Posts

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 But we have to know when times have changed and earlier policy goals are outdated.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.

 

 

Paul Krugman on Limits to Growth: Beware the Bathwater

by Brian Czech

BrianCzechCongratulations to Paul Krugman, whose New York Times opinion on “Slow Steaming and the Supposed Limits to Growth” hit the bulls-eye of at least one balloon. Landing at Washington-National the very day his opinion column appeared was like crashing back into the growth fetish of the American Fourth Estate. Out came the fresh air of an Australian balloon; back to the polluted, cynical rhetoric that “there is no conflict between growing the economy and protecting the environment.”

Why the drama with Krugman’s column? Partly due to uncanny timing; partly due to the stark juxtaposition of opinions. Having delivered the keynote address–on limits to growth no less–at the Australian Academy of Science’s annual conference on environmental science, it struck me that decades of careful research could be undermined by the presumptuous pen of a well-placed economist. Something is wrong with that picture.

But only for so long, because those of us who recognize limits to growth have sound science, common sense, and burgeoning evidence on our side. The same cannot be said for Krugman’s opinion.

Krugman got off to a shaky start with the very title of his column. No matter what he could say about “slow steaming,” this was bound to be an article wrong-headed in using one sector (shipping) for drawing broad conclusions about a macroeconomic issue (economic growth). To extend a conclusion from the part to the whole is to commit the fallacy of composition. In this case, it’s a bit like Krugman saying, “Your fingernails keep growing; why not the rest of you too?”

The mistake is common and destructive. When this mistake is made by a highly acclaimed economist in a widely-read opinion, the potential for destruction is multiplied. Politicians hide behind such Pollyannaish opinions to pull out all the stops–fiscal and monetary–for economic growth. The casualties include not only environmental protection but the future economy and ultimately national security.

Next, in Krugman’s lead-in paragraph he laments the “unholy alliance on behalf of the proposition that reducing greenhouse gas emissions is incompatible with growing real GDP.” Already we have two more problems. First, the argument alluded to in the title–that is, refuting limits to growth–is reduced to refuting just one negative impact of growth (that is, climate change). What about all the other impacts and limitations of economic growth: liquidation of natural resources, pollution at large, habitat loss, biodiversity decline, and social side effects such as noise, congestion, and stress?

Second, in a maxed-out, over-stimulated, 90% fossil-fueled economy, Krugman wants us to believe we can grow the economy even more while reducing greenhouse gas emissions. No need to worry about little trends such as tar-sands mining in Canada, coal mining in China, and fracking in the USA. Slower steaming will save the day on climate change, and presumably for the rest of the planetary ecosystem.

Let’s not let Krugman delude us. “Growing real GDP” isn’t about an efficiency gain here and there. It means increasing production and consumption of goods and services in the aggregate. It entails a growing human population and/or per capita consumption. It means growing the whole, integrated economy: agriculture, extraction, manufacturing, services, and infrastructure. From the tailpipe of all this activity comes pollution.

Krugman seems to have fallen for the pixie dust of “dematerializing” and “green growth” in the “Information Economy.” He may want to revisit Chapter 4 of The Wealth of Nations, where Adam Smith pointed out that agricultural surplus is what frees the hands for the division of labor. In Smith’s day that included the likes of candle-making and pin manufacturing. Today it includes everything from auto-making to information processing, but the fundamentals haven’t changed. No agricultural surplus, no economic growth. And agriculture is hardly a low-energy sector.

Adam Smith was among the great, classical economists who readily recognized limits to growth, all the way until at least John Stuart Mill. After that and throughout the 20th century, things got murky for economists as they turned increasingly to microeconomics, losing the forest for the trees. Mr. Krugman appears to be yet another victim of the “neoclassical” evolution of economics. Look to him for insightful opinions on banking regulations, fiscal politics, and other such topics that fit naturally under the rubric of an economics columnist. These are his babies, but beware the bathwater. Take his opinion on limits to growth at your peril, and that of your grandkids.

The Five Dumbest Things You’ll Hear About Sustainability

by Brian Czech

BrianCzechThis one’s about dumb, dumber, and dumbest, plus two intermediate levels for good measure. Ready for the inglorious countdown?

5. “There is no conflict between growing the economy and protecting the environment.”

Might as well say there’s no conflict between plowing a field and protecting the prairie, or logging the woods and protecting the forest, or mining copper and protecting the landscape. No conflict between plastic production and pure water, or paper production and pure air. No conflict between a gazillion cars and the air, water, and climate.

What the heck were the dummies thinkin’?

Maybe it would help if they thought about how the world looked before there was an economy. Or what the American West looked like as Lewis and Clark described it in 1805. Back when GDP was next to nothing. That’s when there was pristine air and water, forests tall and vast, bison in mind-numbing herds, wolves and grizzlies commonplace.

What happened to it all? Why? And does anything describe it better than growing GDP?

It’s hard to believe we’re only at #5!

4. In the information economy, we can dematerialize economic growth.

What did the dummies think all that information would be used for? Invisible inspiration? Immaterial mental massaging? Unmentioned appreciation of unplayed music?

And did they think such immaterial imaginaries would somehow be bought and sold in a free market, contributing to economic growth?

It doesn’t take more than common sense to realize what all that information is used for. If it’s going to contribute to economic growth, it’s going to be used for more competitive farming, logging, mining, paper-making, transportation, and all the other regular old sectors. Oh sure, it can be used for some lighter things too – there’s singing and dancing for example –but if it’s going to be relevant to economic growth, a substantial portion of the information must be used for agricultural and extractive activity.

Maybe common sense is a scarce commodity in the age of video games, derivatives, and e-stuff. Maybe some book-learning is in order, starting with some basic ecology and economics. Here’s a relevant tidbit: Due to the trophic structure of the human economy, economic growth requires increasing agricultural and extractive surplus at the base of the economy. It’s that surplus, and a very material surplus indeed, that frees the hands for the division of labor in the “information economy.”

3. “If the economy’s not growing, it’s dying.”

This one is less illuminating than a 1-watt lightbulb. Might as well say, “If it’s not speeding up, it’s stopping.” Or, “If it’s not getting louder, it’s no longer making noise.”

Tractor plowing a field

The tractor protects the prairie, just like economic growth protects the environment.

Or consider the human body. It’s highly relevant because all the human bodies combined constitute the producers and consumers of the macro-economy. Yet those bodies who insist on growing forever; they’re gonna die! And along the way they’ll causes shortages for the rest of us. The only chance of survival is to maintain that body — and the body economic — in a relatively steady state.

It may be true that some familiar institutions can’t co-exist with a steady state economy, such as the fractional reserve banking system. But that’s a problem with the banking system (a big problem), not a problem with the steady state economy, which is the only sustainable alternative in the long run. It’s not exactly rocket science: perpetual growth is unsustainable, perpetual degrowth is unsustainable. That leaves stability, or the steady state economy, as the sustainable alternative.

2. The wealthiest countries have the most environmental protection, which shows we need economic growth to protect the environment.

A common theme with dummies everywhere is linking a grain of truth with the validity of the entire field. For example, Sarah Palin says Russia is near Alaska. That is true. Therefore, says Dummy, she must be an expert in the field of foreign policy.

In this case, the field is neoclassical economics, where economists far removed from the land came up with a crazy construct called the “environmental Kuznets curve.” These economists acknowledge that, as the economy grows, it harms the environment. But then, they say, when enough growth occurs, society has the money to fix the environment!

Next they’ll be telling us the Biggest Loser needs more food to go on a diet.

The fact of the matter is that we have to get serious about going on an economic diet. We don’t need more economic fat to do it; we need only willpower and the common sense to realize that pushing for evermore economic growth is the same as pushing the planet to the brink of disaster. And that includes economic disaster.

Almost to the Dumbest

So we’ve covered dumb and dumber; almost to the dumbest. And there’s been a common theme: a lack of awareness of basic ecology and economics, leaving dummies susceptible to pipe dreams and pro-growth salesmanship. Ready to echo what most pleases Big Money: “There is no conflict between growing the economy and protecting the environment!”

That’s why it may surprise readers to find that the dumbest thing you’ll hear about sustainability comes from an entirely different corner. This is the one spoken by select, educated dummies who may have scientific background to understand the conflict between economic growth and environmental protection, but are oblivious to the sociology of sustainability. They are the quintessential example of the Donald Rumsfeld lament, “We don’t know what we don’t know.”

Drumroll please…

1. “Everybody knows there’s a conflict between economic growth and environmental protection.”

This one is so dumb you may not have even heard it before. It’s a statement uttered by those who think what they know — in this case about the conflict between economic growth and environmental protection — should be self-evident to others. It’s a lazy sort of dumbness based on ignorance of the social facts.

Just because something should be the case doesn’t make it so. Everybody should know there’s a conflict between economic growth and environmental protection, yes. But if you know anything about sustainability, you’re aware of a massive literature describing how neoclassical economics, as played by “win-win” politicians, has led the public astray from common sense. Americans, especially, are all too programmed to believe, “There is no conflict between growing the economy and protecting the environment!” Nationwide public opinion surveys have provided evidence for this win-win rhetoric seeping into the American mind.

So when you hear somebody say, “Everybody knows there’s a conflict between economic growth and environmental protection,” you know something is wrong. It could be sheer ignorance, or it could be something worse. There are highly paid yes-men and women in government, business, the non-profit sector, and even academia who refuse to raise a finger to educate the public on the perils of economic growth. They’re afraid of the personal consequences of telling the truth. But they make up plenty of excuses. They’ll say we don’t need to raise awareness of the conflict between economic growth and environmental protection, because “Everybody knows it.”

So you might object, “When they say such a thing, maybe they’re just being sneaky and cynical, not necessarily dumb per se.”

Ironically enough, only the dummy who says such a thing could actually know.

Forty Shades of… “Less Brown?”

BrianCzechVarious subjects compete for this week’s Daly News, coming on the heels of the Eastern Economic Association conference in Philadelphia. “Forty Shades of Green” comes to mind, with all that we hear these days about “greening” the economy. Green jobs, green technology, green sectors… even “green growth.”

Sure enough, at the outset of the EEA conference was a talk on “Green Consumerism.” However, I took special note of the subtitle, “A Path to Sustainability?” The most noteworthy part was the question mark. In a political economy seemingly drunk on green beer, the question mark suggested some sobering skepticism.

I wondered if the question mark was just a typo. After all, this was a conference of professional economists, widely known for denying any conflict between economic growth and environmental protection. Yet the authors, Paula Cole and Valerie Kepner, described in some detail the inanity of spending our way into a sustainable economy, as well as the shenanigans pulled with the word “green.” They questioned the use of “green” to describe any kind of consumption. They concluded that “greening” an economy really entailed a lessening of consumption.

So maybe it’s time to employ another portion of the color spectrum in reference to economic growth. If green sends the wrong message, perhaps “brown” is the word. Instead of green growth, brown bloating.

Some consumable goods are less brown than others – think Honda vs. Hummer – but even a unicycle requires natural resources for its production. Manufacturing the unicycle entails pollution, too. It just doesn’t square to call an expanding unicycle sector a “green” phenomenon. Even compared to Hummers, unicycles are less brown, not green.

The service sectors fit in with the browning process of economic growth. From driving trucks (quite a brown service) to answering phones (less brown, on the surface), material inputs and pollution are part of the deal. We also have to remind our green beer-drinking friends that much of the phone answering is in service to the trucking sector. In more general terms, the “information economy” is an economy where growing quantities of information feed the already-brown sectors. If we don’t remember this, the Green Sheen Machine will continue to get away with talk of “de-materializing” the economy, lulling citizens and policy makers into leaving environmental concerns for tomorrow, while we experiment with “greening” our growth today.

We shouldn’t be surprised if they start talking about “green population growth” for green jobs and green consumerism. After all, cheaper labor and more consumers is what the corporate marketer wants. So we also have to remind our green-beer guzzlers that Hummer drivers and unicycle riders alike – indeed any producer or consumer of any good or service – must be fed, clothed, and sheltered. Population growth, which is often encouraged or defended for the sake of economic growth, entails the production and consumption of more food, clothing, and shelter. It’s not always and everywhere bad, but it’s never, nowhere green.

What about technological progress? The development of new technology in the brownest sectors might slow the slide toward dirty-coal black, but it doesn’t move us to the green part of the spectrum. That is because of the overlooked, tight linkage of research and development with economic growth at pre-existing, admittedly brown levels of technology. This ballooning, brownward spiral is more fully described here. New technology can be a very good thing, but in the service of economic growth, it does no better than lessen the rate of browning.

From the supply side and the demand side, then, economic growth starts with a tinge of brown and gets browner by the unit. We might call this the principle of increasing marginal brownness. If we must get “green” into the terminology, we may refer to economic growth as exhibiting the principle of diminishing marginal greenness.

But back to the Eastern Economic Association… Although I was right about the intent of Cole and Kepner, I turned out to be wrong about many other authors at the conference. I thought that, aside from a few strays, they would all be pumping their growth fists, “green” or not. Instead, almost all of the economists I spoke with – and I spoke with dozens – agreed that there is in fact a fundamental conflict between economic growth and environmental protection! These were professional economists, economics professors, and top-notch grad students in economics. They agreed that in large, wealthy economies, a steady state economy has become a more appropriate goal than economic growth.

“Prove it,” you say? I’ll do just that, next month in The Daly News.