What About Innovating Beyond the Growth Trap? A Challenge to the Ecofiscal Commission’s Growth Fixation

By James Magnus-Johnston

James Magnus-JohnstonA new voice has emerged recently in Canada called the “Ecofiscal Commission,” which could have the funding, clout, and determination to steer the country in a more promising direction. The group includes high-profile economists, former political leaders, and high-powered financiers. They define “ecofiscal policy” as something that “corrects market price signals to encourage the economic activities we do want (job creation, investment, and innovation) while reducing those we don’t want (greenhouse gas emissions and the pollution of our land, air, and water).” There seems to be a semblance of steady state thinking among this otherwise rather conventional lot.

Not so fast. The Ecofiscal Commission recently clarified that it “believes that our economies can continue to grow, even as we improve the environment by polluting less and using our natural resources more efficiently.” I found it noteworthy that this group of high-profile individuals decided that it was necessary to address the question of growth. Perhaps that’s because folks like myself don’t believe their policies are sufficient to address 21st century challenges, such as anthropogenic climate change and mass extinction.

One of their commission members, Dr. Dick Lipsey, is a “renowned expert in the field of economics and innovation,” and Professor Emeritus of Simon Fraser’s Department of Economics. In a recent Ecofiscal blog post, he rehearsed a standard narrative of innovation and technological progress that many ecological economists are familiar with. His narrative makes mention of neither the rebound effect nor of exactly what technologies will systematically reduce our material footprint. He even seems to suggest that if we don’t grow the economy, our health outcomes will decline due to a lack of medical innovation.

Locomotive.SMU, Central Univ. Libraries, DeGolyer Library

“It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth.” -William Stanley Jevons. Photo Credit: Southern Methodist University, Central University Libraries, DeGolyer Library.

He goes on to write about how “those who, like this commentator, think only of today’s commodities and today’s technologies, do not see the possibilities of raising living standards, while also dealing with pollution, through technological advance.” This seems straightforward enough—we don’t know what we don’t know. New technologies will emerge over time. He then proceeded to make a sweeping claim by listing a number of technologies that have made life more convenient, including “dental and medical equipment, antibiotics, bypass operations, safe births, control of genetically transmitted diseases, personal computers, compact discs, television sets, automobiles, opportunities for fast and cheap world-wide travel, air conditioning…” And so on. For the record, I’m quite happy for all of these advances, yet I still don’t see how anything on this list is addressing our self-inflicted mass extinction, though I suppose it’s making us comfortable in the meantime.

I could spend time addressing the factual basis of his claim that innovation requires growth, but we’ve been doing that since the 1970s, when Henry Wallich discounted the findings of Limits to Growth (DH Meadows et al.), arguing that technology would save us from the ecological crisis. We’re still waiting for this claim to ring true, and there’s a raging contemporary debate, which speaks to some lingering uncertainty about the claim. For my part, I see the invention of new technology as a response to a specific technical problem (or set of problems) rather than merely the offspring of pro-growth economic conditions.

What I find far more curious is (a) why Dr. Lipsey’s sweeping claim avoids mention of mass extinction or climate change; and (b) how this opinion can reflect the voice of so many high-profile public figures. It is true that, as Lipsey writes, “…our Victorian ancestors could not have imagined what to do with ten times as much of all of the goods that they knew about.” Yet it is also true that we have far more than ten times the goods that they knew about, and that our aggregate material footprint is still going up. Efficiency gains are a “feel good” story, but the gains have yet to reduce our aggregate material footprint at the global level.

I’m not an ideological enemy of innovation or entrepreneurship. In fact, I’m a bit of a techno-geek—I (rather shamefully) like new technologies and toys. I get irrationally excited when I see developments in green technology and transportation, and I’ve started a business. I can’t wait to use a hyperloop. But, as Lewis and Conaty write in The Resilience Imperative, I embrace the principle that efficiency without sufficiency is lost. Or to put it another way, it feels intellectually dishonest to suggest that efficiency has the potential to deliver us from a cultural propensity for overconsumption. I’m not certain why we should focus our energy on miniaturizing goods or “cleaning” our production process to the exclusion of simply consuming less. We need both.

Underpinning some of Dr. Lipsey’s claims is the epistemological assumption that innovation is merely a technological, material, or financial phenomenon. What precludes us from innovating ethically and socially, towards more desirable ends? John Maynard Keynes considered the day when society could focus on happiness and well-being rather than economic growth. He wrote, “The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems—the problems of life and of human relations, of creation and behavior and religion.” If innovation is so predetermined, why might one suggest it is possible to innovate technologically, but not towards a more sustainable economic size? That is, after all, what this growth debate is really all about.

I can’t also help but wonder whether or not Dr. Lipsey recognizes that his narrative emerged during a time when one could not see or feel the effects of a deteriorating planetary life support system. I don’t blame him for his choice to rehearse this narrative—like many 20th century thinkers, his whole identity has been constructed to promote the idea of growth. But at some point, we will all need to accept our planetary prognosis and act accordingly. It’s become exceedingly clear that price signals alone won’t preserve forests, oceans, or climate stability. Peter Victor has argued that while D.H. Meadows et al. possibly underestimated the price-mechanism’s role in adjusting economic outcomes, their critics have overestimated it.1 By the time we’ve settled on a carbon price, the planet will already have become several degrees warmer and we’ll no longer have the luxury of technocratic tinkering. Behavioral economists have also debunked the myth that humans are motivated only by price signals. Human beings are complex, irrational actors who are influenced by far more than just the almighty dollar. Many of us have given up on the neoclassical paradigm precisely because of this new knowledge. Call it innovation.

It’s not necessarily true anymore that economic growth increases our incomes and always transforms our lives for the better. Today, some features of economic growth are increasing the incomes of the richest, stagnating the incomes of the poorest, and depleting the innovative spirit of the economy. Who has the time to worry about climate change and mass extinction when they’re just getting by or more concerned about how to cash their next pension check? Ask any Greek citizen.

Perhaps we can be thankful that growth didn’t stop in 1900 or 1950, as Dr. Lipsey argues. But this isn’t 1950. We have to solve a new set of problems. There’s never been a better time to innovate the discipline of economics, and with it, our definition of progress.



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.



Progress Toward a True-Cost Economy Now Comes From Developments in Renewable Energy

by Brent Blackwelder

Brent BlackwelderA renewable energy revolution is sweeping the planet. This revolution has profound implications because it signals that the global economy is moving to stop the growth of our human carbon footprint.

The global economy has run for a century primarily on fossil fuels but is now undergoing a rapid transition to a global economy based significantly on rooftop solar, wind, and efficiency. This is a tangible movement toward a steady state economy because with wind and solar, the amount we use today does not affect tomorrow’s supply; and unlike fossil fuels, the pollution externalities are small and do not harm fellow competitors or the public.

This revolution is more than a technical fix because it is shifting the ingredients of the material products and services of the economy from toxic, polluting, non-renewable substances and ingredients to ones that are renewable and dramatically lower in pollution. It is demonstrating that renewable energy can avoid imposing dangerous impacts onto the public or onto future generations.

Skeptics over the last two decades have argued that renewable sources such as wind and solar are trivial and simply incapable of providing the power needed by the global economy—that all they will ever do is provide only a small percentage of the world’s electricity. I remember the days when utility executives belittled renewables, warning that more than about 5% of wind or solar electricity in a region would crash the grid!

Photo Credit: janie.hernandez55

The renewable energy revolution is a stepping stone toward a sustainable true-cost economy. Photo Credit: janie.hernandez55

I want to present a few startling and uplifting facts that demonstrate the dramatic progress recently made by solar and wind power around the world. 1 These facts give the lie to the phony assertions made by utilities in their efforts to block renewable energy.

Rooftop solar is growing worldwide by 50% per year. In 1985 solar cost $12 per watt, but today’s prices are closer to 36 cents per watt. Every five hours the world adds 23 MW of solar—which was the global installed capacity in 1985.

In January of 2014 Denmark got 62% of its electricity from wind. In 2013 Ireland got 17% of its electricity from wind, and Spain and Portugal both exceeded 20% from wind. Today China gets more electricity from wind (91,000 MW) than it does from nuclear reactors. The United States is second in the world in installed wind turbines, with South Dakota and Iowa obtaining over 26% of their electricity from wind.

As we look to achieve a true-cost, steady state economy, questions are constantly raised about the behavior of other powerful nations that might appear to have no interest in a sustainable economy. The renewable energy revolution provides breakthrough opportunities here. China is already putting its energy future into more and more renewable energy. It plans to more than double its current wind capacity with an expansion goal of 200,000 MW by the year 2020.

Even the French, who rely on nuclear reactors for 75% of their electricity, are planning on increasing their wind generating capacity to 25,000 MW from their present 8,300 MW.

The renewable energy revolution will enable civilization to stop the growth of highly polluting fossil fuels. It will enable society to leave the majority of the remaining reserves of fossil fuels alone and unburned. Acceleration of this revolution helps in solving many problems and is a key to restoring and maintaining the life support systems of the earth.

For a number of reasons, this renewable energy revolution is a stepping stone toward a sustainable  true-cost economy. First, unlike fossil fuels, the footprint of wind and rooftop solar is minimal. Wind turbines erected on farmland use very little land and allow farming to continue. Rooftop solar can be placed on flat commercial and industrial roofs in metropolitan areas where connections to the grid are available.

In comparison, extraction of fossil fuels can create some of the worst pollution and habitat destruction ever seen. Consider the devastation being caused in the biologically diverse mountain forests of West Virginia by mountaintop removal coal mining. Or look at the obliteration of Alberta’s landscape and contamination of its lakes and rivers from tar sands mining.

This point is substantial because far too many of the products of the global economy involve externalization of enormous pollution costs.

Second, the usage of wind and solar today does not affect the amount of wind and solar available tomorrow. They are renewable. Furthermore, wind and rooftop solar are basically waterless technologies, whereas fossil fuel and nuclear power plants use enormous quantities of water for cooling. As water shortages multiply worldwide as a result of population and industrial growth, and climate disruption, this benefit will become even more significant.

Third, wind and solar are big job creators. In Germany the number of jobs in wind and solar is about 400,000 versus 200,000 in coal and conventional fuels. This amazing boost in clean energy jobs has happened in the last decade. Job creation is a major concern in any transition to a sustainable economy.2

Those who are serious about getting to a true–cost economy should help accelerate the renewable energy revolution as a way to achieve it.



  1. See The Great Transition by Lester Brown and colleagues at the Earth Policy Institute for a superb account of the global renewable energy revolution that offers hope to all.
  1. See Energiewende for the job figures; see also Peter Victor in Tim Jackson’s Prosperity Without Growth for a discussion of transition scenarios and jobs.

The Guardian and Monbiot versus Forbes and Worstall

Dalyby Herman Daly

In his Guardian column, criticizing growth as “The Insatiable God,” George Monbiot writes:

Is it not also time for a government commission on post-growth economics? Drawing on the work of thinkers like Herman Daly, Tim Jackson, Peter Victor, Kate Raworth, Rob Dietz and Dan O’Neill, it would investigate the possibility of moving towards a steady state economy: one that seeks distribution rather than blind expansion; that does not demand infinite growth on a finite planet…

It is no surprise that we at CASSE strongly agree with Monbiot. Nor does it come as a surprise that a columnist for Forbes, Tim Worstall, would disagree. What is surprising is that Worstall uses me in support of his position (with which I disagree) and against Monbiot (with whom I agree). How does he manage such a reversal? By conflating growth (quantitative physical increase) with development (qualitative improvement), and claiming that 80% of GDP increase is due to qualitative “growth” (total factor productivity), and is therefore independent of increase in physical resource use–when in reality the “total” factor productivity increase in question is mainly caused by an increase in physical resource throughput. This requires further explanation.

In a previous article, also criticizing Monbiot, Worstall states his position more completely, as quoted below, [my brackets inserted].

Value add [added] is economic growth, not more stuff. And we can take this insight to an extreme as well, that extreme being the steady state economy proposed by Herman Daly. In this world resources are only abstracted from the environment if this can be done sustainably. And we recycle everything of course [not energy or highly dispersed materials]. So, in such a world can we still have economic growth? We have no more access to more stuff to make stuff out of: so is growth still possible? Yes, of course it is. For we can still discover new methods of adding value to those resources that we do have available to us through our recycling. Daly calls this qualitative growth rather than the quantitative growth that we cannot have. [Actually I speak of “qualitative improvement” to emphasize that technology is not a cardinally measurable quantity that can properly be said to grow]. But there’s absolutely no difference at all between this and the more conventional economic descriptions of growth. Qualitative growth is akin to growth through an increase in total factor productivity as opposed to growth via the use of more inputs [only remember that “more inputs” should include natural resources, but does not]. And Bob Solow once pointed out that 80% of the growth in the market economies in the 20th century came from tfp (total factor productivity) growth, not the consumption of more resources. We’re just using different words to describe exactly the same thing here [not really].

Now if this were true we could keep resource throughput constant, avoiding most of the increasing environmental costs of growth, and still have 80% of historical GDP growth. Once matter-energy throughput is stabilized at an ecologically sustainable level we could presumably have significant GDP growth forever with minimal environmental costs, thanks to increasing total factor productivity. I would be happy if that were true, but I am pretty sure that it is not. Nevertheless, if Forbes believes it, maybe they would then endorse a policy of limiting resource throughput (cap-auction-trade or carbon tax), and be content with still significant GDP growth based only on total factor productivity increase? Don’t hold your breath. Worstall explicitly discounts any notion of resource scarcity, so why limit throughput? But, just for good measure, he argues here that even with resource scarcity, technology can, by itself, provide most of our accustomed growth, as it supposedly has in the past.

Worstall’s source for the 80% figure is the “Solow Residual,” which is commonly misinterpreted as a measure of total factor productivity. As calculated, it is a measure of “two-factor” productivity, the two factors being labor and capital. The Cobb-Douglas production function that underlies this calculation omits natural resources, the classical third factor. This means that it cannot possibly be an accurate analytical representation of production. It is like a recipe that includes the cook and the oven, but omits the list of ingredients.

Photo Credit: Claire.Ly

As natural resources becomes increasingly scarce, can we afford to ignore their contributions to increases in production? Photo Credit: Claire.Ly

Value added has to be added to something, namely natural resources, by something, namely labor and capital. The cook and the oven add value to the ingredients, but nothing happens without the ingredients. Our empty-world economic accounting attributes all value to labor and capital, and treats natural resources in situ as superabundant free gifts of nature. But in today’s full world, resources are not only scarce but have become the limiting factor. Leaving the limiting factor out of the analysis makes the Cobb-Douglas production function not only incomplete, but also actively misleading.

Nevertheless, Worstall’s 80% figure comes from respected economists who have used the Cobb-Douglas production function in a statistical correlation–an exercise to see how much of increased production can be statistically explained by increases in labor and capital. The residual, what is not explained by labor and capital increase, is attributable to all causes other than labor and capital, including, for example, technology improvement and increased material and energy throughput (natural resource use).

A large residual indicates weak explanatory power of the theory being tested–in this case the Cobb-Douglas theory that production increase is due only to capital and labor increase. But instead of being embarrassed by a large unexplained residual, some economists were eager to “explain” it as an indirect measure of technological progress, as a measure of improvement in total factor productivity. But is technology the only causative factor reflected in the residual? No, there are surely others, most especially the omitted yet rapidly increasing flow of natural resources, of energy and concentrated minerals. The contribution of energy and materials from nature to production is also part of the residual, likely dwarfing technological improvement. Yet the entire residual is attributed to technology, to total factor productivity, or more accurately “two-factor” productivity, in the absence of natural resources, the classical third factor.

As the natural resource flow greatly increases, and capital and labor transform that growing resource flow into more products, then of course the measured productivity of capital and labor increases. This increased “total” factor productivity, due mostly to increase in the ignored factor of natural resources, is then appealed to as evidence of the unimportance of natural resources, given the “empirical finding” that total factor productivity improvement (technology) “explains” so much of the observed increase in production. This reasoning is clearly specious. It is the increased resource use that explains the increase in total factor productivity (i.e. two-factor productivity), which cannot then be used as a reason to discount the importance of its own cause, namely an increased flow of natural resources. Indeed, the unimportance of natural resources could not possibly be an empirical finding of any statistical analysis based on the Cobb-Douglas production function, because that function assumes the unimportance of natural resources from the beginning by omitting them as a factor of production. This is a big confusion and Worstall is not the only one misled by it.

In conclusion, I think the Guardian and Monbiot’s position is not in the least weakened by the criticism from Forbes and Worstall, but that reliance on the Cobb-Douglas production function should certainly be weakened.

An Economics Fit for Purpose in a Finite World

by Herman Daly

Herman DalyCausation is both bottom-up and top-down: material cause from the bottom, and final cause from the top, as Aristotle might say. Economics, or as I prefer, “political economy,” is in between, and serves to balance desirability (the lure of right purpose) with possibility (the constraints of finitude). We need an economics fit for purpose in a finite and entropic world.

As a way to envision such an inclusive economics, consider the “ends-means pyramid” shown below. At the base of the pyramid are our ultimate means, low entropy matter-energy–that which we require to satisfy our purposes–which we cannot make, but only use up. We use these ultimate means, guided by technology, to produce intermediate means (artifacts, commodities, services, etc.) that directly satisfy our needs. These intermediate means are allocated by political economy to serve our intermediate ends (health, comfort, education, etc.), which are ranked ethically in a hierarchy by how strongly they contribute to our best perception of the Ultimate End. We can see the Ultimate End only dimly and vaguely, but in order to ethically rank our intermediate ends we must compare them to some ultimate criterion. We cannot avoid philosophical and theological inquiry into the Ultimate End just because it is difficult. To prioritize logically requires that something must go in first place.

Ultimate Political Economy

The ends-means pyramid or spectrum relates the basic physical precondition for usefulness (low entropy matter-energy) through technology, political economy, and ethics, to the service of the Ultimate End, dimly perceived but logically necessary. The goal is to unite the material of this world with our best vision of the good. Neoclassical economics, in neglecting the Ultimate End and ethics, has been too materialistic; in also neglecting ultimate means and technology, it has not been materialistic enough.

The middle position of economics is significant. Economics in its modern form deals with the allocation of given means to satisfy given ends. It takes the technological problem of converting ultimate means into intermediate means as solved. Likewise it takes the ethical problem of ranking intermediate ends with reference to a vision of the Ultimate End as also solved. So all economics has to do is efficiently allocate given means among a given hierarchy of ends. That is important, but not the whole problem. Scarcity dictates that not all intermediate ends can be attained, so a ranking is necessary for efficiency–to avoid wasting resources by satisfying lower ranked ends while leaving the higher ranked unsatisfied.

Ultimate political economy (stewardship) is the total problem of using ultimate means to best serve the Ultimate End, no longer taking technology and ethics as given, but as steps in the total problem to be solved. The total problem is too big to be tackled without breaking it down into its pieces. But without a vision of the total problem, the pieces do not add up or fit together.

The dark base of the pyramid is meant to represent the fact that we have relatively solid knowledge of our ultimate means, various sources of low entropy matter-energy. The light apex of the pyramid represents the fact that our knowledge of the Ultimate End is much less clear. The single apex will annoy pluralists who think that there are many “ultimate ends.” Grammatically and logically, however, “ultimate” requires the singular. Yet there is certainly room for plural perceptions of the nature of the singular Ultimate End, and much need for tolerance and patience in reasoning together about it. However, such reasoning together is short-circuited by a facile pluralism that avoids ethical ranking of ends by declaring them to be “equally ultimate.”

It is often the concrete bottom-up struggle to rank particular ends that gives us a clue or insight into what the Ultimate End must be to justify our proposed ranking.

As a starting point in that reasoning together, I suggest the proposition that the Ultimate End, whatever else it may be, cannot be growth in GDP! A better starting point for reasoning together is John Ruskin’s aphorism that “there is no wealth but life.” How might that insight be restated as an economic policy goal? For initiating discussion, I suggest: “maximizing the cumulative number of lives ever to be lived over time at a level of per capita wealth sufficient for a good life.” This leaves open the traditional ethical question of what is a good life, while conditioning its answer to the realities of economics and ecology. At a minimum, it seems a more convincing approximation to the Ultimate End than today’s impossible goal of “ever more things for ever more people forever.”

Three Limits to Growth

by Herman Daly

Herman DalyAs production (real GDP) grows, its marginal utility declines, because we satisfy our most important needs first. Likewise, the marginal disutilitiy inflicted by growth increases, because as the economy expands into the ecosphere we sacrifice our least important ecological services first (to the extent we know them). These rising costs and declining benefits of growth at the margin are depicted in the diagram below.

3 Limits Graph

From the diagram we can distinguish three concepts of limits to growth.

1. The “futility limit” occurs when marginal utility of production falls to zero. Even with no cost of production, there is a limit to how much we can consume and still enjoy it. There is a limit to how many goods we can enjoy in a given time period, as well as a limit to our stomachs and to the sensory capacity of our nervous systems. In a world with considerable poverty, and in which the poor observe the rich apparently still enjoying their extra wealth, this futility limit is thought to be far away, not only for the poor, but for everyone. By its “non satiety” postulate, neoclassical economics formally denies the concept of the futility limit. However, studies showing that beyond a threshold self-evaluated happiness (total utility) ceases to increase with GDP, strengthen the relevance of the futility limit.

2. The “ecological catastrophe limit” is represented by a sharp increase to the vertical of the marginal cost curve. Some human activity, or novel combination of activities, may induce a chain reaction, or tipping point, and collapse our ecological niche. The leading candidate for the catastrophe limit at present is runaway climate change induced by greenhouse gasses emitted in pursuit of economic growth. Where along the horizontal axis it might occur is uncertain. I should note that the assumption of a continuously and smoothly increasing marginal cost (disutility) curve is quite optimistic. Given our limited understanding of how the ecosystem functions, we cannot be sure that we have correctly sequenced our growth-imposed sacrifices of ecological services from least to most important. In making way for growth, we may ignorantly sacrifice a vital ecosystem service ahead of a trivial one. Thus the marginal cost curve might in reality zig-zag up and down discontinuously, making it difficult to separate the catastrophe limit from the third and most important limit, namely the economic limit.

3. The “economic limit” is defined by marginal cost equal to marginal benefit and the consequent maximization of net benefit. The good thing about the economic limit is that it would appear to be the first limit encountered. It certainly occurs before the futility limit, and likely before the catastrophe limit, although as just noted that is uncertain. At worst the catastrophe limit might coincide with and discontinuously determine the economic limit. Therefore it is very important to estimate the risks of catastrophe and include them as costs counted in the disutility curve, as far as possible.

From the graph it is evident that increasing production and consumption is rightly called economic growth only up to the economic limit. Beyond that point it becomes uneconomic growth because it increases costs by more than benefits, making us poorer, not richer. Unfortunately it seems that we perversely continue to call it economic growth! Indeed, you will not find the term “uneconomic growth” in any textbook in macroeconomics. Any increase in real GDP is called “economic growth” even if it increases costs faster than benefits.

Earth -

The macro-economy is not the Whole, but rather Part of the finite Whole. Photo Credit: Beth Scupham

Economists will note that the logic just employed is familiar in microeconomics—marginal cost equal to marginal benefit defines the optimal size of a microeconomic unit, be it a firm or household. That logic is not usually applied to the macro-economy, however, because the latter is thought to be the Whole rather than a Part. When a Part expands into the finite Whole, it imposes an opportunity cost on other Parts that must shrink to make room for it. When the Whole itself expands, it is thought to impose no opportunity cost because it displaces nothing, presumably expanding into the void. But the macro-economy is not the Whole. It too is a Part, a part of the larger natural economy, the ecosphere, and its growth does inflict opportunity costs on the finite Whole that must be counted. Ignoring this fact leads many economists to believe that growth in GDP could never be uneconomic.

Standard economists might accept this diagram as a static picture, but argue that in a dynamic world technology will shift the marginal benefit curve upward and the marginal cost curve downward, moving their intersection (economic limit) ever to the right, so that continual growth remains both desirable and possible. However, the macroeconomic curve-shifters need to remember three things. First, the physically growing macro-economy is still limited by its displacement of the finite ecosphere, and by the entropic nature of its maintenance throughput. Second, the timing of new technology is uncertain. The expected technology may not be invented or come on line until after we have passed the economic limit. Do we then endure uneconomic growth while waiting and hoping for the curves to shift? Third, let us remember that the curves can also shift in the wrong directions, moving the economic limit back to the left. Did the technological advances of tetraethyl lead and chlorofluorocarbons shift the cost curve down or up? How about nuclear power? Adopting a steady state economy allows us to avoid being shoved past the economic limit. We could take our time to evaluate new technology rather than letting it blindly push growth that may well be uneconomic. And the steady state gives us some insurance against the risks of ecological catastrophe that increase with growthism and technological impatience.

Too Many Jobs

by Max Kummerow

Without doubt unemployment blights people’s lives. Those who want to work need jobs. But an even more fundamental economic problem is too many people beavering away, wrecking our home planet. Politicians and economists assume population growth means more people need jobs, so the economy must grow. Better to reverse that logic, starting instead by calculating the level of output the world’s environmental resources can sustainably support. How can jobs and economic output keep growing on a damaged planet with shrinking resources?

Some economists claim that technology or human ingenuity is the ultimate resource, but such platitudes ignore the realities of technological advance. The truth is that technology both creates and destroys jobs. Labor-saving innovations often increase productivity by reducing employment. And the downsides of technology abound. Fanatics use the “ultimate resource” to build bombs. Nuclear physics gave us an energy source and medical advances, but also atomic bombs and toxic pollution. The Green Revolution that helped double or triple world grain yields relies on fertilizer made from natural gas that will eventually run out. Meanwhile, populations needing food have tripled since the inception of the Green Revolution. Growth enabled by technology puts humanity further out on a limb, increasing ecological and economic risks.

If we are so smart and technology can solve every problem, why hasn’t every problem been solved? Historians list dozens of collapsed societies. Why didn’t brainpower save past empires? Why are carbon dioxide emissions still increasing? Why, after the global financial crisis affected so many people and communities, did banks go back to speculating in derivatives? Why are a billion people stunted by malnutrition? Why are so many species going extinct? Why do war and arms races persist? And so on across a range of unsolved local and global problems.

A sign of too many jobs: this eyesore (a modular worker colony) sprouted at the Bakken shale oil deposits near Williston, North Dakota.  Photo by Ben Garvin, Reuters.

A sign of too many jobs: this eyesore (a modular worker colony) sprouted at the Bakken shale oil deposits near Williston, North Dakota. Photo by Ben Garvin, Reuters.

Perhaps the greatest irony is that even though we are counting on technology to save us, the U.S. is cutting research funding. At the same time, the cost of attending college is becoming unaffordable. In 1992 dozens of Nobel Prize-winning scientists signed a “warning to humanity” saying we should stop changing the earth so rapidly. When the world ignores scientists like Jim Hansen (NASA pioneer climate modeler), isn’t public indifference squandering the “ultimate resource?” What a contradiction: relying on science to save us and then ignoring the recommendations of our leading scientific experts.

The ecological footprint reveals that the world economy is already too big. Ecologists calculate that sustaining current levels of output would require 1.5 earths. If everyone lived like Americans, more than four planets like earth would be required. Scientists have identified nine key areas where the scale of human economies could damage earth’s ability to support us for the long run. Three of the nine “planetary limits” have already been exceeded, reducing the planet’s capacity to support human life. Current levels of economic output require drawing down planetary “savings accounts” (soils, fossil fuels, species diversity, etc.) that are rapidly being overspent and depleted.

We’re caught in a dilemma. We have too many jobs — too many people are consuming too many resources as they go about their jobs — and yet huge numbers of jobless people struggle to meet their basic needs. At the same time, policies are geared toward growing the economy with the hope of adding more jobs, while disregarding the problem of overconsumption. What can we do?

Several commonsense jobs policies could help us achieve full employment within planetary limits. In the short term we could share employment more fairly. The U.S. could achieve full employment by increasing vacation time — we get two weeks where Europeans get five weeks. We could cut back to a four-day work week, lower retirement age (say to 60), offer more part-time work or job sharing, and send more people back to school to upgrade skills. Incomes would be reduced and social security taxes would increase due to these measures, but we would enjoy more fairness in distribution of income; less crime; more leisure time; more time for family, friends and community; and improved quality of life. We might even live longer — people in half a dozen well-off European countries live two years longer than Americans.

In the long run, we must stabilize or decrease population. Society should subsidize the first child and allow a second child without penalty, but require parents who choose to have more than two children to pay the full costs of educating and providing medical care and old age support for those extra children. People who expand population take more than their fair share of everything while imposing costs on the rest of us by collectively pushing up prices for housing, land, food and energy. Crowding makes life more stressful in many ways — traffic congestion, longer lines, more competition for jobs and college admissions, higher unemployment, lower wages and higher taxes. Extra kids contribute to climate change, pollution and resource depletion. Requiring those with large families to bear the costs their extra children impose on others would incentivize responsible family planning decisions. Far from being repressive, having smaller families corrects market failure, liberates women and makes families and children better off. The world’s best educated women voluntarily choose small families as shown by the below-replacement fertility rates in some of the best educated countries.

Reversing direction to optimize the total number of jobs, rather than pursue unlimited job growth, won’t be easy. Economists must accept a major paradigm shift. Such a shift has been described in the literature for over 200 years starting with Malthus, Ricardo and John Stuart Mill. Classical economics theory included limits to growth — a “stationary state.” Sharing jobs and stabilizing population won’t solve all economic and ecological problems. Many other reforms need to be included on the agenda to achieve a steady state economy that features environmental protection and sustainable levels of consumption — reforms like a carbon tax, conservation of species diversity, and redistribution of wealth.

For such laws to be passed in democracies, the public would have to be far better informed to understand why these changes make sense. Pro-growth messages come at us incessantly from mass media, the Internet, and pro-growth lobbyists, politicians and businesses. A keystone reform will be to overhaul the way we fund our information-providing institutions. We currently use information from these institutions to make important decisions. The trouble is that much of the information is actually misinformation, because the institutions obtain their revenues from advertising that pushes the infinite-growth agenda.

Abandoning the ideology of growth so firmly embedded in economic theory, popular culture and the media will be difficult. But economic theory reform, media reform, job sharing and changing human fertility behavior will be far easier than changing the inescapable laws of physics, expanding the land area of the earth, or doing business in cities inundated by rising sea levels. Difficult is still a lot easier than impossible.

The Canutist State

by Herman Daly

Herman DalyIn one version of the legend of King Canute’s failed attempt to stem the rising tide by lashing the sea, he told the assembled crowd of flatterers: “Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth and sea obey by eternal laws.”

In this version, Canute staged the attempt to control the tide in order to discredit the lying sycophants who kept telling him that he was all-powerful and therefore could do anything that they wanted him to do. But popular history, immune to subtlety, has portrayed Canute as really believing that the sea would obey him. Hence the term “Canutist State” has been used to refer to governments that try to mandate climate stability without burning less carbon, to grow forever in a finite and entropic world, and to abolish poverty without sharing. It would be more just to Canute if the term “Canutist State” referred to a wise government that constrained the ignorant attempts of its businessmen and economists to grow forever. With apologies to the wise King, I will perpetuate this injustice because the image of a stupid government serving business interests by trying to countermand nature’s laws is such an apt description of what is happening today that we need a name for it.

The Canutist State wants, in the words of one of its big boosters, IBM, to “build a smarter planet” — one that is “smart” enough to obey our mindless command to keep growing. The real Canute would not try to build a smarter planet (by geo-engineering, genetic engineering, globalization, quantitative easing, etc.), any more than he really tried to command the tide. He would have tried to build a smarter kingdom populated by wiser subjects, and thrown his growth-manic economic advisors into the dungeon. He would have said, “Let’s make a smarter adaptation to the wonderful gift of the Earth, out of which we were created and with which we have evolved.”

It would be tempting to emulate Canute’s strategy by putting the growth-manic advice to the test and watching it publicly fail. That would be very costly, but in a way it is exactly what is happening, although not by design. Unfortunately, the failures are attributed to insufficient growth rather than to the stupidity of the priestly economic advisors who inhabit palaces rather than dungeons. Their policy is to lash nature even harder with the whip of mega-technology until it gives us what we want — usually accompanied by a lot of “unforeseen consequences” that we certainly do not want.

Technological Progress for Dummies

by Brian Czech

Not you, CASSE signatory. You’re no dummy. You already know that the fundamental conflict between economic growth and environmental protection can’t be overcome with technological progress.

But we’re all dummies about something. Most of us are dummies about toothpick manufacturing, for example. Toothpick dummies range from presidents to pot-scrubbers. So do plasma physics dummies, Arabic language dummies, and root canal instrument dummies. So don’t take this the wrong way if you think technological progress can overcome the conflict between economic growth and environmental protection. You may be wrong about that, but you are legion!

Now among dummies, there’s dumb and dumber. That’s just the way it is. But toothpick dummies and other specific dummies can be smart overall. So the generally smart and smarter are specifically dumb and dumber.

Technological progress sure brings out the dumb in the smarter. This I discovered by trying to get scientific organizations to adopt positions on economic growth. Invariably, the biggest hurdle was the notion that, with technological progress, economic growth and environmental protection could go hand-in-hand.

And frankly, it is an extremely difficult notion to refute, at least in plain language. It’s different if you’re a physicist; you probably get it immediately. You know that, no matter how much invention and innovation, you can’t make something from nothing and you can’t get perpetually more efficient. You know it because you’re steeped in the first two laws of thermodynamics.

But there we go, with “laws of thermodynamics,” already outside the vernacular, way beyond plain language. Few among us are physicists. Legion are we thermodynamic dummies, from presidents to pot-scrubbers.

That doesn’t mean you must be a physicist to get it. Farmers tend to get it too, as do many people who work with their hands, city or country. The fact that you can’t make something from nothing, that you can’t have your cake and eat it too, is really a matter of common sense. Or it should be.

The problem is that common sense is not very common any more. It’s been vanquished by disingenuous marketers, truth-bending politicians, and scholarly “smart-dummies” (generally smart, specifically dumb on technological progress) who have legions thinking there is no limit to economic growth. But surely it’s not far below the surface. Surely there is latent common sense to invoke.

For several years in the early 2000’s, I looked high and low for a thorough explanation of why technological progress could not reconcile the conflict between economic growth and environmental protection. I felt I had common sense — horse sense, farm sense, construction sense — and I couldn’t believe the best-selling authors blathering about perpetual growth in the “information economy” and the politicians chanting the mantra, “there is no conflict between growing the economy and protecting the environment.” All this was based on a fuzzy notion of technological progress, and had most Americans (64% according to a Roper poll) believing there was no limit to economic growth. So I searched for scientific literature to refute the fallacious rhetoric.

Much to my chagrin, there was almost nothing. There were rigorous explanations for limits to growth, most notably by our Daly News namesake. Herman Daly had used laws of thermodynamics to demonstrate limits to growth and to advocate a steady state economy. He and others also described how economic growth required natural capital, which helped to explain the basic trade-off between growth and environmental protection. All this implied that technological progress could not reconcile the trade-off, at least in the long run, and here and there were statements to that effect.

There were also critiques of technological progress that were focused less on limits to growth and more on cultural impacts. Perhaps the most famous was by E. F. Schumacher in Small is Beautiful. Schumacher called for “appropriate technology.”

Yet there seemed to be a missing concept. Nowhere was there a thorough, rigorous, and compelling explanation for why technological progress could not allow a nation, or the world, to continue growing the economy without necessarily degrading the environment in the process. After all, there seemed to be many examples of technological progress that helped protect the environment, even in the midst of rapid economic growth. These examples, along with the lack of a rigorous trade-off thesis, explained why legions were unwilling to acknowledge limits to growth, or even a trade-off between economic growth and environmental protection.

It also explains why very smart dummies in academia, government, and the private sector are paid handsomely for “science and technology policy” affairs. These folks are often brilliant in general terms, and about many specific topics, yet many are dumber than a boot about the relationships among economic growth, technological progress, and environmental protection. Invariably they recognize that economic growth and technological progress are tightly linked, and they know that many new technologies are “greener.” They therefore figure it’s a slam dunk that economic growth may be reconciled with environmental protection via technological progress. For them, the object of science and technology policy is to steer science toward providing technological progress, thereby growing the economy and protecting the environment. It’s a classic win-win!

Partly because they’re paid so handsomely, jetting from conference to conference, most others think they must be experts on the subject. They should, therefore, be believed. Meanwhile, because their win-win message is political gold, politicians find them useful. Smart-dummies are appointed to high governmental posts, becoming more credible yet in the eyes of the public.

If you go to a typical science and technology policy conference, you’ll find one group of speakers talking about where the money for science is coming from or could come from. Another group will point to where the money is going; what kind of science is being conducted, who is conducting it, and what new technologies are coming online as a result. Another group will address what it means to the environment, and another will address what it means to the economy. Keynote speakers weave these threads into the tired message that we need newer technology and therefore more science – we’ll just have to find funding for it – so we can continue growing the economy while protecting the environment. Then it’s time for wine and hors d’ oeuvres and planning for the next highfalutin conference.

Clearly we have to look elsewhere for a clear description of why the conflict between economic growth and environmental protection cannot be reconciled with technological progress. Ideally this description would not rely exclusively on the laws of thermodynamics, either, but could be put in much plainer language. That would make it relevant to the public and policy makers.

When I found no such description during those years around 2000, I decided to attempt it myself. The experience was daunting and taught me how easy it would be to slip into accepting the idea of perpetual economic growth, or at least the idea of reconciling growth with environmental protection for extended periods of time. But I got lucky in stumbling upon an overlooked concept — maybe the overlooked concept in these matters. It’s a concept necessary to explain how economic growth and technological progress can continue in lockstep, but not without environmental degradation. It’s actually a well-known concept in the economics profession, but hadn’t been applied to the issue at hand. I stumbled upon it while studying the methods and findings of national income accounting, especially the findings of the late Edward Denison, a pioneer in the measurement of GDP.

Now I won’t claim that the concept — “economies of scale” — is exactly plain language either. Yet it is much plainer than laws of thermodynamics. For one thing, far more citizens are businessmen than physicists, and economies of scale resonate with them.

I wrote it all up in a peer-reviewed paper published in 2008 for the journal Conservation Biology. The paper isn’t plasma physics, but neither is it plain language. So I haven’t yet completed the plain-language part of the task. There’s no better place to try than the Daly News.

Frankly, I’m not sure I can do it, and I’m not sure it can be done by anyone. The topic may be just tricky enough to defy the vernacular. We’ll see how it goes in the conclusion of this two-part column next week…

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.