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Transformative Common Sense in Vermont

by Eric Zencey

Eric ZenceyChances are that when you hear the phrase “Comprehensive Economic Development Strategy,” you don’t immediately think of dramatic change in the established political-economic order of things. The words don’t seem revolutionary. They certainly don’t call to mind images of furtive guerillas toting rifles or of throngs in public squares using chains and ropes to topple statues. Chances are equally good that unless you hang out with economic development officers or land use planners, you’d have a hard time rounding up a dozen people who’d sit still long enough to hear what a CEDS is, let alone why it might be of interest to them. But despite the dry name, the document recently released by Vermont’s Department of Commerce and Community Development portends a quiet, far-reaching revolution in governance in the Green Mountain State–and perhaps on a larger stage.

The potential for this enormous change is signaled in a short, clear statement from the report’s Executive Summary:

…This CEDS sets out a unique, overarching goal: it proposes to not only grow jobs and wages and increase our Gross Domestic Product, but also to improve the Genuine Progress Indicator (GPI)…by 5% over baseline over the next five years.

With this language, Vermont becomes the first state to make explicit use of an alternative indicator in setting goals for economic development. The commitment to use the GPI in this way places Vermont in the forefront of a growing national movement to integrate the GPI into social and economic policy. Because GDP-based economic development is so wrong-headed, this commitment is a matter of common sense; and yet, because GDP-based economic development is so deeply woven into the substance and texture of our political economy, using basic common sense here is a powerfully transformative act.

The faults and flaws of GDP as a measure of economic progress are well known and don’t need to be repeated in detail here. It was never intended to serve as a measure of economic wellbeing, and one of the largest problems in using it for that purpose is that it doesn’t subtract environmental damage as a cost of economic development. Instead, it simply ignores these losses as externalities–until and unless money is spent to correct them, at which time the remediation of the cost is transformed, as if magically, into an apparent economic benefit. (This is a macroeconomic instance of what is generally called the broken window fallacy.) Negative environmental externalities occur when economic activity exceeds one of the planet’s local, regional, or global source-and-sink limits and thereby imposes harm, damage, cost or loss on innocent third parties–people who neither produce nor consume the goods whose production damages the environment. (Traditional economists don’t talk of “innocent” third parties when they discuss externalities, but the morally charged language is appropriate. Why should it be acceptable for profit-seekers to impose uncompensated loss on the general public?)

Because these externalities have their origin in ecosystem limits, and GDP treats the externalities as if they didn’t exist, it’s fair to call GDP an infinite planet statistic. Brian Czech has argued recently that what GDP measures best is environmental impact. While GDP isn’t a perfect measure of environmental impact—some of the things we consume cause less environmental damage per dollar than others—it seems a decent proxy, since in general it’s true that the larger the economy in GDP terms, the larger its environmental impact.

In contrast, the Genuine Progress Indicator subtracts environmental and other costs from the ledger, giving a more accurate bottom line. In doing so, GPI applies the principles of double-entry bookkeeping to the economy as a whole. The invention of double entry bookkeeping was a crucial to the growth of capitalism; a business can’t stay in business for long if its managers have no idea how its debits stack up against its credits, how its costs compare to revenues. And what’s true at the micro scale is true, in this instance, at the macro scale: because GDP systematically miscounts costs as benefits, we’re about to go environmentally broke–the entire economy may go out of business as climate change and loss of biodiversity bring dramatic, civilization-threatening change.

Mushroom Ecosystem

Economic growth will eventually cost more in ecosystem damage than it brings in economic gains. Photo Credit: Scott McCracken, Cambridge, VT

There is nothing in the Genuine Progress Indicator that says, explicitly, “there are ecological limits to economic growth.” But because it subtracts environmental costs from economic benefits, the GPI is a finite planet indicator that will, if implemented accurately, lead policy makers to this realization. Consistent, accurate compilation of the GPI will make clear that for any given ecosystem, at some point economic growth that is rooted in that system costs more in ecosystem service losses than it brings in economic gains.

This means that there are limits to the amount of economic production the planet’s ecosystems can support. Obviously, that fact has implications for economic development and the policies that promote it. Foremost among those implications is the necessity of abandoning the traditional “jobs and GDP” focus of development policy. As noble as it may be to aim to assure every aspiring worker the dignity of useful work, and as comforting as it is to think that we can continually add to our national stock of wealth by perpetually growing our national income, neither goal can be accomplished forever (or even, arguably, in the near term) through policies that take GDP growth or job growth as their sole and solitary focus. A commitment to perpetual full employment that is not also connected to an effort to limit population growth is at bottom a commitment to perpetual economic growth, a chimerical ideal. And because GDP so badly miscounts costs and benefits, failing to keep them separate, any policy effort that aims solely at increasing GDP is destined to be fatuous.

In announcing a development goal that is couched in terms of the GPI, Vermont has put itself on a path that will lead away from traditional “jobs and GDP” thinking–though the divergence of the two paths is not yet fully clear to policy makers. (Recall that the CEDS document aims not only at improving the GPI but also to “grow jobs and wages and increase…GDP.”) No doubt many of the legislators and policy makers who supported the state’s adoption of GPI as a better accounting system did not and would not embrace the notion that there are limits to economic growth. But the contrast between new-think and old-think, between finite and infinite planet thinking, between promoting sustainable economic activity and continuing the “growth forever, business-as-usual” mindset can only become clearer with time. As awareness of the GPI and its precepts filters into state decision-making processes, Vermont will find itself increasingly led to develop in ways that are sustainable and that do not damage the delivery of ecosystem services to its citizens. That kind of development will give the state a competitive edge in the region and nation, as it lays a foundation for the sustainable, post-petroleum, post-perpetual-growth economy that must come to the entire planet, in one version or another, sooner or later. (After all, the one thing you can know about an unsustainable system is that it won’t last.) Vermont’s policy use of the GPI is transformative common sense that will make that inevitable transition smoother and less disruptive for all Vermonters.

Building a Movement for Happiness

by John de Graaf

John de GraafEditor’s note: this essay was first published in Truthout.

You probably missed it, but April 13, 2014, marked the third annual Pursuit of Happiness Day. April 13 just happens to be the birthday of Thomas Jefferson, who wrote those famous words “life, liberty and the pursuit of happiness” into our Declaration of Independence.

Jefferson and other American revolutionary leaders including Washington, Adams and Franklin all believed that the main purpose of government was increasing the happiness of its citizens. They said so on many occasions. But the idea of government promoting happiness or its corollary, “wellbeing,” is more often derided in contemporary politics – “social engineering,” some call it.

One significant exception is the state of Vermont. In addition to electing the most progressive and independent of US senators, Bernie Sanders, Vermont has become a laboratory for promoting new ways of understanding and promoting happiness and wellbeing. Its governor, Peter Shumlin, has proclaimed Pursuit of Happiness Day in Vermont for the past three years. Its legislature, with support from Democrats, Republicans and Progressive Party members, has established a state GPI or Genuine Progress Indicator, that uses some two dozen measures of health, wealth, education, leisure and sustainability to measure progress (Maryland has the same index and other states may follow soon).

So it’s probably not surprising that Vermont has been the site of three of four national Happiness conferences in the US (Seattle hosted the other) and will be sponsoring the 5th Gross National Happiness Conference – Happiness and Wellbeing: Building a National Movement – in Burlington at the end of this month. Organizers hope the conference will help create a strategy for building public policies and personal change based on the goal of Sustainable and Equitable Wellbeing and Happiness.

Bhutan’s Challenge

The conference was inspired by a United Nations meeting, Wellbeing and Happiness: Defining a New Economic Paradigm, held in April 2012. At that meeting, then-Prime Minister of Bhutan, Jigmi Thinley, declared that

The time has come for global action to build a new world economic system that is no longer based on the illusion that limitless growth is possible on our precious and finite planet or that endless material gain promotes wellbeing. Instead, it will be a system that promotes harmony and respect for nature and each other; that respects our ancient wisdom traditions and protects our most vulnerable people as our own family, and that gives us time to live and enjoy our lives and to appreciate rather than destroy our world. It will be an economic system, in short, that is fully sustainable and that is rooted in true abiding wellbeing and happiness.

Bhutan Monk - Credit-Otabi Kitahachi

Little Monk
Photo Credit: Otabi Kitahachi

The tiny Himalayan nation of Bhutan, population 750,000 (about the same as Vermont), has been trying to measure and promote happiness as the goal of its government since its then-16-year old King, Jigme Singye Wangchuck, proclaimed that “Gross National Happiness is more important than Gross National Product” four decades ago. Its challenge to Gross National Product (now Gross Domestic Product), the standard by which other nations measure success, followed an earlier observation by US Senator Bobby Kennedy that GNP “measures, in short, everything except that which makes life worthwhile.”

As is now well-understood, GNP (or GDP) is a poor indicator of wellbeing – it measures the churn of money in a society. It creates an upside-down world in which many bad things – oil spills, traffic accidents, cancer, etc. – are measured positively because money must be spent to alleviate them, while many things essential to wellbeing – housework, volunteering, natural beauty, good health, etc. – are not counted at all (prompting Kennedy’s comments). The Genuine Progress Indicators used in Vermont and Maryland are attempts to correct these clear design flaws in GDP.

Bhutan has brought leading experts in many disciplines from around the world to guide its progress toward its goal of Gross National Happiness. The country currently conducts bi-annual surveys to measure the wellbeing and happiness of its people, measuring progress in nine areas or “domains” of life considered especially important for happiness, including: physical health; mental health; education; quality of governance; social support and community vitality; environmental quality; time balance; access to arts, culture and recreation, and material wellbeing. In this model, material wellbeing – the primary goal of GDP – matters, but as only one of several important factors.

Bhutan has also created a “happiness policy tool” that allow lawmakers to understand the longer-term implications of proposed legislation on each domain of happiness. Its 24-member Gross National Happiness Commission evaluates major policy proposals using this tool and advises Bhutan’s parliament regarding their likely impact. For example, using the tool, Bhutan turned down an offer to join the World Trade Organization. The proposal scored only 42 of 92 possible points in the GNH Commission analysis; 69 points are required for a positive recommendation.

The New Science of Happiness

In the days of Jefferson, it wasn’t really possible to measure and assess national happiness and its causes. But in the past couple of decades, a new science of happiness, driven by advances in positive psychology and extensive studies of the brain, has allowed researchers to more thoroughly understand happiness and its roots in both public policy and human behavior. Gallup polls 1,000 Americans daily regarding their life satisfaction using a popular tool called the Cantril ladder: Perhaps not surprisingly, Americans are 20 percent happier on weekends than on workdays.

Gallup also uses the ladder and other measures to assess the happiness of 150 countries in the world each year. Consistently, northern European nations rank on top, with Denmark in the number one spot (at 7.7 out of 10) year after year. The United States, which ranked 11th in 2007, has dropped to 17th place (7.0 out of 10) since the great economic meltdown. Several factors in particular characterize the world’s happiest countries – a relatively small gap between rich and poor; excellent work-life balance; urban design favoring community over cars; high degrees of interpersonal trust; a strong social safety net, and, contrary to popularly-held US ideas, the highest tax rates in the world.

Putting Happiness First

Organizers of the Vermont conference hope to launch a movement that puts happiness and wellbeing at the forefront of policy ideas and educational goals. The event features more than 50 prominent speakers, including Vermont state Senator Anthony Pollina, author of the Vermont GPI legislation, Linda Wheatley and Tom Barefoot, lead organizers of GNHUSA, the Vermont organization that has been the primary conference organizer, Laura Musikanski of the Happiness Alliance based in Seattle, John Havens of Hacking H(app)iness and a writer for the British newspaper The Guardian. (Full disclosure: This author is also a speaker.)

Ph

Bhutan’s Four Pillars of GNH
Photo Credit: Ritwick Dutta

“Bhutan may have first suggested that happiness and wellbeing be the primary focus of policymaking,” says Linda Wheatley, conference organizer and co-founder of Vermont-based GNHUSA, “but now, as we face indicators of economic, social and environmental distress, the whole world is seeing the value of that shift in orientation. It’s time for an informed and inspired grassroots movement. We’re thrilled to be part of that effort and invite everyone else to join us.”

Participants will gather to share the tools, skills and resources for building happiness initiatives in other towns and cities across the country. The formal conference, on Thursday and Friday, will explore four content areas: Policy and Community Engagement; the Power of Data; Developing Happiness Skills, and Movement Building. Each segment will include a keynote and plenary presentations by well-known academics and activists in a variety of related fields, followed by workshops for further skill development. The very practical efforts currently underway in Vermont will be an important focus of the conversation.

The formal conference, on Thursday, May 29 and Friday, May 30, will be followed on the weekend by a series of add-on trainings including a focus on spiritual traditions and on conducting happiness surveys and using happiness policy tools in local communities.

Until now, what has been happening in Bhutan, and more recently, in the state of Vermont, has been under the radar of most Americans. Conference organizers hope this gathering will help change that.

“We’ll be looking at best practices to improve wellbeing and happiness from throughout the world,” says Tom Barefoot of GNHUSA.

At a time when so much of our news is a litany of inequality and environmental destruction, making happiness our goal instead of more money, stuff and consumerism is common sense. The scientific evidence shows that social connection, participation, good health and access to nature matter far more for wellbeing than an ever-growing GDP. It’s time for that evidence to get out there more widely.

Where Infinite Growth Meets Biophysical Limit

by Eric Zencey

Eric Zencey is the author of the recently released book The Other Road to Serfdom and the Path to Sustainable Democracy. This essay is adapted from Zencey’s forthcoming history of Vermont’s environmental movement, Greening Vermont: The Search for a Sustainable State, which he co-authored with Elizabeth Courtney.

To achieve a sustainable, steady-state economy, we’re going to have to limit matter-and-energy throughput in the economy to what the planet can sustainably give to us and what it can sustainably absorb from us. Against that physical limit, though, the economy continually exerts pressure: it’s structured for continual expansion of its matter-and-energy throughput, as we are encouraged to want, to seek, to produce and to own more and more and more. What we need are adaptive mechanisms that can reconcile the two.

One such policy adaptation is in place but hasn’t been fully developed or conscientiously applied.

The Clean Water Act (CWA) of 1972 instituted a national cleanup of the nation’s waterways, which had too long been treated as an open-access sink into which anyone could freely dump wastes and pollutants. Under the CWA, wastewater treatment facilities were built or upgraded and point source discharges — those coming from a single facility — were regulated and controlled. Water bodies that were considered dead in 1972 made remarkable recoveries.

Even so, by 2002 the Environmental Protection Agency (EPA) had categorized over 20,000 bodies of water (more than 40% of all those it assessed) as “impaired” — too polluted to be used for their “designated beneficial uses.” Clearly, if water quality was to be fully restored, more needed to be done.

The main problem was and continues to be “non-point” discharges — the diffuse pollution that is carried into waterways by runoff from land. Anything that is put on land can and will find its way into our waterways. The most problematic pollutants vary from basin to basin. Some of the most troublesome: the oil, gasoline, and road salt that find their way into our soils, streets, and parking lots as we use automobiles; untreated animal waste, including the burdens produced in some areas by farm animals and in others by pets; and fertilizers and pesticides, used by suburbanites to feed their lawns and by farmers to increase their yields in order to feed us.

The CWA outlined the manner in which non-point pollution was to be judged and limited: states were to identify impaired bodies of water and then set water quality standards for them. EPA rules written in 1985 and 1992 offered further guidance: states were to identify the pollutants that cause the impairment, and for each of those pollutants they were to identify the Total Maximum Daily Load (TMDL) that the body of water could absorb without being impaired. Their work would be reported to and reviewed by the EPA. How TMDLs would be enforced — how the scarce capacity of waterbodies to absorb effluents would be rationed — was left to state discretion.

Behind the notion of TMDL is sound, steady-state thinking: the capacity of bodies of water to absorb pollutants isn’t infinite, and the limits need to be discovered and respected.

Implementation and enforcement of the new rules wasn’t immediate. Some states, faced with significant expense, declined to comply with the law. Some sued to have the EPA do the job. The scientific work has been slow going. Between 1996 and 2003, a total of 7,327 TMDLs were approved nationwide, representing just 17% of the 42,193 bodies of water listed as impaired.

In Vermont, the issue of TMDLs came to a head in 1999, and experience there may be a guide to promoting the implementation of this finite-planet idea elsewhere. The controversy began with an application from Lowe’s, Inc. to build a store in South Burlington. The company received the necessary stormwater permits from the state in July of 2001, despite the fact that the store and its parking lot would force acres of runoff into Potash Brook, an impaired waterway. The Conservation Law Foundation (CLF) immediately appealed the permit decision. The appeal said that under the CWA, additional pollutants could not be discharged into the brook unless a mitigation and cleanup strategy were in place — a strategy that would require determination of the appropriate TMDLs, which hadn’t been prepared.

There were no TMDLs for Potash Brook for a simple reason: despite its carefully protected (and generally well-deserved) image as an environmentally aware state, Vermont hadn’t calculated any TMDLs at all. Meanwhile, well over 1,000 state-issued stormwater discharge permits had expired and were up for review. The Conservation Law Foundation had brought to light a major problem in the way that Vermont was managing its water resources and had revealed that the state was violating laws established under the Clean Water Act. “Vermont’s Agency of Natural Resources,” said Chris Kilian, the CLF’s Natural Resources Project Director, “can no longer turn a blind eye to our serious water pollution problems. Rubber-stamping permits that will add more pollution is not acceptable.”

CLF appeals of the Lowe’s decision were pending when the two sides announced a settlement in May 2006. Lowe’s agreed to implement higher cleanup standards than the state had required. Measures included stormwater retention ponds and filtration systems for runoff not only for Lowe’s 12-acre site, but the entire commercial plaza of which the new store was a part. Taken together these remedies were designed to eliminate all impact on Potash Brook. As part of the agreement, Lowe’s agreed to monitor stream conditions both upstream and downstream of its discharge, to ensure that the “zero harm” standard would be met.

If the CWA can continue to encode finite-planet assumptions through its call for discovery of TMDLs of pollutants in the country’s bodies of water, and if those limits can be enforced through state action or by citizen lawsuits, one key element of a steady-state economy will be in place.

But it’s not going to be easy to reach that point. TMDLs remain a controversial and difficult topic, as might be expected of a regulatory device that operates at the intersection of human ambition and biophysical limit. And the state-by-state foundation of the law may hamper its effectiveness. For instance, of the fifty water bodies in Vermont that are officially classified as impaired because of acidification, the source of the pollutant — acid raid — is well beyond the power of the state to control. And much non-point-source water pollution in Vermont has its origin in agricultural practices, which Vermont legislators and regulators are loathe to tackle. As the strong base of the state’s economy and as a prime preserver of the working landscape, farming provides all Vermonters with many benefits, and the environmental movement is unanimous in wanting to see a healthy agricultural economy in the state. But farming practices are responsible for 38% of the phosphate pollution that leads to regular algae blooms in Lake Champlain (making it the second largest category, after urbanization at 46%). The blooms can be toxic to wildlife, humans, and domestic pets, and they prevent recreational use of the parts of the lake that are affected. If Vermont is to achieve its water quality goals, it will have to enforce TMDLs for all waters that drain into its lakes, even if those limits require changes in agricultural practice. By 2012, Vermont had established TMDLs for roughly 60% of the waters that had been identified as needing them.

The concept of TMDLs can be extended to other sinks and pollutants. A TMDL could be set for diesel exhaust from trucks, limiting the amount to what a particular airshed can absorb without ill effect. Paired with a similar understanding of the limits of source services — like the maximum sustainable yield figures that can be calculated for forests and fisheries — TMDLs point to one way of achieving a balance between human activity and planetary systems.

The research necessary to determine a TMDL is costly, and comes at a time when public budgets are already being strained (by, among other causes, a declining energy return on investment for oil that means more and more of our economy’s energy is dedicated to getting that energy). If we don’t like the expense of government regulation, if it looks like we can’t afford all that governmental overhead, then we’ve basically got three choices: retreat into an infinite-planet state of denial and let our economy destroy our habitat; require private enterprise to fund the necessary research as part of the cost of doing business on what is undeniably a finite planet; or find ways (like a carbon tax or other uptake and throughput taxes) to meter inputs sufficiently to bring economic activity well within biophysical limit, thereby making the regulatory burden and research expense of TMDL enforcement less needed.

Neoclassical Economist Recants Key Article of Faith

by Eric Zencey

Mark this down as minor good news: in Vermont, a neoclassical economist who has long served as a media “go-to guy” for commentary on economic matters appears to have recanted a key element of the neoclassical model. He didn’t put it in those terms, and the scope of his readership is rarely larger than his (and my) home state, but still, this counts as progress.

The element of the neoclassical model that has come under critical scrutiny in the Vermont press lately is the notion that GDP — a measure of the dollar value of all goods and services produced by the economy — is a practical and useful measure of economic well-being. It’s not hard to see why GDP is being re-thought: last month tropical storm Irene dumped tropical-rainforest quantities of water on the state in just a few hours, leading to major damage from unprecedented flooding. Rivers filled their flood plains and kept rising, sweeping away roads, bridges, and houses, ruining homes, lives, farms, and communities. The publicly owned infrastructure is being put back with great speed and efficiency (and should be in good shape for the upcoming foliage season, so if you’ve planned a visit don’t think that you need to cancel). That repair work is the source of some economic confusion. The construction industry had been slumping; now workers are busy, doing productive things, getting paid. Is all this public works effort a net benefit to the economy, or not?

GDP says yes, absolutely. Common sense — and steady-state economic theory — says no.

GDP smiles on this scene.

GDP gets it wrong because it fails to take into account the ongoing benefit we derive from the services of physical wealth that’s already in place — public and private infrastructure that is paid for and in use. My car is a capital investment that provides me with transportation services; if I own it, the only aspect of its delivery of services that shows up in GDP comes from the spending I do on operating costs and maintenance. And perversely, if gas prices go up so does GDP — telling us that because there’s more spending, the economy must be delivering more economic benefit. If I make the switch to renting a car rather than owning it, the rental fee shows up as a monetary transaction and gets counted in GDP — though there’s no net increase in the quantity of services I’m getting. Those services count in GDP only if I pay for them incrementally and continually (and don’t get an equity stake in my vehicle).

The same miscounting happens with the services provided by (non-rental) housing, roads, bridges, etc.: the ongoing benefit is simply not counted. GDP is an indicator for amnesiacs. It has no memory, no room to allow that the economy has been operating for quite a while and has produced forms of durable wealth — things like buildings and bridges and roads and communications systems — that continue to be useful long after they’ve been paid for.

So, when disaster leads to major new spending, a by-the-book accounting has to say: GDP is up, so we must be better off. The downside — the loss of wealth (and the loss of services derived from that wealth) can’t show up in the books because it wasn’t counted in the first place. Disaster looks to be good for business, good for the economy, good for us; within the limits of neoclassical concepts, tools, and analysis, when we repair storm damage the result is “net positive.”

Will Vermont end up net positive in economic benefits as it repairs the damage from Irene? There are additional complexities when we ask such a question about a particular location or region, and the answer is “it depends.” The net economic effect of damage and repair for any one location depends in part on where the funding comes from — whether it is raised within or outside the economy being considered. (At the macro level, there is no “outside,” and the answer is no.) If Vermont’s repairs are paid for with money from outside the state — from the Federal government, say, through FEMA grants — disaster repair might or might not have a net positive effect in the state; it may or may not exceed the loss of wealth from the disaster. If there is a net positive effect, the surplus comes either from deficit spending by the central government, or through direct transfer of resources (through Federal taxes) from other states. If it’s a transfer, it represents loss of purchasing power and economic activity in the areas from which the money is transferred: there’s been no net gain in the system, just a shift in who benefits and who pays. If the funding comes from deficit spending, the stimulus may be just what’s needed to put people back to work, but there is still a shift: the transfer is inter-generational rather than geographic. Wealth creation that might have occurred later, benefiting a future generation, has been brought forward to benefit us.

This wouldn’t be a problem in an economic system on an infinite planet. In a world without resource constraints, deficit-financed investment can always increase the amount of production in the future, and the deficit can be repaid from that increase. Thus, on an infinite planet it would be possible for both the present and the future to benefit from our deficit spending today. But on our planet, with an economy built beyond the limits of what’s sustainable, expanding production today diminishes the wealth and well-being of people in the future. On a finite planet at maximum capacity, there’s no room to expand the economy’s ecological footprint without causing harms and losses, and economic growth today is a transfer of wealth and well-being from the future to the present.

Casting up GDP accounts, even when corrected this way, doesn’t begin to measure the personal and social costs of the damage — people’s loss of livelihoods and secure expectations, their loss of the personal effects that help define them and their familial and community relations, and sometimes — as when farmland is poisoned by toxins in floodwaters and herds and breeding stock are swept to their deaths — their loss of a known, satisfying way of life in a familiar landscape. When those softer, less quantifiable costs are included, it’s very hard to think that the catastrophe in Vermont had any sort of net positive benefit.

But economics as neoclassicists practice it slices off those less quantifiable aspects of well-being and looks at cold, hard cash. In those strictly monetary terms, disaster looks good for business, and more business looks good for Americans. That’s the flaw in GDP that one neoclassical economist has recanted in his latest appearance in our local media.

I interviewed this particular economist by phone in 2009, when I was putting together an op-ed piece on the shortcomings of GDP for the New York Times. When I asked the professor about the perverse way GDP tallied the results of Hurricane Katrina ($82 billion in property damage, so an $82 billion boost to GDP if all the damage were to be repaired), he defended GDP. “That figure is going to include a lot of improvements,” he said. “Those people are getting new cars, new carpets, new refrigerators.” Notice that this way of thinking gives a disciplinary seal of approval (“100% rational behavior”) to a very uneconomic, irrational exchange: you’d be crazy to pay the cost of complete destruction of your household in order to get incremental upgrades of some of the things it contains.

While it isn’t always possible to map theoretical insight directly from individual households to the larger household of planet earth, here I think we can. Because GDP doesn’t count the flow of services from existing household wealth as an economic benefit, GDP fails to treat destruction of that wealth as a cost item, and so it treats reconstruction of that household wealth as a net gain. Ditto when we look at the whole system: in the planetary household GDP fails to count ecosystem services as a benefit, and so fails to count ecosystem destruction as a cost item, and so makes continual economic growth look like a net gain. Because of our shoddy accounting, we’re destroying the ecosystems that support civilization, often to get nothing more than an incremental upgrade to the wealth we already have. At some point, we’ve got to admit that this is uneconomic, irrational: crazy.

This far the go-to economist didn’t go, at least not as he was quoted in the paper. But fixing our accounting system is a commonsense idea that subverts infinite planet thinking, and in what he did say the neoclassical economist showed that he had taken the first step on that path. He allowed that Tropical Storm Irene wasn’t an economic boon to Vermont, because “there’s a tremendous amount of wealth that’s destroyed, and that’s not a good thing.” Having recognized the existence of that already-built wealth, he should be ready to take the next (logical!) step: start measuring that wealth and start counting the services we derive from it as part of our economic benefit. That means getting beyond GDP, which focuses on the now, the moment, the instantaneous rate of change in our market-based economic activity.

Getting off of GDP and implementing an accounting system with a memory will prove to be the first step on a path to broader changes. If we take into account the services we derive from our considerable stock of built wealth, and also take into account the services we derive from our considerable-but-declining stock of natural wealth, we’re led by inexorable logic to re-evaluate the concept of economic growth. When we have a system of economic accounting that includes all costs and all benefits, it will be easier to see that much economic growth is uneconomic, because it costs more in degradation of ecosystem services and other costs than it brings in benefits. Once we get over GDP it will be easier to see that the only sane, sustainable economic doctrine is one that calls on us to live within our current solar income, a steady-state flow of matter and energy through the economy. By then this truth will have become self-evident: on a finite planet, we can’t grow the economy’s ecological footprint forever.

If, thanks to unprecedented storm damage, neoclassical economists are led to reject the valuations offered by GDP and follow their thinking to this conclusion, then unprecedented weather events like Irene may yet prove to have a net positive economic effect: they will have nudged economic theory onto the path to a sane, rational, sustainable, steady-state economy.