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.

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?

The Fallacy of the Tragedy of the Commons

by Marq de Villiers

I grew up in a small South African town 16,000 kilometers and more than a hundred years away from America’s Wild West, but nevertheless watched many a cheap Saturday morning movie set in the mesquite and chaparral of that mythically violent but oddly honorable land. They mostly had similar themes — honest, hard-working homesteading family set upon by a variety of villains, whether cattle barons, railroad tycoons, “eastern” mining companies and more, each capitalist with armies of thugs for hire, ready to drive our hero off his land. One of the most common revolved around the hapless prospector (usually shown with pickax and mule to show his essential poverty) who finds a rich seam of gold, somewhere up in them thar hills, but never gets to stake his claim, either because he is killed by thugs on the way to the claims office, or because said thugs have raced ahead and filed ahead of him. All generally worked out by the end of the final reel; the prospector (or if dead, his deserving family) vindicated, and villainous mining corporation driven off, often with the help of a virtuous senator or otherwise honest politician. An oddly anti-capitalist saga, for the America of the post-Depression and I Like Ike years.

Unasked, in all this, was a simple question: who owns the gold in the first place? The answer would have been, of course, whoever finds it first.

Those days in the Bijou came back to me after an anecdote told me by Maurice Strong, who had recently chaired the Rio conference on the environment that had come to be called the Earth Summit. Maurice, and a company he controlled, had come into possession of one of Colorado’s historic cattle ranches, the 1823 grant to Luis Maria Cabeza de Baca and still known as the Baca Grande Ranch, in Comanche country near Crestone, looking out on the Sangre de Cristo mountains. Among its other assets, the ranch happened to sit on top of one of the west’s great untapped aquifers. Maurice’s company got into dispute with others about this water. First of all, his opponents suspected he wanted to “mine” the water and ship it north to Canada, a nice reversal of the conventional power politics between the two countries. Then, when it became clear that he really didn’t want to do anything with it, claims were filed by other parties demanding access. The legal rationale was simple: in much of the west, water rights operated under the “use it or lose it” principle. If you didn’t use the water, others had to right to appropriate it and use it themselves. There really couldn’t be a clearer anti-conservationist ethic.

Who owned the gold that the prospectors found in all those Westerns? Who owned the water under Maurice Strong’s Baca Grande ranch? The answer is, no one, everyone, anyone.

The question can be extended indefinitely. Who owns, say, the natural gas deposits that have lain, untapped, under the ocean near Sable Island, a hundred kilometers from my house? Who owns the Gorgon gas field under Barrow Island off Australia’s west coast? Who owns the methane hydrate deposits off the shore of New Jersey? Who owns the limestone deposits under California’s central coast (deposits that yield up some of the world’s sublime wines)? Who owns the great boreal forests of Alaska, Siberia, and Canada? Who owns the rocks of the earth? Who, indeed, owns the air? The birds of the air? The water? The oceans? Fish stocks? Who owns the whales?

Who owns nature?

And then another set of questions, about another kind of commonwealth: who owns culture? Who owns languages, science, the accumulated genius of technology? Who owns history? Who owns, in short, the human library? Who owns it, and who has the right to sell it?

In an empty world, these questions, or at least the ones about nature, didn’t much matter. Nature seemed inexhaustible. Still, natural philosophers, as scientists were once called, have wrestled with the issue for millennia, as have political authorities. In Roman times, the Senate put together a series of laws that classified several aspects of what came to be called “the commons” as explicitly owned by the people collectively. These res communes, common things, included water and the air, but also “bodies of water,” that is lakes, and shorelines generally. Wild animals, as opposed to domesticated ones, were included. After the Roman empire collapsed, overrun by what the Romans were pleased to call barbarians, some aspects of the res communes came into dispute — feudal lords, and then kings, claimed to control them.

The implications of a commons is that since no one owns it, anyone can use it, exploit it, and pollute it at no charge.

So where, in a well-ordered world, do private property rights stop? How best to treat the commons so it survives for the benefit of all? How best to allocate the profits that flow from what exploitation is allowed? Private property is the engine of prosperity. Common property is the backdrop before which private actors perform. Both are necessary. So an answer is critical. We have three economic sectors: the private sector, the public (or state) sector and the commons sector. Only the last has no body of law to protect it, and no accounting systems for its profits or losses.

So the question becomes: if the various natural systems of the earth, especially the air, the water, the land and its minerals, and the complex life systems they sustain, are indeed “the commons,” how do we guard against the “tragedy of the commons?” If no one owns the resource and anyone can use it, how do we protect it from depletion?

The tragedy of the commons as a phrase owes its origins to Garrett Hardin’s essay in Science magazine in 1968, though the notion of a social trap involving a conflict between individual interests and the common good goes back, at least, to Aristotle.

Here is Hardin’s description of the tragedy :

Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy. As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, “What is the utility to me of adding one more animal to my herd?” This utility has one negative and one positive component. The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is [obvious]. The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction [of the burden] … The rational herdsman concludes [from this] that the only sensible course for him to pursue is to add another animal to his herd. And another, and another … But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit, in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

Hardin’s argument was widely accepted by economists and free-market enthusiasts. The solution to the dilemma, it seemed obvious, was privatization, the enclosure of the commons.

But it is not obvious. Hardin’s theory was the purest poppycock, and widely adopted only because it seemed to convey the essence of free market competition. It was a truly corporatist view.

The main error was to adopt a key proposition of the free market, and of Adam Smith’s, that man is a rational being who always acts in his own best interests, and then to assume that those interests automatically involved multiplication of personal assets. But what Hardin was describing was not rational behavior — it was the purest selfishness. And there is, after all, a crucial difference. A rational being, faced with a dilemma of the commons, would be able to calculate long-term prospects and conclude, quite rationally, that some sort of short-term limit, arrived at through negotiation, would be in his own interests. In other words, in the context of a limited commons, cooperation is a more rational decision than independence. Hardin derived his views from biology — he wasn’t an economist — and preferred a hard-line version of Darwinism called, not surprisingly, survival of the fittest. But “fit” was interpreted narrowly and stripped of its social context. Hardin simply assumed that when men came together without rules, violence or conflict ensued. He had no knowledge of the equally Darwinist view that natural selection could just as easily select for mutual cooperation as for continual family warfare, a view that has been gaining credence among biological evolutionists in the past few decades. He took no account, therefore, of the human ability to develop rules for accessing and using common resources.

Cooperation, when you look for it, is not hard to find. Fishermen in several places have banded together to set sustainable catch quotas. The same thing is true, as Jonathan Rowe pointed out in an essay for WorldWatch, in the rice paddies of the Philippines, in the Swiss Alpine pasturelands, the Maine lobster fishery, the Pacific haddock fishery, and many other places. The case could even be made that as long as settled communities remain intact, the commons flourishes. The community merely needs to be enabled to protect it.

Marq de Villiers is an award-winning writer of books and articles on exploration, history, politics, and travel.  He is also a graduate of the London School of Economics, and his latest book puts his training in economics to good use.  Our Way Out: Principles for a Post-Apocalyptic World offers a refreshing menu of economic options for an overly consumptive population living on an environmentally stressed planet.

Why Do We Assume More Equals Better?

by Rob Dietz

Choosing a college (not to mention getting in) can be a trying experience, especially for the nerdier souls among us. In my case, I had absolutely no plan for what to do with the rest of my life, so I selected a big university that offered degrees and classes in everything. I figured that I could explore several branches of knowledge, take a few detours down unusual alleys of academia, and figure something out for my future along the way. That’s how I ended up in Marketing 101 as a freshman. And reflecting on the offerings of that class, I’m pretty sure the whole thing was based on an erroneous assumption.

Before attending the class, I didn’t really know what marketing was. In fact my preconceived notions about marketing came mostly from cartoon characters who inhabited the Technicolor landscape of sugary breakfast cereals: Count Chocula, Tony the Tiger, Cap’n Crunch, the cuckoo bird who becomes agitated in the presence of artificial choco-balls, and the leprechaun who refuses to share his bounty of marshmallows with sugar-starved children. The class was structured around the 4 P’s (product, price, place, and promotion), a mnemonic to remind students that a marketer has to consider an awful lot of stuff to sell a product. Much to my disappointment, neither the professor nor the textbook entered the realm of children’s breakfast cereals, but we certainly did explore case studies from other sectors to get a sense of what makes a successful marketing strategy.

What feats of marketing can differentiate these two seemingly identical products? Wouldn’t this be the most instructive marketing case study of all time?

The first and most carefully considered case study was the United Colors of Benetton. It was all about “branding.” We studied how the company had used international flair and bright colors to sell lots and lots of clothes. The point for us students was to learn some things about branding that might help us blossom into successful marketers. Looking at that class in the rearview mirror today, I see that a faulty assumption formed the foundation of everything we studied. Let’s call it the BIG ASSUMPTION. Simply put, the BIG ASSUMPTION is that more is better. Without question, the Benettons of the business world should always sell more, and marketing techniques should be used to achieve that outcome.

Why is the BIG ASSUMPTION always there, and why does it go unquestioned, especially at a university with a big-name business school? It all has to do with visibility. The upsides of successful marketing campaigns — of selling more — show up right in front of our faces, popping with bold, Benetton colors. When you sell more, you get more money. And more money gets you more perks — more jobs, more toys, more status, more choices about where you live, what you eat, and what you wear. This lesson gets ingrained in our thinking and worldview from an early age. By college, I certainly understood it.

I used to go to the ATM in the student union to take out cash for food on the weekends (the dining halls were closed on Saturdays and Sundays). On one such occasion, I stuck my card in the machine, entered my PIN, and hit the button for “account balance.” The machine spit out a slip of paper that reported my life savings at $11.43. Next I punched the buttons to request a withdrawal of $5 (that way, I’d still have $5 for the next weekend). While the machine was taking its time to count all those bills, I noticed a pile of discarded account slips strewn atop the machine. I sifted through them while the ATM continued to sift through its stacks of cash for my $5. Many accounts were of the 5-digit variety — lots of rich kids at college. As I prepared to go searching for the best deal on noodles, I couldn’t help but think what sort of gourmet meals I might be able to get with a 5-digit account instead of a 5 dollar bill.

So it’s really quite simple. The assumption to which marketing students (and just about every participant in the economy) submit is this:

More sales (through more marketing) = more money = more consumption of goods and services = better lives.

But blind submission to this assumption generates plenty of downsides. If Benetton keeps selling more, and Kellogg’s keeps selling more, and GM, and Sony, and Exxon, and Apple, and Wal-Mart, and on and on, we find ourselves bumping up against the limits to growth. But the consequences are much less visible. It’s hard to notice the climate warming. It’s hard to notice species going extinct. It’s hard to notice the drawdown of aquifers. It’s hard to… (ok, ok, you get the point). The downsides of accepting the BIG ASSUMPTION are less visible than the upsides, but there’s also another problem. The upsides accrue to a select few, while the downsides accrue to society at large. As Benetton sells more and more shirts, it makes more and more profits. Its employees enjoy higher salaries and more status. At the same time, it does not suffer the consequences from increased emissions and use of natural resources — someone somewhere else, often sometime in the future, feels the pain. In essence, the economy operates by concentrating benefits and diffusing costs, especially for those businesses with the most successful marketing departments.

To debunk an assumption, especially one with the visibility problems of the BIG ASSUMPTION, you have to study. You have to learn about the concealed downsides. For the BIG ASSUMPTION, that means studying ecology and understanding (to the extent we can) the science behind environmental systems. The author and activist Bill McKibben is certainly someone who has done his homework. His studies have led him to question the BIG ASSUMPTION. On the first page of his book, Deep Economy, he writes:

For most of human history, the two birds More and Better roosted on the same branch. You could toss one stone and hope to hit them both. That’s why the centuries since Adam Smith have been devoted to the dogged pursuit of maximum economic production…  But the distinguishing feature of our moment is this: Better has flown a few trees over to make her nest. That changes everything. Now, if you’ve got the stone of your own life, or your own society, gripped in your hand, you have to choose between them. It’s More or Better.

I vant to sell you crud!

More Count Chocula actually makes everyone worse off, except of course for the few people who manufacture and market Count Chocula. By the day, it becomes more and more obvious that it’s time to replace the outdated fixation on More with a modern appreciation of Enough. The challenge is to configure the economy in such a way that people and organizations can pursue Better instead of More. Maybe we can start by overhauling Marketing 101.

Technological Progress for Dummies, Part II

More than One Kind of Nut

by Brian Czech

“Failure breeds success,” I hope some famous person once said. For I have failed to accomplish the goal set out in Part 1 of Technological Progress for Dummies. The goal was to summarize an article — in plain language and in less than a thousand words — that described why technological progress cannot reconcile the conflict between economic growth and environmental protection. I found I couldn’t do it without several thousand words, and too much plain language is as difficult to digest as a dollop of jargon. As for the article itself, it’s long and full of jargon.

And now for the successful offspring of such abject failure. (Drumroll, please.) I can successfully say that most folks have tightened a nut or two.

In the old days you would have used a monkey wrench. Then a tidbit of technological progress happened and you had a box wrench, which allowed you to tighten that nut a tad more efficiently. When they finally invented the ratcheting socket wrench, you were really in business. It seemed like you could tighten far more nuts with the same amount of elbow grease; five nuts to one when you threw in some coffee!

Such is the basic pattern of technological progress. Invention and innovation allow you to do more with less. Well ok, maybe not actually “less.” If you tighten five nuts to one, you’re prone to using five times the nuts. And the ratchet set is something you have to add to the toolbox. But you can definitely tighten more nuts without working harder, so in workaday parlance, you’re doing “more with less.” If you want to get technical about it, you could say you’re producing more output per unit input. Your productivity is increasing.

For the economy as a whole, productivity increases with technological progress. It’s an impressive process; nearly awesome at some points in history. It makes us proud of the human race, boosts our confidence, makes us think the sky is the limit. Many are even led to believe we can grow the economy without impacting the environment. After all, if we can do more with less, how about doing more with a lot less?

And why stop there? If we invent and innovate enough, maybe we can do more with no more! We can just keep growing GDP without using any more wood, water, minerals, petroleum — natural resources in general. No more steel, nuts, or tools. No more stuff, no more energy.

It’s reminiscent of the alcoholic announcing, “I’m not drinkin’ any more, but just as much.” We may not be using more natural resources to produce more goods and services, but if we’re still using the same amount we can’t really say we’ve stopped impacting the environment, can we? Especially since we had to dig deeper for the minerals, drill deeper for the petroleum, etc. And notice we haven’t even mentioned the flow of pollution (and won’t, to keep things simpler.)

So it’s time for the really big guns. Now we’re going to produce more, not only with way less, not only with no more, but with nothing at all! We’ll just beam it all up. Why not? After all, research and development expenditures in the United States alone are some $300 billion per year. That oughta buy us out of any problem, including this one! That’s why economists like Robert L. Bradley, Jr. announce, “Natural resources originate from the mind, not from the ground, and therefore are not depletable.”

Now if you’re a scientist worth your stellarator, you can see through the subterfuge in a nanosecond. The first law of thermodynamics tells you there’s no producing something from nothing. You can’t even get perfectly efficient with the resources you do use, because that would violate the second law of thermodynamics. So there’s a limit to technological progress — doing more with less — as it applies to the full collection of materials at our disposal along with the energy we receive from the sun.

The problem remains, however, that for purposes of plain language, the laws of thermodynamics and even the phrase “laws of thermodynamics” don’t cut it. Only in plain language can we make a difference in everyday life and public policy. That’s why President Obama signed the Plain Language Act of 2010.

So here’s some more nuts and bolts. Remember how doing “more with less” leads to five times the nuts? Tell your local Robert L. Bradley, Jr. that we shall all refuse to tighten five times the nuts without five times the bolts and washers, along with additional material to be tightened. And if we’re assembling things for market — quite necessary for GDP growth — we’re now assembling more of them. That leads to more transportation, storage, and retail services. More electricity all around, too, along with the wiring, fuses, bulbs and such. Plus that power plant in the background, with all the nuts and bolts therein.

Now with this type of expansion going on everywhere that the proverbial nuts are tightened (all around the world, in other words), information services help to orchestrate it all. Everybody better have a computer, cell phone, and Twitter feed. Operating at this level, you may as well start advertising, too. Banking, insurance, and other service sectors will also play an expanded role.

Notice that, in addition to not even mentioning the flow of pollution, we also haven’t mentioned the agricultural sector — farming in plain language. But of course we’re going to need plenty of it, to feed all the folks with the manufacturing and service jobs. With all the food they’ll have to produce, they’ll need cell phones and GPS units in the air-conditioned cabs of those 30-foot-wide combines. And plenty of extra nuts and bolts.

So that old ’90′s notion that we could keep growing the “Information Economy” without using more resources — and without any more environmental impact — was like a highly productive conversion of grass into bullpies. All that information, which was supposed to beam us up to Shangri-La, was nothing if not tied into the regular old economy down on the farm and everywhere else in the Land of Nuts and Bolts. The computer was nothing more than the ratcheting socket wrench of the IT sector, which was distributing marching orders for an ever-larger ecological footprint.

At a thousand words now, I’m thinking this is all the success my failure can breed. Enough for one column at least. Someday I may also find a way to convert that earlier-mentioned article, condensing concepts such as niche breadth, trophic levels, and economies of scale into plain language of a thousand words or less, refuting the macroeconomic environmental Kuznets curve and solving the Jevons paradox (which really isn’t so paradoxical) in the process.

But it’ll drive some nuts. In fact, many more nuts, albeit more efficiently.