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

Capital, Debt, and Alchemy

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.”

The Influence of Donella Meadows and the Limits to Growth

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.


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.

Economic Theology: Angels Dancing on the Head of a Pin

by David A. Jones

There’s an old question in theology: “How many angels can dance on the head of a pin?” The supposed answer is “as many as you like.” A pin is a physical object, whereas angels are non-corporeal beings.

Elizabeth Chandler's drawing of angels dancing on a pin

I consider mainstream (neoclassical) economics a kind of modern day theology, and the question about angels is akin to the question, “How much economic growth (GDP growth) can our ecosystems cope with?” For the economic “theologians” the answer is once again “as much as you like,” because economic growth can supposedly be decoupled from physical impacts.

First a reminder about what GDP is. GDP stands for gross domestic product. It’s a measure of the total market value of the goods and services produced within a nation’s borders during a year. The basic formula for calculating GDP is:

GDP = private consumption + gross investment + government spending + (exports − imports)

One way to calculate GDP in practice is to track the monetary exchanges that occur when final goods and services are purchased. GDP, therefore, measures how frantically money is flowing among people, companies, banks, and other players in the economy. And so the dancing angels become monetary exchanges, the pin becomes the Earth, and the “theological question” becomes, “How many monetary exchanges can fit on the Earth?”

Mainstream economists argue that a constant rate of GDP growth is desirable. In other words, monetary exchanges are supposed to grow exponentially and forever on a finite planet. This is only possible if an increasingly small component of GDP growth relates to physical impacts (i.e., a smaller and smaller number of activities that add to GDP produce any environmental impact). Otherwise the physical impact of our economies will grow exponentially too — a truly impossible scenario. You cannot have an infinite number of people dancing on the head of a pin! Unlike angels, people are corporeal beings.

The above scenario — an ever smaller fraction of GDP representing physical impacts — is referred to by economists as decoupling. It is the only way to justify a system predicated on the assumption of continuous GDP growth on a finite planet.

Let’s do the math and see if a strategy of continuous growth with decoupling is reasonable. Say we want to decouple GDP growth from physical impact, which is to be fixed at “one planet’s worth.” The economy then consists of two sectors: a “real economy” with a physical impact = 1 in units of GDP and a service sector with no physical impact, denoted as “fluff.” If we start off the economy in the year 2000 as 100% “real” and 0% “fluff” then absolute decoupling corresponds to the plot below:

If total GDP is growing, then in order for physical impact to remain constant, the “real economy” must shrink year after year as a fraction of total economic activity. Dividing all the curves in the above plot by total GDP, we get the plot below, showing what fraction of the economy will be “real” verses “fluff” over the next 100 years:

After about 50 years the “real” sector of the economy has fallen to around 10% of total economic activity. In another 50 years it falls to less than 1% . The above plots illustrates the scenario known as absolute decoupling — the case where the economy can be made as large as we like, because the fraction of that economy having a physical impact can get as small as we like.

But is this realistic? We are assuming a two-sector economy — “real” and “fluff.” “Real” would include activities such as farming and fishing, which require productive land, water, and other resources. “Fluff” would consist of services such as massages and economics lessons. Absolute decoupling assumes that, at some point in the not-too-distant future, we can reach a point where 99% of the money circulating in the economy will be spent on “fluff” – economics lessons and massages – while 1% of it will be spent on “real” — farming and fishing.

As exponential growth continues, you would be able to buy all the productive land and natural resources of the planet for the price of a massage! This is clearly absurd — the productive parts of the economy are the physical basis for all the “fluff” that rests atop it. The “real” will never be valued as low as just 1% or less of total GDP. Moreover there is no legitimate planning effort even to make this absurdity happen. Things are very much left to their own devices. The idea of “absolute decoupling” is more a kind of special pleading to justify the economic status quo, rather than something we are acting decisively to achieve.

There are other reasons to object to a strategy of absolute decoupling, like the fact that “fluff” can’t achieve absolutely zero physical impact — people are not angels after all. And there is the very reasonable objection that the economy should not become the treadmill of faster and faster exchanges of “fluff,” even if economists demand such exchanges to keep GDP growth going! Absolute decoupling is an absolute pipedream — at some point the economy will have to stop growing.

If we’re able to achieve some degree of decoupling, it will buy us some time to avoid ecological collapse. Can we use this time to realize that perpetual GDP growth on our finite planet is a recipe for mass-suicide and begin sensibly reducing the scale of the global economy? We will need to do three things. First and foremost, we’ll need to put aside the absurd belief that another unit of GDP growth is like another non-corporeal angel on the head of a pin. Next, we can ask the question “How might a steady state economy work, and how can we get there?” Lastly, we’ll need a reformed economics profession — one which agrees this question is sensible and gives us some sensible answers to it.

David A. Jones is a PhD student in theoretical physics at Southampton University in the UK. He writes frequently for the Positive Money blog.

Viva La Décroissance!

by Brian Czech

Those of us who advocate the steady state economy get a lot of flak from a lot of folks: Wall Streeters, politicians, and neoclassical economists to name some of the prominent groups. In fact, these three groups make up the “iron triangle” surrounding the economic policy table. Wall Streeters are driven to maximize profits in the short term, politicians think they can’t get elected without clamoring for growth, and neoclassical economists don’t have enough expertise in the natural sciences to recognize limits to growth. Worse yet, economists are indoctrinated in programs infused with Wall Street money. How do you think that’s going to affect their curriculum?

Many are the books and articles that have described the corruption of economics. Consider such telling titles as Confessions of an Economic Hit Man, The Death of Economics, and The Corruption of Economics. The corruption of economics causes various theoretical weaknesses and policy prescriptions, including an obsession with economic growth as the solution to all problems. It doesn’t take a conspiracy theorist to recognize the pressures and biases that lead economists, corporateers and politicians to growthmanship.

What would surprise many Daly News readers, though, are some of the other categories of folks shying away from advocating the steady state economy. Such groups include many environmental organizations, professional ecological societies, and perhaps most surprisingly of all, various groups that already emphasize limits to growth! Some of these groups don’t even identify an alternative at all, except with vague reference to a “new” economy.

Can you imagine a coalition called the “Different Economy Coalition?” Or a brand of economics called “not-the-same economics?” Sounds silly you say? Yet here we are, with “new economy” groups popping up as if “new” will somehow communicate more than “different” or “not the same.”

But there is another group that warrants special attention. This is a group that has neither denied the need for a steady state economy nor been particularly prominent in advocating one. One admirable feature of the group, though, is that it clearly identifies an alternative to economic growth in its very title. I’m talking about the “degrowth” movement. In Europe degrowthers roll under the banner of “La Decroissance.”

Degrowthers should be natural allies of steady state economics. The idea is that in some countries, especially wealthy crowded ones, some degrowth is necessary before an economy of optimal size can be maintained. Failing to recognize the steady state economy as the light at the end of the tunnel will relegate the degrowth movement to a suicide mission with the political feasibility of a Tiny Tim presidency. After all, perpetual degrowth is no more sustainable than perpetual growth. For most people, the ugliness of too much growth has little to do with climate change or endangered species, but rather the degrowth that must eventually come. There’s just no political upside — and therefore no practicality — to touting degrowth unless a greater goal is embraced from the get-go.

Not that all degrowthers fail to recognize the steady state economy as the long-run goal. Far from it. Among the long list of CASSE signatories are many known degrowth principals and activists, and numerous CASSE volunteers have been recruited straight from degrowth conferences in Paris, Barcelona, and Vancouver. Such conferences are excellent venues for developing the collaboration that flows naturally from the meeting of minds; that is, degrowth and steady state minds.

But just because collaboration is natural doesn’t mean it’s automatic. Keeping the alliance vigorous and productive takes a periodic stimulant. Stimulants might include collaborative symposia at degrowth and steady state conferences, special journal sections on degrowth and steady state economics, books of course, and other typical tools of orchestrated collaboration and mutual advocacy.

I offer this week’s Daly News as a modest stimulant for the degrowth circulatory system. I want to thank degrowthers for their important work, remind them of our natural alliance, and encourage them to punctuate their degrowthmanship with regular and frequent reference to the steady state economy as the long-run goal. This reaching out applies especially to those who are new to the degrowth movement and, therefore, may not have even heard the phrase “steady state economy.” It’s the influx of new degrowth blood that calls for periodic stimulants to keep the alliance running strong.

Vice versa, too; new steady staters should be quickly apprised of the important and admirable work of degrowthers. There can be no doubt that degrowth will be needed, in many places at many times, for right-sizing the steady state. Viva la décroissance!

This call for unity ironically reminds me that I’ve been called a polarizing figure a time or two or hundred. While it used to irk me, I now take it as an unintended compliment. The idea isn’t to polarize for the sake of polarizing, of course, but rather to distinguish for the sake of reform. The only way to establish the need for steady state economics is to clearly distinguish it from the fallacies of conventional growth economics. If you do so long and effectively enough, you’ll be perceived as a polarizer. Presidents galore have been called likewise.

Meanwhile, those who fear the label of polarizer will strain themselves to avoid plain language on the need for a steady state economy. They’ll talk of “new” economics and the “green economy” and “sustainable growth.” Unless you get way into the weeds of their papers and talks (and how many will bother with that?), you’ll never know if they’re advocating something other than the latest flavor of economic growth. “New” economists won’t polarize, but the people will never know which pole they occupy, either.

Thankfully, degrowthers know which pole is north, and they’re not afraid to occupy it. We steady staters are right there with them.

Uneconomic Growth Deepens Depression

by Herman Daly

Herman DalyThe US and Western Europe are in a recession threatening to become a depression as bad as that of the 1930s. Therefore we look to Keynesian policies as the cure, namely stimulate consumption and investment—that is, stimulate growth of the economy. It seemed to work in the past, so why not now? Should not ecological economics and steady-state ideas give way to Keynesian growth economics in view of the present crisis?

Certainly not! Why? Because we no longer live in the empty world of the 1930s — we live in a full world. Furthermore, in the 1930s the goal was full employment and growth was the means to it. Nowadays growth itself has become the goal and the means to it are off-shoring of jobs, automation, mergers, union busting, importing cheap labor, and other employment-cutting policies. The former goal of full employment has been sacrificed to the modern ideology of “growth in share holder value.”

Growth has filled the world with us and our products. I was born in 1938, and in my lifetime world population has tripled. That is unprecedented. But even more unprecedented is the growth in populations of artifacts — “our stuff” — cars, houses, livestock, refrigerators, TVs, cell phones, ships, airplanes, etc. These populations of things have vastly more than tripled. The matter-energy embodied in these living and nonliving populations was extracted from the ecosystem. The matter-energy required to maintain and replace these stocks also comes from the ecosystem. The populations or stocks of all these things have in common that they are what physicists call “dissipative structures” — i.e., their natural tendency, thanks to the entropy law, is to fall apart, to die, to dissipate. The dissipated matter-energy returns to the ecosystem as waste, to be reabsorbed by natural cycles or accumulated as pollution. All these dissipative structures exist in the midst of an entropic throughput of matter-energy that both depletes and pollutes the finite ecosphere of which the economy is a wholly contained subsystem. When the subsystem outgrows the regenerative capacity of the parent system then further growth becomes biophysically impossible.

But long before growth becomes impossible it becomes uneconomic — it begins to cost more than it is worth at the margin. We refer to growth in the economy as “economic growth,” — even after such growth has become uneconomic in the more basic sense of increasing illth faster than wealth. That is where we are now, but we are unable to recognize it.

Why this inability? Partly because our national accounting system, GDP, only measures “economic activity,” not true income, much less welfare. Rather than separate costs from benefits and compare them at the margin we just add up all final goods and services, including anti-bads (without subtracting the bads that made the anti-bad necessary). Also depletion of natural capital and natural services are counted as income, as are financial transactions that are nothing but bets on debts, and then further bets on those bets.

Also since no one wants to buy illth, it has no market price and is often ignored. But illth is a joint product with wealth and is everywhere: nuclear wastes, the dead zone in the Gulf of Mexico, gyres of plastic trash in the oceans, the ozone hole, biodiversity loss, climate change from excess carbon in the atmosphere, depleted mines, eroded topsoil, dry wells, exhausting and dangerous labor, exploding debt, etc. Standard economists claim that the solution to poverty is more growth — without ever asking if growth still makes us richer, as it did back when the world was empty and the goal was full employment, rather than growth itself. Or has growth begun to make us poorer in a world that is now too full of us, and all our products, counted or not in GDP?

Does growth now increase illth faster than wealth? This is a threatening question, because if growth has become uneconomic then the solution to poverty becomes sharing now, not growth in the future. Sharing is frequently referred to as “class warfare.” But it is really the alternative to the class warfare that will result from the current uneconomic growth in which the dwindling benefits are privatized to the elite, while the exploding costs are socialized to the poor, the future, and to other species.

Finally, I eagerly submit that even if we limit quantitative physical throughput (growth) it should still be possible to experience qualitative improvement (development) thanks to technological advance and to ethical improvement of our priorities. I think therefore we should urge policies to limit the quantitative growth of throughput, thereby raising resource prices, in order to increase resource efficiency, to force the path of progress from growth to development, from bigger to better, and to stop the present folly of continuing uneconomic growth. A policy of quantitative limits on throughput (cap-auction-trade) will also block the erosion of initial resource savings resulting from efficiency improvements (the rebound effect or Jevons paradox). In addition the auction will raise much revenue and make it possible to tax value added (labor and capital) less because in effect we will have shifted the tax base to resource throughput. Value added is a good, so stop taxing it. Depletion and pollution, the two ends of the throughput, are bads, so tax them. If you are a technological optimist please have the courage of your convictions and join us in advocating policies that give incentive to the resource-saving technologies that you believe are within easy reach. You may be right — I hope you are. Let’s find out. If you turn out to be wrong, there is really no downside, because it was still necessary to limit throughput to avoid uneconomic growth.

Economic Growth, Obesity, and the Creed of Greed

by Garry Egger

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cheater Economics

by Brent Blackwelder

Cheaters are lurking in the U.S. economy, corrupting what should be an honest game of production, commerce, and trade. “Cheater economics” refers to the corporate welfare system in which corporations are given special tax subsidies and granted access to loopholes for avoiding tax payments. Cheater economics drains away needed tax revenues, leaving governments with the lose-lose choice of running up deficits or reducing services, or both. Often this means cutbacks in environmental, health, and safety protections. Thanks in no small part to the cheaters, the debate on public finance in the United States has shifted to deficits and the need for cuts. To those seeking funds for worthwhile programs, the answer is, “Sorry, we’re broke!”

We must reframe the debate if we wish to eliminate corporate abuses and get serious about establishing a sustainable, steady state economy. And we should start by getting rid of the cheaters.

Some examples of cheater economics are blatant, such as welfare handouts to polluters. It’s bad enough that corporations are allowed to externalize the high costs of their polluting activities, but what’s worse is that taxpayer funds flow to dirty industries (e.g., oil and nuclear reactor companies) in the form of direct handouts and tax loopholes.

Other examples of cheater economics, however, are more subtle. One of the less well-known rip-offs, which benefits the top 1% of income earners, is a taxpayer subsidy for short-term speculation in derivatives. Traders, who can buy and sell complex derivatives in a matter of minutes, are allowed to claim a large portion of the resulting income not as a short-term capital gain, but as a long-term gain (which is taxed at a lower rate). Fortunately, the Senate is looking into this rip-off, and Senator Carl Levin (Democrat-Michigan) has introduced legislation to shut it down.

Republicans and Democrats alike have helped set the stage for cheater economics through financial deregulation. Today’s Republican leadership continues to push for deregulation, but prominent Democrats, going back to President Clinton’s Treasury Secretary Robert Rubin, have also been prime drivers of financial deregulation.

President Obama won the election in 2008 just as the financial system collapsed in response to the deregulatory extravaganza promoted by both Republicans and Democrats. Those that destroyed the financial regulatory framework by repealing effective laws, such as the Glass-Steagall Act of the 1930s, brought on the devastating subprime collapse.

But Obama, as a new President with tremendous support, failed to seize the initiative in 2009. Instead the aggressive right wing brilliantly framed the debate over the size of government, the tax code, and unemployment. Thus the Republican leadership established a strong message in favor of: 1) cutting government spending as the way to deal with the deficit, 2) abolishing EPA’s environmental regulations as the way to relieve unemployment, and 3) maintaining low taxes on the wealthiest 1%, because raising taxes is never the solution.

And now there’s another looming setback to efforts aimed at reining in the cheaters. The IRS, the tax collection arm of government, is being cut, which will seriously limit the agency’s reach when it comes to tracking tax dodgers and overseeing the collection of legitimate tax payments.

The election year offers a prime opportunity to push back against cheater economics by reframing the debate. Let’s start asking who is hijacking the revenue. We are not broke. Simply closing the numerous tax loopholes would bring in more than the $1.2 trillion the Republican leadership has been demanding in budget cuts over the next decade.

Annie Leonard, the creator of the popular Story of Stuff video, is leading the charge to reframe the debate. Her new video, The Story of Broke, calls for a shift in government spending to invest in renewable energy and other industries that can provide jobs and a healthy environment. Another movie, We’re not Broke, is also helping to change the message. This new film, backed by the Tax Justice Network, tells the story of how corporations are dodging taxes and how seven fed-up citizens are working to make the corporations pay their fair share.

Another way to reframe the debate is to showcase the benefits of environmental regulations. A review of the scientific literature on the causes of job loss shows that environmental compliance costs are small. Only among a handful of the big polluting industries are the costs greater than 2%. Furthermore, the health benefits of environmental regulation are enormous.

The U.S. Bureau of Labor Statistics notes that safety and environmental regulations are responsible for only 0.1% of job losses. Frank Ackerman’s Poisoned for Pennies provides more details on this story. Despite the facts, various Presidential candidates and the Congressional Republican leadership persist in attributing the loss of jobs to environmental regulations and call for the elimination of the EPA.

So the question to both Republican and Democratic candidates this year should not be, “What are you going to cut or deregulate?” The question should be, “Why aren’t you getting rid of cheater economics?” Now is the time to demand the honest economy we all deserve.

Rescuing Obama from the Slippery Slope

by Brian Czech

One year ago this week I wrote that Barack Obama had finally done it. He had taken the tantalizing trail to a notoriously slippery slope. In an op-ed for the Wall Street Journal, he promised, “federal agencies (will) ensure that regulations protect our safety, health and environment while promoting economic growth.” In other words, we would have our environmental cake and eat it too, for the sake of economic growth.

For some time after the op-ed, Obama did little to promulgate this win-win rhetoric, and those of us who prefer the truth, the whole truth, and nothing but the truth regained some hope. Economic growth is a serious topic, and so is environmental protection. We’d like Obama to come clean and tell it like it is: There is a fundamental trade-off between economic growth and environmental protection.

Maybe the truth about economic growth and environmental protection doesn’t make for an easier choice between the two, but what kind of a choice can be borne of a lie?

Now it’s fairly reasonable for Obama to say, as he did last month in a speech to EPA employees, that “Safeguarding our environment is also about strengthening the economy.” There is no doubt that safeguarding our environment protects the strength of the economy. But Obama’s exact wording is a stretch because strengthening usually connotes growing the economy. That cannot be done while truly safeguarding the environment. Economic growth — increasing production and consumption of goods and services in the aggregate — does and must have a growing environmental impact. That’s Ecological Economics 101.

Obama fell further down the slippery slope with “I do not buy the notion that we have to make a choice between having clean air and clean water and growing this economy in a robust way. I think that is a false debate.” But I don’t buy the notion that Obama is that oblivious to the truth. Surely he knows our skies, rivers and oceans gradually fill with the byproducts of production and consumption. But as with all politicians, he also knows that the average voter doesn’t detect the dulling of the skies or the graying of the waters during the course of one electoral cycle. So he hunkers down on the slippery slope, content in avoiding the attention of a really inconvenient truth.

Once in awhile, though, a spotlight shines on the slope, such as in Sunday’s Washington Post article by Juliet Eilperin, “Obama administration slows environmental rules as it weighs political cost.” Rules aimed at curbing auto emissions are on hold, as is a proposal to regulate soot, because of the toll these and other environmental protections would take from the rate of economic growth. In other words, the administration knows darn-tootin’ well that bona fide environmental “safeguarding” can’t be reconciled with economic growth. They also suspect that the political cost of prioritizing environmental protection over economic growth at this point in history is more than they are willing to pay.

Maybe it wouldn’t be so bad, this prioritizing of economic growth over environmental protection in a world of endangered species, oil spills, and climate change, if only presidents who model themselves after Ol’ Abe Lincoln were at least forthright about the trade-off between economic growth and environmental protection. Why can’t Obama just come out and say, “I realize that the #1 concern among Americans today is jobs. That’s why I’m doing all I can to help grow the economy. And I’ll continue to do this, as long as we realize that growing the economy does have a growing impact on the environment too. So while we’re growing the economy today, we must turn some of our attention to how we can transition tomorrow to a stable economy, or what they call a ‘steady state economy.’ That’s the vision of the future, and the sooner we explore it, the more prepared we’ll be.” Or something like that? At least then we could respect him for telling the truth on economic growth and environmental protection.

Would that really get him unelected? Who says? How do they know?

But the truth-telling onus is not entirely on Obama. Frankly, I think we should be far more disappointed with the many “environmental” organizations and agencies who themselves pollute the internet and airwaves with the win-win wimpsmanship. They’re the ones who could empower Obama to tell it like it is without being so worried about political consequences. As it is now, it’s hard to blame Obama for fearing the role of Lone Ranger in a wilderness of intellectual laziness.

It’s too late in this article to elaborate on these organizations and what their problems are, but count on it for another day in the Daly News.

Growth and Free Trade: Brain-Dead Dogmas Still Kicking Hard

by Herman Daly

Herman DalyThere are two dogmas that neoclassical economists must never publicly doubt lest they be defrocked by their professional priesthood: first, that growth in GDP is always good and is the solution to most problems; second, that free international trade is mutually beneficial thanks to the growth-promoting principle of comparative advantage. These two cracked pillars “support” nearly all the policy advice given by mainstream economists to governments.

Even such a clear thinker as Paul Krugman never allows his usually admirable New York Times column to question these most sacred of all tenets. And yet in less than 1,000 words the two dogmas can easily be shown to be wrong by just looking at observable facts and the first principles of classical economics. Pause, and calmly consider the following:

(1) Growth in all micro-economic units (firms and households) is subject to the “when to stop rule” of optimization, namely stop when rising marginal cost equals declining marginal benefit. Why does this not also apply to growth of the matter-energy throughput that sustains the macro-economy, the aggregate of all firms and households? And since real GDP is the best statistical index we have of aggregate throughput, why does it not roughly hold for growth in GDP? It must be because economists see the economy as the whole system, growing into the void — not as a subsystem of the finite and non-growing ecosphere from which the economy draws resources (depletion) and to which it returns wastes (pollution). When the economy grows in terms of throughput, or real GDP, it gets bigger relative to the ecosystem and displaces ever more vital ecosystem functions. Why do economists assume that it can never be too big, that such aggregate growth can never at the margin result in more illth than wealth? Perhaps illth is invisible because it has no market price. Yet, as a joint product of wealth, illth is everywhere: nuclear wastes, the dead zone in the Gulf of Mexico, gyres of plastic trash in the oceans, the ozone hole, biodiversity loss, climate change from excess carbon in the atmosphere, depleted mines, eroded topsoil, dry wells, exhausting and dangerous labor, exploding debt, etc. Economists claim that the solution to poverty is more growth — without ever asking if growth still makes us richer, as it did back when the world was empty, or if it has begun to make us poorer in a world that is now too full of us and our stuff. This is a threatening question, because if growth has become uneconomic then the solution to poverty becomes sharing now, not growth in the future. Sharing is now called “class warfare.”

(2) Countries whose growth has pushed their ecological footprint beyond their geographic boundaries into the ecosystems of other countries are urged by mainline economists to continue to do so under the flag of free trade and specialization according to comparative advantage. Let the rest of the world export resources to us, and we will pay with exports of capital, patented technology, copyrighted entertainment, and financial services. Comparative advantage guarantees that we will all be better off (and grow more) if everyone specializes in producing and exporting only what they are relatively better at, and importing everything else. The logic of comparative advantage is impeccable, given its premises. However, one of its premises is that capital, while mobile within nations, does not flow between nations. But in today’s world capital is even more mobile between countries than goods, so it is absolute, not comparative advantage that really governs specialization and trade. Absolute advantage still yields gains from specialization and trade, but they need not be mutual as under comparative advantage — i.e., one country can lose while the other gains. “Free trade” really means “deregulated international commerce” — similar to deregulated finance in justification and effect. Furthermore, specialization, if carried too far, means that trade becomes a necessity. If a country specializes in producing only a few things then it must trade for everything else. Trade is no longer voluntary. If trade is not voluntary then there is no reason to expect it to be mutually beneficial, and another premise of free trade falls. If economists want to keep the world safe for free trade and comparative advantage they must limit capital mobility internationally; if they want to keep international capital mobility they must back away from comparative advantage and free trade. Which do they do? Neither. They seem to believe that if free trade in goods is beneficial, then by extension free trade in capital (and other factors) must be even more beneficial. And if voluntary trade is mutually beneficial, then what is the harm in making it obligatory? How does one argue with people who use the conclusion of an argument to deny the argument’s premises? Their illogic is invincible!

Like people who can’t see certain colors, maybe neoclassical economists are just blind to growth-induced illth and to destruction of national community by global integration via free trade and free capital mobility. But how can an “empirical science” miss two red elephants in the same room? And how can economic theorists, who make a fetish of advanced mathematics, persist in such elementary logical errors?

If there is something wrong with these criticisms then some neoclassical colleague ought to straighten me out. Instead they lamely avoid the issue with attacks on nameless straw men who supposedly advocate poverty and isolationism. Of course rich is better than poor — the question is, does growth any longer make us richer, or have we passed the optimum scale at which it begins to make us poorer? Of course trade is better than isolation and autarky. But deregulated trade and capital mobility lead away from reasonable interdependence among many separate national economies that mutually benefit from voluntary trade, to the stifling specialization of a world economy so tightly integrated by global corporations that trade becomes, “an offer you can’t refuse.”

Will standard economists ever pull the plug on brain-dead dogmas?