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Why Stop at Massive Economic Growth when Infinite Growth Is within Reach?

Editor’s Note: Although The Daly News is known for its commentary on the limits to growth, we are willing to consider other viewpoints. That is why we invited Professor Milton Mountebank to submit regular columns. He graciously accepted our invitation, citing it as “an opportunity to educate both the naive and the ignorant masses who genuinely believe the earth is finite.” We are fortunate to have him, especially in light of his recent prize in economics.

by Milton Mountebank

My colleague at the National Review, Jonah Goldberg, recently penned an article, in which he starts down the road with a sure step but then falters and ultimately stumbles over his erroneous notions about economic growth. I provide some subjective commentary below, but I also offer an objective economic analysis to set the record straight. I have devised a nonparametric econometric statistic, normalized on a scale from 1 (utterly false) to 10 (unassailably true) that rates the veracity of each of Mr. Goldberg’s premises (in the interest of conserving ink, I shall refrain from reproducing the 17-page formula here; in any case, it is likely that readers would find it well beyond their comprehension).

Premise #1: Gandhi’s mantra, “Live simply, so that others may simply live” is patently absurd. Simple living has no benefits, only consequences that begin with poverty and end with death.
Mountebank’s veracity rating (MVR) = 9.944511299
Mr. Goldberg is right on target with this assertion (note the unprecedented MVR). I am confounded by the fact that Mr. Gandhi and his simple living ethos remain in discussion to this day. What did Mr. Gandhi ever do to deserve such attention? I suspect that we have revisionist history to thank for the prolonged acceptance of his philosophies. As for simple living, I submit that every single person who has ever aspired to a simple life has ended up in the grave.

Premise #2: Steady staters (especially prominent ones like Paul Ehrlich, Herman Daly, and Joshua Nelson) are a paranoid lot who hate markets and freedom nearly as much as they love vegetables. They wish to impose a centrally planned totalitarian regime such that you and your family shall starve and/or freeze in the dark.
MVR = 9.287732215
Although the accuracy of this premise is significantly high, I feel obligated to consider one point of contention. I do not know how extensively Mr. Goldberg has sampled Herman Daly’s work, but it is my suspicion that he has not delved as deeply as I have dared. I have held both my nose and my temper (in check) while forcing myself to read a substantial portion of Professor Daly’s writings. And to his credit, he does assert the usefulness of the market for allocating goods that are both rival and excludable. One might conclude, therefore, that some proponents of a steady state economy want only a semi-totalitarian state.

Premise #3: America’s reforestation, the decrease of lead and sulfur in our atmosphere, and the removal of some contaminants from our waterways prove 2 points: (1) our environment is the picture of health, and (2) unfettered markets are the key to sound environmental policy.
MVR = 9.973997123
Cheers to Mr. Goldberg for regaining his footing! No doubt taking a cue from my paper, How Infinite Planet Theory Disproves the Existence of the Environment, he has applied an appropriately large discount rate to the findings of conservation biologists, climate scientists and other charlatans who squander their time studying concepts that have no bearing on labor productivity or the liquidity of credit default swaps.

Premise #4: There is no role whatsoever for scientists to inform the economic policies of a nation.
MVR = 5.256662588
Mr. Goldberg begins his downward spiral with this questionable assertion. Surely he knows that economics is the most significant, accomplished and influential of the various fields of science. It is imperative, therefore, that economic scientists dictate all national and international policies. Let us consign the skills (such as they are) of second-tier scientists (e.g., those who rely on inapplicable principles of physics, chemistry and biology) to the development of marketable gadgets and weaponry. With proper roles assigned for first- and second-tier scientists, we can achieve the most important goal of human society: unbounded growth of gross domestic product.

Premise #5: America desperately needs massive economic growth to pay off our debt, sustain our entitlements, and continue to improve the environment.
MVR = 3.113419845
Unfortunately, with this premise, Mr. Goldberg undermines his formerly formidable argument. It is entirely true that we need economic growth, but it is entirely false that we need “massive economic growth.” Perhaps if he had read my book, Infinity and Beyond: The Magical Triumph of Economics over Physics, Mr. Goldberg would know that America desperately needs infinite economic growth. He comes across as a true Malthusian willing to settle for the massive when the infinite is within reach. With infinite economic growth, we can roll over debts forever and ever and ever. We also need infinite growth (and then some) to cover the entitlements coming to me, Mr. Goldberg and our fellow economic elites. And finally, with the riches of infinite growth in hand, we can put the last nail in the coffin of our pesky environment — we shall no longer require an environment in which to live.

Premise #6: When the proponents of infinite (or at least massive) economic growth victoriously proclaim, “I told you so,” those who question growth shall be annoyed.
MVR = 1.034110990
After beginning to unravel his thesis with the previous 2 premises, Mr. Goldberg dismantles his entire argument with premise #6. We shall not annoy the steady staters; we shall enchant them. They shall be in awe of us, sufficiently stunned by our supernatural capacity to banish all ecological limits. I have no doubt that one day the steady staters shall recognize the folly of questioning infinite economic growth and repent. They shall put aside their dreary doomsaying (along with their “facts” and “evidence”) and join us in the magical triumph of economics over physics.

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

Enough Childish Name Calling

by Sharon Ede

Supporters of the steady state may have been irked, if they had not been so bemused, by the content of a recent piece from the UK’s Institute of Economic Affairs (IEA), which took issue with steady state economics.

The opening paragraph of the article by IEA’s Kristian Niemietz is:

Imagine Jean-Jacques Rousseau, Thomas Malthus, Karl Marx and Saddam Hussein were meeting somewhere in the afterlife, deciding to write a joint policy paper. Difficult to imagine? Not at all. The result would probably look a lot like Enough is Enough, the report which came out of the Steady State Economy Conference.

I am sure even Saddam would have been bemused at this randomly selected “who I’d have dinner with” list.

The article continues into familiar territory encountered by steady staters: there are no limits to growth; steady staters and their ilk are doomsday environmentalists trying to spoil everybody’s consumption party; seeking to debunk Malthus and Ehrlich because their predictions have not (yet) manifested – which, based on current trends that a lot of people are very, very worried about, is arguably a bit of premature congratulation.

If Niemietz thinks that Ehrlich missed the mark about ‘prophesying decades of mass starvation in the Third World’, I suggest he familiarises himself with the Millennium Development Goals, which include a target to halve the number of people suffering from hunger between 1990 and 2015. Just because you are not starving, Mr Niemietz, does not mean many others are not. According to the UN Food & Agriculture Organization, one in six people in the world are suffering. That’s over a billion people.

Niemietz also creates a straw man of epic proportions when he states that “proponents of Steady State Economics think of people as a swarm of locusts: left to themselves, they will blindly devour their own livestock. But this interpretation is misleading. Locusts cannot generate scarcity signals. We can: they’re called market prices.”

Locusts do create scarcity signals – collapse of their number when the food source runs out. But that’s another story. In the meantime, will somebody contact the Mayans, the Romans and the Easter Islanders and tell them there is nothing to worry about.

A few tips for Mr Niemietz:

1. Limits to nature and to growth are a fact. There is only so much planet. Ask an astronaut.

2. Market prices signal a resource’s availability in the marketplace – not in the biosphere. This is why, where I live, a liter of petrol is cheaper than a liter of Coca Cola.

3. If perpetual consumption is the path to happiness, why do many western nations have such high levels of stress, personal debt, depression/mental illness? Is there a connection between the focus on maximizing consumption via the identity of the individual at the expense of community life and social connection? No chance we are out of balance in this one, then?

The author also cites a nonsensical metaphor courtesy of Bjørn Lomborg – the logic of resource depletion is akin to somebody who looks into a fridge and concludes there is only food for three days in it, and after that, the owner will starve.

An accurate metaphor would be that we are pulling apart our house to burn on the fire to keep warm; we are liquidating our capital, the natural systems that sustain us. Ask any conservation biologist and they will tell you that this is a dumb approach to asset management.

In an article peppered with inaccuracies and faulty logic, the author makes a claim that is way off target – an accusation that those advocating a steady state economy are misanthropists.  On the contrary, we want to see good lives for all, now and into the future, secured through sound management of our ecological assets, and a quality of life that includes meeting material needs – but recognizing material needs as only one aspect of the totality of being human.

Although it’s pleasing to see that these ideas are starting to pop up as debates in this kind of forum, because it means that the growth monster is being perturbed, critics should try adding some basic physics, biology and a bit of history into their all-economics diet. Think of it as a bit of fiber!

Sharon Ede is a collaborating author of Post Growth and the curator of the Cruxcatalyst blog.