Center for the Advancement of the Steady State Economy
Regular Contributors:  Herman Daly, Brian Czech, Brent Blackwelder, Rob Dietz, and Eric Zencey. Guest authors by invitation.

May 14, 2012

What’s “Rio+20″ and Why Should We Care?

Filed under: Brian Czech,Economic Growth,Economic Policy,Environment,Steady State Economy,Sustainability — Tags: , , , , , , , , ,
Brian Czech @ 9:53 pm

by Brian Czech

For those of us working in ecological and economic sustainability, Rio+20 is a big deal, and in our circles, just about everyone knows about it. Yet we have to wonder, what proportion of the general public has even heard of Rio+20, much less knows what it is? It’s a big question for a forum like the Daly News, where we’re all about mainstreaming sustainability. When we mention Rio+20, do we quickly lose readers who vaguely assume it’s some international, esoteric event with little relevance to mainstream society?

Rio+20 is short for the United Nations Conference on Sustainable Development. It’s a follow-up to the 1992 Earth Summit, which also was held in Rio de Janiero. The biggest environmental conference of all time, the Earth Summit produced the Convention on Biological Diversity, the Framework Convention on Climate Change, and Agenda 21. It was a beacon of hope on a planet in peril.

On the other hand, anarchists, nationalist extremists, and paranoid conspiracy theorists (and Sarah Palin, who warrants her own category) rue the Earth Summit because it evoked a certain level of international governance. It threatened the free world with that S word: sustainability.

The Earth Summit was also memorable for President George H. W. Bush snubbing his nose at the Convention on Biological Diversity, despite its signing by 150 countries and the European Union. He did sign the Framework Convention on Climate Change, but only after it lost its teeth by calling for voluntary instead of mandatory cuts in greenhouse gas emissions. In general, Bush dampened spirits and hampered diplomatic progress. “The American way of life is not up for negotiation,” he iconically announced, and he pitched that classic 90′s win-win rhetoric: “Economic growth provides the resources for environmental protection, and environmental protection ensures that growth is sustainable.”

I am quick to add that, despite explicitly identifying two prominent Republicans above, the win-win rhetoric was far from a partisan project. The Clintons, for example, were fond of win-winning with, “There is no conflict between growing the economy and protecting the environment.”

And the rest is history: decades lost, for the most part, in win-win one-upsmanship when we could have been preparing smartly for limits to growth and the sustainable alternative, the steady state economy. But that’s enough about history. What does Rio+20 offer in its wake? I think it offers perhaps the single biggest opportunity yet for “steady statesmanship” in international diplomacy.

Signs are abounding that the win-win rhetoric is giving way to common sense and sound science. No clearer sign exists than the CASSE position on economic growth and its growing list of signatories and commenters. One long-time conservation leader who recently signed the CASSE position noted, “I’ve been waiting for you for 40 years.” The time is ripe for steady state economics in academia, non-governmental organizations, and public policy.

But it’s not just we at CASSE and our list of signatories who signify a paradigm shift away from the obsession with economic growth. Why, just today the Huffington Post published an interview with Jeff Rubin about his new book, The End of Growth. The title is less noteworthy than the fact that Rubin was chief economist with CIBC World Markets. It seems like almost every day another well-known economist or ex-Wall Streeter is looking limits to growth square in the eye and not flinching. Rubin sees the end of growth as an opportunity for the planet to recover from the destruction inevitably wrought be growth.

These folks have a lesson for mainstream environmental and conservation organizations who can’t kick the win-win growth habit: Better get out of the way as real conservation leadership is coming from elsewhere. History will show that the big conservation NGOs have done us a major disservice by failing to raise awareness sooner — much sooner — of the trade-off between economic growth and environmental protection. To the degree they actively propagated the win-win rhetoric, their legacies will suffer.

I’ve digressed slightly from Rio+20, but only for some context. The proceedings of massive, bureaucratic UN conferences are not always unhitched from reality or relevance. What the various statesmen and women, ambassadors and diplomats are cogitating is the same thing we are: How can we all get along in the world when we know that many countries are consuming resources at a rate that is unsustainable and threatening to others on the planet? And yet those same countries continue calling for economic growth? There’s got to be a better way. Let’s hope the better way is achieved through diplomatic means, and not less peaceably.

Several weeks ago I moderated a session of the UN General Council in New York called “Harmony With Nature.” The session was sponsored by the Bolivian government, whose diplomats were completely understanding of limits to growth, and of the alternative policy goal of the steady state economy. My fellow panelists (including Joshua Farley, Herman Daly’s co-author of Ecological Economics) were aligned on the matter, and I daresay we literally brought “steady statesmanship” into the UN lexicon, or at least the proceedings. The tired old win-win rhetoric was debunked, and the feedback was enthusiastic.

This experience mirrored one from the Eastern Economic Association conference a few years ago, but on a much larger scale. The economists at the EEA conference were very unlike the neoclassical economists that pander to politicians with perpetual growth theories. They got it about limits to growth and the need for a steady state economy. So too with the diplomats from countries not so raveled up with Wall Street. The days of the win-win rhetoric are waning; the world at large is moving on, ready for steady statesmanship.

Are you?

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May 6, 2012

What Is the Limiting Factor?

Filed under: Economic Growth,Economic Policy,Environment,Herman Daly,Steady State Economy,Sustainability,Technology — Tags: , , , , , , , , , , , , , , ,
Herman Daly @ 9:39 pm

by Herman Daly

Herman DalyIn yesteryear’s empty world capital was the limiting factor in economic growth. But we now live in a full world.

Consider: What limits the annual fish catch — fishing boats (capital) or remaining fish in the sea (natural resources)? Clearly the latter. What limits barrels of crude oil extracted — drilling rigs and pumps (capital), or remaining accessible deposits of petroleum — or capacity of the atmosphere to absorb the CO2 from burning petroleum (both natural resources)? What limits production of cut timber — number of chain saws and lumber mills, or standing forests and their rate of growth? What limits irrigated agriculture — pumps and sprinklers, or aquifer recharge rates and river flow volumes? That should be enough to at least suggest that we live in a natural resource-constrained world, not a capital-constrained world.

Economic logic says to invest in and economize on the limiting factor. Economic logic has not changed; what has changed is the limiting factor. It is now natural resources, not capital, that we must economize on and invest in. Economists have not recognized this fundamental shift in the pattern of scarcity. Nobel Laureate in chemistry and underground economist, Frederick Soddy, predicted the shift eighty years ago. He argued that mankind ultimately lives on current sunshine, captured with the aid of plants, soil, and water. This fundamental permanent basis for life is temporarily supplemented by the release of trapped sunshine of Paleozoic summers that is being rapidly depleted to fuel what he called “the flamboyant age.” So addicted are we to this short-run subsidy that our technocrats advocate shutting out some of the incoming solar energy to make more thermal room for burning fossil fuels! These educated cretins are also busy chemically degrading the topsoil and polluting the water, while tinkering with the genetic basis of plants, all toward the purpose of maximizing short-run growth. As Wes Jackson says, agricultural plants now have genes selected by the Chicago Board of Trade, not by fitness to the ecosystem of surrounding organisms and geography.

What has kept economists from recognizing Soddy’s insight? An animus against dependence on nature, and a devotion to dominance. This basic attitude has been served by a theoretical commitment to factor substitutability and a neglect of complementarity by today’s neoclassical economists. In the absence of complementarity there can be no limiting factor — if capital and natural resources are substitutes in production then neither can be limiting — if one is in short supply you just substitute the other and continue producing. If they are complements both are necessary and the one in short supply is limiting.

Economists used to believe that capital was the limiting factor. Therefore they implicitly must have believed in complementarity between capital and natural resources back in the empty-world economy. But when resources became limiting in the new full-world economy, rather than recognizing the shift in the pattern of scarcity and the new limiting factor, they abandoned the whole idea of limiting factor by emphasizing substitutability to the exclusion of complementarity. The new reason for emphasizing capital over natural resources is the claim that capital is a near perfect substitute for resources.

William Nordhaus and James Tobin were quite explicit (“Is Growth Obsolete?,” 1972, NBER, Economic Growth, New York: Columbia University Press):

The prevailing standard model of growth assumes that there are no limits on the feasibility of expanding the supplies of nonhuman agents of production. It is basically a two-factor model in which production depends only on labor and reproducible capital. Land and resources, the third member of the classical triad, have generally been dropped… the tacit justification has been that reproducible capital is a near perfect substitute for land and other exhaustible resources.

The claim that capital is a near perfect substitute for natural resources is absurd. For one thing substitution is reversible. If capital is a near perfect substitute for resources, then resources are a near perfect substitute for capital — so why then did we ever bother to accumulate capital in the first place if nature already endowed us with a near perfect substitute?

It is not for nothing that our system is called “capitalism” rather than “natural resource-ism.” It is ideologically inconvenient for capitalism if capital is no longer the limiting factor. But that inconvenience has been met by claiming that capital is a good substitute for natural resources. Ever true to its basic animus of denying any fundamental dependence on nature, neoclassical economics saw only two alternatives — either nature is not scarce and capital is limiting, or nature’s scarcity doesn’t matter because manmade capital is a near perfect substitute for natural resources. In either case man is in control of nature, thanks to capital, and that is the main thing. Never mind that manmade capital is itself made from natural resources.

The absurdity of the claim that capital and natural resources are good substitutes has been further demonstrated by Georgescu-Roegen in his fund-flow theory of production. It recognizes that factors of production are of two qualitatively different kinds: (1) resource flows that are physically transformed into flows of product and waste; and (2) capital and labor funds, the agents or instruments of transformation that are not themselves physically embodied in the product. If one finds a machine screw or a piece of a worker’s finger in one’s can of soup, that is reason for a lawsuit, not confirmation of the metaphysical notion that capital and labor are somehow “embodied” in the product!

There are varying degrees of substitution between different natural resource flows, and between the funds of labor and capital. But the basic relation between resource flow on the one hand, and capital (or labor) fund on the other, is complementarity. Efficient cause (capital) does not substitute for material cause (resources). You can’t bake the same cake with half the ingredients no matter if you double or triple the number of cooks and ovens. Funds and flows are complements.

Further, capital is current surplus production exchanged for a lien against future production — physically it is made from natural resources. It is not easy to substitute away from natural resources when the presumed substitute is itself made from natural resources.

It is now generally recognized, even by economists, that there is far too much debt worldwide, both public and private. The reason so much debt was incurred is that we have had absurdly unrealistic expectations about the efficacy of capital to produce the real growth needed to redeem the debt that is “capital” by another name. In other words the debt that piled up in failed attempts to make wealth grow as fast as debt is evidence of the reality of limits to growth. But instead of being seen as such, it is taken as the main reason to attempt still more growth by issuing more debt, and by shifting bad debts from the balance sheet of private banks to that of the public treasury, in effect monetizing them.

The wishful thought leading to such unfounded growth expectations was the belief that by growth we would cure poverty without the need to share. As the poor got richer, the rich could get still richer! Few expected that aggregate growth itself would become uneconomic, would begin to cost us more than it was worth at the margin, making us collectively poorer, not richer. But it did. In spite of that, our economists, bankers, and politicians still have unrealistic expectations about growth. Like the losing gambler they try to get even by betting double or nothing on more growth.

Could we not take a short time-out from growth roulette to reconsider the steady-state economy? After all, the idea is deeply rooted in classical economics, as well as in physics and biology. Perpetual motion and infinite growth are not reasonable premises on which to base economic policy.

At some level many people surely know this. Why then do we keep growth as the top national priority? First, we are misled because our measure of growth, GDP, counts all “economic activity” thereby conflating costs and benefits, rather than comparing them at the margin. Second, the cumulative net benefit of past growth is a maximum at precisely the point where further growth becomes uneconomic (where declining marginal benefit equals increasing marginal cost), and past experience ceases to be a good guide to the future in this respect. Third, because even though the benefits of further growth are now less than the costs, our decision-making elites have figured out how to keep the dwindling extra benefits for themselves, while “sharing” the exploding extra costs with the poor, the future, and other species. The elite-owned media, the corporate-funded think tanks, the kept economists of high academia, and the World Bank — not to mention Gold Sacks and Wall Street — all sing hymns to growth in perfect unison, and bamboozle average citizens.

What is going to happen?

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May 2, 2012

Toward a New Bretton Woods and a Sustainable Civilization

Filed under: Consumption,Economic Growth,Economic Policy,Environment,Eric Zencey,Poverty Alleviation,Sustainability — Tags: , , , , , , , ,
EricZencey @ 11:23 pm

by Eric Zencey

Early in April, an international community of sustainability theorists and practitioners gathered in New York City at a special High Level Meeting at the United Nations.

Titled “Happiness and Wellbeing: Defining a New Economic Paradigm,” the High Level Meeting brought together 600 participants for the plenary session on Monday, April 2, with 200 invited experts staying an additional two days to form working groups to address key elements of the new economic paradigm. The meeting was called to begin the implementation of UN General Assembly Resolution 65/309, passed last year on unanimous voice vote. That resolution, brought forward by the tiny mountain kingdom of Bhutan and sixty-eight co-sponsoring nations, called for implementation of a dramatically different, more “holistic” understanding of economic development. It specifically rejected the GDP-based approach taken in the past and called for the creation and use of an alternative set of indicators that would more accurately measure human wellbeing. It also authorized Bhutan to call the High Level Meeting to articulate that indicator set, and to create a path toward its adoption.

But the meeting was about more than an indicator set. To decide what you’re going to measure, you have to know what you want to measure, and discussion of that — the ultimate purpose of an economy — subverts a great deal of traditional economic thought. And so the larger purpose of the meeting was to articulate the elements of a new economic paradigm, and to issue a call to world leaders to adopt its fundamental precepts.

The linking of development policy, pursuit of wellbeing, and alternative indicators in a new economic paradigm is a strong step toward establishing a sane and sustainable civilization that focuses on meeting human needs with ecological efficiency. To get there, centuries of infinite-planet economic thinking have to be swept aside. Traditional development theory begins with the idea that some nations are underdeveloped — nations that don’t have a western, industrial, consumerist economy. It also supposes that all the nations of the world want that kind of economy and that they can have it. But all three presumptions are false. No nation on the planet has an ecologically sustainable economy, which means that every nation, without exception, faces a major development problem. Consistent with the principles and practice of traditional neoclassical economics, western-style consumerist development has been predicated on an enormous drawdown of the planet’s stock of stored antique sunlight — oil and coal — which is a finite resource; and it has completely ignored the fact that the planet’s “sink” services — its ability to absorb our effluents, including greenhouse gases, without ill effect — are fixed and finite.

Together these flaws in neoclassical theory mean that development on the traditional model simply isn’t sustainable. America, with just 6% of the world’s population, uses 24% of the world’s annual production of fossil fuels, and similar proportions of other resources, both renewable and non-renewable. A nodding acquaintance with arithmetic is all you need to see that the western model isn’t scalable to the entire planet.

The traditional model of economic development presumes that raising GDP (gross domestic product) is the central purpose of economic policy. Increasingly, world leaders are recognizing that GDP is a poor measure of economic wellbeing, which is itself just part of overall wellbeing. Thus, the High Level Meeting to explore, articulate, and adopt an alternative. Bhutan’s leadership of this movement traces back to its adoption of gross national happiness as a way of measuring economic and social progress. Their use of this broader, more accurate indicator set led them to reject western style development. Faced with a decision about joining the World Trade Organization, government officials did a kind of “GNH Impact Assessment” and found that joining the WTO would diminish, not increase, their country’s wellbeing. The Bhutanese propose that their indicator set could serve as a model for the development of alternative indicators in other countries.

The 600-strong turnout for the plenary session, with many attendees from the UN delegations of member nations, shows that other nations are inclined to agree. What was new and impressive about the meeting wasn’t so much the content of what was said in the plenary speeches; many of us have heard, and have been saying, these things for years. What was new and different was who was saying them. The call for an ecologically sustainable economy that meets human needs is now being issued by prime ministers and former prime ministers, by presidents and secretaries of the interior, by directors of environmental agencies, by high-ranking officials the world over. And UN member nations are listening.

I took to the meeting a white paper on a project I’m involved with in Vermont, where, as a Fellow of the Gund Institute for Ecological Economics at the University of Vermont, I serve as coordinator of the Vermont Genuine Progress Indicator Project. The project brings together stakeholders — state and local officials, academics, leaders of non-profits, community leaders and interested citizens — to develop, articulate, and implement “GPI Plus,” a blending of the genuine progress indicator (one emergent standard among alternative indicator sets) and elements inspired by gross national happiness. The two complement each other. GPI is based on very clear, objective data, and measures physical things like net deforestation, net changes to air and water quality, net change in fertile farmland, and the costs of climate change. GNH is survey-driven and measures satisfaction with life in nine broad categories. Combining the two — using hard data about economic and ecological reality and survey research data about people’s experience — gives a fuller, more accurate picture of the economy’s sustainable, delivered wellbeing.

The Vermont project is moving forward, with a Data Inventory Meeting set for late May. (The first step in building the alternative indicator set is to convene producers and users of relevant data to see what we’ve got, what we can start with.) And a GPI Plus bill is making its way through the state legislature, having gained approval in both houses with minor differences; the Governor has indicated he’ll sign it. The bill commissions the GPI VT project as a state effort, identifies the Gund Institute as the leader, and would guarantee the participation of state agency heads and other officials in the process of development.

At the UN, the working groups that met April 3rd and 4th were tasked with laying the groundwork for a major international summit to be held in the summer of 2014. That meeting, UN officials hope, will result in a “New Bretton Woods Agreement,” a major rethinking and major reorganization of the economic and financial institutions that support the global economy. The Bretton Woods Agreement, signed in 1944, has been modified a bit — gone are the fixed exchange rates of the post-war era, just as Frederick Soddy advised — but it continues to embody an “infinite planet” model of economic development. With this High Level Meeting, the UN has acknowledged that it’s time to revamp our economic thinking and our institutional arrangements in light of the reality that the planet is, in fact, finite.

During the plenary sessions, there was little talk of steady-state economics or limits to growth from the keynote speakers, though the majority of the experts who participated in the working groups are well aware that the only sustainable foundation for the economy is a steady-state throughput that doesn’t increase (and indeed, will need to decrease) ecological footprints. I was part of a working group in which infinite-planet financing — debt-based money — was discussed. We tagged it as a driver of uneconomic, resource-destroying growth and marked it for change. Other groups entertained even more ambitious ideas: one proposal would simply do away with the $72-billion-a-year advertising industry, on the grounds that its reason for being is morally indefensible and, by the light of any appropriate indicator of well-being, economically dysfunctional: it encourages the planet’s wealthiest consumers to pursue whims and to feel idle wants as crucial needs, while the basic needs of a vast number of humans on the planet go unfulfilled.

Whether and how a New Bretton Woods Agreement will address the monetary system as a driver of uneconomic growth and environmental degradation remains to be seen. The nations of the world are on a learning curve, and how far along that curve they can be brought in two years will depend on how well the message is communicated — and on the kind of resistance that’s raised by beneficiaries of the current system, who can be expected to throw their considerable financial resources into an effort to stymie change. Ultimately our unsustainable global economy harms all humans, everywhere, now and yet to be born; but in the short term the harms do not fall equally. As I’ve argued elsewhere, on a finite planet, an infinite-planet financial system works as a pump, sucking money, wealth, and quality of life from the middle and lower classes and delivering it to the well-to-do. Kleptocracy — rule by thieves — is the technical name for it. History offers no examples of kleptocracies that withered away of their own accord.

No, success in bringing about a sustainable economic system won’t come simply as a result of the real-world lessons the planet will continue to offer us, as our infinite-planet system repeatedly crashes into non-negotiable, physical limits. It will come from a successful reframing of crisis as symptomatic of a need for dramatic and far-reaching change, and from mustering enough political power to implement that change.

Stay tuned.

–

Eric Zencey is a Fellow at the Gund Institute for Ecological Economics at the University of Vermont, visiting faculty in architecture and urban planning at the Sam Fox School of Design and Visual Arts at Washington University in St. Louis, and Visiting Associate Professor of Historical and Political Studies in the International Programs of SUNY Empire State College.

A best-selling novelist, he is also the author of Virgin Forest: Meditations on History, Ecology, and Culture and the forthcoming The Other Road to Serfdom and the Path to Sustainable Democracy, to be published this fall by the University Press of New England.

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April 29, 2012

Negative Externalities Are the Norm

Filed under: Economic Growth,Economic Policy,Environment,Rob Dietz,Uncategorized — Tags: , , , , , , , ,
Rob Dietz @ 10:31 pm

by Rob Dietz

Here’s a crazy but true fact: negative externalities are the norm — not the exception — in our current economic setup. Failure to recognize this fact has created a wild divergence between theory and practice when it comes to managing harm caused by economic activity.

The Backstory

When I was a kid, my family took a one-week vacation each summer. In the middle of August, we always went to the same place — the beach at Nags Head, North Carolina. The trip was a yearly highlight, and I could always tell it was approaching by the heap of towels, beach toys, and fishing gear that would accumulate by the door that led to the garage. On the day of departure, my dad would come home early from work, and my sister and I would wedge ourselves into the backseat of the car, which was already close to full capacity on account of the cooler hogging half of the seat space and the bags of food and sundries on the floor.

I had to steel myself for the ten- to twelve-hour drive from Atlanta to Nags Head. Although fighting for real estate with my sister in the cramped backseat was bad, the boredom of highway travel was worse. But worst of all, both of my parents smoked — Marlboro Lights for mom and Dutchmaster cigars for dad. When one of them would light up, I’d let out an overly dramatic sigh and ask them to open the window. They’d comply by cracking the window ever so slightly, trying to maintain the air conditioner’s advantage in its battle against the late-summer heat of the South. The haze that hung inside the car made it seem like one of those “designated smoking areas” in an airport.

It was a rough journey, but it was well worth it. The Outer Banks of North Carolina held a mystical quality in my childhood mind. It was the land of endless waves, the Wright Brothers, towering dunes, and pirate stories, all steeped in the smells of salt air and sunscreen. When I was eleven years old, something happened to sweeten the deal. My father invited me to attend the early morning fishing expeditions with the men. That was hallowed ground. Prior to the invitation, I had been relegated to the inspection crew. I’d wait for the crusty fishermen to return at mid-morning from their trip to the secret fishing hole, and I’d rush to the car when they arrived to survey their catch, which often included speckled trout, croaker, flounder, red drum, bluefish, and spot.

That invitation was the start of improved relations between me and my dad. We developed a better understanding of one another through the easy conversations that fill the downtime during a slow morning of fishing. We also developed a shared attachment to place — a mostly unspoken appreciation for where we were and what we were able to do there. Like many other fathers and sons, I bonded with my dad during the simple act of throwing a line in the water and hoping to catch a fish.

The Negative Externality

Arrrrgggghhhh!!!!

I get visibly upset when I see a sign that warns about the dangers of eating a fish caught from a given body of water. A fish consumption advisory has an uncanny ability to launch me into a scathing diatribe. Really? Have we become so reckless and so complacent that we accept polluted waters and toxic fish — that our best course of action is to stick a warning sign in the ground?

These days I live near the banks of the Willamette River, which tumbles down from central Oregon’s Cascade Mountains and flows gently north to its confluence with the Columbia River in Portland. The Oregon Department of Human Services issues the following warnings about resident fish in the Willamette:

Children 6 years of age or younger should not eat more than one 4-ounce fish meal every 7 weeks.  Women of childbearing age, especially those who are pregnant or planning to become pregnant and breastfeeding mothers, should not eat more than one 8-ounce fish meal per month.  Women past the age of childbearing, children older than 6 years and all other healthy adults may safely consume up to one 8-ounce fish meal per week.

The agency issues these warnings because the fish store dangerous levels of mercury, PCBs, dioxins, and chlorinated pesticide residues in their bodies. Given one word to summarize why these fish are contaminated, I’d say, “externalities.”

The Definition

N. Gregory Mankiw, a prominent professor of economics and textbook author, writes that an externality “arises when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect” (Mankiw, Principles of Economics, Fourth Edition, p. 204). So a negative externality occurs when an economic activity produces harm, and the people suffering from that harm receive no compensation. A good synonym for “negative externality” is “side effect” — an unintended but unmitigated consequence.

Toxic fish in the Willamette River are the result of externalities from a host of economic activities, including mining, electricity production, farming, manufacturing, and urban development. These activities (at least the way we do them today) generate pollution, a cost that is externalized by the polluters, and that pollution finds its way into the river and into the bodies of the fish. As a result, I’m less inclined to fish in the Willamette, less inclined to take my daughter fishing there, and less likely to have the same bonding experience with her that I had with my dad.

The Theory for Managing Externalities

Economists tend to cast negative externalities as an unfortunate, but fixable, part of the market economy. The standard suggestion for fixing them is to impose taxes on externality-producing activities. For example, burning coal in a power plant causes mercury pollution. The cost of this mercury pollution is externalized by the power company and born by society (e.g., those of us who want to go fishing with our children). If the government places a tax on the amount of coal burned, the power company will burn less, and depending on the size of the tax, the government can force the power company to internalize the full costs associated with burning coal (assuming we can put a cost on the pollution, and that’s a BIG assumption).

Another possible fix is to arrange for the polluter to compensate those who bear the cost of the pollution. In the example of the power plant causing mercury pollution, the power company would pay compensation to my family (in theory, the compensation should be equal to the dollar amount at which my daughter and I value the experience of catching clean fish from a clean river). The compensation acts in the same way as the tax to internalize the costs for the polluter.  In an economics textbook, you’d see something like the following diagram, which shows how supply shifts in response to a tax.

MSB = marginal social benefit; MPC = marginal private cost; MSC = marginal social cost. A tax or compensation scheme moves supply from MPC to MSC, which increases price and lowers the quantity supplied.

Theory and Reality Diverge

The theory sounds good, but it rarely makes its way into reality. In the market, as firms work to maximize their profits, they strive to maximize revenues while minimizing costs. A sure-fire way to minimize costs is to externalize as many of them as possible. In practice, if a corporation wants to minimize the costs of environmental protection, it can move its operation to a nation with lax environmental laws. It can do the same or find various “innovative” ways to avoid paying other costs, while passing them on to the rest of society. In the context of today’s economic game, this is a sound strategy. If the objective of the game is profit maximization, then a winning player will externalize as many costs as possible.

As corporations have gotten better and better at this game, they have accrued higher and higher profits, and gained more and more influence. This influence often extends into the legislative bodies and regulatory agencies that could, in theory, prevent the inefficiency and injustice associated with negative externalities. It has become politically challenging, to say the least, for a government to place an externality-correcting tax on a corporate activity.

What about the other path proposed by economists — the path of compensation? This path falls apart for several reasons when trying to make the leap from the classroom to the real world. First and foremost, a profit-maximizing firm has a strong incentive to avoid paying such compensation. Even if a “good corporate citizen” wanted to pay compensation, it would be taking a risk — its competitors would be able to charge a lower price and potentially outcompete it in the quest for market share and profits.

Second, think about the complexity of tracing a negative externality back to its source. In the case of the river and fish, many economic entities have played a role in causing the pollution. Which ones should offer compensation? Which people should receive compensation?

Third, compensation may do very little to solve the problem. Even if the power company offered me monetary compensation, I’d still be upset that I can’t take my daughter fishing. I’m one of those people (the 99% in my estimation) who would rather have a modest income coupled with full opportunities for health and happiness, instead of a huge income coupled with degraded environmental and social conditions.

The Real Solution

In today’s cultural setting, my parents never would have smoked in the car on our trip to Nags Head. The external costs of their habit (i.e., increased odds of health problems for their children) have become much more present in the public consciousness. The dangers of secondhand smoke are now well known, and smoking, especially around children, has become frowned upon. Cultural change, therefore, can play a role in curbing negative externalities, but it is often slow to arrive and incomplete. For example, when society got fed up with the worst cases of water pollution (e.g., rivers catching on fire), the culture of environmentalism generated the political will to pass new water quality laws. Over the years, the cultural change and laws have prompted big improvements to water quality, but we still have plenty of waterways that are unsafe for swimming and fishing.

So the question is “What can we do besides wait for the culture to evolve?” For starters, let’s stop viewing externalization of costs as a small flaw that can be fixed with a few taxes or minor governmental interventions. It’s a huge flaw that’s built into the system. And that means we need to change the system.

In the boardroom, instead of working to minimize private costs, business leaders need to be working to minimize social costs. It doesn’t strengthen the economy or society when a company inflicts long-term environmental or social harm to maximize short-term profits. The game needs to be revised, therefore, to free businesses from this constraint of profit maximization. A vast accounting infrastructure exists to measure profits — there are rules, highly paid accountants, and entire corporate departments dedicated to counting up revenues and costs. But there is no such infrastructure for counting up a firm’s social and environmental impacts. We need to rethink the basic model of commerce to prevent and clean up the negative externalities that flow from today’s model.  This rethinking process is more important now than ever before — negative externalities are piling up and becoming increasingly threatening (e.g., global warming) as nations and corporations continue their pursuit of unending economic growth on our finite planet.

I hope we can speed up the cultural shift and change the economic framework. I really want to go fishing with my daughter.

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April 22, 2012

Environmental Heroes Can Inspire Economic Reformers

Filed under: Brent Blackwelder,Economic Growth,Environment,Steady State Economy,Sustainability — Tags: , , , , , , , , , , , , , ,
Brent Blackwelder @ 9:05 pm

by Brent Blackwelder

Each year in April, the Goldman Environmental Prizes are awarded to six activists, one from each of the six inhabited continental regions. This year’s winners have overcome tremendous odds and threats to their lives to lead effective protests and carry out brilliant strategies. The inspiring winners give me hope that, on the economic front, we can energize an enormous protest movement in the United States. The Occupy movement has provided a solid start on opposing the outdated, unfair, growth-dependent economic model — a model that drives unemployment, encourages casino-style financing, enlarges the gap between the super-rich and the rest of society, and sucks the blood from the life-support systems of the planet.

This year’s prize winners hail from Russia, Argentina, China, and Kenya. Their stirring stories offer ideas for those of us who want an economic paradigm shift — we can employ the same kinds of energetic activism and protests that have worked on tough environmental problems worldwide.

In Russia Evgenia Chirikova initiated what started as a typical conservation battle to save the federally protected Khimki ancient forest near Moscow from a proposed superhighway. Notwithstanding efforts by authorities to suppress the movement, the first rally drew 5,000 people. Subsequent beatings of journalists and activists did not deter the campaign, and a year ago, the effort mushroomed into record-size protests against Vladimir Putin. Chirikova’s small, but courageous conservation battle turned into a general referendum on the Russian government and its leader.

In Argentina, Sofia Gatica, a mother whose baby died as a result of pesticide poisoning, organized a successful “Stop Spraying” campaign against the indiscriminate aerial spraying of dangerous chemicals on soybean fields. Gatica mobilized local women to tabulate the illnesses that were plaguing their communities, and they found cancer rates 41 times the national average. Their campaigns and protests against powerful companies like Monsanto and DuPont led to a big victory in the Supreme Court, which outlawed aerial spraying near homes.

The odds of one person in China successfully challenging thousands of water polluters may seem miniscule, especially given governmental suppression of protests. Yet Ma Jun exposed over 90,000 pollution violations by Chinese and multinational companies. The exposure empowered citizens to demand justice. Ma Jun then went after leading transnational corporations for refusing to clean up their supply chains. When the Apple computer company failed to respond, Ma organized a “Poison Apple” campaign that, after a year and a half of organized protest, forced the company to clean up the polluting components of its supply chains.

 The world’s largest desert lake in Kenya is under threat from a massive dam upstream in Ethiopia. Ikal Angelei, a brave woman using the slogan “We won’t be silenced,” has led the effort to save Lake Turkana, a World Heritage Site. This effort also seeks to provide protection and justice for the more than 100,000 people who depend on the lake. The fate of this boondoggle has not been determined, but the protests have convinced major banks to refrain from funding this mega-dam.

The economic transformation agenda of the Center for the Advancement of the Steady State Economy is connected to the battles just described because the global economy facilitates and finances these environmental debacles. Current economic institutions largely disregard the destruction of natural resources and the depletion of fisheries, neglect the rights of the poor and tribal peoples, undervalue the natural world, fail to exercise precaution when dealing with toxic materials, and undermine the well-being of future generations. The grow-at-all-costs mentality that dominates in both the halls of government and the boardrooms of businesses is distorting the way we value human life, our own communities, and natural ecosystems around the world.

To hasten the switch to a steady state economy, we need to emulate the Goldman Prize winners and generate effective protests and mobilizations. For those times when it seems overwhelming to overhaul the economy, we can look to people like Evgenia Chirikova, Sofia Gatica, Ma Jun, and Ikal Angelei. They have shown us that the biggest changes in society can originate from humble beginnings.

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April 19, 2012

The Titanic Code

Filed under: Economic Growth,Economic Policy,Environment,Sustainability — Tags: , , , , , , , , , , , , ,
DaveGardner @ 11:33 am

by Dave Gardner

One hundred years ago April 15, the Titanic disappeared beneath the icy waters of the North Atlantic. Several have marked this anniversary by noting the similarities between the Titanic and human civilization. In Titanic: The Final Word with James Cameron, on the National Geographic channel, James Cameron, director of the blockbuster film, Titanic, aptly turned the event into metaphor:

Part of the Titanic parable is of arrogance, of hubris, of the sense that we’re too big to fail. There was this big machine, this human system, that was pushing forward with so much momentum that it couldn’t turn, it couldn’t stop in time to avert a disaster. And that’s what we have right now.  We can’t turn because of the momentum of the system, the political momentum, the business momentum.*

The metaphor is remarkably apt, as the size of the Titanic meant it was not nimble. It could not stop or turn on a dime. The captain needed to look far ahead on the horizon and plan ahead. Doesn’t that sound like the predicament in which civilization finds itself? We have built up an increasingly complex system, and it is a ginormous one (7 billion served), touching all corners of the planet. It’s impossible to change overnight. And looking ahead with only a short time-horizon serves it very poorly.

There’s something else keeping us from changing course, however. It is lack of desire. Our culture is not interested in a course correction because we’re distracted. We don’t see the iceberg ahead because we’re fixated on a cultural story that defines progress as growth, and growth as progress. This worldview has led us to develop a system that depends on everlasting growth.

Fortunately, when Mother Nature says, “enough,” key parts of the system begin to fail. I say fortunately because it’s hard to argue with success. As long as this system appears to be serving most of us well, we are not likely to throw it out. The failure of the system, which we’ve begun to experience, is our best hope for motivation to get moving toward a more enlightened arrangement.

“We’ve written a narrative that was fine in the nineteenth century.  It served us well through much of the twentieth century… but it’s outdated.  And we now need a new cultural narrative.”

– William Rees, ecological economist, in GrowthBusters

In the documentary, GrowthBusters, I refer to perpetual growth as our “operating system,” comparing it to Windows or Mac OS. The belief, the dependence on, and the pursuit of growth are what we’re all about. It’s the computer code that manages everything we do. Many call it our cultural narrative. If we were on the bridge of the Titanic, it would be in our charts, affecting our compass, on our radar. It informs (or misinforms) everything we do.

Without a doubt there are economists, sociologists and activists developing patches for this growth-based operating system. There are also scientists and activists developing apps that help us lighten our load on the planet. Renewable energy, water and land conservation, permaculture, and transit-oriented development are all examples of what I would call improved software applications, but they are still written to run on our old, growth-based operating system. With a system committed to everlasting growth, they will not keep our civilization from running off a cliff.

This is not to disparage them; it is to keep us from relaxing, thinking they will enable our civilization to become sustainable. They can be meaningful parts of a completely new system. But we do have to throw out the old system and start with fresh computer code. Upgrading from Windows 7 to Windows 2013 won’t do — Windows has to go.

“Only the prospect of worldwide mind-change gives me hope for the future.”

– Daniel Quinn, author of Ishmael

Changing our cultural narrative is a tall order. In my film, Paul Ehrlich says, “We’re faced with a gigantic challenge that we haven’t been prepared for, either in our genetic evolution, or more importantly, in our cultural evolution.” I believe it’s the biggest challenge our civilization has ever faced. Who can we call? I’d love to say, just call GrowthBusters. After all, the film is my biggest contribution to the change we need to make.

But this challenge is too big. The film takes only the first step, which is to raise awareness that we have a culture that worships growth everlasting, and to help audiences realize it’s not delivering on its promise. I see the role of storytellers like Daniel Quinn, Dave Foreman, Richard Heinberg and myself as one of preparing our fellow human beings to be receptive to the completely new computer code that steady staters, transitioners, de-growthers and others are developing.

The time is now. The pieces are falling into place. The old system is crashing. We’re not able to reboot and get back to the business of robust growth. It will be key that we don’t rush in with patches or rely only on new apps. We must be relentless in our insistence on adopting a new operating system.

–

*Thanks to Joe Romm of ThinkProgress for alerting me to Cameron’s words.

Dave Gardner is the director of the non-profit documentary, GrowthBusters: Hooked on Growth, currently screening around the world. CASSE executive board members Brian Czech, Herman Daly and Peter Victor appear in the film. This commentary was published simultaneously here, as part of a series honoring the 40th anniversary of The Limits to Growth. Dave asks that you take his Pledge to Think Small to help speed adoption of a new operating system.

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April 16, 2012

Limits to Growth – of Stuff, Value, and GDP

Filed under: Books and Articles,Brian Czech,Economic Growth,Sustainability — Tags: , , , , , , , ,
Rob Dietz @ 9:39 am

by Brian Czech

I’m starting to think that perpetual growth notions are the Achilles heel of the human brain. They pop up like munchkins on a Whac-a-Mole machine. You smash one and up come two.

A recent example comes from Tim Worstall, a business and technology writer for Forbes. Like the long lineage of Homo polyannas before him, he assures his poor readers that we can have perpetually growing GDP without using more resources. He uses a variety of the old “growth is more value, not stuff” argument.

Worstall says, “It really is true that as value increases we have economic growth. And how are we determining that value? Through the market prices that people are willing to pay for them. And what is the determinant of that? Well, actually, it’s us. Our own often arbitrary and always subjective estimations of what something is worth to us. Which isn’t, as I hope can be seen, something that is bounded by any physical limit at all.”

Now I don’t know about you, but when someone is compelled to announce, “It really is true,” my “Prove It” flag pops up. And sure enough, Mr. Worstall has a lot to prove.

For starters, just exactly what evidence does Mr. Worstall have to support his notion that our estimations of value are unbounded? I don’t recall having or hearing of an experience where something just seemed to increase in value more, more yet, and forevermore. Do you? Now it may have seemed that way for some short period of time with something like coffee. But unless you’re moving into ecstasy ad nauseum – an oxymoron if there ever was one – the value of the experience was bounded. Right?

Why can’t Worstall and the perpetual growthers just face it with the rest of us: life is all about limits. Life, death, taxes, and limits. What’s wrong with limits, anyway? If there weren’t any, what value would a certain level of progress or satisfaction have? How would you measure it?

Now sure, you might “value” living more as you get closer to dying. You might try to measure this value and say, “I’m twice as concerned with living now.” You might even spend twice as much money on health food. That’s fine and understandable, but it’s not economic growth. If you spent more on health food, you had less to spend on coffee, chiropractic, or bingo at the Elks Club.

That brings us to an even bigger burden of proof begged by Mr. Worstall. The main point of his article is that all this ever-increasing appreciation or satisfaction or happiness, which requires not one jot or tittle of energy or material, will result in GDP growth! This, he lectures the scientists, is really what GDP growth is all about: increasing value, where value may increase without increasing use of energy and material.

Where’s the proof? Have we ever seen GDP increase without increasing use of energy and material? If the Worstalls of the world would only put their money where their mouths were, we could cap energy and material flows and test their hypothesis. But no, their mouths are preoccupied with perpetual growth slogans like “drill baby drill!”

But just for the sake of argument, let’s say we can wave a magic wand or a hypnosis gismo and have ever-growing value without the use of more energy and materials. All of a sudden, bread tastes better, suits look spiffier, hymns even sound holier. And that’s without using more energy or material. It’s all in the mind, you see.

So we spend more on it? Thus increasing GDP?

Prove it.

While the Worstalls of the world are busy with an exercise in futility, the rest of us can think about something more evident. Where does the money come from to spend on things of value? As Adam Smith noted in the Wealth of Nations, money originates when there is agricultural and extractive surplus. With agricultural surplus, not everyone has to farm. That frees the hands for the division of labor and the generation of real money to be spent on a variety of goods and services. Agricultural surplus is the physical basis of money and market expenditures.

Oh sure, we can double the supply of money overnight if we really want to. If we all wake up one morning insisting that we value everything twice as much, why not double the money supply to account for it? But that’s not growth in real GDP. It’s mental and monetary only. The mental part is fine — a nice mood at the least — but the monetary part is called inflation!

The foundation of the real human economy is the producers. Only with surplus production will there be expenditures on consumption. Growing GDP takes more surplus production. Such are the trophic origins of money, in ecological terms. But as Worstall said, “when extremely bright people step off their own knowledge base they can make very interesting mistakes when they attempt to explore other fields.” I don’t know if Worstall is extremely bright or not, but he obviously isn’t conversant with ecology, also known as the economy of nature. That sets him up poorly for economic matters. If you don’t get the basics of the real sector, you can make a real mess of the monetary sector.

If anyone still views this as an argument, maybe we can settle it democratically. After all, it seems that plenty of folks value democracy, so the more democratic the approach, the more valuable it should be (within limits, I’d say). So let’s take a vote. What do readers think is more feasible: Ever-growing satisfaction and ever-growing GDP with no additional stuff? Or declining satisfaction and declining GDP as the supply of stuff declines?

I’d like to hear your thoughts. I do value your opinion. But whether you give it or not, I won’t be spending a dime on it. GDP will just have to sit there.

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April 8, 2012

Capital, Debt, and Alchemy

Filed under: Consumption,Economic Growth,Environment,Herman Daly,Money and Investments,Sustainability — Tags: , , , , , , , , , ,
Rob Dietz @ 9:06 pm

by Herman Daly

Herman Daly“Capital,” said Nobel chemist and pioneer ecological economist Frederick Soddy,”merely means unearned income divided by the rate of interest and multiplied by 100.” (Cartesian Economics, p. 27).

He further explained that, “Although it may comfort the lender to think that his wealth still exists somewhere in the form of “capital,” it has been or is being used up by the borrower either in consumption or investment, and no more than food or fuel can it be used again later. Rather it has become debt, an indent on future revenues…”

In other words capital in the financial sense is the perennial net revenue stream expected from the project financed, divided by the assumed rate of interest and multiplied by 100. Rather than magic growth-producing real stuff, it is a hypothetical calculation of the present value of a permanent lien on the future real production of the economy. The fact that the lien can be traded among individuals for real wealth in the present does not change the fact that it is still a lien against the future revenue of society — in a word it is a debt that the future must pay, no matter who owns it or how often it is traded as an asset in the present.

Soddy believed that the ruling passion of our age is to convert wealth into debt in order to derive a permanent future income from it — to convert wealth that perishes into debt that endures, debt that does not rot or rust, costs nothing to maintain, and brings in perennial “unearned income,” as both IRS accountants and Marxists accurately call it. No individual could amass the physical requirements sufficient for maintenance during old age, for like manna it would spoil if accumulated much beyond current need. Therefore one must convert one’s non-storable current surplus into a lien on future revenue by letting others consume and invest one’s surplus now in exchange for the right to share in the expected future revenue. But future real physical revenue simply cannot grow as fast as symbolic monetary debt! In Soddy’s words:

You cannot permanently pit an absurd human convention, such as the spontaneous increment of debt [compound interest], against the natural law of the spontaneous decrement of wealth [entropy]. (Cartesian Economics, p. 30).

In case that is a too abstract statement of a too general principle, Soddy gave a simple example. Minus two pigs (debt) is a mathematical quantity having no physical existence, and the population of negative pigs can grow without limit. Plus two pigs (wealth) is a physical quantity, and their population growth is limited by the need to feed the pigs, dispose of their waste, find space for them, etc. Both may grow at a given x% for a while, but before long the population of negative pigs will greatly outnumber that of the positive pigs, because the population of positive pigs is limited by the physical constraints of a finite and entropic world. The value of a negative pig will fall to a small fraction of the value of a positive pig. Owners of negative pigs will be greatly disappointed and angered when they try to exchange them for positive pigs. In today’s terms, instead of negative pigs, think “unfunded pension liabilities” or “sub-prime mortgages.”

Soddy went on to speculate about how historically we came to confuse wealth with debt:

Because formerly ownership of land — which, with the sunshine that falls on it, provides a revenue of wealth — secured, in the form of rent, a share in the annual harvest without labor or service, upon which a cultured and leisured class could permanently establish itself, the age seems to have conceived the preposterous notion that money, which can buy land, must therefore itself have the same revenue-producing power.

The ancient alchemists wanted to transmute corrosion-prone base metals into permanent, non-corruptible, time-resistant gold. Modern economic alchemists want to convert spoiling, rusting, and depleting wealth into a magic substance better than gold — not only does it resist corrosion, but it grows — by some mysterious principle the alchemists referred to as the “vegetative property of metals.” The modern alchemical philosopher’s stone, known as “capital” or “debt,” is not only free from the ravages of time and entropy, but embodies the alchemists’ long-sought-for principle of vegetative growth of metals. But once we replace alchemy with chemistry we find that the idea that future people can live off the interest of their mutual indebtedness is just another perpetual motion delusion.

The exponentially growing indent of debt on future real revenue will, in a finite and entropic world, become greater than future producers are either willing or able to transfer to owners of the debt. Debt will be repudiated either by inflation, bankruptcy, or confiscation, likely leading to serious violence. This prospect of violence especially bothered Soddy because, as the discoverer of the existence of isotopes, he had contributed substantially to the theory of atomic structure that made atomic energy feasible. He predicted in 1926 that the first fruit of this discovery would be a bomb of unprecedented power. He lived to see his prediction come true. Removing the economic causes of conflict therefore became for him a kind of redeeming priority.

Economists have ignored Soddy for eighty years — after all, he only got the Nobel Prize in Chemistry, not the more alchemical “Swedish Riksbank Memorial Prize for Economics in Honor of Alfred Nobel.”

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April 1, 2012

The Influence of Donella Meadows and the Limits to Growth

Filed under: Books and Articles,Economic Growth,Environment,Population,Rob Dietz,Steady State Economy,Sustainability — Tags: , , , , , , , , ,
Rob Dietz @ 10:34 pm

by Rob Dietz

“There are no limits to growth and human progress when men and women are free to follow their dreams.”

This cornucopian quote sounds like something a Disney character would say, but it’s actually chiseled in stone on a monument in the heart of Washington, DC. These are the words of Ronald Reagan, and they have a permanent home in the atrium of the government building that bears his name. These words also seem to have a permanent home in the economic strategy of the U.S. and just about every other nation.

Reagan’s quote oozes with optimism. His optimistic attitude and his gift for inspiring people formed the core of his popular Presidential style, even if his rhetoric sometimes strayed far from reality. In his quote, he cleverly equated growth (which he championed for political reasons without considering the long-term environmental and social implications) with human progress (which pretty much every voter can get behind).

One prominent public figure was able to match Reagan’s hopefulness and ability to inspire. She was a humble writer and farmer, but first and foremost, she was a scientist who rooted her analyses in the laws of physics and ecology (she certainly never tried to gain support by resorting to fantasy-land notions such as infinite growth on a finite planet).

When Donella Meadows passed away suddenly in 2001, humanity lost a leading light. If you begin reading her Global Citizen columns, it’s hard to stop before you’ve read through the entire 16-year archive. With wit, style, and uncommon insight, she tackled some of the most pressing social and environmental problems, and her writing was so good that the column was nominated for a Pulitzer Prize. She became one of the most influential people to promote the vision of a sustainable society. In fact, the Post Growth Institute has ranked her at number 3 (right behind E. F. Schumacher and Herman Daly) in their list of the top 100 sustainability thinkers.

Meadows became internationally famous in 1972 as the lead author of The Limits to Growth, a little book with powerful ideas that went against the mainstream grain. She and her coauthors, Dennis Meadows, Jorgen Randers, and William Behrens, combined principles from the emerging field of system dynamics with newly developed computer modeling capabilities to assess the implications of ongoing growth in population, food production, industrial output, pollution, and consumption of nonrenewable resources. Even the most biting critic has to admire their guts and resolve for undertaking such an ambitious study to build a robust model of the world!

It’s hard to overstate the influence of The Limits to Growth, which was translated into 25 languages and became the best-selling environmental book of all time. That’s a stunning achievement on its own, but it’s all the more impressive for a book that covers such a disconcerting topic by presenting a bunch of output from a computer model.

The book’s level of influence can be demonstrated by three pieces of evidence beyond the sales figures. The first piece of evidence comes from the realm of politics. Jimmy Carter, a scientist and farmer like Meadows, was clearly inspired by her work and that of other like-minded scholars (he even hosted E. F. Schumacher at the White House). In his “Crisis of Confidence” speech (1979), Carter called for conservation of energy, sharing of resources, and pursuit of meaning through channels other than “owning things and consuming things.” That sounds a lot like a practical and hopeful approach to dealing with the limits to growth. But Carter’s political rivals re-branded his speech as the “Malaise Speech.” They successfully undermined his message, which was seen as a threat to corporate power and unchecked economic growth.

The second piece of evidence is closely related to the backlash heaped on Carter, which helped sweep him out of office and set the stage for the era of reckless Reaganomics. The Limits to Growth received the same backlash as Carter, and as Richard Heinberg reports, detractors took such strides to discredit the book that millions of people mistakenly believe it was debunked years ago. This is nonsense — the book’s analysis and its underlying message have held up surprisingly well. In fact, in 2008 the Australian Commonwealth Scientific and Industrial Research Organization took a close look at the book’s scenarios. The findings show that thirty years of historical data compare favorably to key features of the book’s business-as-usual scenario (ominously, this scenario results in collapse of the global economic system sometime around 2050. The fact that The Limits to Growth struck such a nerve and raised the ire of so many critics serves as a potent reminder of its influence.

The third piece of evidence is anecdotal. I bought my own copy of The Limits to Growth (a 1975 second edition) from a used book store a few years ago. The book’s original owner received it as a Christmas present from someone named Rex. In his “Merry Christmas” note on the inside cover, Rex wrote, “I haven’t read this yet, but it’s supposed to contain some interesting ideas on where we are heading.”

Meadows and company summarize “where we are heading” right up front by stating these three far-reaching conclusions:

  1. If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years. The most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity.
  2. It is possible to alter these growth trends and to establish a condition of ecological and economic stability that is sustainable far into the future. The state of global equilibrium could be designed so that the basic material needs of each person on earth are satisfied and each person has an equal opportunity to realize his individual human potential.
  3. If the world’s people decide to strive for this second outcome rather than the first, the sooner they begin working to attain it, the greater will be their chances of success.

Detractors of The Limits to Growth clearly had an agenda — they didn’t want any obstacle to impede their quest for unlimited profits and accumulation of wealth. But Meadows and company had an agenda, too. Their agenda, revealed in the second concluding point, is profoundly humanitarian. They were desperate to find a way to maintain human well-being without undermining the life-supporting systems of the planet.

Unfortunately, even to this day, the anti-limits marketing machine continues to churn out propaganda and sway public opinion toward the wishful thinking of infinite growth. We are not going to achieve infinite economic growth on planet Earth. Not only is it physically impossible, but it’s also an undesirable goal to begin with.

We’ve made disappointing progress on the third concluding point of Meadows and company over the last forty years. Even so, their premise still holds. The sooner we begin working toward a steady state economy, the greater our chances of providing a lasting prosperity for all of civilization.

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March 25, 2012

Deceptionomics

Filed under: Books and Articles,Brent Blackwelder,Corporate Reform,Economic Growth,Economic Policy,Environment,Steady State Economy — Tags: , , , , , , , , , ,
Brent Blackwelder @ 9:23 pm

by Brent Blackwelder

This March, at the Environmental Film Festival in Washington, DC, I saw a documentary on the destruction of the Aral Sea in Kazakhstan, once the world’s fourth-largest inland lake. Soviet planners and decision makers fifty years ago decided to divert the two main tributary rivers of the Aral to grow cotton. Starved of fresh water inflows, the Aral Sea has shrunk to half its original surface area and lost 75% of its volume.

The productive fishery was wiped out, salinity levels in the lake tripled, and the water has been poisoned with pesticides. I wondered what kind of deceptive economic calculations were used to justify destroying one of the natural wonders of the world.

I recently argued that today’s global marketplace is characterized by cheater economics — a corporate welfare system that has no part in a sustainable, steady state economy. There’s another type of economics that’s also in wide use today. It’s not quite as “in-your-face” as cheater economics, but it’s just as harmful because of the way it distorts reality. Deceptionomics uses “fool-you” accounting to omit genuine costs and misrepresent the true benefits and costs of economic transactions.

Robert Trivers’s new book The Folly of Fools examines the role of self-deception in human life. The animal kingdom is full of examples of deception by both predator and prey. For example, over 100 varieties of insects look like innocent twigs but consume other types of insects that unsuspectingly come close. Trivers applies his analysis of self-deception to the economics profession. Economics, he contends, is not yet a science because it fails to ground itself in underlying knowledge, namely biology. He writes:

…when a science is a pretend science rather than the real thing, it falls into sloppy and biased systems for evaluating the truth… [M]odels of economic activity must inevitably be based on some notion of what an individual organism is up to. What are we trying to maximize?

Here economists play a shell game, he notes, as they tell us that people attempt to maximize “utility.” However, when asked what constitutes utility, they reply, “Anything people wish to maximize.” How’s that for circular logic? Sometimes a person will try to maximize income, sometimes food, and sometimes sex over both food and income. So now we need “preference functions” to sort out all the competing preferences in an attempt to maximize utility, but, as Trivers points out, “economics by itself can provide no theory for how the organism is expected to rank these variables.”

Another big mistake by economists is the conflation of two senses of utility — the utility of your actions to yourself, and the utility of your actions to others. Most economists view these two kinds of utility as being aligned. Trivers says that economists “often argue that individuals acting for personal utility will tend to benefit the group.” Thus, they “tend to be blind to the possibility that unrestrained pursuit of personal utility can have disastrous effects on group benefit.” Trivers observes that economists assume (contrary to direct experience and biological evidence) that “market forces will naturally constrain the cost of deception in social and economic systems.” He notes with astonishment that “such is the detachment of this ‘science’ from reality that these contradictions arouse notice only when the entire world is hurtling into an economic depression based on corporate greed wedded to false economic theory.”

In a steady state economy, we would seek to minimize deceptive practices. We would not delude ourselves with the ruse that GDP captures the essence of well-being. Nor would we have separate moralities for business and community. We teach our kids not to squander their allowance and to save some for the future. In family and community settings, people care about the long term and consider what kind of world our children and grandchildren will live in. But in business circles, all attention is riveted on quarterly returns. Economists employ a discount rate in their calculations that values the future 100 years from now as being worth almost nothing.

The truly deceptive nature of our current economic system can be seen by looking at the big debate over oil prices and the attempt to blame President Obama for the high price of gasoline. Meanwhile candidate Newt Gingrich proclaims on national TV that he has a plan for $2.50-a-gallon gasoline. But even at $4.00 per gallon, the price of gasoline is deceptively low.

Every day the U.S. is spending approximately $2 billion buying gasoline. What is remarkable and not disclosed to the public, writes Amory Lovins in his new article in Foreign Affairs, is the $4 billion in losses stemming “from the macroeconomic costs of oil dependence, the microeconomic costs of oil price volatility, and the cost of having our military forces ready for intervention in the Persian Gulf.”

The International Center for Technology Assessment reported in 2001 on the deception involved in the price of gasoline. It found that the real cost of gasoline, when the crucial indirect or hidden costs are included, was between $9 and $15 higher than the price paid at the pump.

Such estimates rarely appear in the mainstream media. As a result, many people are unaware of the high environmental and social costs of our economic transactions. Even if we remain unaware of these costs, we still have to pay for them. We’d be better off eliminating the deception embedded in our institutions and making economic decisions based on knowledge of true costs including the environmental impacts of growth. As long as deceptionomics rules, fuzzy math will be used to justify incessant GDP growth, and one by one we must say goodbye to the Aral Seas of the world.

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