Posts

A Not-So-Nobel Prize for Growth Economists

William Nordhaus shaping vulnerable minds in his Yale classroom – Oct. 8, 2018.  (Photo credit: Yale/ ©Mara Lavitt)

by Brian Czech

How ironic for the Washington Post to opine “Earth may have no tomorrow” and, two pages later, offer up the mini-bios of William Nordhaus and Paul Romer, described as Nobel Prize winners.

Without more rigorous news coverage, few indeed will know that Nordhaus and Romer are epitomes of neoclassical economics, that 20th century occupation isolated from the realities of natural science. Nordhaus and Romer may deserve their prizes for economic modeling, but each gets an F in advanced sustainability.

Nordhaus won his prize (actually the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”— not the Nobel Prize per se) for his mastery of mathematical modeling. He applied his skills to carbon taxes for lowering greenhouse gas emissions. All along he prescribed economic growth – the key driver in greenhouse gas emissions—as the way to afford such taxes!

In 1991 Nordhaus uttered one of the most iconic sentences in the history of unsustainability: “Agriculture, the part of the economy that is sensitive to climate change, accounts for just 3% of national output. That means that there is no way to get a very large effect on the US economy” (Science, September 14, 1991, p. 1206).  Think about that. He must have set a graveyard’s worth of classical economists (Adam Smith, David Ricardo, John Stuart Mill…) to rolling. They’d be rolling in laughter if the folly of Nordhaus wasn’t so dangerous.

No follow-up should be needed to expose the ludicrous nature of Nordhaus’s statement, but just in case: Agriculture is the very foundation of the economy. No agriculture, no anything else. Think about it. Any hit on agriculture—whether from climate change, bad luck, or stupid policies—has a magnified effect on the entire, integrated economy. Nordhaus’s “3%” statement was a classic case of ivory-tower cluelessness.

Too many trees for seeing the forest?

Romer, meanwhile, deserves some credit for his elegant theory of “endogenous technological change,” which took the work of Robert Solow (the father of economic growth theory) to the next level by describing in nuanced detail how R&D leads to technological progress. That said, there has never been a bigger forest missed for so many trees. For him, all that mattered was capital and labor; he said nothing about land, natural resources, or the environment.

Some readers may recall Julian Simon, the ultimate Pollyanna who claimed in the 1980s (and I paraphrase after thoroughly reviewing his 813 page Ultimate Resource II during my post-doc studies), “Sure, there are environmental problems caused by growth, but the more people we have, the more brains we have to solve the problems. Therefore, the more people we have the better, without limit forever.” Romer’s work amounted to a highly nuanced repetition of Simon’s self-christened “grand theory.”

Romer said in a nutshell: We have capital and labor. Part of the labor force is devoted to research and development (R&D). As limits arise, we get over them with more R&D. So we need ever more people, with ever more devoted to R&D, to keep raising the bar for GDP.

For Romer, it was as if ideas alone could overcome water shortages, biodiversity loss, mineral depletion, soil erosion, pollution, and climate change. As if ideas could be perpetually borne out of human minds struggling in a degrading environment, a warming climate, and an imperiled agricultural base (not to mention a crowded, noisy, and stressed out society). Romer was like a cook thinking up recipes with no idea where the ingredients would come from.

A generation and then some of economists and business students have been led to the exceedingly dangerous myth that there is no limit to either population or economic growth. Nordhaus and Romer have done as much as anyone to lead them into such a fallacy. Yet politicians and publics heed their advice, while the media regurgitates their fallacious notions.

Does Earth have “no tomorrow,” as the Washington Post wondered? One thing is for sure: Any hope for a happy tomorrow on Earth means rejecting the neoclassical economics of today. Even when such economics wins the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.”

 


Economic Growth, Obesity, and the Creed of Greed

by Garry Egger

Who’s right? Gordon Gekko (greed is good) or Tim Jackson (prosperity without growth)? It should be a simple question, but the answer is not so clear.

Perhaps Gordon Gekko’s position was over the top, even in his day — it takes a sort of blindness to conclude that greed is good, but back then, it did have a purpose. Greed played a role in how we got to where we are. And not just the big house and car, but the best health of any human beings throughout history. And after all, isn’t health and human well-being what economics is all about?

Still, the question remains: does the philosophy of greed and the system of economic growth (a system to which we’ve tied our aspirations) produce the health and well-being we’re after? To find an answer, it’s useful to examine the early days of the industrial revolution. Economist-philosophers of that era, from Adam Smith down to John Stuart Mill, figured that a growing economy was a productive one. And a growing economy requires more people, more production, and more consumption. Individual acquisitiveness was one way of getting this, so greed worked as a serviceable means for driving economic growth.

The system hit a glitch in the 1930s during the Great Depression, but John Maynard Keynes helped sort things out. He suggested that individual greed could be propped up, when needed, by public pooling. The growth model took off like an adolescent at a booze party, with the strength of his parent’s admonition to “be careful” inversely correlated to the fun to be had.

Early admonitions about the economic growth party came from the parents of the system. John Stuart Mill, in the Principles of Political Economy (1848), warned that once the work of growth was done, a stationary economy would ensue. And he viewed the transition to such an economy as a positive development for humanity. Keynes himself, in 1930, said we may need a growth-based system (propped up by greedy behavior) for up to 100 years, but after that, we could look forward to better times in a system driven by our more virtuous character traits.

Of course, the most prominent warnings about growth were issued by Thomas Robert Malthus. His admonitions about overpopulation were akin to telling the party-going adolescent to stay at home and read a book.

A simple and logical definition of growth is “maturation till maturity.” And these early economic “parents” were trying to guide the young economy through the maturation process. In more recent times, however, their guidance has been ignored. The rapacity-building economic framework of the Chicago School has prevailed. The overall economic plan has morphed into continuous growth, and warnings about the dangers of too much growth have been swept away.

Gordon Gekko himself may indeed have been wringing the last juice out of the growth lemon in 1987, before leaving us sucking on the bitter sub-prime-lending rind. Now left with a troubling combination of economic and environmental problems, perhaps we should reconsider the warnings.

Even so, big-picture discussions about the continuing usefulness of economic growth are rare. In the absence of such discussions, governments are doing their best to revive a dying system. In 2008, the New Scientist was the only mainstream publication to question growth, tackling controversial issues such as immigration, population stabilization, and reduction of both production and consumption.

The concept of reducing carbon footprints (to address climate change), especially in the Western world, has received some attention in the media. But a reduction from about 20 tonnes of CO2 per person per year to 15 tonnes (a big enough task in itself), would be totally negated by a 50 percent population increase. And an increase in population is not only predicted, but encouraged, at least in Australia where policies exist to grow population through both immigration and domestic births.

Many people who work in the health industry can build a strong case for questioning economic growth. Obesity and diabetes represent a health crisis of epidemic proportions. Some mistakenly believe that tackling this epidemic is a simple issue of individual restraint, but it’s a side-effect of the system. Growth in personal size (obesity) is the collateral damage from continuous pursuit of growth in economic size.

Health data from the last 200 years convincingly show that economic growth has a tipping point, beyond which costs accrue more quickly than benefits. Health improved dramatically over this period, but in recent years the improvements have been drying up. We don’t yet have the cure for cancer that was promised 30 years ago. And contrary to expectations, doctors see fewer cases of depression when economic growth slows down, as in the aftermath of the global financial crisis.

From the perspective of a health practitioner, Tim Jackson’s philosophy has supplanted Gordon Gekko’s. For an economy that has reached maturity, greed is bad. We stand at the start of a new era, in which we must capitalize on the past benefits of growth and make the transition to a steady state economy.

This transition doesn’t mean an end to human development. On the contrary, we need to enhance our cultural and economic institutions to create a truly sustainable economic system. Doing so will test our capacity for adaptability more than anything else since leaving the trees. It will also leave a few traditional economists still dangling from the branches.

Garry Egger is a professor of health and applied sciences at Southern Cross University in Australia.  He is also the author, with Boyd Swinburne, of Planet Obesity: How We Are Eating Ourselves and the Planet to Death.

From Black Friday to a Better Way

Rethinking Consumer Spending and Enjoying the Holidays

by Brent Blackwelder

The day following Thanksgiving Day in the United States is called Black Friday. For retailers the day marks the beginning of the Christmas shopping season. While the origin of the term is debated, it is today associated with special sales and extraordinary promotions that retailers use to induce shoppers into spending the holiday weekend on a shopping spree.

Our modern economy is structured such that its stability depends upon ever increasing consumer spending. In my first economics course in college in 1961, the professor told the class to go out and shop because it is good for the gross national product (GNP). Then and now, mainstream economics continues to treat the Earth as if it were a business in a liquidation sale.

At a time of high unemployment in the United States, it may seem like an act of madness to question the growth economy, but relentless pursuit of growth has failed to deliver again and again on the promise of economic stability and security. Its recipes are not making people any happier, and it is undermining the ecological life support systems of our planet. It has failed about one third of the world’s population who live on less than $2 per day, while simultaneously producing an exclusive club of gratuitously wealthy individuals. Those of us advocating a steady state economy seek a new way to maintain full employment that does not incentivize employers to seek dirt-cheap labor or to replace people with machines.

Professor Tim Jackson’s 2009 report to the UK Sustainable Development Commission entitled Prosperity without Growth provides an outstanding foundation for any discussion of consumerism and the growth economy. For those interested in a steady state economy, it is worthwhile to think in this holiday season about the nature of shopping in such an economy.

Throughout history religious leaders have expressed concerns about the accumulation of stuff. Two thousand years ago Jesus cautioned about excessive attention to material possessions, saying: “Lay not up for yourself treasures on earth where moth and rust doth corrupt and where thieves break through and steal.”

Over 100 years ago the economist and philosopher John Stuart Mill recognized that eventually humanity would have to move toward a stationary state of capital and wealth, but that condition need not entail a stagnation of human improvement.

Two centuries ago the poet William Wordsworth expressed alarm at the consumerism he witnessed in England: “The world is too much with us, late and soon. Getting and spending we lay waste our powers. Little we see in nature that is ours. We have given our hearts away…”

Today’s economy is five times bigger than in the 1950s, and at current growth rates stimulated by commercial promotions, it is headed to a global economy 80 times as large.

The consumer rampage is in part fueled by slick advertising for novel consumer products, and much of this advertising is targeted at youth. Ralph Nader questions who is watching what young people worldwide are being enticed to buy? He writes: “Undermining parental authority with penetrating marketing schemes and temptations, companies deceptively excite youngsters to buy massive amounts of products that are bad for their safety, health and minds.”

Excessive packaging accompanying today’s products attracts ecological criticism, but it is only the tip of the iceberg in terms of waste. The volume of raw resource extraction required in the manufacture of products dwarfs the packaging waste. For example, many mining operations for valuable metals leave behind as waste over 90% of the material excavated, and such rocky rubble often releases a mass of toxicity onto the land and into the water.

Has happiness been improved by having all these products? Studies over the past two decades have suggested that a certain amount of material comfort and ease provided by various products increases one’s happiness, but beyond a certain point – one study suggested $75,000 income – more stuff doesn’t produce more happiness. In fact, it can yield the perverse result of adding stress, worry and depression.

It is amazing that times of holiday celebration in the United States are frequently the very times of peak stress. What should be a fun and cheerful experience becomes a week or even a month of worry.

The holiday season is a good time to reexamine the kinds of purchases we make to see whether they are reducing the use of natural resources and encouraging more sustainable ways of growing food and conducting commercial business.

Many religious congregations are looking toward a different approach to reclaim the holidays from preoccupation with material gifts. Some offer ways to reduce the volume of purchasing and to make different kinds of purchases that reduce throughput and pollution.

For example, Interfaith Power and Light seeks to get religious congregations to purchase renewable energy and to reduce energy use in their homes and their places of worship. Through Greater Washington Interfaith Power and Light, our family now purchases all our electricity, sourced from wind farms, at a surcharge of about $130 a year.

By voting with their food dollars many Americans have already sent powerful signals in favor of local farm markets and organic food. With some due diligence, people can determine whether their purchases lend further support to child labor and slave conditions, whether the purchases harm women or empower women, and whether the product came from an animal-slum factory farm operation. The Fair Trade label allows consumers to identify imported products that avoid harmful labor and environmental degradation in their manufacture.

We have options.  We can do better than liquidating our natural bounty for consumer novelty, we can refrain from pitching unnecessary products to our children, and we can stop pursuing growth for growth’s sake.  The steady state economy is a better choice than continuous pursuit of economic growth, but the transition starts with better choices about what and how we consume.