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Efficiency and Entrepreneurship: Key Ingredients for Infinite Growth

by Milton Mountebank

Editor’s note: In order to present a “fair and balanced” point of view, the Daly News occasionally invites Dr. Mountebank (the award-winning economist and originator of infinite planet theory) to write an editorial.

Limits-to-growth ideology often bullies its way into what would otherwise be an astute dialogue about how to grow the economy. It’s easy to understand why. Some people deny the power of perpetual economic growth because of facts like these:

  • There is a finite pool of raw materials and energy resources on the planet;
  • The atmosphere is filling up with carbon dioxide, disrupting the planet’s climate;
  • Billions of people are struggling to get by on less than $2 per day;
  • Natural habitats and the species that inhabit them are disappearing at increasing rates;
  • The world’s oceans contain four hundred dead zones.
  • Debt loads in nations around the world are spiraling out of control.

The ignorant masses who don’t understand infinite planet theory tend to wallow unnecessarily in the muddy bogs of these facts. Even worse, in the hands of certain wrong-headed scoundrels, these facts can be aligned into an enticing argument against the economic imperative of perpetual growth. The counterintuitive heart of infinite planet theory is that ever-increasing efficiency can turn that which seems finite into a limitless reservoir of consumer products. Efficiency enables us to grow the economy forever, to fulfill any consumptive desire that may occur to us, and to keep the flow of products skyrocketing to infinity and beyond.

To illustrate this magical ability of efficiency, consider a case study from the malodorous field of solid waste disposal. Carl Grifter is a genuine garbage entrepreneur. After the financial meltdown and home foreclosure frenzy of 2008 and 2009, Grifter noticed that his local government couldn’t bring in enough revenue to pay the bills. Some people would view such a situation as cause for alarm, but not Grifter. He says, “While other people were out occupying the public squares and wasting their time on protests, I was busy cornering the garbage market.” In a wave of privatization in which the county sold off its public services to corporations, Grifter got in on the ground floor by purchasing the landfill at what he calls “a deep discount.”

Although it’s worth pausing to applaud such a fine example of entrepreneurship, we need to save the real ovation for Grifter’s efficiency innovations. After acquiring the landfill, he undertook a profitability analysis and classified five key processes that affect landfill operations:

  1. Advertisers induce demand for cheap, plastic products.
  2. Factory workers in China produce the needed supply of doodads and gizmos, pack them onto immense cargo ships, and export them to America.
  3. American consumers transfer cartloads of plastic schlock from the colossal aisles of Walmart, Target, and Costco to the colossal holds of their SUVs and the colossal garages of their colossal homes.
  4. Within one year’s time, consumers discard the remains of their original purchases.
  5. Enormous fleets of garbage trucks gather the plastic refuse and deliver it to the landfill where it will break down over the next several geologic epochs.

It’s tough to be more efficient than this!

Any economist can tell you that efficiency is a measure of how quickly and how cheaply a desired outcome can be achieved. Obviously, the more efficient a business, an industry, or an entire economy is, the better off we all are. Grifter combed through these five processes trying to find room for improving efficiency. He says, “It was real tough going. You can’t get any more efficient than those giant cargo ships. And look at how efficient Americans already are at transporting plastic crap to their homes. I was stumped.”

Grifter could have given up at that point. He concedes that at times, he even started to believe that maybe there were limits to efficiency and growth. But you can’t hold down the spirit of a devout growthist for long. He went back to square one and wrote down a simple equation for his business model:

More refuse = more revenue = more profit.

The desired outcome for a landfill business is to import as much refuse as fast as possible. Once Grifter fully understood this fact, he saw the golden pathway to efficiency: cut out the middleman. He says, “What’s the point of waiting an entire year for consumer products to come through the gates of my landfill? I contacted the factories and shipping guys in China and arranged to have the goods delivered straight from the ships.” Now Grifter’s fleet of garbage trucks meets the cargo ships on the docks and delivers products straight to the landfill. He adds, “It’s pretty much the same process as before, but I expedite things and make a killing!”

It’s a win-win-win situation. The first win: Grifter’s corporation earns higher profits, paving the way for growth and job creation. Projecting corporate growth out five years shows that 78 percent of adults in the county will soon be working at the landfill. The second win: with these products flowing straight to the landfill, advertisers and consumers can focus their attention on other useless and superfluous products — a surefire way to establish new branches on the tree of economic growth.

The third win should appease the environmental doomsayers clamoring about the limits to growth. There’s a clear environmental advantage to Grifter’s improvement. For starters, consider the carbon footprint reductions given the shorter travel distance that products take from factory to landfill. And as Grifter notes, “It’s a lot easier to bury the products in our landfill when they’re still in the packaging — there are less pieces of plastic to fold under the dirt, so we can save a lot of energy.”

“Look here,” he says as he points to a table with two identical boxes on top. “These are brand new Salad Shooters.” A big smile marks Grifter’s face as he takes one of them out of its box, picks up a hammer, and shatters the Salad Shooter into a pile of jagged pieces. “Which one of these do you think is easier to bury?”

Grifter’s corporation is a shining beacon of light for where the economy needs to go. Greater efficiency must be our mantra. Just as more efficient power plants and car engines have solved the so-called “problem” of greenhouse gas emissions, so will greater efficiency in the broader economy overcome any so-called “limits to growth.”

Dr. Mountebank is the John Q. Beelzebub Professor of Economics at Fantasia University.

Mountebank Wins Nobel for Infinite Planet Theory

by Rob Dietz

Few people have read the dense volumes published by the economist Milton Mountebank, but his work has affected you, me and every single person on the planet. Dr. Mountebank has revolutionized economic thought, and now he has been recognized for his singular efforts. Yesterday at a gala reception in Stockholm, Sweden, the chairman of Sveriges Riksbank, Peter Norborg, presented Dr. Mountebank with the Nobel Prize in Economics for his lifetime of work on infinite planet theory.

In his presentation of the award, Mr. Norborg stated, “Dr. Mountebank has demonstrated imagination and inventiveness beyond what the rational mind can comprehend.” Indeed, it is because of his theories that we all do what we do economically. Nations strive for continuous GDP growth and endless expansion of consumption thanks to infinite planet theory. Mr. Norborg went on to say, “All of our banks, including Sveriges Riksbank, owe him a huge debt. We finance  economic expansion. Our actions and decisions would be morally suspect if we lived on a finite planet.”

In a light-hearted moment during the presentation, Mr. Norborg asserted that Dr. Mountebank had provided an even greater service to humanity by reducing stress on individuals. “Best of all,” he said, “is that we can extract, consume and digest resources guilt-free. Planetary constraints have been conquered. They have gone the way of the dodo, the Roman Empire and the world’s major fisheries.”

Reagan's nod to Mountebank, etched in stone at the International Trade Center in Washinton, DC. Photo by Rob Dietz

Although Dr. Mountebank’s books have failed to reach mainstream audiences, his work has been highly influential among elite political and corporate leaders. Ronald Reagan is a prominent example. President Reagan once famously said, “There are no limits to growth and human progress when men and women are free to follow their dreams.” That’s a close paraphrasing of Dr. Mountebank’s conclusion to his magnum opus, Infinity and Beyond: The Magical Triumph of Economics over Physics. Phillip van Uppington, former vice president at Lehman Brothers, asserts that Dr. Mountebank was a huge influence on his firm. “We used to quote him all the time. One of the highlights of my career was the symposium I arranged a few years back with Mountebank and Milton Friedman. We called it ‘Double Milton Day.’  It really opened our minds to the possibilities of innovative finance. Once we implemented the double Milton doctrines, we made more cash than most small nations.”

In his acceptance speech, Dr. Mountebank told the story of how he developed infinite planet theory. “Equations, equations, equations,” he said, “I would see them dancing across my eyelids as I laid down to sleep.  In the morning I would wake up and write them out. I did this for three straight years until I finally put it all together.” The centerpiece of Mountebank’s mathematical demonstration of the feasibility of infinite growth is his conjury equation, a recondite multivariate differential expression that, by common agreement, is understood by fewer than four economists in the world. “It’s why I’m standing on this stage today,” Mountebank said. “Unfortunately the equation is too long to fit on the screen behind me, but it’s the key to infinite economic growth. Fortunately, though, you don’t have to be an economist or a statistician to use it as a guide for your daily actions.” Dr. Mountebank continued by holding up a globe in his hand and stating, “We all recognize that the earth is a sphere, and from basic geometry, we all understand that a sphere has no beginning and no end. If you set out in one direction on the surface of a sphere, there is no stopping point—it’s infinite.” He spun the globe and walked his fingers around it to prove his point. “Q.E.D.  No end.  And that means it can be infinitely exploited for economic gains.”

Dr. Mountebank. Photo by Derrick Tyson.

Infinite planet theory has gained almost unanimous acceptance in economic circles, but there have been some vocal critics. On the day of the award ceremony, a small band of protestors formed a picket line outside Sveriges Riksbank. One protestor was carrying a sign that said “Steady State.” When asked why she was protesting, she said, “Mountebank? You can’t be serious. They should give the Nobel to Herman Daly.” Dr. Daly is known for his work on the limits to growth and the steady state economy, concepts which fly in the face of infinite planet theory. The Club of Rome provided the original critique of the theory when it published its bestselling book, The Limits to Growth. In his writings, however, Dr. Mountebank has dismissed the notion of limits. One of the passages in Infinity and Beyond says:

The end of cheap oil, species extinctions, climate change, deforestation, resource depletion, crippling poverty, loss of ecosystem services, soil and aquifer degradation—these are trifling problems, so long as we continue to grow the economy toward its ultimate size: infinity and beyond. Under no circumstances should we allow creeping thoughts about a finite planet or constraints handed down by universal physical laws to get in the way of building a bigger economy. And certainly we should shut our ears to the dreary doomsayers who continue to rain their inane facts upon our parade of growth. Growth, alone, is the moral and political ideal.

Dr. Mountebank ended his acceptance speech on a personal note, observing how infinite planet theory had soothed the fears of his young grandchildren. He said, “They told me they were scared about what was happening to the environment. I patted their little heads and told them not to worry.  After all, you can’t harm nature on an infinite planet. By definition, there’s always more.”

Dr. Mountebank is the eighth Nobel laureate in economics from Fantasia University.

Two Schools and the Path to the Steady State

by Eric Zencey

All of economics is divided into two schools:  steady state theory and infinite planet theory.  They can’t both be right.  You’d think the choice between them would be obvious, but infinite planet theory still holds sway in classrooms and in the halls of power where policy is made.   Last month, though, brought a significant development:   the manager of a major hedge fund registered a carefully reasoned dissent from infinite planet theory.  And in doing so, Jeremy Grantham offered a glimpse of how and why steady state economic theory will ultimately come to prevail.

Grantham is the head of GMO LLC, a hedge fund with $100 billion under management. His latest letter to his investors was headlined “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever”—a title that calls to mind the urgent warnings raised by steady-staters as far back as the 1970s.  Those warnings were dismissed by most economists as Chicken-Little fears that could safely be ignored—and the western industrial world proceeded to do just that.  Infinite planet theorists pointed to the work of Julian Simon, who argued that human ingenuity is The Ultimate Resource (as he put it in the title of a book). Since technology, a human invention, is a factor of production, and since human capacity for invention is infinite, there can be no resource limits to economic growth.  Infinity times anything is infinity, right?

You can get to that conclusion only if you ignore the laws of thermodynamics. However inventive humans have been or may yet prove to be, they’ll never invent a way around the first and second law.  You can’t make something from nothing and you can’t make nothing from something (the first law).  You can’t push a car backwards and fill the gas tank (the second).  Together these laws rule out perpetual motion, schemes in which energy is created out of nothing or recycled and used again.

In steady state theory, the economy is seen as a thermodynamic machine, drawing in matter and energy, processing them with more energy, and excreting a high entropy wake.  The economy thus has two ecological footprints:  one on the uptake and one on the discharge side.  Since both footprints land outside the abstract world of theory and in the physical reality of a finite planet, neither can increase forever.

Economists might have put these truths into practice decades ago.  Had they done so, they would have been in good company.  Physics had its thermodynamic revolution in the person of Albert Einstein, whose path from Newton to relativity began with thermodynamics, as he played out the un-mechanical implications of the second law.  (Mechanical motion is reversible; energy use is not.)  Biology was transformed in the 1920s and 1930s, as biologists saw that evolution is driven by competition for energy, which structures and maintains ecosystems—food webs—in which sunlight becomes green plant then herbivore, carnivore, detritivore.

Why, then, has the thermodynamic revolution in economics been postponed? The question will intrigue historians of the future, who will wonder at the profligacy of our culture and our cavalier disregard for ecological limit.

Part of the answer is the bet that Julian Simon made in 1980 with population activist Paul Ehrlich.  Simon maneuvered Ehrlich into wagering on the future price of any group of resources that Ehrlich cared to pick:  if Simon’s theory was right, he claimed, the prices would be lower within ten years.  Simon won.

His victory was widely taken as proof of his infinite planet theory, despite the obvious flaw in it.  The market price of any commodity is a human construct, the result of market supply and demand, not an indicator of scarcity in any absolute sense.  From a limited stock of a finite resource—oil, say—we can choose to extract the resource at a greater or lesser rate.  If the rate at which we pump oil out of the ground exceeds the rate at which demand for oil increases, the market price will fall.  This doesn’t prove that oil is plentiful, let alone infinite.  It doesn’t prove that we’ve invented our way around the laws of thermodynamics.  It merely proves that we’ve extracted oil fast enough to keep its market price from rising.

Grantham goes head-to-head with Simonism not on these theoretical grounds but with solid empirical evidence:  commodity prices are rising and aren’t likely ever to come down again.  Volatility in prices can be assessed by looking at change in terms of standard deviations from the mean:  how big, exactly, are the swings, as measured against average variability over time?  Sharp increases in the prices of significant commodities since 2002 fall well outside the standard deviation; for iron ore, the rise has been 4.9 times the standard deviation, a result that (Grantham tells us) has a one in 2.2 million chance of being “normal” variation.  More likely, it signals a new and different reality.  For coal, copper, corn, silver, sorghum, palladium, rubber, etc., the odds aren’t as long, but still pretty sizable:  one to 48,000, one to 17,000, one to fourteen- and nine- and four thousand.  This basic, deep-seated trend lies beneath the statistical noise—price spikes and troughs, including those created by speculation and subsequent “market corrections.”

Based on this analysis, and on a review of energy use that reaches back to when wood was our primary fuel, Grantham concludes that we have entered a new era:  we are on the cusp of what he calls The Great Paradigm Shift, “one of the giant inflection points in economic history”—the moment, he warns, that lies at “the beginning of the end for the heroic growth spurt in population and wealth caused by…the Hydrocarbon Revolution.”

You don’t find too many economists, let alone market analysts, reaching back to look at energy use before the era of coal.  In the infinite planet neoclassical model, anything before James Watt is quaint and distant, and everything before Adam Smith is simply darkness.  It’s true enough that steam-driven factories, embodying the division of labor that Smith celebrated, were game changers, leading to phenomenal economic growth; but you can’t see the scope of the game, or even begin to see that it has an end, unless you put those inventions into an historical and geophysical perspective that reaches back before Watt and Smith.

That’s why the Industrial Revolution is more properly called the Hydrocarbon Revolution.  In focusing on the machinery, “Industrial Revolution” leads us to think that the engine of economic growth was human invention—and thus leads to the mistaken idea that more and better invention will let us increase productivity forever.  “Hydrocarbon Revolution” makes clear that the modern economic miracle has thermodynamic roots.  Economic history changed when we began systematically to exploit a new stock of energy, the stored fossil sunlight of coal and oil, with its historically unprecedented rate of energy return on energy invested (EROI)—as high as 100:1 for oil in the early part of the twentieth century.  “Hydrocarbon Revolution” reflects the reality that the enormous productivity gains of the machine age are rooted in that very favorable EROI.  It also implicitly includes the warning that the modern economic miracle must end when this stock of thermodynamically cheap energy is used up.

The essence of steady-state thinking is that we have to shape our economy to operate on a finite planet, within a stable, sustainable budget of matter-and-energy throughput.  That throughput has to be sized so that the economy’s two footprints fit into the available ecological shoes.  Grantham has noticed that one of the shoes is pinching, and he’s begun to articulate the reasons why, to an audience highly motivated to listen.  If they heed his warning— “From now on, price pressure and shortages of resources will be a permanent feature of our lives”—the considerable engine of self-interest will be hitched to the adoption of steady state economic theory.

If practitioners adopt steady-state principles, the economists who theorize about them can’t remain far behind.

Upton Sinclair once observed, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”  In the past that logic has worked against the spread of steady-state thinking.  Now the logic has turned:  if you want to make money, you’d better acknowledge reality, including the reality that on a finite planet there are limits to growth.  To those of us concerned about the fate of a civilization that’s outgrown its ecological niche, this is a welcome development.

National Wildlife Federation Adopts Key Element of Steady-State Thinking

by Eric Zencey

The National Wildlife Federation held its annual meeting near Capitol Hill in Washington, D.C. on Friday, April 15. The meeting took a bold, firm step toward implementing a key feature of steady-state economic thinking: it passed a resolution calling on the President, Congress, state governors and state legislators to abandon gross domestic product (GDP) as the indicator that economic policy makers seek to maximize, and to develop and adopt instead a broader measurement of economic and ecological well-being.

The resolution passed unanimously, as delegates from 47 states and two overseas territories said “aye,” no one said “nay,” and the resolution was gaveled into force. I was there representing the Vermont Natural Resources Council, which had put the resolution on the agenda. The vote was a quiet moment in a large conference hall, with delegates shuffling papers as they sat at long tables facing the dais, each of us fronted by a miniature version of our state flag. This is what revolutions in political economy sometimes look like: quiet meetings in stuffy conference halls in which concerned citizens say, in unison, “Stop doing that and do this instead.”

In passing the resolution, the Federation lends its considerable support to an international movement that seeks to alter what we count as progress. That change—measuring the actual well-being delivered by the economy instead of the amount of money that changes hands each quarter—is crucial to establishing a sane, sustainable, steady state economy.

Every economics textbook warns that GDP is a poor measure of well-being, and yet by default it continues to be the indicator that economic policy seeks to maximize. GDP doesn’t measure well-being at all, but simply tries to tally the dollar value of final goods and services produced in the U.S. By design, it leaves out volunteer work and domestic production—the daycare you do at home doesn’t count, but if you commercialize the transaction by dropping your kids off at the daycare center, GDP goes up. Cooking, cleaning, maintenance, yard work, caring for aging parents—none of it counts if money doesn’t change hands. Neighborhoods, communities and households all benefit mightily from this kind of non-commercial production, and their replacement by commercial services often fails to bring the same level of satisfaction and well-being.

By design, GDP also leaves out ecosystem services; if you hang your laundry out to dry, the sun and wind do the job, but if you throw it in the dryer you use electricity, increase your carbon footprint, and give GDP a bit of a bump. Ecological economists identify a dozen categories of ecosystem services, including climate stability, recycling of nutrients, creation of soil fertility, maintenance of a library of genetic diversity, pollination, purification and transport of water by the solar-powered hydrological cycle, flood protection services of marshlands and forests, and so on. Ecosystem services count for nothing in GDP. If we don’t value them, they are easily ignored. Yet the loss of ecosystem services leads, eventually and inevitably, to the loss of civilization itself.

GDP also misreads our level of well-being by treating defensive and remedial expenditures as positive economic activity. Remedial: the $12 billion that British Petroleum alone has spent (so far) in its efforts to clean up the catastrophic oil release in the Gulf of Mexico counts as an increase in GDP, though the expenditure comes nowhere close to putting things back to their pre-Deepwater state. Defensive: if someone breaks into a neighbor’s house and you decide to buy a burglar alarm, GDP goes up—but you probably don’t feel as secure as you did before the break-in.

Economic growth brings us problems, and as we spend money to deal with those problems (e.g., trucking in water to replace the services of an aquifer contaminated by mountaintop-removal coal mining, adding treatment plants to purify drinking water fouled by chemical discharges, or turning up the air conditioning because smog and particulate matter make opening a window an undesirable option), GDP goes up. By some estimates, as much as one-quarter to one-third of our GDP consists of such expenditures.

If we’re ever to have a sustainable, steady state economy—an economy that operates on a sustainably sized flow of matter and energy, and which excretes outputs that can successfully be absorbed by the ecosystems of the planet—we need to start measuring what matters, and not mistake the commotion of money for the creation of well-being. Steady-state economics doesn’t mean that our quality of life will stagnate; we can have continual improvement in social and cultural well-being as we spend less on remediation and repair. Ecological economists call this development to distinguish it from footprint-enlarging growth. And this is the key to steady-state thinking—we have to stop growing our ecological footprint (which is already too large to be sustained) and begin budgeting our economy within the limits of what we can sustainably extract and emit. The National Wildlife Federation did not specifically sign on to the steady-state vision; but by calling for an accurate measurement of the costs of economic growth, it has officially joined us on a path that can lead nowhere else.

The resolution passed by the annual meeting reads, in part,

…be it resolved that the National Wildlife Federation urges the President, the Congress, and state Governors and legislatures to take immediate steps to redesign the use of the Gross Domestic Product as an indicator of economic well-being, and to take all necessary action to develop and implement a system of economic accounting that gives a more accurate measure of overall economic and ecological well-being; and be it further resolved that the new or modified system of national accounts should treat as cost or debit items the depletion of finite, non-renewable natural resources and the loss and degradation of ecosystem services, including the service of providing habitat for wildlife.

The Federation is, as the name implies, an umbrella organization that offers central administration and the strength of shared purpose to its affiliate organizations. It’s the largest environmental advocacy group in the nation, with affiliates in 47 states, several territories, and a total membership of 1.5 million members. The organization brings together hunters, anglers and sportsmen, on the one side, with hikers, backpackers, and birders on the other, with a good strong mix of environmentally aware citizens thrown in as well. It’s a broad coalition bound together by a shared understanding of the need to protect wildlife and wildlife habitat—ecosystems and their genetic diversity.

In its seventy-five year history, the NWF has fought and won a lot of battles, from the Pittman-Robertson Wildlife Restoration Act of 1937 (which for the first time provided Federal funding for wildlife programs), through the 1944 invention of the concept of the environmental impact statement and its eventual adoption into law, and on through a leadership role in the major environmental legislation of the 1960’s and 1970’s: the Clean Water Act of 1963, the Endangered Species Preservation Act of 1966, the National Environmental Protection Act of 1969, the dramatically expanded Clean Water Act of 1970. The Federation is an active litigator, using these laws and others to block unwise economic activity and protect the nation’s ecosystems. It’s safe to say that without the Federation, many of the ecosystems of North America would be not just threatened but degraded to the point of collapse.

Begun by a group of outdoorsmen who saw their beloved wilderness areas, and the animals in them, being threatened by the encroachment of economic activities, the Federation has in its seventy-five year history broadened its approach. As a history of the Federation puts it, “While the NWF continues to champion threatened species, its work has evolved to embrace a multi-species, ecosystem approach.” (source: “What We Want is Action,” by Jessica Snyder Sachs in National Wildlife, February/March 2011, p. 27.) It also broadened its reach in another way: “we began seeing the patterns,” says former NWF counsel Patrick Parenteau, “and attacking the root causes of such problems.” (quoted by Sachs, p. 25.) The adoption of the economic indicators resolution is a continuation of this trend, reaching beyond symptoms to address the problem at its source.

The root cause of our environmental problems—our ecological crisis—is infinite planet economic theory, the rules and axioms of a discipline that tells us that it is possible to have infinite economic growth on a finite planet. It sounds crazy, doesn’t it? But neoclassical economists continue to believe this is possible because human ingenuity is a factor of production and, supposedly, it is infinitely powerful. You can get to that conclusion only if you ignore the laws of thermodynamics. Economic production is, at bottom and unalterably, a process that relies on physical inputs. No amount of human ingenuity will ever let us make something from nothing or nothing from something. No amount of ingenuity will let us create energy out of nothing or recycle it to use it again.

In the real world outside of infinite planet theory, our acts and works are constrained by physical law. Those laws tell us that increasing our matter-and-energy throughput has unavoidable consequences in the world. It damages ecosystems, leading to the loss of (sometimes irreplaceable) ecosystem services. We can’t count that loss as a cost unless we first value ecosystem services as a benefit and adopt an indicator other than GDP as the one we seek to maximize. With the passage of this resolution, the National Wildlife Federation commits to lending its considerable energies and expertise to that effort.