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Five Myths About Economic Growth

by Brian Czech

Brian CzechMyth #1. It’s economic.

To be economic, something has to be worth more than it costs. Economic activity, per se, is more beneficial than detrimental. Technically speaking, “marginal utility is greater than marginal disutility.”

If you liked a rug, but liked your grandkids more, it wouldn’t be smart to grab the rug out from under them. That’s basic microeconomics. Yet if we look around and reflect a bit, doesn’t it seem like all that economic activity is pulling the Big Rug out from the grandkids at large? Water shortages, pollution, climate change, noise, congestion, endangered species… it’s not going to be a magic carpet ride for posterity.

Growth was probably economic for much of American history. But we have to know when times have changed and earlier policy goals are outdated. In the 21st century, when we’re mining tar sands, fracking far and wide and pouring crude oil by the ton into the world’s finest fisheries, trying to grow the economy even further is looking like a fool’s errand. That’s basic macroeconomics.

Myth #2. Economic growth is often miraculous.

Right now we’ve got the Chinese miracle. We’re supposed to be on the cusp of an Indian miracle. Seems like we already had a more general Asian miracle, having to do with “tigers.”

We’ve had Brazilian, Italian, Greek (yes Greek), Spanish and Nordic miracles. There’s been the Taiwan miracle, the miracle of Chile and even the Massachusetts miracle. Don’t forget the earlier Japanese miracle and more than one historic German miracle.

Let’s hope these aren’t the kinds of miracles they use to determine sainthood. Saint Dukakis, anyone?

No, economic growth was never, anywhere, a “miracle.” It’s never been more than increasing production and consumption of goods and services in the aggregate. It entails an increasing human population or per capita consumption; these go hand in hand in a growing economy. It’s measured with GDP.

Whoop-de-do, right? Maybe Wall Street investors and journalists are an excitable lot, and it’s easy enough to be surprised by a growth rate, but “miracle?”

Container ship.NOAA's National Ocean Service

Photo Credit: NOAA’s National Ocean Service

 

Myth #3. Growth isn’t a problem for the environment, because we’re dematerializing the economy.

Now that would be a miracle.

Let’s get one thing straight: The economy is all about materials. “Goods,” in other words. Oh sure, services matter too. But the vast majority of services are for purposes of procuring, managing or enjoying our goods.

The biggest service sector, transportation, is responsible for enormous environmental (and social) impacts. Transportation is instructive, too, about the relationship between goods and services. People don’t line up at cash registers demanding random acts of transportation. No, it’s all about moving materials—goods or people—from point A to point B, and moving them economically. Every form of transportation takes energy as well as copious supplies of materials (for vehicles and infrastructure) and space.

With all the talk of “de-materializing,” surely there must be services that transcend the physical, right? What about the Information Economy?

Myth #4. The human economy went from hunting and gathering through agriculture and on to manufacturing, and finally to the Information Economy.

Don’t forget our lesson from the transportation sector: no transportation for transportation’s sake. In the “Information Economy,” what’s all that information going to be used for? If it’s not going to be used in activities such as agriculture and manufacturing (and transportation) how is it going to matter for economic growth?

The fact is, there never was—or always was—an information economy. Pleistocene hunters needed to read mammoth tracks more than we need to read our Twitter feed.

Now when it comes to processing information, the computer was more or less a “revolutionary” invention, like the internal combustion engine was for transportation. But what’s less material about it? Just as today’s hunters have semi-automatic rifles with high-power scopes, they have (material) computers that help them gather information for buying more (material) guns, scouting more (material) terrain and shooting more (material) deer. Anything about that seem greener than before?

Information has proliferated alright, in lock step with the material goods and services it’s been used for. Yet to speak of the “Information Economy” seems like grabbing for some type of economic miracle, and we’ve all seen how cheap miracles are in economic rhetoric.

Myth #5. At least economic growth is egalitarian, because a rising tide lifts all boats.

Once upon a time the rising tide metaphor may have had some merit. In the 21st century—think resource wars, climate change, endang­ered species—it’s more like a rising tide flooding all houses. Which brings us back to Myth #1.

It seems like all the talk of economic growth was overblown, more the result of Wall Street excitement and political rhetoric than sober thought. Maybe what we really want is economic slenderizing.

 

 

The Future History of Political Economy – Part 2

Thermodynamics in Economics: Revolutionary portent, future history

by Eric Zencey

Eric ZenceyEcological Economics represents the extension into economics of the thermodynamic revolution of the nineteenth and twentieth centuries. In physics, that revolution dethroned Newton and brought relativity. In biology, it was midwife to the birth of ecology, the study of ecosystems as wholes in which energy networks—food webs—are a defining structure. In chemistry the laws of thermodynamics brought clarity and rigor to a science that struggled to bring theoretical unity to diverse phenomena. So far, though, most economists are perfectly willing to treat their subject matter as if the laws of thermodynamics simply don’t apply to it.

2 models 5

But the thermodynamic revolution in economics can’t be permanently forestalled. For one thing, it’s getting harder and harder for the neoclassical model to reassure us that its system of Newtonian abstractions is a good fit to the real world. The Great Collapse of 2008 demonstrated that whatever else it is, the discipline of economics isn’t very good at predicting major economic phenomena. Climate change and the Sixth Extinction make it hard for economics to maintain its pretense that economic activity takes place in abstractia, on the clean white pages of textbooks or on whiteboards holding formulae, with no roots in or consequences for anything outside of itself. Truths derived on the model of Newtonian mechanism are supposed to be abstract and ahistorical, but our planet and our economy are most assuredly evolving concretely and over time.

The driving dynamic of this economic and planetary change—the driver of history for the past three centuries—has been human use of high-EROI fossil fuel. The driving dynamic of the history yet to come will be the declining EROI of our civilization’s energy sources.

Oil Well 3.Texas State Archives

Oil used to gush out of the ground under pressure, making for a very high Energy Return on Energy Invested (EROI). In the 1920s, wells like this gave the industry an average EROI of 100 to 1 or more. Today’s petroleum industry has a much lower EROI. Photo Credit: Texas State Archives

You can see some of the consequences of declining EROI already:

  • Despite a rising real per capita GDP, for a significant percentage of workers in OECD nations personal income has flatlined or is declining. An increasing concentration of income helps explain this but another dynamic is at work as well. As EROI falls, it takes more economic effort to get the energy that’s needed to support economic effort. Even as gross economic activity (GDP) grows, production of net benefit is shrinking.
  • Other sectors of the economy have been affected by this ongoing increase in the economy’s matter-and-energy overhead. “Austerity” has become the watchword for governmental budgets, even in the wealthiest nations in the world. Developed countries find it increasingly difficult if not impossible to pay maintenance and upgrade costs on infrastructure investments made in the heyday of 100-to-1 oil.
  • In its 2013 report card on America’s infrastructure, The American Society of Civil Engineers estimated that the U.S. needs to invest $3.6 trillion over seven years to restore and maintain existing infrastructure.
  • Worldwide, many of the ecosystems that support human civilization are degraded and close to collapse. Forced by both ideology and declining EROI into austerity budgeting, governments are reducing their scope and energy at the exact moment that sustainability would have them take strong action to rein in the rational, free-market tendency of corporations to maximize profits by degrading the commons and externalizing other costs.
  • Pension-fund wipeouts are becoming common as one way to fulfill the economy’s structural need for debt repudiation—a need that lies in our system’s willingness to let debt grow faster than a declining EROI economy can pay back, even after growth has been stimulated by lifting or reducing regulations that limit the environmental damage done by economic activity.
  • The planetary carbon sink is full, producing climatic effects that even an abstraction-inhabiting, arithmo-morphizing economist has to acknowledge as a troubling reality.

Centuries from now economic historians are likely to understand the relationship between EROI and wealth creation much better than does the average economist of today. I think it likely that future political economists will express wonder not at the 20th century’s enormous economic success, but at how little we actually added to our stock of wealth for all the high-EROI coal and oil it was our pleasure to burn. They are almost certain to shake their heads in wonder that we, enjoying an energy supply and an EROI never seen on the planet before or since, could ever have experienced an economic downturn, could ever have let a human starve from want, could ever have been so programmatically blind to the physical origins of our fortunes.

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.

The End of the Age of Extraction

by Brent Blackwelder

BlackwelderToday’s global economy is causing shortages of natural resources (both renewable and nonrenewable) as we come to the end of what might be called the Age of Extraction. A true cost, steady state economy, on the other hand, would prevent resource problems by maintaining population and resource consumption well within the carrying capacity of the planet.

Energy and mineral shortages, along with depletion of forests and fisheries, are driving the extractors and harvesters to evermore remote places. No longer able to find gushing oilfields, vast stands of virgin timber, or waterways teeming with fish, the extraction companies are racing to the farthest reaches of the planet in search of profits.

The end of the Age of Extraction does not mean that such resources will disappear. In his recent book, The Quest, Daniel Yergin describes oil and gas discoveries that he predicts will turn the Western Hemisphere — from Canada to Brazil — into the next Saudi Arabia. But today’s extraction is pursuing fuels that are either dirty or hard to get. We see more pollution, both from accidents and mundane chronic causes, increasingly pushing civilization beyond the carrying capacity of the earth, wiping out more and more species, and accelerating climate destabilization.

Today’s global economic operating system tolerates and even abets severe pollution damages as industries externalize the costs from their books. Scarcity has made some of the most environmentally devastating energy and mining projects “short-term cost effective.” For example, according to price and revenue figures, it’s cost effective to extract oil from tar sands in Alberta, a process that requires huge energy inputs, grotesquely contaminates land and water, and poisons people, fish, and wildlife.

A surge of fracking to reach natural gas deposits more than a mile underground has attracted drillers in a manner reminiscent of the California Gold Rush days. Fracking, along with very deep offshore oil drilling, illustrates the contamination that is occurring from energy extraction in numerous locations. Shell oil company is preparing to drill in the Arctic Ocean where little if any emergency relief will be available to contain a spill.

Overfishing during the Age of Extraction (photo taken in 1983) has pushed the goliath grouper to the edge of extinction.

Overfishing during the Age of Extraction (photo taken in 1983) has pushed the goliath grouper to the edge of extinction.

Along the world’s coastlines overfishing has depleted stocks. Some near inshore “fisheries” have actually become fishless. Recent analyses of the history of fishing off the California coast, as seen through interviews with three generations of fishermen, produced startling findings. The youngest group (age 15-30) had no idea that it was once common to fish right off the coast. They didn’t view the coastal zone as being overfished because, they said, there were no fish in this zone (see p. 140 of Climate Wars by Harald Welzer).

The oldest group (age 55 and above) could recall eleven species that had disappeared from today’s far offshore fishing ground, whereas the group between age 31 and 54 could recall seven, and the youngest group only two. Sixty years ago the oldest group could recall catching 25 goliath groupers per day, but by the 1960s the number had plunged to eleven, and then to only one a day in the 1990s. Tragically, only ten percent of the youngest group believed that stocks of the grouper had disappeared because they didn’t think they were ever there to begin with.

Today this experience is being repeated on a massive scale as ocean trawlers are “vacuum cleaning” the oceans as they seek scarce schools of fish. A strong potential exists to push fish and other renewable resources beyond the point of recovery.

The world economy has been unable to reverse the depletion trend. Without a true cost, sustainable economy, nations are faced with three choices. They can:

  1. reject concerns about shortages and environmental decline and proceed for a few more decades with expanded drilling, mining, and harvesting;
  2. acknowledge the problem and adopt policies that lead to sustainable resource use and reliance on renewable energy; or
  3. treat the situation like a wartime crisis as President Franklin Roosevelt did in World War II when practically overnight he forced Detroit to shift from making cars to manufacturing ships and airplanes.

High-tech operatives try to assuage public concern with the claim that geoengineering on a gargantuan scale can enable the oceans to absorb more carbon and produce more cloud cover to prevent planetary overheating. For those nations that can’t get a robust program going on such easy technologies as wind and solar energy, the claim for geoengineering as a savior from climate disruption seems a tad on the ambitious side.

After the transition to a true cost, sustainable economy, the extractive projects I have described would be a curious relic. The global economy would be seen as a subset of Spaceship Earth. Survival on board the spaceship depends on using sufficient supplies (not ever increasing supplies) of resources, as well as consumption rates that are commensurate with regeneration rates.

Too many world leaders are focused on restoring an economy that has been undermining the life-support systems of Spaceship Earth. A different kind of economy — a true cost economy — is needed to take us forward at the end of the Age of Extraction.

Do We Need a Steady State Economy? One Politician’s Surprising Answer

An interview with Andrew Weaver, distinguished climatologist and BC’s first Green MLA

by James Magnus-Johnston

As the concentration of atmospheric carbon dioxide reached the historic high of 400 parts per million, renowned climatologist Andrew Weaver became the first Green candidate ever elected to British Columbia’s legislative assembly. We chatted about politics, the perils of natural gas development, and the public appetite for a steady state economy.

Here’s a politician who thinks his constituents can handle an honest dialogue about climate change. Andrew Weaver doesn’t hide the facts or pander with the wishful thinking of infinite growth. His refreshing candidness might have something to do with his background as one of the world’s preeminent climate scientists.

Andrew Weaver Biographical SketchAs a mathematician, Dr. Weaver spent years modeling the climate and now has a long list of credits to his name. He has witnessed the climate take a turn for the worse recently, but remains an optimist who believes the problem is “entirely solvable with will and determination.”

CASSE doesn’t endorse any particular political party, but Dr. Weaver’s experience signals that sometimes a sophisticated debate about complex issues can be a winning political formula. Besides, he said, “the Green Party is not there to form government, but there to facilitate an informed dialogue.”

If B.C.’s Green Party were to one day aspire to govern, I wondered, would it adopt the mainstream agenda of “green growth?” Or would it move more seriously in the direction of a steady state economy?

On Science and Politics

The science of climate change has been “settled,” but political action remains elusive or — in the case of the fracking phenomenon — altogether misguided.

“The scientists have done their jobs,” said Weaver. “Now it’s time for politicians to do theirs.” His voice was hoarse from weeks of intense campaigning.

“I hope I can get some first-rate colleagues who are also willing to stand up and see if we can make a difference,” he stated, suggesting that it’s time for more scientists to become politicians.

“People will try to knock you down and say you’re doing it for selfish reasons, but I wanted to set an example.”

He senses a growing demand for intelligent debate and action on complex issues like climate change. “We don’t give the electorate enough credit,” he told me. “People are fed up with stock messages like ‘those Liberals did this’ and ‘the NDP did this’… you can’t just say ‘no tankers on the coast’ or ‘no’ to some other issue.”

I asked him how he would maintain a positive tone in the legislature. “I would like to see non-partisan caucuses on the environment. I think it’s possible. Progressive MLAs will want to work together — and I don’t mean progressive in terms of the left-right divide, but in terms of wanting to further their knowledge on issues.”

On Energy Policy

As with any campaign trail, Dr. Weaver was challenged by his constituents on a number of policy questions. I wondered which topics resonated with the electorate.

At doorsteps, he said folks wanted to talk about clean, locally-produced energy. They weren’t allergic to the language of economics, either. Dr. Weaver said he used phrases like “the carrot-and-stick approach,” “internalizing externalities,” and “fixing market failures.”

Amid euphoric talk of strong demand for Canada’s resources, he calls natural gas development a “pipe dream.” “Russia has twenty times more natural gas than Canada and they are already supplying gas to China. The U.S. is shifting to clean energy on the west coast, and Australia has abandoned offshore liquid natural gas extraction because they think there’s a price bubble.”

“Under [previous premier] Gordon Campbell, this whole cleantech industry grew and became leaders in the field, but they have lost their guidance”

Now B.C.’s elected officials, he explained, are essentially offering to subsidize natural gas for the Asian market, with little benefit to the provincial economy.

On the Steady State Economy

“Of course we will need something that resembles a steady state economy because it’s a finite world!”

I asked Dr. Weaver to consider the counter-argument: Gail Tverberg wrote recently that a global human population collapse is inevitable; that many animal populations throughout history have followed a pattern of exponential overpopulation and collapse.

“I don’t want to end up on that collapse trajectory and I don’t think we have to do that,” he responded.

Gail notes that human population numbers have correlated closely with energy use — just like economic growth. She argues that we’d have to go back to hunter-gatherer lifestyles to achieve a steady state economy.

She could be right. But why might she be wrong?

Dr. Weaver was quick with his response: “because we’re smarter than phytoplankton!” While phytoplankton or bacteria inevitably grow exponentially in a finite system, human beings are different for a very important reason. “We have brains! We can put men on the moon, we built the Internet! I’m sure we can keep from collapsing!”

There’s that “will and determination” he mentioned earlier.

“You absolutely have to live within your means — financially and ecologically.” He sees the steady state economy as a solution to the world’s most pressing problems. “I’ve been pushing for steady state forest policy and fish farming. Replacing the stocks at at least the rate of replenishment.” He also considers energy policies key to the steady state economy.

So, while Dr. Weaver is adopting elements of a steady state agenda, most political parties avoid the rhetoric of anything but growth when they’re seriously vying to govern. Would B.C.’s Green Party still advance the steady state economy if its chances of governing were to improve?

“Yes, that’s exactly the message that would enable us to form government down the road.”

Pulsing Paradigm or Steady State?

by Christian Williams

Seldom do you come across arguments that truly question the premise of a steady state economy. Sure, growth-obsessed pundits make arguments against it all the time, but these can typically be refuted by reviewing a few facts. After all, the world is finite, and there are real limits to growth. However, when such an argument arises from the work of the late, great Howard Odum, it’s worth taking a closer look.

Odum — as with Herman Daly — can be considered a genius. Both quite rightly have inspired large groups of disciples. Odum introduced a whole new vocabulary and way of thinking in regard to energy systems and the interactions between civilization, energy, and the environment.[1] One of the concepts that shows up regularly in his work is the “pulsing paradigm.” He asserts that systems of all scales, from the molecular to the galactic, pulse in order to maximize power, and that pulsing systems tend to prevail. He even states that “seeking a constant level of civilization is a false ideal contrary to energy laws… In the long run there is no steady state.” [1, p. 54]

These are worrying words for any devotee of the concept of a steady state economy, and coming from Odum, they can’t simply be dismissed as the ramblings of a lunatic. But before we abandon our quest and run to pitch our tents in the growth-at-all-costs camp, let’s see if the seemingly conflicting notions of the pulse and the steady state can be compatible.

Turning to Daly, we can first ask, how steady is a steady state? The answer should be: steady enough for stability, but not without room for fluctuation. Daly talks of “boundary-oriented stability” [2, p. 53]. Rather than setting a specific point-goal for the economy’s size, we should establish boundaries, and allow fluctuations within them — small pulses perhaps. Admittedly such small fluctuations don’t seem to be on the scale of the pulse that Odum describes (e.g., the rise and fall of a civilization).

Pulses develop from the accumulation of energy or resources over a long period, leading to a short period of frenzied consumption and climax, followed by descent. In modern society, fossil fuels have given rise to our current global-scale pulse. Certainly, there is much to indicate that we may have a period of descent ahead of us, but a period of descent doesn’t rule out the possibility of subsequently establishing a steady state economy.

In fact many of the policies that Odum recommends for this day and age are very similar to those promoted for a steady state economy [1, pp. 388-391]. They include limits on inequality and income, a stable money supply, low fertility rates, a focus on maintenance, and looser restrictions on knowledge and information.

An important question is whether human consciousness can overcome such natural pulses. Odum saw pulses as a mechanism for maximizing power over the long term. He drew on earlier work of Alfred Lotka who also noted the pulsing nature of predator-prey relationships. It seems that pulsing is an evolutionary survival strategy. Yet these systems are not conscious, or if they are (such as with animals), they are not self-aware.

Maybe humanity’s trait of self-awareness could grant us more control. Instead of being trapped in a frenzy of consumption, perhaps we can intentionally restrain ourselves, and store some energy for later use, thus dampening the pulse to a manageable scale. So far it would appear we have been unsuccessful, as we continue to extract and consume energy as quickly as we can. But perhaps a higher level of energy consciousness can be achieved in the future. The implication of this reasoning for steady state economics is that restricting our supply of fossil energy should be of the highest priority — hardly a new idea.

A final insight from Odum relates to the value of information. Like the physical infrastructure of a modern economy, the development of information requires high-quality energy inputs. With a contracting energy supply, society’s store of and access to information will likely diminish. Again, like infrastructure (or any asset), it requires continual maintenance, and information that is not deemed valuable enough will be lost. A long-term objective for steady state economics is to ensure that valuable knowledge survives any period of descent and remains widely available for use in the distant future. In this respect, we can all play our part to keep the flame alive.

[1] Odum, Howard T 2007; Environment, Power, and Society for the Twenty-First Century. Columbia University Press, New York.

[2] Daly, Herman 1991; Steady-State Economics, 2nd edition. Island Press, Washington, DC.

Christian Williams has a Master’s degree in sustainable development from Uppsala University (Sweden). His thesis focused on the shorter work week as part of a transition towards a steady state economy, including a case study and political analysis from New Zealand, where he now makes his home.

The Visible Hand: Manipulating Market Prices by Influencing Laws and Regulations

by Max Kummerow

Recently a member of a mailing list for resource economists asked how to value endangered species given that they are not bought and sold in markets. A common method is to infer prices (“existence values”) by indirect methods such as answers to surveys (e.g., “How much would you be willing to pay to keep tigers from going extinct?”). An issue raised in the online discussion was whether species grow more valuable as they become more scarce and their numbers fall toward zero. If prices keep changing, what is the “right” price?

Thought experiment: suppose a keystone species is about to go extinct, but few people know about the threat. Oh, heck, let’s be more realistic. Leading ecological authorities believe that the effects of climate change will drive 1/3 or more of the world’s species to extinction by 2100 with unpredictable system-wide effects. Meanwhile, the owners of $17 trillion of fossil-fuel reserves are spending hundreds of millions of dollars to convince the public that the threats from climate change are overstated or non-existent (See Bill McKibben’s Rolling Stone article or Oreskes and Conway’s Merchants of Doubt).

How can we have any idea about fundamental values (that is, “correct” utility-maximizing efficient market prices) with so much misinformation floating around? Advertising creates a set of consumption preferences tilted towards items sold by companies more concerned about profits than benefits to society.

Prices depend on preferences, and preferences depend on information. Knowledge of the unhealthy and even fatal effects of smoking changed preferences about and prices of tobacco. Such changes would also occur over time as people gain knowledge about the threats of extinction and climate change.

By similar means, misinformation and strategic uncertainty lead to mispricing. If such mispricing in the carbon market continues, the predicted result is a “tragedy of the commons” (collective irrationality, market failure) with features like Miami, Washington, DC, and Los Angeles ending up below sea level, mass species extinctions, crop failures, etc.

Economic systems are complex, and many external costs and benefits are not factored into prices or people’s decisions in the market. Time lags add to the complexity. What if it will take 2,000 years before climate change makes the planet too hot for human life? Such a time lag makes it harder to come to the best decision about whether to build a new coal-fired power plant.

Species extinctions may be portents of broader problems (e.g., climate change), akin to canaries in a coal mine. The same factors driving them extinct — various impacts of growing human populations and economies — may be driving us extinct in the longer run. Does it make sense to value threatened species without considering the linkage to these other related problems? An endangered species itself might be worth $1, yet the factors driving it toward extinction might cause $100,000 worth of damage over the long run, or maybe even infinite damage from our point of view if extinction extends to humans. We need a better benefit-cost picture — a larger, genuine, and more complete accounting.

Another major problem with prices is that they only reflect the preference of those who hold power in markets. Perhaps polar bears should have standing when it comes to determining prices. They are intelligent, sentient beings with the most at stake when ice melts, so maybe their preferences ought to be factored into decisions about the Keystone Pipeline and exploitation of tar sands oil. What about future generations? Nobel Prize winner Joseph Stiglitz called this problem “incomplete markets” leading to market failure and universal mispricing.

There are some things markets do very well, but only if the institutional framework (rules of the game) ensures that prices reflect all costs and benefits. Laws, lobbying, culture, taxes, regulations — all kinds of institutions collectively created by societies — have enormous influences on market prices or even the existence of markets. So, to some degree, through these institutions, we choose price levels through a “visible hand” of policies and institutions. Stiglitz points out that the deregulation policies that led to the Global Financial Crisis of 2008 did not come out of nowhere, but rather from intense lobbying by stakeholders at banks and other people whose profits were restricted by regulations — a situation in which prices were set by something like a visible-policy hand instead of the invisible hand of the market.

Because of the difficulty of getting prices right, we might do better to regard creation as sacred and take the conservative position of Aldo Leopold who said, “The first rule of intelligent tinkering is to save all the parts.”

Valuations always depend on preferences. Economists call prices “revealed preferences.” If we “prefer” to settle for a world without many wonderful creatures, then we won’t attach much worth to them. But if we value them for their intrinsic beauty and their relationship to us (we do share DNA with every living thing), then we’ll attach more worth to them. So rather than measuring values, perhaps we should be trying to create value by improving preferences.

Examples of worldwide mispricing and market failures that need institutional corrections include:

  • Energy — too cheap due to climate change, extinctions, and negative effects on future generations.
  • Having children — too cheap since growing population will raise real prices of land, food, and energy, and contribute to climate change and other global environmental problems.
  • Endangered species — too cheap because ecosystem interrelationships are poorly understood, and indirect effects could be enormous.
  • Economic growth — overvalued because growth negatively affects aggregate utility and public goods (“the commons” such as air, water, soil, species diversity, ecosystem health, and climate) once we begin to reach the limits to growth.

Most economics students are still taught that following market price signals leads to the best of all possible worlds (market efficiency and maximum aggregate utility). But the examples of under- and over-valuation contained in the short list above suggest that humanity is headed for trouble if we choose to let market prices and self-interested institutions’ manipulation of prices control outcomes. The markets we rely on fail to generate utility-maximizing prices for goods and services and for the future of humanity. Thinking of ourselves as an endangered species, what is it worth to keep us alive?

Max Kummerow has a Ph.D. in urban and real-estate economics.  He is currently studying population issues in Perth, Australia.

Pulling Back the Curtain on Economic Growth’s Magic Act

by Rob Dietz

A good story often includes a touch of magic — just ask Harry Potter or Twilight fans. See if you can spot the magic in the following passage by Charles Wheelan from his book Naked Economics, in which he considers the question, “Who feeds Paris?”:

Somehow the right amount of fresh tuna makes its way from a fishing fleet in the South Pacific to a restaurant on the Rue de Rivoli. A neighborhood fruit vendor has exactly what his customers want every morning — from coffee to fresh papayas — even though those products may come from ten or fifteen different countries. In short, a complex economy involves billions of transactions every day, the vast majority of which happen without any direct government involvement.

Let’s ignore for now that Wheelan’s “right amount” of fresh tuna corresponds to a disappearing fishery (the closure of vast fishing areas in the South Pacific is a story for another time). Wheelan’s argument and the main message of today’s globalized economy is that Twinkies spontaneously sprout on supermarket shelves. Hamburgers originate from the silver stovetops of McDonalds restaurants. Water itself flows from shiny taps, translucent bottles, and fancy vending machines. We don’t need to concern ourselves with trifling matters such as where this stuff comes from or how it arrives. Because of the magic of the market, we only need to know how to get our hands on sufficient cash, credit, or public funds to buy it. In a nutshell, the argument says that all the cheap food, cheap products, and cheap thrills of modern times spring directly from global trade and economic growth.

Is this the guy responsible for perpetual economic growth?
Photo credit: Yang and Yun

To a neutral observer, it certainly can look like magic — like Adam Smith dressed as Merlin, summoning all this visible wealth with his invisible hand. That’s essentially what Wheelan and other economic analysts are saying. Through the magic of free markets, we can produce and consume an ever-increasing amount of stuff (and as a side note, we’ll be rich enough to clean up any associated environmental messes, or at least export them to less enlightened nations).

That’s some trick, but it’s not real magic — it’s just an illusion. If we take a step back and observe what’s happening, we can expose the illusion and see that the market is hiding something up its sleeve: cheap energy. That’s the crowning achievement of a new book called Energy: Overdevelopment and the Delusion of Endless Growth — it pulls back the curtain on the market’s magic act. With photographs that manage to frighten and inspire at the same time, and with essays that provoke both deep thought and deep concern, Energy clarifies how the economy is able to achieve miracles such as the shipment of papayas to Paris, and it assesses the prospects for keeping the magic going.

Every economic transaction is underwritten by a continuous supply of abundant and cheap energy. This supply “supports the entire scaffolding of civilization.” (p. 8) The complex web of trades and transactions and mass consumption have been made possible by the exploitation of energy-dense fossil fuels. And continued growth of such an economic system requires increasing supplies of energy.

Energy presents facts about the fossil-fueled economy that are well known in several circles but ignored in most:

  • One gallon of gasoline, which costs a few dollars, is so energy-dense that it can push a 3,000-pound vehicle twenty miles.
  • If human labor were used to meet the energy requirements of a typical American lifestyle, more than 100 people (dubbed “energy slaves”) would have to work around the clock for each American.
  • Since the dawn of the industrial revolution, energy use and economic activity have increased in lockstep.
  • Fossil fuels are depletable, and burning them produces serious environmental side effects.

These facts help illuminate the predicament of modern society. We’ve built a set of institutions and a way of life that require continuous economic growth. But such growth is entirely dependent on access to cheap energy. And using more and more cheap energy is digging us into a deeper and deeper hole of spoiled landscapes, unstable climate, and biodiversity loss. But politicians, pundits, and the public have swept this predicament away with the insane assumption that economic growth can go on forever because of things like technological ingenuity, market efficiency, and labor productivity (all of which are dependent on access to cheap energy).

It can be a real downer to contemplate the way humanity has used so many energy resources (resources that were given to us by nature) to dig this hole. But the authors of Energy refuse to wallow at the bottom of the hole. Instead, they construct a ladder with rungs made out of ideas for change — ideas like educating the public to develop widespread energy literacy, conserving both energy resources and natural landscapes, and establishing resilient communities. These rungs offer a hopeful transition to better ways and better days. The hopeful conclusion is that we can figure out how to live the good life in a powered-down economy — an economy that accepts enough as its organizing principle rather than more.

In her lyrical and contemplative afterword, Lisi Krall writes, “Perhaps the real question of progress is not how to forge a new energy frontier, but how to forge a different model of economic organization and purpose, a model that isn’t predicated on never-ending growth and a belief that there are no real biophysical limits.” She believes that it’s time to give the magicians the hook. Luckily Krall and her colleagues in ecological economics, along with the authors of Energy, have been working on an economic model that is based on scientific observation and humility rather than magical thinking and arrogance.

Making Sense of the Protests through a Post-Growth Lens

by James Johnston

The world has recently seen protests on Wall Street, rioting in London, and tension in other parts of Europe as it deals with insolvent debtor nations. Mass confusion is in the air.

In New York, as the protesters try to explain why they feel exploited, critics and observers can’t seem to figure out what they’re crying about. Protesters have been labeled a bunch of entitled, rambling, half-naked young hipster eccentrics. In London, the world witnessed a similar process of bewilderment, where observers couldn’t initially put their fingers on why impoverished “working class” rioters were out causing a fearful stir (after all, most of the critics were motivated and had decent jobs, thank you very much). Meanwhile, stocks around the world continue to rally and tumble with unprecedented volatility. Growth forecasts and economic orthodoxy are proven wrong again and again. Job and wealth creation strategies don’t help the people who need it most.

If the protesters are rambling eccentrics, then traders, mainstream economists and policymakers must be lunatics because they continue to make the same mistakes and expect better results each time!

Frankly, neither side of the debate has a particularly firm handle on the reality of the problem, and hoping that the movement will simply fade away will prove to be wishful thinking. Among all the mass confusion, steady-state theory might help us account for not only the the economic problems, but also the ideological divide. Using the Wall Street occupation as our example, let’s assess the two sides of the debate and hypothesize how the two groups have come to inhabit such different planets.

First, the two sides of the debate are divided primarily along generational lines, not just ideological ones. The protesters might be characterized as a group of well-educated, disenchanted and heavily indebted young people who were raised to be grossly unprepared for the situation they find themselves in. They were told that when they completed their degrees, a growing economy would enable them to pay back their hyper-inflated loans and put a down payment on a massively overpriced home (relative to historical norms). Not only are these young people seriously indebted and underemployed, but they know the planet’s ecological line of credit is also maxed out, causing them to question what they should be working so hard for in the first place. They’re expressing legitimate frustration with a set of real, serious problems that go unaddressed in the U.S.

What about the other side? While some lucky or ambitious younger folks may also fall into this category, it can more generally be characterized as an older, more comfortable cohort on auto-pilot that has grown accustomed to the illusion of perpetual growth. They’ve witnessed it their whole lives: growth in asset values (including home values), growth in the economy’s energy use (more stuff, more suburbs, more oil), growth in levels of indebtedness (to afford it all), and growth in the supply of money.  They are perpetuating a system that is structurally engineered to collapse without feeding its addiction to growth (mainly by exploiting future generations).

Unfortunately, those advocating the status quo are firmly entrenched in their beliefs, and they have in their midst traders, economists and policymakers who can articulate those beliefs well.  Meanwhile the protesters have yet to present a unified and coherent set of theoretical principles to rebut conventional arguments and explain their worldview. They come off as disoriented, lost, and a little incoherent. But stupid they are not.

While the nuanced reasons for protest vary around the world, young people have a visceral grasp of something that the most comfortable in our global society are simply too sheltered to acknowledge — big problems in an economy that has been engineered for ecological and financial ruin.

It’s only a matter of time before confusion gives way to clarity, when we’ll have to come to terms with our post growth reality. It will begin with a set of pragmatic banking reforms: a gradual increase in the fractional reserve requirement, the reconnection of investment banking to the real economy, and the regulation of derivatives.

That’s just the beginning.

After Wall Street — or whatever comes next — we will all have to make an effort to inhabit the same finite planet and bridge the divide. We will have to find common purpose in the realignment of our overarching social and economic goals — not toward yesterday’s notions of solidarity or neoliberalism — but toward meaningful capital maintenance for prosperity without irresponsible growth.

What If We Stopped Fighting for Preservation and Fought Economic Growth Instead?

by Tim Murray

Seriously.

Each time environmentalists rally to defend an endangered habitat, and finally win the battle to designate it as a park “forever,” as Nature Conservancy puts it, the economic growth machine turns to surrounding lands and exploits them ever more intensively, causing more species loss than ever before, putting even more lands under threat. For each acre of land that comes under protection, two acres are developed, and 40% of all species lie outside of parks. Nature Conservancy Canada may indeed have “saved” – at least for now – two million acres, but many more millions have been ruined. And the ruin continues, until, once more, on a dozen other fronts, development comes knocking at the door of a forest, or a marsh or a valley that many hold sacred. Once again, environmentalists, fresh from an earlier conflict, drop everything to rally its defense, and once again, if they are lucky, yet another section of land is declared off-limits to logging, mining and exploration. They are like a fire brigade that never rests, running about, exhausted, trying to extinguish one brush fire after another, year after year, decade after decade, winning battles but losing the war.

Environmentalists Ready to Rally

Despite occasional setbacks, the growth machine continues more furiously, and finally, even lands which had been set aside “forever” come under pressure. As development gets closer, the protected land becomes more valuable, and more costly to protect. Then government, under the duress of energy and resource shortages and the dire need for royalties and revenue, caves in to allow industry a foothold, then a chunk, then another. Yosemite Park, Hamber Provincial Park, Steve Irwin Park… the list goes on. There is no durable sanctuary from economic growth. Any park that is made by legislation can be unmade by legislation. Governments change and so do circumstances. But growth continues and natural capital shrinks. And things are not even desperate yet.

Here’s a thought. Stop fighting the brush fire. Stop investing time and effort in fighting for park preservation, and instead direct that energy into stopping economic growth. If the same energy that has been put into battles to save the environment piecemeal had been put into lobbying for a steady state economy, development pressure everywhere would have ceased, and habitat would be safe everywhere. After all, what area is not “sacred?”

For most of us who care about nature, bypassing local fights would seem like driving by an accident scene without stopping to offer help. Environmentalism, after all, is typically born from passionate concern about a threatened treasure very close to our hearts. But as General MacArthur and Admiral Nimitz concluded during the Pacific War, to achieve the long-term strategic objective, it is sometimes necessary to conserve strength by “island-hopping” over enemy strong points so that resources can be saved to fight the bigger, more decisive battles. Each of us has only so much time and energy to budget for the cause. The question is, are we deploying it to our best advantage? So far, environmental victories have been won at the cost of losing the strategic war. Environmental watchdogs bark, but the growth caravan moves on.

The practice of designating hallowed places as nature reserves must no longer be seen as “victories,” but rather as concessions. They are a permit issued to keep on growing as long as a small portion of the land base is left off the shopping list. The declaration by certain politicians to “protect” 12% of our land surface from exploitation is a permit to leave 88% unprotected. What they are really talking about, is licensed exploitation. It is like paying the mob not to rob your neighborhood, so that they can ravage others. The Saxons called it Danegeld, and all it bought was time. What is magical about this 12%? Does 12% somehow represent the area of land necessary to protect wilderness and wildlife? Or is it a political figure designed to achieve a compromise between conservationists and developers?

According to wildlife biologist Dr. Keith Hobson of Environment Canada, a veteran warrior of decades of battles to save habitat:

There is no biological basis to 12%. It came out of the Brundtland Commission and is a dangerous concept… …most biologists I know consider the number to be totally arbitrary and political, with no relationship to actual biology or conservation. As for abandoning the nature preservation schtick in favor of reduced human and economic growth, I emphatically agree. After all, what have been the true ‘victories’ of the environmental movement? Largely postage-stamp pieces of real estate, which, once designated, open the floodgates of development around them. And like you, I have absolutely no faith in the longevity of these designations.

Sir Peter Scott once commented that the World Wildlife Fund would have saved more wildlife it they had dispensed free condoms rather invested in nature reserves. Biodiversity is primarily threatened by human expansion, which may be defined as the potent combination of a growing human population and its growing appetite for resources. Economic growth is the root cause of environmental degradation, and fighting its symptoms is the Labor of Sisyphus.