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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.

The Infinite-Planet Approach Won’t Solve the European Debt Crisis

by Eric Zencey

Last week European leaders met in Brussels and, like sophomores cramming before a final, pulled an all-nighter. Their exam was a real-world project: restore investor confidence in the Eurozone. A lot of pressure was put on David Cameron to bring the UK into the new agreement; he was adamant in his refusal. Even without the UK, the measures that the Eurozone nations have announced may restore investor confidence, but one thing is certain: they shouldn’t, because they’ll fail miserably at staving off future financial crisis.

That’s because “restoring investor confidence” and “fixing the broken system” are two very different goals.

If more investors were like Jeremy Grantham, who’s got a clear view of the origin of the financial crisis, the two would line up a lot better. But most investors, like all of the policy makers who met in Brussels, are working out of an old-fashioned and mistaken economic model. Restoring confidence in a system built on that model isn’t going to fix what’s wrong.

What, exactly, is wrong? The New York Times articulated the conventional thinking when it opined, a few days before the all-nighter in Brussels, that the root of the debt crisis is “lack of growth.” The first step toward success in solving any problem is to define it accurately, and the conventional diagnosis gets it wrong because it looks at just half the problem. A more complete diagnosis: Some of the European economies haven’t been able to grow fast enough to pay back the burden of debt that has been wagered on them.

This formulation lets us see the path to a sturdy solution: if we want to avoid crises of debt repudiation, we need to limit the total creation of debt, public and private, to the amount that we can reasonably expect to be paid back through economic growth.

But instead of solving the problem of recurrent (and increasingly painful) crises of debt repudiation by looking at the system as a whole, the policy makers who met in Brussels went after just the most recent and obvious symptom: government deficits and threatened government defaults by the weaker economies of the Eurozone. When deficits are created by sovereign governments — governments that have the power to print money to cover them — they’re inflationary, and inflation is one way that a system’s need for debt repudiation can be met. But within the Eurozone, the European Central Bank holds inflation in check, so the necessary and expected debt repudiation has to take a different form. It has come this time as Greece’s move to renegotiate bond liability under threat of default — holders of Greek government bonds will get fifty cents on the dollar, not the full amount they expect. The conventional view sees that and thinks, “if Greece didn’t run deficits it wouldn’t have to default.”

That’s true, but too limited to get at the root of the problem. What the conventional frame of analysis doesn’t foresee: If you let the burden of total debt grow unchecked, and if you control both inflation and governmental default by mandating balanced budgets, you’ll simply displace the pressure for debt repudiation to somewhere else in the system. It will come out as bankruptcies and foreclosures or other private defaults, as stock market crashes, as cuts in pension promises or wage contracts, as loss of paper assets or expected future income of any kind. We can’t forestall the next crisis of debt repudiation unless we rein in the total creation of debt.

The new EU plan would take a major step toward making the Eurozone monetary union into a fiscal union, with stronger centralized control of inflationary deficits. Under the new rules, Eurozone member nations will have to balance their budgets over the economic cycle (if they go into deficit in times of recession, they’ll have to run a surplus in times of growth) and submit their budgets to the European Commission for review and approval. Currently member nations face penalties if they run persistent deficits — penalties that Greece consciously chose to ignore rather than see its economy sink into unemployment and recession under the onslaught of cheap imports from countries running a surplus. The new plan would have Eurozone member nations suffer larger, automatic penalties if they don’t obey the budget-balancing rules.

That will control inflation and bond default as methods of debt repudiation by imposing austerity budgets on struggling Eurozone members. (There are no penalties for the countries, like Germany, that create the other half of the problem by running trade surpluses.) Governments will have to cut social services and regulatory enforcement — cuts that will be touted as the best way to restore growth, and which will work to the benefit of the 1%. The rich get richer and government gets smaller — just what neocons and moneyed interests like to see.

As plenty of commentators have noticed, fiscal integration under the new budget rules and procedures means a loss of national sovereignty within the Eurozone. As only some of those commentators have cautioned, this makes government in Europe less democratic and less responsive to citizen concerns. “No problem,” say bankers and financiers. Democratically empowered citizens are likely to demand the level of governmental services and environmental protection that well-to-do nations are expected to provide — and those are luxuries their country can’t afford, not if it’s to grow rapidly enough to pay back the burden of debt it labors under.

The movement toward fiscal union and budget austerity thus represents the victory of growth-for-the-sake-of-growth over democracy-for-the-sake-of-democracy.

On an infinite planet, the two need not be at odds, and in fact can be seen to support each other. They certainly seemed to track together through much of the nineteenth and twentieth centuries, as market economies expanded into an underdeveloped world. But in a world built out to the limits of what ecosystems can handle, it becomes increasingly obvious that there’s a tradeoff.

As should be obvious to policy makers, the expansionary phase of human economic history is over. It is no longer possible to have both democracy and robust, footprint-expanding growth. The freewheeling creation of debt, whether public or private, drives the latter. To preserve it as a very profitable feature of the economy, bankers and financiers are perfectly willing to sacrifice the former. That’s the deep and troubling lesson of the European Debt Crisis: today, the largest threat to democratic forms of government is the fact that the planet hosts a human debt-creation system suited for perpetual growth on an infinite planet.

Because an economy deals in physical reality — that is, it runs on matter and energy drawn from a finite planet — it is impossible for economic production to grow infinitely. Debt, being entirely imaginary, can grow however rapidly we choose to let it. A crisis of debt repudiation is the unavoidable result of a mismatch between the two. The conventional frame does not admit this, and it leads us straight toward regressive and destructive policies, including the elimination of environmental and social safeguards. Those safeguards set limits to what we let ourselves do in pursuit of economic growth, and thereby give us a higher standard of living by protecting us from environmental harms and economic insecurity.

Since a higher standard of living, and not growth for its own sake, is the ultimate purpose of the economy, it makes sense to allow for the possibility that the solution to our system’s regular crises of debt repudiation lies in controlling the creation of debt. The alternative — demanding more and more economic growth, ever larger throughput of matter and energy — is impossible to sustain on a finite planet.

Even in the short run, the infinite growth model is counterproductive. It leads to a declining standard of living and a loss of democratic freedom for the majority of the world’s population — Americans no less than Greeks, Italians and other Europeans. It does so because whether we’re prepared to admit it or not, we’ve reached the limits to growth. More often than not, further growth in GDP is uneconomic growth, because it costs us more in lost ecosystem services and other “disamenities” than we get in benefits.

Pro-growth people don’t see it that way, of course, no doubt because many of them are the ones who receive those benefits by imposing losses on the rest of us. Many of those losses emanate from, and aren’t fully contained within, the rapidly developing nations of China and India — countries whose leaders have mistakenly accepted a demonstrably flawed element of neoclassical thinking, the Environmental Kuznets Curve. This is the idea, much beloved of pro-growth advocates and members of the 1% everywhere, that environmental quality is a luxury that nations will be able to afford only after they develop more — which they can do by cashing out their natural capital for sale on world markets, and by hosting “sink” services, poisoning their land and mortgaging their future by absorbing the global economy’s waste stream.

The ecological footprint of the global economy is currently larger than the globe it inhabits. But you don’t have to believe that we’ve reached the limits to growth in order to see that the basic problem behind the European Debt Crisis is the mismatch between our rate of debt creation and the rate at which we can grow real wealth in order to pay that debt off.

How much can real wealth grow under reasonable environmental safeguards and with reasonable protection of worker (and citizen) health and safety? The answer is, in part, empirical. The non-empirical part has to do with those environmental and health and safety standards: what counts as “reasonable”? Opinions will differ, but only an out-and-out infinite planet theorist can argue that environmental constraints need to be lessened, and only an unreconstructed robber baron could argue that workers ought to be free — “free” — to starve or take on employment that could kill them.

Here’s how to begin to fix the broken system: Agree to minimum standards for environmental and health and safety regulation, such as those promulgated by the UN; find the sustainable rate of economic activity that’s possible within those limits; and limit the growth in debt — all debt, public and private — to what’s needed to support that activity. With such a fix, the human standard of living would be raised not though footprint- expanding growth, but through technological innovation that allows us to achieve more benefit from a constant, sustainably sized throughput.

If more investors understood that the excessive creation of debt in all its forms — not just government deficits — is the driver of our crises of debt repudiation, this reining in of the creation of debt would be the only way to restore their confidence.

Educating investors and policymakers about the economic and financial realities of a finite planet is a huge task, but eventually they’ll come around. They’ll have to. The planet is, after all, finite, and it’s going to keep offering the lesson until everybody gets it.

President Obama’s (Hoped for) “Amaze Speech”

Speechwriter: Brian Czech

President Obama’s hoped-for speech first appeared in the Daly News on August 7. We reprint it this week in anticipation of the President’s September 8th speech.

Fellow Americans, this evening I have a special message for you. It’s an unprecedented and surprising message, but ultimately it will resonate with your common sense, good will, and patriotic spirit. It turns out that the recessionary cloud we’re under does have an extremely valuable silver lining. I know; it sounds like something only a politician would say, but wait. I think you’ll be surprised to hear my explanation.

Now before I elaborate on the silver lining, I want to make it clear that the cloud has some rain, too. As a nation, we are struggling with debt, credit ratings, and worst of all, the painful experience of unemployment. The last thing I want is to mislead you into thinking these are problems I take lightly, or problems that will be automatically solved by the markets or policy makers. These problems were many years in the making — decades in fact — and it’s going to take years of diligence and readjustment to solve them.

Yet none of these problems can deny us the silver lining, which is this: the economic turmoil we experience today will change the course of history in such a way as to secure the future for American posterity, starting with our children and grandchildren. Let me reiterate, our own kids and grandkids — the most precious American treasure — will have a secure future as a result of the problems we face today. Here’s why…

Far from the trading floors of Wall Street and the policy meetings of the Federal Reserve, crucial discoveries have been made by scientists, economists, anthropologists, historians, and others collaborating under a broad umbrella called “sustainability science.” No, they haven’t discovered an unlimited energy source, a pollution-free car, or a method to stabilize our climate at optimum conditions. They’ve discovered something far more important and exciting: the key to permanent economic security.

For the past few years, as time has allowed, I and my economic advisors, with the assistance of numerous scholars, have studied this key to economic security. The theory and evidence for it is absolutely irrefutable. The only reason this key to security hasn’t broken into public dialog is because it serves no short-term vested interests; no wealthy corporations, think tanks, or political parties that would stand to profit before the next shareholders meeting or election cycle. But that’s also the beauty of it: the key to security is a non-partisan, scientifically sound approach to the long-run interests of all, especially our kids and grandkids. Fortunately for us, it’s surprisingly simple as well.

What is this key to a secure future? We could coin a new phrase to get credit for the idea or to improve its political flavor, but I believe the clearest term is what the scientists already call it: the “steady state economy.” Political advisors think it’s a bit on the dry side, but after what we’ve been through – stock market crashes, insurance crises, banker bailouts, panic over the debt ceiling, having our credit downgraded — doesn’t a “steady state economy” sound like just what the doctor ordered?

In the coming weeks and months, I and my Cabinet will be helping to introduce fellow Americans to the basics of steady state economics, especially what it means for producers, consumers, and public policy. We’ll do this through a series of public announcements, publications, and townhall meetings. Meanwhile, this evening, I’ll provide a brief summary, first by noting what a steady state economy is not.

A steady state economy is not communism, Marxism, or anything at odds with the Constitution of the United States. A steady state economy is not a stagnant, flat-lined economy but is rather continuously dynamic and creative. A steady state economy is not established overnight with draconian policies; instead it evolves as a matter of consumer preference and prudent policy. Most importantly, a steady state economy is in no way opposed to jobs and full employment. To the contrary, a steady state economy is the only economy that can ensure full employment, for your kids and theirs.

The most fundamental feature of the steady state economy is stability. The idea is to stabilize good conditions; stable agriculture, stable manufacturing, stable services, stable production and consumption, stable currency, stable markets, stable international trade, stable impact on the environment, stable air and water, stable climate… You get the picture, and remember, all this stability is at a good level — a level that ensures life, liberty and happiness for us and future generations. At this point in history, the steady state economy is the right goal, and the first step in getting there is recognizing it.

Perhaps you find this amazing. I think you should be amazed. After all, I haven’t said a word about economic growth; in fact I’ve called growth into question. The closest thing to this in presidential history is when President Carter encouraged Americans to consume a little less after the OPEC oil embargo. But President Carter was before his time, and his speech was maligned as the “malaise speech.”

Well, at this point in history, we can no longer afford — literally or figuratively — to pull out all the stops for economic growth. Therefore, tonight you’re hearing the “amaze speech,” the speech that introduces our nation to steady state economics, the alternative to growth.

I understand the adjustment in thinking that this will entail. I’ve gone through it myself. With the exception of President Carter in 1979, my predecessors for over 50 years have prioritized economic growth in their speeches, campaigns, and policies. None even mentioned steady state economics in a speech. Yet with every new president, the pursuit of economic growth has become less realistic, less sustainable, and even less desirable.

Earlier I mentioned the profound developments in sustainability science. Among the sustainability scholars are behavioral scientists and psychologists who have found compelling evidence that economic growth stopped contributing to a happier United States somewhere from the 1950’s to the 1970’s. After that, our gross domestic product continued to rise, but our happiness did not. If you’re like me — meaning old enough to remember — this probably resonates with you. Somewhere along the line the brighter lights, bigger houses and fancier cars stopped making us better off. In fact, all the new “stuff” started working against us. Now we struggle to find enough oil, water, “green space,” solitude, free time, and the peace of mind that comes with a stable climate. It’s all the sign of an economy grown too big.

They say the definition of insanity is doing the same thing over and over again and expecting a different result. I think we’ve all done some crazy things in life, but I don’t want to go down in history as the insane president who kept trying every trick in the book to “stimulate the economy,” when stimulating the economy was neither bound to work nor even desirable by that point in history. I don’t want to oversee more banker bailouts, more stimulus spending, more loosening of environmental protections in a vain attempt to increase GDP growth. That would be insane. Instead, I’m going to tell it like it is: the pursuit of economic growth has become a dangerous obsession that we must overcome. I say this with the backing of sound science, the lessons I’ve learned, and the concern I have for the future of America.

I’m going to test your common sense now. Do you think there is a limit to economic growth? Remember, economic growth is increasing production and consumption of goods and services. It means more and more people, more and more stuff. It takes more energy, water, space to operate in, and places to put out the trash.

Now as a politician, I can assure you that, in the coming days, well-paid pundits will conjure up magical concepts of perpetual growth based on “dematerializing” the economy. Well when they’re ready to dematerialize it, maybe they can beam us up. Meanwhile, the rest of us in the real economy know what perpetual GDP growth would take: evermore people, evermore stuff. And we know we’re running out of evermore room, resources, and patience for unreal notions of evermore growth.

I know that for some, and perhaps for many, this is hard to swallow. For decades we Americans have been encouraged to believe in the notion of continual economic growth. But look at it this way: to think there is no limit to economic growth on Earth is like thinking we could fit a stabilized economy into a perpetually shrinking area. For example, with computers, robots, nanotechnology and the like, we could squish the $70 trillion global economy into North America, then the United States, then Iowa, then into the foyer of the Des Moines Chamber of Commerce, leaving the rest of the world as a designated wilderness area! It’s a ludicrous notion, and it’s precisely as ludicrous as thinking there’s no limit to economic growth in Des Moines, the United States, or Earth.

Now, let’s consider some of the problems we will face if we continue pulling out all the stops for economic growth. The first is inflation. Typically we use monetary policy — such as increasing the money supply — to stimulate growth. But when the real economy isn’t meant to grow as easily as increasing the money supply, the result is inflation. Nothing could be more harmful to our economy at this point than inflation, which is like a devastating tax on the nation.

Another problem is debt. As you know, my Administration injected a major fiscal stimulus into the economy. It helped somewhat and spun off some jobs, but it did not produce the wave of jobs we’d get in an economy with plenty of room to grow. Meanwhile, it added to our deficit and ultimately our debt. Now our credit is coming into question, as with so many nations in a global economy bumping up against the limits to growth.

Of course, there is no shortage of special interests to pounce on the news of faltering fiscal policy. The answer, they say, is to turn over as much as possible to Wall Street. “Take care of national security,” they say, “and let the markets take care of the economy.” The problem with that approach is that national security is about more than having the biggest military. National security starts with a sustainable economy, which requires a stable environment to support the agricultural, fishing, logging, mining, and ranching activities that have always been and always will be the foundation of the American and global economy. Our manufacturing and service sectors — the best in the world — are the best because we have the biggest and best agricultural and extractive sectors. And we have those because we have protected the environment from overuse, pollution, and displacement.

Consider what will happen if we take an unbalanced approach and prioritize economic growth even more over environmental protection. Does anyone really question whether we will have more environmental problems, including devastating problems? More oil spills in the Gulf of Mexico and Gulf of Alaska, more mountaintop mining in the Appalachians, more scraping for shale oil in the Rockies, more nuclear waste, more endangered species, more greenhouse gas emissions, and all the while less water, less fish and wildlife, less wilderness, less nature, less beauty. Does anyone question whether such trends diminish the quality of life for future generations? No, the problems caused by economic growth are unquestionable. It’s just that, for much of American history, the benefits of increasing GDP outweighed the costs. That’s no longer the case, and I’m confident that most of us can sense it.

In fact, the more I thought about this speech, the more amazed I became. Why did it take us so long, in America, to have an open discussion of limits to growth and alternatives to growth? The principles are irrefutable. Neither growth nor recession is sustainable in the long run; a steady state economy is the obvious policy for long-run security. Yet based on the politics of the past 50 years, you’d think economic growth had supplanted apple pie as the companion to motherhood.

Well, now we’re entering a new era of dealing squarely with sustainability. It turns out that economic growth was not a good companion to motherhood, not in the long run. We want apple pie back. We want loving homes for our children, quality time with family and friends, the occasional escape to the great outdoors, and peace. That’s the American dream in a nutshell, and it’s too valuable to sacrifice for economic growth.

So let’s roll up our sleeves and wash our hands of the dirty business of growth at all costs. We know what the right goal is, and malaise won’t get us there. We have work to do to stabilize the economy for our children and grandchildren. Our decisions — what we eat, what we drive, what we build, and frankly how many kids we have — all these will determine the quality of life for the kids that we do have. Meanwhile, those of us privileged to hold public office are responsible for developing the policies to help you thrive in a steady state economy, and for avoiding the policies that force us onto an unsustainable pathway of evermore growth. You could say we are tasked now with “steady statesmanship.”

To conclude, my fellow Americans, do stay tuned. In the coming days and weeks we’ll be discussing the details of transitioning from growth to a steady state. We’ll be talking with you about employment, population growth, stock markets, the banking system, and more. Don’t fear any shocks to the system; you’ve seen most of the shocks already as the policies of economic growth have failed. One by one, we’re going to turn these “failures” into steady state successes.

Meanwhile, good night, and God bless America.

President Obama’s (Hoped For) “Amaze Speech”

Head Speechwriter: Brian Czech

Fellow Americans, this evening I have a special message for you. It’s an unprecedented and surprising message, but ultimately it will resonate with your common sense, good will, and patriotic spirit. It turns out that the recessionary cloud we’re under does have an extremely valuable silver lining. I know; it sounds like something only a politician would say, but wait. I think you’ll be surprised to hear my explanation.

Now before I elaborate on the silver lining, I want to make it clear that the cloud has some rain, too. As a nation, we are struggling with debt, credit ratings, and worst of all, the painful experience of unemployment. The last thing I want is to mislead you into thinking these are problems I take lightly, or problems that will be automatically solved by the markets or policy makers. These problems were many years in the making — decades in fact — and it’s going to take years of diligence and readjustment to solve them.

Yet none of these problems can deny us the silver lining, which is this: the economic turmoil we experience today will change the course of history in such a way as to secure the future for American posterity, starting with our children and grandchildren. Let me reiterate, our own kids and grandkids — the most precious American treasure — will have a secure future as a result of the problems we face today. Here’s why…

Far from the trading floors of Wall Street and the policy meetings of the Federal Reserve, crucial discoveries have been made by scientists, economists, anthropologists, historians, and others collaborating under a broad umbrella called “sustainability science.” No, they haven’t discovered an unlimited energy source, a pollution-free car, or a method to stabilize our climate at optimum conditions. They’ve discovered something far more important and exciting: the key to permanent economic security.

For the past few years, as time has allowed, I and my economic advisors, with the assistance of numerous scholars, have studied this key to economic security. The theory and evidence for it is absolutely irrefutable. The only reason this key to security hasn’t broken into public dialog is because it serves no short-term vested interests; no wealthy corporations, think tanks, or political parties that would stand to profit before the next shareholders meeting or election cycle. But that’s also the beauty of it: the key to security is a non-partisan, scientifically sound approach to the long-run interests of all, especially our kids and grandkids. Fortunately for us, it’s surprisingly simple as well.

What is this key to a secure future? We could coin a new phrase to get credit for the idea or to improve its political flavor, but I believe the clearest term is what the scientists already call it: the “steady state economy.” Political advisors think it’s a bit on the dry side, but after what we’ve been through – stock market crashes, insurance crises, banker bailouts, panic over the debt ceiling, having our credit downgraded — doesn’t a “steady state economy” sound like just what the doctor ordered?

In the coming weeks and months, I and my Cabinet will be helping to introduce fellow Americans to the basics of steady state economics, especially what it means for producers, consumers, and public policy. We’ll do this through a series of public announcements, publications, and townhall meetings. Meanwhile, this evening, I’ll provide a brief summary, first by noting what a steady state economy is not.

A steady state economy is not communism, Marxism, or anything at odds with the Constitution of the United States. A steady state economy is not a stagnant, flat-lined economy but is rather continuously dynamic and creative. A steady state economy is not established overnight with draconian policies; instead it evolves as a matter of consumer preference and prudent policy. Most importantly, a steady state economy is in no way opposed to jobs and full employment. To the contrary, a steady state economy is the only economy that can ensure full employment, for your kids and theirs.

The most fundamental feature of the steady state economy is stability. The idea is to stabilize good conditions; stable agriculture, stable manufacturing, stable services, stable production and consumption, stable currency, stable markets, stable international trade, stable impact on the environment, stable air and water, stable climate… You get the picture, and remember, all this stability is at a good level — a level that ensures life, liberty and happiness for us and future generations. At this point in history, the steady state economy is the right goal, and the first step in getting there is recognizing it.

Perhaps you find this amazing. I think you should be amazed. After all, I haven’t said a word about economic growth; in fact I’ve called growth into question. The closest thing to this in presidential history is when President Carter encouraged Americans to consume a little less after the OPEC oil embargo. But President Carter was before his time, and his speech was maligned as the “malaise speech.”

Well, at this point in history, we can no longer afford — literally or figuratively — to pull out all the stops for economic growth. Therefore, tonight you’re hearing the “amaze speech,” the speech that introduces our nation to steady state economics, the alternative to growth.

I understand the adjustment in thinking that this will entail. I’ve gone through it myself. With the exception of President Carter in 1979, my predecessors for over 50 years have prioritized economic growth in their speeches, campaigns, and policies. None even mentioned steady state economics in a speech. Yet with every new president, the pursuit of economic growth has become less realistic, less sustainable, and even less desirable.

Earlier I mentioned the profound developments in sustainability science. Among the sustainability scholars are behavioral scientists and psychologists who have found compelling evidence that economic growth stopped contributing to a happier United States somewhere from the 1950’s to the 1970’s. After that, our gross domestic product continued to rise, but our happiness did not. If you’re like me — meaning old enough to remember — this probably resonates with you. Somewhere along the line the brighter lights, bigger houses and fancier cars stopped making us better off. In fact, all the new “stuff” started working against us. Now we struggle to find enough oil, water, “green space,” solitude, free time, and the peace of mind that comes with a stable climate. It’s all the sign of an economy grown too big.

They say the definition of insanity is doing the same thing over and over again and expecting a different result. I think we’ve all done some crazy things in life, but I don’t want to go down in history as the insane president who kept trying every trick in the book to “stimulate the economy,” when stimulating the economy was neither bound to work nor even desirable by that point in history. I don’t want to oversee more banker bailouts, more stimulus spending, more loosening of environmental protections in a vain attempt to increase GDP growth. That would be insane. Instead, I’m going to tell it like it is: the pursuit of economic growth has become a dangerous obsession that we must overcome. I say this with the backing of sound science, the lessons I’ve learned, and the concern I have for the future of America.

I’m going to test your common sense now. Do you think there is a limit to economic growth? Remember, economic growth is increasing production and consumption of goods and services. It means more and more people, more and more stuff. It takes more energy, water, space to operate in, and places to put out the trash.

Now as a politician, I can assure you that, in the coming days, well-paid pundits will conjure up magical concepts of perpetual growth based on “dematerializing” the economy. Well when they’re ready to dematerialize it, maybe they can beam us up. Meanwhile, the rest of us in the real economy know what perpetual GDP growth would take: evermore people, evermore stuff. And we know we’re running out of evermore room, resources, and patience for unreal notions of evermore growth.

I know that for some, and perhaps for many, this is hard to swallow. For decades we Americans have been encouraged to believe in the notion of continual economic growth. But look at it this way: to think there is no limit to economic growth on Earth is like thinking we could fit a stabilized economy into a perpetually shrinking area. For example, with computers, robots, nanotechnology and the like, we could squish the $70 trillion global economy into North America, then the United States, then Iowa, then into the foyer of the Des Moines Chamber of Commerce, leaving the rest of the world as a designated wilderness area! It’s a ludicrous notion, and it’s precisely as ludicrous as thinking there’s no limit to economic growth in Des Moines, the United States, or Earth.

Now, let’s consider some of the problems we will face if we continue pulling out all the stops for economic growth. The first is inflation. Typically we use monetary policy — such as increasing the money supply — to stimulate growth. But when the real economy isn’t meant to grow as easily as increasing the money supply, the result is inflation. Nothing could be more harmful to our economy at this point than inflation, which is like a devastating tax on the nation.

Another problem is debt. As you know, my Administration injected a major fiscal stimulus into the economy. It helped somewhat and spun off some jobs, but it did not produce the wave of jobs we’d get in an economy with plenty of room to grow. Meanwhile, it added to our deficit and ultimately our debt. Now our credit is coming into question, as with so many nations in a global economy bumping up against the limits to growth.

Of course, there is no shortage of special interests to pounce on the news of faltering fiscal policy. The answer, they say, is to turn over as much as possible to Wall Street. “Take care of national security,” they say, “and let the markets take care of the economy.” The problem with that approach is that national security is about more than having the biggest military. National security starts with a sustainable economy, which requires a stable environment to support the agricultural, fishing, logging, mining, and ranching activities that have always been and always will be the foundation of the American and global economy. Our manufacturing and service sectors — the best in the world — are the best because we have the biggest and best agricultural and extractive sectors. And we have those because we have protected the environment from overuse, pollution, and displacement.

Consider what will happen if we take an unbalanced approach and prioritize economic growth even more over environmental protection. Does anyone really question whether we will have more environmental problems, including devastating problems? More oil spills in the Gulf of Mexico and Gulf of Alaska, more mountaintop mining in the Appalachians, more scraping for shale oil in the Rockies, more nuclear waste, more endangered species, more greenhouse gas emissions, and all the while less water, less fish and wildlife, less wilderness, less nature, less beauty. Does anyone question whether such trends diminish the quality of life for future generations? No, the problems caused by economic growth are unquestionable. It’s just that, for much of American history, the benefits of increasing GDP outweighed the costs. That’s no longer the case, and I’m confident that most of us can sense it.

In fact, the more I thought about this speech, the more amazed I became. Why did it take us so long, in America, to have an open discussion of limits to growth and alternatives to growth? The principles are irrefutable. Neither growth nor recession is sustainable in the long run; a steady state economy is the obvious policy for long-run security. Yet based on the politics of the past 50 years, you’d think economic growth had supplanted apple pie as the companion to motherhood.

Well, now we’re entering a new era of dealing squarely with sustainability. It turns out that economic growth was not a good companion to motherhood, not in the long run. We want apple pie back. We want loving homes for our children, quality time with family and friends, the occasional escape to the great outdoors, and peace. That’s the American dream in a nutshell, and it’s too valuable to sacrifice for economic growth.

So let’s roll up our sleeves and wash our hands of the dirty business of growth at all costs. We know what the right goal is, and malaise won’t get us there. We have work to do to stabilize the economy for our children and grandchildren. Our decisions — what we eat, what we drive, what we build, and frankly how many kids we have — all these will determine the quality of life for the kids that we do have. Meanwhile, those of us privileged to hold public office are responsible for developing the policies to help you thrive in a steady state economy, and for avoiding the policies that force us onto an unsustainable pathway of evermore growth. You could say we are tasked now with “steady statesmanship.”

To conclude, my fellow Americans, do stay tuned. In the coming days and weeks we’ll be discussing the details of transitioning from growth to a steady state. We’ll be talking with you about employment, population growth, stock markets, the banking system, and more. Don’t fear any shocks to the system; you’ve seen most of the shocks already as the policies of economic growth have failed. One by one, we’re going to turn these “failures” into steady state successes.

Meanwhile, good night, and God bless America.