy and government deficit spending have barely nudged world growth forward while levitating financial markets to unsustainable levels (and thereby exacerbating inequality). Such policies in the past would have had the world economy quickly overheating with central bankers responding by hoisting interest rates sky high to rein in inflation and financial excesses.

Instead, the economy remains so weak that the U.S. Federal Reserve had to reassure the world that despite language in its recent public statement that would indicate an imminent increase in interest rates for the first time in 10 years (that’s not a typo), the central bank really wouldn’t be raising them anytime soon after all.

So, maybe flat carbon emissions are actually telling us something “no one” wants to hear: that economic growth has faltered or even halted for a large portion of the world’s people and that we are going to have to deal with the consequences of that until we design a new system that can either grow for the benefit of everyone–a difficult proposition–or that can sustainably, equitably and successfully manage a steady state economy–an even more difficult proposition.

Kurt Cobb is an authorspeaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

The Negative Natural Interest Rate and Uneconomic Growth

by Herman Daly

Herman DalyIn a recent speech to the International Monetary Fund economist Larry Summers argued that since near zero interest rates have not stimulated GDP growth sufficiently to reach full employment, we probably need a negative interest rate. By this he means a negative monetary rate set by the Fed to equal the “natural” rate, which he believes is now negative. The natural rate, as Summers uses the term, means the rate that would equalize planned saving with planned investment, and thereby, as Keynes taught us, result in full employment. With near zero monetary rates, current inflation already pushes us to a negative real rate of interest, but that is still insufficiently negative, in Summers’ view, to equalize planned investment with planned saving and thereby stimulate GDP growth sufficient for full employment. A negative interest rate is a stunning proposal, and it takes some effort to work out its implications.

Suppose for a moment that GDP growth, economic growth as we gratuitously call it, entails uneconomic growth by a more comprehensive measure of costs and benefits — that GDP growth has now begun to increase counted plus uncounted costs by more than counted plus uncounted benefits, making us inclusively and collectively poorer, not richer. If that is the case, and there are good reasons to believe that it is, would it not then be reasonable to expect, along with Summers, that the natural rate of interest is negative, and that maybe the monetary rate should be too? This is hard to imagine, but it means that savers would have to pay investors (and banks) to use the funds that they have saved, rather than investors and banks paying savers for the use of their money. To keep the GDP growing sufficiently to avoid unemployment we would need a growing monetary circular flow, which would require more investment, which, in turn, would only be forthcoming if the monetary interest rate were negative (i.e., if you lost less by investing your money than by holding it). A negative interest rate “makes sense” if the goal is to keep on increasing GDP even after it has begun to make us poorer at the margin — that is after growth has already pushed us beyond the optimal scale of the macro-economy relative to the containing ecosphere, and thereby become uneconomic.

A negative monetary interest rate means that citizens will spend rather than save, so savings will not be available to finance the investments that produce the GDP growth needed for full employment. The new money for investment comes from the Fed. Quantitative easing (money printing) is the source of the new money. The faith is that an ever-expanding monetary circulation will pull the real economy along behind it, providing growth in real income and jobs as previously idle resources are employed. But the resulting GDP growth is now uneconomic because in the full world the “idle” resources are not really idle — they are providing vital ecosystem services. Redeploying these resources to GDP growth has environmental and social opportunity costs that are greater than production benefits. Although hyper-Keynesian macroeconomists do not believe this, the micro actors in the real economy experience the constraints of the full world, and consequently find it difficult to follow the unlimited growth recipe.

Summers (along with other mainstream growth economists), does not accept the concept of optimal scale of the macro-economy, nor the possibility of uneconomic growth in the sense that growth in resource throughput could reduce net wealth and wellbeing. Nevertheless, it is at least consistent with his view that the natural rate of interest is negative.

A positive interest rate restricts the total volume of investment but allocates it to the most productive projects. A negative interest rate increases volume, but allows investment in practically anything, increasing the probability that growth will be uneconomic. Shall we become hyper-Keynesians and push GDP growth to maintain full employment, even after growth has become uneconomic? Or shall we back off from growth and seek full employment by job sharing, distributive equity, and reallocation toward leisure and public goods?

Why would we allow growth to carry the macro-economy beyond the optimal scale? Because growth in GDP is considered the summum bonum, and it is heresy not to advocate increasing it. If increasing GDP makes us worse off we will not admit it, but will adapt to the experience of increased scarcity by pushing GDP growth further. Non-growth is viewed as “stagnation,” not as a sensible steady state adaptation to objective limits. Stimulating GDP growth by increasing consumption and investment, while cutting savings, is the only way that hyper-Keynesians can think of to serve the worthy goal of full employment. There really are other ways, and people really do need to save for security and old age, as well as for maintenance and replacement of the existing capital stock. Yet the Fed is being advised to penalize saving with a negative interest rate. The focus is on what the growth model requires, not on what people need.

A negative interest rate seems also to be the latest advice from Paul Krugman, who praises Summers’ insights. It is understandable from their viewpoint because in their vision the economy is not a subsystem, or if it is, it is infinitesimal relative to the total system. The economy can expand forever, either into the void or into a near infinite environment. It does not grow into a finite ecosphere, and therefore has no optimal scale relative to any constraining and sustaining environment. Its aggregate growth incurs no opportunity cost and can never be uneconomic. Unfortunately, this tacit assumption of the growth model is seriously wrong.

Larry Summers and other growth-obsessed economists are calling for negative interest rates.

Larry Summers and other growth-obsessed economists are calling for negative interest rates.

Welcome to the full-world economy. In the old empty-world economy, assumed in the macro models of Summers and Krugman, growth always remains economic, so they advocate printing more and more dollars to expand the economy to take over ever more of the “unemployed” sources and sinks of the ecosystem. If a temporary liquidity trap or zero lower bound on interest rates keeps the new money from being spent, then low or even negative monetary interest rates will open the spending spigot. The empty world assumption guarantees that the newly expanded production will always be worth more than the natural wealth it displaces. But what may well have been true in yesterday’s empty world is no longer true in today’s full world.

This is an upsetting prospect for growth economists — growth is required for full employment, but growth now makes us collectively poorer. Without growth we would have to cure poverty by redistributing wealth and stabilizing population, two political anathemas, and could only finance investment by reducing present consumption, a third anathema. There remains the microeconomic policy of reallocating the same GDP to a more efficient mix of products by internalizing external costs (getting prices right). While this certainly should be done, it is not macroeconomic growth as pursued by the Fed.

These painful choices could be avoided if only we were richer. So let’s just focus on getting richer. How? By growing the aggregate GDP, of course! What? You repeat that GDP growth is now uneconomic? That cannot possibly be right, they say. OK, that is an empirical question. Let’s separate costs from benefits in the existing GDP accounts, and develop more inclusive measures of each, and then see which grows more as GDP grows. This has been done (ISEW, GPI, Ecological Footprint), and results support the uneconomic growth view. If growth economists think these studies were done badly they should do them better rather than ignore the issue.

The leftover Keynesians are correct in pointing out that there is unemployed labor and capital. But natural resources are fully employed, indeed overexploited, and the limiting factor in the full world is natural resources, not labor or capital as used to be the case in the empty world. Some growth economists think that the world is still empty. Others think there is no limiting factor — that capital is a good substitute for natural resources. This is wrong, as Nicholas Georgescu-Roegen has shown long ago. Capital funds and natural resource flows are complements, not substitutes, and the one in short supply is limiting. Increasing a non-limiting factor doesn’t help. Growth economists should know this.

Although the growthists think quantitative easing will stimulate demand they are disappointed, even in terms of their own model, because the banks, who are supposed to lend the new money, encounter a “lack of bankable projects,” to use World Bank terminology. This of course should be expected in the new era of uneconomic growth. The new money, rather than calling forth new wealth by employing all these hypothetical idle resources from the empty world era, simply bids up existing asset prices in the full world. Most asset prices are not counted in the consumer price index, (not to mention exclusion of food and energy) so economists unconvincingly claim that quantitative easing has not been inflationary, and therefore they can keep doing it. And even if it causes some inflation, that would help make the interest rate negative.

Aside from needed electronic transaction balances, people would not keep money in the bank if the interest rate were negative. To make them do so, the alternative of cash would basically have to be eliminated, and all money would be electronic bank deposits. This intensifies central bank control, and the specter of “bail-ins” (confiscations of deposits) as occurred in Cyprus. Even as distrust of money increases, people will not immediately revert to barter, in spite of negative interest rates. Barter is so inconvenient that money remains more efficient even if it loses value at a rapid rate, as we have seen in several hyperinflations. But transactions balances will be minimized, and speculative and store-of value-balances will be diverted to real estate, gold, works of art, tulip bulbs, Bitcoins, and beanie babies, creating speculative bubbles. But not to worry, say Summers and Krugman, bubbles are a necessary, if regrettable, means to boost spending and growth in the era of newly recognized negative natural interest rates — and still unrecognized uneconomic growth.

A bright silver lining to this cloud of confusion is that the recognition of a negative natural interest rate may be the prelude to recognition of the underlying uneconomic growth as its cause. For sure this has not yet happened because so far the negative natural interest rate is seen as a reason to push growth with a negative monetary interest rate, rather than as a signal that growth has become a losing game. But such a realization is a reasonable hope. Perhaps a step in this direction is Summers’ suggestion that the old Alvin Hansen thesis of secular stagnation might deserve a new look.

The logic that suggests negative interest also suggests negative wages as a further means of increasing investment by lowering costs. To maintain full employment via GDP growth, not only must the interest rate now be negative, but wages should become negative as well. No one yet advocates negative wages because subsistence provides an inconvenient lower positive bound below which workers die. On this “other side of the looking glass” the logic of uneconomic growth pushes us in the direction of a negative “natural” wage, just as with a negative “natural” rate of interest. So we artificially lower the wage costs to “job creators” by subsidizing below-subsistence wages with food stamps, housing subsidies, and unpaid internships. Negative interest rates also subsidize investment in job-replacing capital equipment, further lowering wages. Negative interest rates, and below-subsistence wages, further subsidize the uneconomic growth that gave rise to them in the first place.

The leftover Keynesians tell us, reasonably enough, that paying people to dig holes in the ground and then fill them up, is better than leaving them unemployed with no income. But paying people to deplete and pollute the Creation on which our lives and welfare ultimately depend, in order to expand the macro-economy beyond its optimal or even sustainable scale, is surely worse than just giving them a minimum income, and some leisure time, in exchange for doing no harm.

An artificial monetary rate of interest forced down by quantitative easing to equal a negative natural rate of interest resulting from uneconomic growth is not a solution. It is just baling wire and duct tape. But it is all that even our best and brightest economists can come up with as long as they are imprisoned in the empty world growth model. The way out of this trap is to recognize that the growth era is over, and that instead of forcing growth into uneconomic territory we must seek to maintain a steady-state economy at something approximating the optimal scale. Since we have overshot the optimal scale of the macro-economy, this will require a period of retrenchment to a reduced level, accompanied by much more equal sharing, frugality, and efficiency. Sharing means putting limits on the range of inequality that we permit; it has huge moral and social benefits, even if politically difficult. Frugality means using less resource throughput; it results in less depletion and pollution and more recycling and efficiency. Efficiency means squeezing more life-support and want-satisfaction from a given throughput by technological advance and by improvement in our ethical priorities. Economists need to replace the Keynesian-neoclassical growth synthesis with a new version of the classical stationary state.

Top 10 Policies for a Steady-State Economy

by Herman Daly

Herman DalyLet’s get specific. Here are ten policies for ending uneconomic growth and moving to a steady-state economy. A steady-state economy is one that develops qualitatively (by improvement in science, technology, and ethics) without growing quantitatively in physical dimensions; it lives on a diet — a constant metabolic flow of resources from depletion to pollution (the entropic throughput) maintained at a level that is both sufficient for a good life and within the assimilative and regenerative capacities of the containing ecosystem.

Ten is an arbitrary number — just a way to get specific and challenge others to suggest improvements. Although the whole package here discussed fits together in the sense that some policies supplement and balance others, most of them could be adopted singly and gradually.

1. Cap-auction-trade systems for basic resources. Caps limit biophysical scale by quotas on depletion or pollution, whichever is more limiting. Auctioning the quotas captures scarcity rents for equitable redistribution. Trade allows efficient allocation to highest uses. This policy has the advantage of transparency. There is a limit to the amount and rate of depletion and pollution that the economy can be allowed to impose on the ecosystem. Caps are physical quotas, limits to the throughput of basic resources, especially fossil fuels. The quota usually should be applied at the input end because depletion is more spatially concentrated than pollution and hence easier to monitor. Also the higher price of basic resources will induce their more economical use at each upstream stage of production, as well as at the final stages of consumption and recycling. Ownership of the quotas is initially public — the government periodically auctions them to individuals and firms. There should be no “grandfathering” of quota rights to previous users, nor “offshoring” of quotas for new fossil fuel power plants in one by place by credits from planting trees somewhere else. Reforestation is a good policy on its own.  It is too late for self-canceling half measures — increased carbon sequestration and decreased emissions are both needed. The auction revenues go to the treasury and are used to replace regressive taxes, such as the payroll tax, and to reduce income tax on the lowest incomes. Once purchased at auction the quotas can be freely bought and sold by third parties, just as can the resources whose rate of depletion they limit. The cap serves the goal of sustainable scale; the auction serves the goal of fair distribution; and trading allows efficient allocation — three goals, three policy instruments. Although mainly applied to nonrenewable resources, the same logic works for limiting the off-take from renewable resources, such as fisheries and forests, with the quota level set to approximate a sustainable yield.

2. Ecological tax reform. Shift the tax base from value added (labor and capital) to “that to which value is added,” namely the entropic throughput of resources extracted from nature (depletion), and returned to nature (pollution). Such a tax shift prices the scarce but previously un-priced contribution of nature. Value added to natural resources by labor and capital is something we want to encourage, so stop taxing it. Depletion and pollution are things we want to discourage, so tax them. Payment above necessary supply price is rent, unearned income, and most economists have long advocated taxing it, both for efficiency and equity reasons. Ecological tax reform can be an alternative or a supplement to cap-auction-trade systems.

3. Limit the range of inequality in income distribution with a minimum income and a maximum income. Without aggregate growth poverty reduction requires redistribution. Unlimited inequality is unfair; complete equality is also unfair. Seek fair limits to the range of inequality. The civil service, the military, and the university manage with a range of inequality of a factor of 15 or 20. Corporate America has a range of 500 or more. Many industrial nations are below 25. Could we not limit the range to, say, 100, and see how it works? This might mean a minimum of 20 thousand dollars and a maximum of two million. Is that not more than enough to give incentive for hard work and compensate real differences? People who have reached the limit could either work for nothing at the margin if they enjoy their work, or devote their extra time to hobbies or public service. The demand left unmet by those at the top will be filled by those who are below the maximum. A sense of community, necessary for democracy, is hard to maintain across the vast income differences current in the United States. Rich and poor separated by a factor of 500 have few experiences or interests in common, and are increasingly likely to engage in violent conflict.

4. Free up the length of the working day, week, and year — allow greater option for part-time or personal work. Full-time external employment for all is hard to provide without growth. Other industrial countries have much longer vacations and maternity leaves than the United States. For the classical economists the length of the working day was a key variable by which the worker (self-employed yeoman or artisan) balanced the marginal disutility of labor with the marginal utility of income and of leisure so as to maximize enjoyment of life. Under industrialism the length of the working day became a parameter rather than a variable (and for Karl Marx was the key determinant of the rate of exploitation). We need to make it more of a variable subject to choice by the worker. Milton Friedman wanted “freedom to choose” — OK, here is an important choice most of us are not allowed to make! And we should stop biasing the labor-leisure choice by advertising to stimulate more consumption and more labor to pay for it. At a minimum advertising should no longer be treated as a tax-deductible expense of production.

5. Re-regulate international commerce — move away from free trade, free capital mobility, and globalization. Cap-auction-trade, ecological tax reform, and other national measures that internalize environmental costs will raise prices and put us at a competitive disadvantage in international trade with countries that do not internalize costs. We should adopt compensating tariffs to protect, not inefficient firms, but efficient national policies of cost internalization from standards-lowering competition with foreign firms that are not required to pay the social and environmental costs they inflict. This “new protectionism” is very different from the “old protectionism” that was designed to protect a truly inefficient domestic firm from a more efficient foreign firm. The first rule of efficiency is “count all the costs” — not “free trade,” which coupled with free capital mobility leads to a standards-lowering competition to count as few costs as possible. Tariffs are also a good source of public revenue. This will run afoul of the World Trade Organization/World Bank/International Monetary Fund, so….

Ten pieces of the policy puzzle for an earth-centric economy

Ten pieces of the policy puzzle for an earth-centric economy

6. Downgrade the WTO/WB/IMF. Reform these organizations based on something like Keynes’s original plan for a multilateral payments clearing union, charging penalty rates on surplus as well as deficit balances with the union — seek balance on current account, and thereby avoid large foreign debts and capital account transfers. For example, under Keynes’s plan the U.S. would pay a penalty charge to the clearing union for its large deficit with the rest of the world, and China would also pay a similar penalty for its surplus. Both sides of the imbalance would be pressured to balance their current accounts by financial penalties, and if need be by exchange rate adjustments relative to the clearing account unit, called the “bancor” by Keynes. The bancor would also serve as the world reserve currency, a privilege that should not be enjoyed by any national currency, including the U.S. dollar. Reserve currency status for the dollar is a benefit to the U.S. — rather like a truckload of free heroin is a benefit to an addict. The bancor would be like gold under the gold standard, only you would not have to tear up the earth to dig it out. Alternatively a regime of freely fluctuating exchange rates is a viable possibility requiring less international cooperation.

7. Move away from fractional reserve banking toward a system of 100% reserve requirements. This would put control of the money supply and seigniorage (profit made by the issuer of fiat money) in the hands of the government rather than private banks, which would no longer be able to live the alchemist’s dream by creating money out of nothing and lending it at interest. All quasi-bank financial institutions should be brought under this rule, regulated as commercial banks subject to 100% reserve requirements. Banks would earn their profit by financial intermediation only, lending savers’ money for them (charging a loan rate higher than the rate paid to savings or “time-account” depositors) and charging for checking, safekeeping, and other services. With 100% reserves every dollar loaned to a borrower would be a dollar previously saved by a depositor (and not available to him during the period of the loan), thereby re-establishing the classical balance between abstinence and investment. With credit limited by prior saving (abstinence from consumption) there will be less lending and borrowing and it will be done more carefully — no more easy credit to finance the massive purchase of “assets” that are nothing but bets on dodgy debts. To make up for the decline in bank-created, interest-bearing money the government can pay some of its expenses by issuing more non-interest-bearing fiat money. However, it can only do this up to a strict limit imposed by inflation. If the government issues more money than the public voluntarily wants to hold, the public will trade it for goods, driving the price level up. As soon as the price index begins to rise the government must print less and tax more. Thus a policy of maintaining a constant price index would govern the internal value of the dollar. The Treasury would replace the Fed, and the target policy variables would be the money supply and the price index, not the interest rate. The external value of the dollar could be left to freely fluctuating exchange rates (or preferably to the rate against the bancor in Keynes’s clearing union).

8. Stop treating the scarce as if it were free, and the free as if it were scarce. Enclose the remaining open-access commons of rival natural capital (e.g., the atmosphere, the electromagnetic spectrum, and public lands) in public trusts, and price them by cap-auction-trade systems, or by taxes.  At the same time, free from private enclosure and prices the non-rival commonwealth of knowledge and information. Knowledge, unlike the resource throughput, is not divided in the sharing, but multiplied. Once knowledge exists, the opportunity cost of sharing it is zero, and its allocative price should be zero. International development aid should more and more take the form of freely and actively shared knowledge, along with small grants, and less and less the form of large interest-bearing loans. Sharing knowledge costs little, does not create un-repayable debts, and increases the productivity of the truly rival and scarce factors of production. Patent monopolies (aka “intellectual property rights”) should be given for fewer “inventions,” and for fewer years. Costs of production of new knowledge should, more and more, be publicly financed and then the knowledge freely shared. Knowledge is a cumulative social product, and we have the discovery of the laws of thermodynamics, the double helix, polio vaccine, etc. without patent monopolies and royalties.

9. Stabilize population. Work toward a balance in which births plus in-migrants equals deaths plus out-migrants. This is controversial and difficult, but as a start contraception should be made available for voluntary use everywhere. And while each nation can debate whether it should accept many or few immigrants, and who should get priority, such a debate is rendered moot if immigration laws are not enforced. We should support voluntary family planning and enforcement of reasonable immigration laws, democratically enacted.

10. Reform national accounts — separate GDP into a cost account and a benefits account. Natural capital consumption and “regrettably necessary defensive expenditures” belong in the cost account. Compare costs and benefits of a growing throughput at the margin, and stop throughput growth when marginal costs equal marginal benefits. In addition to this objective approach, recognize the importance of the subjective studies that show that, beyond a threshold, further GDP growth does not increase self-evaluated happiness. Beyond a level already reached in many countries, GDP growth delivers no more happiness, but continues to generate depletion and pollution. At a minimum we must not just assume that GDP growth is economic growth, but prove that it is not uneconomic growth.

Currently these policies are beyond the pale politically. To the reader who has persevered this far, I thank you for your willing suspension of political disbelief. Only after a significant crash, a painful empirical demonstration of the failure of the growth economy, would this ten-fold program, or anything like it, stand a chance of being enacted.

To be sure, the conceptual change in vision from the norm of a growth economy to that of a steady-state economy is radical. Some of these proposals are rather technical and require more explanation and study. There is no escape from studying economics, even if, as Joan Robinson said, the main reason for it is to avoid being deceived by economists. Nevertheless, the policies required are far from revolutionary, and are subject to gradual application. For example, 100% reserve banking was advocated in the 1930s by the conservative Chicago School and can be approached gradually, the range of distributive inequality can be restricted gradually, caps can be adjusted gradually, etc. More importantly, these measures are based on the impeccably conservative institutions of private property and decentralized market allocation. The policies here advocated simply reaffirm forgotten pillars of those institutions, namely that: (1) private property loses its legitimacy if too unequally distributed; (2) markets lose their legitimacy if prices do not tell the truth about opportunity costs; and as we have more recently learned (3) the macro-economy becomes an absurdity if its scale is required to grow beyond the biophysical limits of the Earth.

Well before reaching that radical biophysical limit, we are encountering the classical economic limit in which extra costs of growth become greater than the extra benefits, ushering in the era of uneconomic growth, whose very possibility is denied by the growthists. The inequality of wealth distribution has canceled out the traditional virtues of private property by bestowing nearly all benefits of growth to the top 1%, while generously sharing the costs of growth with the poor. Gross inequality, plus monopolies, subsidies, tax loopholes, false accounting, cost-externalizing globalization, and financial fraud have made market prices nearly meaningless as measures of opportunity cost. For example, a policy of near zero interest rates (quantitative easing) to push growth and bail out big banks has eliminated the interest rate as a measure of the opportunity cost of capital, thereby crippling the efficiency of investment. Trying to maintain the present growth-based Ponzi system is far more unrealistic than moving to a steady-state economy by something like the policies here outlined. It is probably too late to avoid unrealism’s inevitable consequences. But while we are hunkered down and unemployed, enduring the crash, we might think about the principles that should guide reconstruction.

Full Employment Versus Jobless Growth

by Herman Daly

Herman DalyThe Full Employment Act of 1946 declared full employment to be a major goal of U.S. policy. Economic growth was then seen as the means to attain the end of full employment. Today that relation has been inverted. Economic growth has become the end, and if the means to attain that end — automation, off-shoring, excessive immigration — result in unemployment, well that is the price “we” just have to pay for the glorified goal of growth in GDP. If we really want full employment we must reverse this inversion of ends and means. We can serve the goal of full employment by restricting automation, off-shoring, and easy immigration to periods of true domestic labor shortage as indicated by high and rising wages. In addition, full employment can also be served by reducing the length of the working day, week, or year, in exchange for more leisure, rather than more GDP.

Real wages have been falling for decades, yet our corporations, hungry for cheaper labor, keep bleating about a labor shortage. What the corporations really want is a surplus of labor. With surplus labor, wages generally do not rise and therefore all the gains from productivity increase will go to profit, not wages. Hence the elitist support for automation, off-shoring, and lax enforcement of democratically enacted immigration laws.

Traditional stimulus policies do little to reduce unemployment, for several reasons. First, the jobs that workers would have gone back to have largely been off-shored as employers sought cheap foreign labor. Second, cheap foreign labor by way of illegal immigration seems to have been welcomed by domestic employers trying to fill the remaining jobs at home. Third, jobs have been “outsourced” to automation — to robots in the factory and to the consumer, who is now her own checkout clerk, travel agent, baggage handler, bank teller, gas station attendant, etc. And fourth, quantitative easing has kept interest rates low and bond prices high to the benefit of banks’ balance sheets more than employment. The public benefits from lower mortgage rates, but loses more from reduced interest earnings on savings, which does not help employment.

These facts argue for a return to the original intent of the Full Employment Act of 1946 — specifically that full employment, not growth, should be the goal. Let us consider four further reasons for this return.

First, off-shoring production and jobs cannot be justified as “trade.” The good whose production has been off-shored is sold in the U.S. to satisfy the same market that its domestic production used to satisfy. Off-shoring increases U.S. imports, and since no product has been exported in exchange, it also increases the U.S. trade deficit. Because the production of the good now takes place abroad, stimulus spending in the U.S. largely stimulates U.S. imports and employment abroad. Demand for U.S. labor consequently declines, lowering U.S. employment and/or wages. It is absurd that off-shoring should be defended in the name of “free trade.” No goods are traded. The absurdity is compounded by the fact that off-shoring entails moving capital abroad, and international immobility of capital is one of the premises on which the doctrine of comparative advantage rests — and the policy of free trade is based on comparative advantage! If we really believe in comparative advantage and free trade then we must place limits on capital mobility and off-shoring.

Second, for those jobs that have not yet, or cannot easily be off-shored (e.g., services such as bartending, waiting tables, gardening, medical care, etc.), cheap foreign labor has become available via illegal immigration. Many U.S. employers seem to welcome illegal immigrants. Most are good and honest workers, willing to work for little, and unable to complain about conditions given their illegal status. What could be better for union busting and driving down wages of the American working class, which, by the way, includes many legal immigrants? The federal government, ever sensitive to the interests of the employing class, has done an obligingly poor job of enforcing our immigration laws.

Third, the automation of factory work, services of bank tellers, gas station attendants, etc. is usually praised as labor-saving technical progress. To some extent it is that, but it also represents substitution of capital for labor and labor-shifting to the consumer. The consumer does not even get the minimum wage for her extra work, even considering the dubious claim that she enjoys lower prices in return for her self-service. Ordinary human contacts are diminished and commerce becomes more sterile and impersonally digitized. In particular daily interaction between people of different socio-economic classes is reduced.

Fourth, a “Tobin tax,” a small percentage tax on all stock market, bond market, and foreign exchange transactions would slow down the excessive trading, speculation, and gambling in the Wall Street casino, and at the same time raise a lot of revenue to help close the federal deficit. This could be enacted quickly. In the longer run we should move to 100% reserve requirements on demand deposits and end the commercial banks’ alchemy of creating money out of nothing and lending it at interest. Every dollar loaned by a bank would be a dollar previously saved by the owner of a time deposit, respecting the classical economic balance between abstinence from consumption and new investment. Most people mistakenly believe that this is how banks work now. Our money supply would move from being mainly interest-bearing debt of private banks, to being non interest-bearing government debt. Money should be a public utility (a unit of account, a store of value, and a medium of exchange), not an instrument by which banks extort unnecessary interest payment from the public — like a private toll booth on a public road.

Cheap labor and funny money policies in the name of “growth and global competitiveness” are class-based and elitist. Even when dressed in the emperor’s fashionable wardrobe of free trade, globalization, open borders, financial innovation, and automation, they remain policies of growth by cheap labor and financial delusion. And we wonder why the U.S. distribution of income has become so unequal? We are constantly told it is because growth is too slow — the single cause of all our problems! That we would be better off if we were richer is a definitional truism. The question is, does further growth in GDP really make us richer, or is it making us poorer by increasing the uncounted costs of growth faster than the measured benefits? That simple question is taboo among economists and politicians, lest we discover that the falling benefits of growth are all going to the top 1%, while the rising costs are “shared” with the poor, the future, and other species.

Too Many Jobs

by Max Kummerow

Without doubt unemployment blights people’s lives. Those who want to work need jobs. But an even more fundamental economic problem is too many people beavering away, wrecking our home planet. Politicians and economists assume population growth means more people need jobs, so the economy must grow. Better to reverse that logic, starting instead by calculating the level of output the world’s environmental resources can sustainably support. How can jobs and economic output keep growing on a damaged planet with shrinking resources?

Some economists claim that technology or human ingenuity is the ultimate resource, but such platitudes ignore the realities of technological advance. The truth is that technology both creates and destroys jobs. Labor-saving innovations often increase productivity by reducing employment. And the downsides of technology abound. Fanatics use the “ultimate resource” to build bombs. Nuclear physics gave us an energy source and medical advances, but also atomic bombs and toxic pollution. The Green Revolution that helped double or triple world grain yields relies on fertilizer made from natural gas that will eventually run out. Meanwhile, populations needing food have tripled since the inception of the Green Revolution. Growth enabled by technology puts humanity further out on a limb, increasing ecological and economic risks.

If we are so smart and technology can solve every problem, why hasn’t every problem been solved? Historians list dozens of collapsed societies. Why didn’t brainpower save past empires? Why are carbon dioxide emissions still increasing? Why, after the global financial crisis affected so many people and communities, did banks go back to speculating in derivatives? Why are a billion people stunted by malnutrition? Why are so many species going extinct? Why do war and arms races persist? And so on across a range of unsolved local and global problems.

A sign of too many jobs: this eyesore (a modular worker colony) sprouted at the Bakken shale oil deposits near Williston, North Dakota.  Photo by Ben Garvin, Reuters.

A sign of too many jobs: this eyesore (a modular worker colony) sprouted at the Bakken shale oil deposits near Williston, North Dakota. Photo by Ben Garvin, Reuters.

Perhaps the greatest irony is that even though we are counting on technology to save us, the U.S. is cutting research funding. At the same time, the cost of attending college is becoming unaffordable. In 1992 dozens of Nobel Prize-winning scientists signed a “warning to humanity” saying we should stop changing the earth so rapidly. When the world ignores scientists like Jim Hansen (NASA pioneer climate modeler), isn’t public indifference squandering the “ultimate resource?” What a contradiction: relying on science to save us and then ignoring the recommendations of our leading scientific experts.

The ecological footprint reveals that the world economy is already too big. Ecologists calculate that sustaining current levels of output would require 1.5 earths. If everyone lived like Americans, more than four planets like earth would be required. Scientists have identified nine key areas where the scale of human economies could damage earth’s ability to support us for the long run. Three of the nine “planetary limits” have already been exceeded, reducing the planet’s capacity to support human life. Current levels of economic output require drawing down planetary “savings accounts” (soils, fossil fuels, species diversity, etc.) that are rapidly being overspent and depleted.

We’re caught in a dilemma. We have too many jobs — too many people are consuming too many resources as they go about their jobs — and yet huge numbers of jobless people struggle to meet their basic needs. At the same time, policies are geared toward growing the economy with the hope of adding more jobs, while disregarding the problem of overconsumption. What can we do?

Several commonsense jobs policies could help us achieve full employment within planetary limits. In the short term we could share employment more fairly. The U.S. could achieve full employment by increasing vacation time — we get two weeks where Europeans get five weeks. We could cut back to a four-day work week, lower retirement age (say to 60), offer more part-time work or job sharing, and send more people back to school to upgrade skills. Incomes would be reduced and social security taxes would increase due to these measures, but we would enjoy more fairness in distribution of income; less crime; more leisure time; more time for family, friends and community; and improved quality of life. We might even live longer — people in half a dozen well-off European countries live two years longer than Americans.

In the long run, we must stabilize or decrease population. Society should subsidize the first child and allow a second child without penalty, but require parents who choose to have more than two children to pay the full costs of educating and providing medical care and old age support for those extra children. People who expand population take more than their fair share of everything while imposing costs on the rest of us by collectively pushing up prices for housing, land, food and energy. Crowding makes life more stressful in many ways — traffic congestion, longer lines, more competition for jobs and college admissions, higher unemployment, lower wages and higher taxes. Extra kids contribute to climate change, pollution and resource depletion. Requiring those with large families to bear the costs their extra children impose on others would incentivize responsible family planning decisions. Far from being repressive, having smaller families corrects market failure, liberates women and makes families and children better off. The world’s best educated women voluntarily choose small families as shown by the below-replacement fertility rates in some of the best educated countries.

Reversing direction to optimize the total number of jobs, rather than pursue unlimited job growth, won’t be easy. Economists must accept a major paradigm shift. Such a shift has been described in the literature for over 200 years starting with Malthus, Ricardo and John Stuart Mill. Classical economics theory included limits to growth — a “stationary state.” Sharing jobs and stabilizing population won’t solve all economic and ecological problems. Many other reforms need to be included on the agenda to achieve a steady state economy that features environmental protection and sustainable levels of consumption — reforms like a carbon tax, conservation of species diversity, and redistribution of wealth.

For such laws to be passed in democracies, the public would have to be far better informed to understand why these changes make sense. Pro-growth messages come at us incessantly from mass media, the Internet, and pro-growth lobbyists, politicians and businesses. A keystone reform will be to overhaul the way we fund our information-providing institutions. We currently use information from these institutions to make important decisions. The trouble is that much of the information is actually misinformation, because the institutions obtain their revenues from advertising that pushes the infinite-growth agenda.

Abandoning the ideology of growth so firmly embedded in economic theory, popular culture and the media will be difficult. But economic theory reform, media reform, job sharing and changing human fertility behavior will be far easier than changing the inescapable laws of physics, expanding the land area of the earth, or doing business in cities inundated by rising sea levels. Difficult is still a lot easier than impossible.

Open Borders and the Tragedy of Open Access Commons

by Herman Daly

Herman Daly“Open borders” refers to a policy of unlimited or free immigration. I argue here that it is a bad policy. If you are poor and your country provides no social safety net, you move to one that does. If you are rich and your country makes you pay your taxes, you move (or at least move your money) to one that doesn’t. Thus safety nets, and public goods in general, disappear as they become both overloaded and underfunded. That is the “world without borders,” and without community. That is the tragedy of open access commons.

Some will think that I am attacking a straw man, because, they will say, no sensible person really advocates open borders. They simply advocate, it will be said, “more generous levels of immigration, and a reasonable amnesty for existing illegal immigrants.” I agree that some form of strictly conditional amnesty is indeed necessary as the lesser evil, given the impasse created by past non-enforcement of our immigration laws. Deporting 12 million long-settled residents is too drastic and would create more injustices than it would rectify. But unless we enforce immigration laws in the future there will soon be need for another amnesty (the first, often forgotten, was in 1986), and then another — a de facto open-borders policy. Nevertheless, the policy of open borders should be fairly discussed, not only because some people explicitly advocate it, but also because many others implicitly accept it by virtue of their unwillingness to face the alternative.

Immigration is a divisive issue. A good unifying point to begin a discussion is to recognize that every country in the world has a policy of limiting immigration. Emigration is often considered a human right, but immigration requires the permission of the receiving country. Some countries allow many legal immigrants. Others allow few. As the World Bank reported in its Global Bilateral Migration Database:

The United States remains the most important migrant destination in the world, home to one fifth of the world’s migrants and the top destination for migrants from no less than sixty sending countries. Migration to Western Europe remains largely from elsewhere in Europe.

There are also arguments about the emigration side of open borders — even if emigration is a human right, is it unconditional? Might “brain-drain” emigrants have some obligation to contribute something to the community that educated and invested in them, before they emigrate to greener pastures?

Immigrants are people, and deserve to be well treated; immigration is a policy, and deserves reasoned discussion in the public interest. It seems that neither expectation is fulfilled, perhaps partly because the world has moved from largely empty to quite full in only one lifetime. What could work in the world of two billion people into which I was born, no longer works in today’s world of seven billion. In addition to people, the exploding populations of cars, buildings, livestock, ships, refrigerators, cell phones, and even corn stalks and soybean plants, contribute to a world full of “dissipative structures” that, like human bodies, require not only space but also a metabolic flow of natural resources beginning with depletion and ending with pollution. This growing entropic throughput already exceeds ecological capacities of regeneration and absorption, degrading the life-support capacity of the ecosphere.

The US is indeed a “country of immigrants,” although for American Indians this frequent refrain reflects a less positive historical experience than it does for European settlers. Nor does the term resonate positively with those African Americans whose recent ancestors were brought here as involuntary immigrants. Many Americans, including me, think that heirs of slavery deserve priority in the US job market (including job training) over new immigrants, especially illegal immigrants. Likewise for the many Americans of all races living in poverty. Some other Americans, unfortunately, seem to feel that if we can’t have slaves, then the next best thing is abundant cheap labor, guaranteed by unemployment.

We have in the US a strong cheap-labor lobby that uses immigration (especially illegal immigration) to force down wages and break labor unions, as well as weaken labor safety standards. This is less the fault of the immigrants than of our own elite employing class and pandering politicians. The immigration issue in the US is largely an internal class battle between labor and capital, with immigrants as pawns in the conflict. Class division is more basic than the racial and ethnic divide in current US immigration politics, although the latter is not absent. Progressives in the US, with their admirable historical focus on racial justice, have been slow to see the increasing dominance of the class issue in immigration. The Wall Street Journal, the Chamber of Commerce, and big corporations in general, do not mind seeing the class question submerged by racial and ethnic politics favoring easy immigration as a cheap-labor supplement to off-shoring. It feeds the myth that we are a classless society, even as it contributes to increasing income inequality. Also, given the closeness of recent elections, a bit of ethnic pandering can be politically decisive.

The US is also a country of law, or at least strives to be. Illegal immigration falls outside the rule of law, and renders moot all democratic policy deliberations about balancing interests for the common good. It is hardly democratic to refuse to enforce democratically enacted laws, even though difficult individual cases arise, as with any law. Humane provisions for difficult cases must be worked out, e.g., children brought here illegally by their parents twenty years ago. We have judges to deal with difficult cases, as well as statutes of limitation regarding the time period within which certain laws must be enforced, and this principle could be applied to immigration laws.

Which democratically enacted laws will the open-borders lobby not enforce next? How about laws against financial fraud? We have apparently already quit enforcing those, partly abetted by globalization and foreign tax havens as well as too big to fail or jail banks. Acceptance of illegal immigration is only one part of the broader trend toward impunity, and while impunity for banksters is arguably worse than for illegal immigrants and their employers, the latter still plays a part in undermining the general respect for law.

Map of Bhutan

What would an “open borders” policy mean for Bhutan, sandwiched between the world’s two most populous nations?

Surely our immigration laws could be improved. Indeed, the 1995 US Commission on Immigration Reform, chaired by the late Texas Congresswoman Barbara Jordan, made a good start, but was ignored for reasons already suggested. Her commission called for lower legal immigration quotas, stricter family reunification criteria, and enhanced border control, as well as stricter sanctions against employers of illegal immigrants. The last embraced the caveat that ethnic profiling would likely result without a secure national identification system, since employers are not able to adjudicate false documents. A secure identification system would of course make it easier to identify illegal immigrants and is often opposed by open-borders advocates and libertarians. The present Congress should build on the good work of the Jordan Commission, but they seem to have forgotten it.

Would open borders be good for Japan, or Germany, or Greece, or for an independent Catalonia, if that should come about? Do any political parties in member countries advocate open borders for the European Union with respect to the rest of the world? Should the areas of the Amazon reserved for indigenous people be open to free immigration? Should Bhutan, bordered by the world’s two most populous countries and trying to preserve its culture and ecosystems, declare a policy of open borders?

In developed countries immigration boosters are especially interested in opening borders to young workers to help cover social security shortfalls resulting from the older age structure caused by slower natural population growth. The cheap-labor lobby is joined by the cheap-retirement lobby. Apparently the immigrants are expected to die or go home as soon as they reach retirement age and would start receiving rather than paying into social security. Also, while working they are expected to boost fertility and population growth sufficiently to postpone the necessity of raising the retirement age or lowering benefits. Population growth is expected, indeed required, to continue indefinitely.

In addition to the cheap-labor and cheap-retirement lobbies, advocacy of open borders comes both from the politically correct faction of left-wing economists, and from the libertarian faction of right-wing economists. The former consider any limits on total number of immigrants as “thinly disguised racism.” All evil is reduced to racism, often “in disguise.” The libertarian economists label any restriction on immigration as a “market distortion,” their synonym for regulation. We already have open borders for capital (as well as goods), so that open borders for labor would complete the global integration agenda — deregulation taken to the limit. This is not “free trade” or reasonable recognition of interdependence among many separate trading economies, as embodied in the 1945 Bretton Woods Treaty. Rather it is a single global economy tightly integrated on the principle of absolute, not comparative, advantage. It is being imposed top-down by transnational corporations via the undemocratic World Trade Organization.

Net immigration is the overwhelming cause of US population growth. How big should the US population be? We are currently the third most populous country in the world. Do we aspire to overtake China and India? What numbers define a “more generous immigration policy,” and exactly who is being generous to whom, and at whose expense? Our elite is being generous to itself at the expense of both the US working class and of immigrants.

Any limitation of the number of new immigrants still requires selectivity and enforcement of immigration laws. It requires saying “no” to many worthy applicants, which is difficult, and is why some humanitarians are tempted to favor open borders. It is easier to pretend that unlimited “economic” growth can support an unlimited population, including immigrants. Never mind that growth in the US has, at the margin, become uneconomic, increasing social and environmental costs faster than benefits. The idea of a steady-state economy goes out the window, and customary growth-mania is reaffirmed.

If the US could just set an example of how a country can live justly and sustainably within its ecological limits (i.e., in a steady-state economy), that would be a splendid contribution to the rest of the world. We are far from setting such an example — indeed we are not even trying.

Obama’s Top Priority Will Intensify Environmental and Social Crises

by Brian Czech

“Our top priority must be to do everything we can to grow our economy and create good, middle-class jobs. That has to be our North Star. That has to drive every decision we make in Washington.”
— Barack Obama, Economic Report of the President, March 2013

If I wasn’t fair I’d quote Obama thusly: “Our top priority must be to do everything we can to grow our economy… That has to be our North Star. That has to drive every decision we make in Washington.” Then I could say, “See how obsessed the president is with economic growth?” I won’t, because clearly Obama’s growth agenda is intended to reduce unemployment. But that doesn’t mean his growth agenda is scientifically sound or sustainable. Quite the contrary. And, while Obama may not be literally obsessed with economic growth, what should we say about a document that mentions “growth” 371 times, “sustainable” 35 times, and “natural resources” 6 times? The glass is not empty, but it’s nowhere close to half full either.

It’s true that the 452-pager is not straight from Obama’s mouth. Most of the document is really the Annual Report of the Council of Economic Advisers, and probably much of that is written by the staffers of the Council rather than CEA members themselves. But you can bet a document like this is vetted like no other! No president will be quoted, pursuant to his own signature, “Our top priority must be to do everything we can to __________,” unless what fills in the blank is indeed the president’s top priority or very nearly it.

What fills in the blank is “grow our economy” (listed firstly) “and create good, middle-class jobs.” Why not just say ” create good, middle-class jobs and reduce the rate of unemployment”? Better yet, why not “stabilize the economy with a high rate of employment that is sustainable for the long run”? This would allow the president to raise desperately needed awareness of limits to growth, the damage caused by further growth, and the sustainable alternative of a steady state economy. But no, growth is truly at the heart of the president’s agenda, as described in more detail by the Council of Economic Advisers. “GDP” is used 197 times; “ecological footprint” not once.

The report does include a chapter called “Climate Change and the Path Toward Sustainable Energy Sources.” This chapter summarizes the science of climate change — cup has some drops — and makes the conventional economic argument that climate change is a “negative externality” of economic activity. It advances the equally conventional approach of “internalizing” this externality and obviating it by replacing fossil fuels with alternative sources of energy. To summarize the position, “The Administration is committed to a comprehensive energy strategy that supports economic and job growth, bolsters energy security, positions the United States to lead the world in clean energy, and addresses the global challenge of climate change.” We may as well demand better dental hygiene and more money from the Tooth Fairy all at once. In a 90% fossil-fueled economy, a top priority of doing “everything we can to grow our economy” is to climate change what it is to biodiversity loss, water shortage, and pollution: a guarantee that it will worsen.

We can’t blame President Obama or the CEA too much. They are, as noted in the report, driven to some degree by the Employment Act of 1946 as amended by the Full Employment and Balanced Growth Act of 1978. That’s exactly why we need the Full and Sustainable Employment Act and its apt acronym, “Full SEA,” to remind us that the “rising tide” to lift all boats was as sustainable as a Ponzi scheme. We’re out of water and boat-building material.

Pursuant to the Full Seas Act, we’ll have an annual Report to the President on Population, Production, Consumption, and Capacity to help monitor how sustainable our economy is. With population data from the Census Bureau and production data from the Bureau of Economic Analysis, a slim new Bureau of Population and Consumption (BPC) will calculate our ecological footprint to determine how sustainable GDP is. The President will summarize the Report in the annual State of the Union Address. The hope is that one day we can quote something more believable, doable, and laudable:

“Our top priority must be to do everything we can to stabilize our economy and maintain fulfilling jobs for all who need work. This economy has to fit on our planet along with those of other nations, leaving space for other species as well. That has to be our North Star: a steady state economy that is fair, sustainable, healthy and happy.”