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.

The Overlooked Anniversary: Forty Years Ago Congress and the President Called for a Steady State Economy

by Brian Czech

BrianCzechYou read that right. Pursuant to an act of the 93rd Congress, President Richard M. Nixon signed into law the establishment of a steady state economy. That law was called the “Endangered Species Act.”

Technically it’s true that we are closer to the ESA’s 41st anniversary (Nixon signed it on December 28, 1973), but to say we are still within the 40th anniversary of ESA is good enough for government work. Plus it seems more befitting when 2014 happens to be the 100th anniversary of the passing of the passenger pigeon. Martha, the last known passenger pigeon, died at the Cincinnati Zoo on September 1, 1914.

Too bad the passenger pigeon didn’t have the “opportunity” to be listed as endangered pursuant to the ESA. It would have been protected and it may have survived, if only on life support. The American economy wouldn’t have left it a lot of room; rather, just enough.

Of course, when the ESA was passed, no one announced it in terms of a steady state economy, for at least three reasons. First, the ESA’s influence on the rate of economic growth would be very gradual as the listing of species prevented a dam here and a power line there. It would have been inaccurate for Nixon to say, for example, “By September 1, 1974, GDP will stabilize.” Establishment of the steady state economy would take decades as dozens, then hundreds, then thousands of species were driven to the brink, then saved in the nick of time through the designation of “critical habitat” and other ESA protections. But make no mistake: With the stroke of Nixon’s pen, the American economy was slated to move toward a balance with the “economy of nature” and all its species, assuming the law was implemented.

The second reason is that few in Congress (if any) actually realized the ESA would lead to a steady state economy. It’s highly unlikely that Nixon did either. If you read the profiles of elected officials in the House, Senate, and President’s Cabinet, you’ll see there was–and still is–virtually no ecological expertise to speak of. Without understanding the economy of nature, and what is required to maintain its natural capital, one cannot grasp the economic relationship between Homo sapiens and the rest of the species. Only in an ecological curriculum, or at least a course in ecological economics, will you learn in no uncertain terms that, “Due to the tremendous breadth of the human niche, the human economy grows at the competitive exclusion of nonhuman species in the aggregate.” Without that knowledge, which is rooted deeply in physics and biology, our politicians are susceptible to whimsical notions of “green growth” and “de-materializing the economy.”

Third, if there were any politicians involved in the passage of the ESA who sensed the implications for economic growth, they wouldn’t have had the courage or integrity to reveal such an inconvenient truth. If we have learned anything from our political leaders–from Nixon to Clinton–it’s the depth to which they’ll drown the truth in order to maintain their positions of power. They also leave the heavy lifting of legislation to be done by future politicians, political appointees, and bureaucrats. Meanwhile the teeth of such legislation are filed down by budget cuts and hostile amendments.

In any event, and whether our politicians knew it or not, the ESA was as sure a prescription for a steady state economy as the American constitution was for a democracy. Think that’s a stretch? Think again. The word “democracy” is nowhere in the constitution. Indeed our founding fathers argued the merits of that newfangled idea. But the principles put forth in the constitution are all about establishing a democratic system of government.

With the ESA, it’s all about establishing a stabilized economy of nature. That doesn’t mean a landscape filled to the brim with bison herds or passenger pigeons, much less snail darters or Wyoming toads. Far from it. What it means, however, is “no species left behind,” even if many of them are perilously perched on flimsy branches of a tree of life top-heavy with human economic activity. What it means, therefore, is a steady state economy with stabilized human population and consumption, at a level pushing the limits of sustainability. That’s what the ESA is ultimately all about, whether or not the phrase “steady state economy” is used therein.

The ESA was too late for many species, and way too late for the passenger pigeon. Now consider a somewhat chilling thought: Does anyone alive today have any idea what we’ve been missing? Let’s get a sense of the magnitude of our ecological debt from the great French-American naturalist John James Audubon:

The multitudes of Wild Pigeons in our woods are astonishing. Indeed, after having viewed them so often, and under so many circumstances, I even now feel inclined to pause, and assure myself that what I am going to relate is fact. Yet I have seen it all, and that too in the company of persons who, like myself, were struck with amazement. In the autumn of 1813… on the banks of the Ohio… I observed the Pigeons flying from north-east to south-west… the birds poured in in countless multitudes… I traveled on, and still met more the farther I proceeded. The air was literally filled with Pigeons; the light of noon-day was obscured as by an eclipse…

In the more evocative style of Aldo Leopold,

The pigeon was a biological storm. He was the lightning that played between two opposing potentials of intolerable intensity: the fat of the land and the oxygen of the air. Yearly the feathered tempest roared up, down and across the continent, sucking up the laden fruits of forest and prairie, burning them in a traveling blast of life.

One could get the uneasy feeling that all the wonder of the Internet would pale under a pulsating sky of passenger pigeons. What would you rather do, surf the web or watch the traveling blast of life?  Yet that’s the type of trade we’ve made, or been subjected to: a constant replacement of the biological with the manufactured, including in the age of the “information economy.”

Passenger Pigeon - Seabamirum

What have we given up, and what are we giving up, to pursue continuous economic growth? Photo Credit: Seabamirum

In the 60 years between the last passenger pigeon and passage of the ESA, GDP grew from well under a trillion dollars to well over five trillion (all in 2014 dollars). To put that in simple ecological terms, millions of acres of wildlife habitats were converted to cities, towns, plant, infrastructure, and landfills. In the countryside, agriculture dramatically intensified, losing its habitat value. Much of the remaining, wilder acreage was polluted to one degree or another with the byproducts of economic activity.

For the most part those trends continue and, as if what’s happened on the ground isn’t enough, today in a 90% fossil-fueled economy we also have relentlessly growing greenhouse gas emissions, despite all the talk of technological progress and green growth. To add insult to injury, politicians continue to tell us that “there is no conflict between growing the economy and protecting the environment,” with political appointees parroting such pap and gagging the scientists who would raise awareness of the conflict. It’s easy to understand why Leopold said, “To be an ecologist is to live in a world of wounds.” The wounds are to the environment, to species, and to human dignity.

Yet that’s what we get when the primary policy goal is economic growth and when so many other laws, policies, and programs are tailored to the pursuit of economic growth. While the language of the ESA is still prescriptive of a steady state economy–perennial efforts to gut it notwithstanding–the ESA has as much chance of implementation as Obamacare would have under Ted Cruz. You won’t see a Tellico Dam being stopped by a snail darter any time soon, whether your president is Obama or Cruz.

Congress and presidents have never been more hell-bent on economic growth. The “Washington Consensus” might as well be the “Wall Street Consensus.” The score is kept in terms of GDP, and the only thing that can change that is a widespread paradigm shift away from economic growth–increasing production and consumption of goods and services in the aggregate–toward the steady state economy.

As the days grow shorter on 2014, with the 41st anniversary of the ESA approaching and the extinction of the passenger pigeon surpassing 100 years, let us commemorate things in the way that matters most for species conservation. Let us recognize the ESA as a prescription for a steady state economy, in balance with the economy of nature and its non-human species. The ESA needs this wedding–a wedding with the truth–before its anniversary can be truly worth celebrating.

Cold War Left Overs

by Herman Daly

Herman DalyThose of us old enough to remember the Cold War will also remember that it involved a growth race between Capitalism and Communism. Whichever system could grow faster would presumably win the allegiance of the uncommitted world. The idea of a steady state was therefore anathema to both sides. The communist growth god failed first because of political repression and economic inefficiency. But the capitalist growth god is now failing as growth becomes uneconomic due to environmental and social costs, and is propped up only by fraudulent accounting, monopoly, and financial corruption. Neither system can accept the idea of a steady-state economy, but neither can attain the impossible alternative of growing forever.

Advocates of the steady-state economy are long accustomed to attacks from capitalists, which have by no means disappeared. We are less accustomed to attacks from the left, not from communists who have virtually disappeared, but from remaining Marxists and socialists. Although Marxism is largely discredited (along with other manifestations of 19th century determinism, such as Freudianism and Eugenic Darwinism), one cannot by any means take that as a vindication of capitalism, which has only gotten worse in its quest for unending growth. In spite of my overall negative view of Marxism, there are some “green Marxists” who, in my opinion, are worth reading (e.g. John Bellamy Foster, Brett Clark, Richard York, The Ecological Rift). Recently, another socialist (I am not sure if he considers himself a Marxist) has criticized the steady-state economy for being essentially capitalist. This is economic historian Richard Smith. He sees the steady-state economy as a distraction from “eco-socialism.”

One should be grateful to one’s critics–it is much better to be criticized than ignored. Richard Smith kindly takes me as his exhibit A for a position that he misleadingly labels “steady-state capitalism.” I have never used that term, always speaking of a steady-state economy, which is neither capitalism nor socialism, although it draws features from both. Indeed, in the Cold War context it was thought to offer a Third Way, a possibility for uniting the best features of each system. Change is impossible unless you start from where you are. As noted, I am more accustomed to attacks from capitalists, so it is at least a refreshing change to be attacked, and on balance rather politely, by a socialist who, unlike many neoclassical growthists, has taken the trouble to learn about the steady-state economy. Disagreements will follow, but my appreciation for his critical attention needs to be expressed.

Richard Smith characterizes capitalism as a system that must “grow or die.” It then follows immediately that since capitalism must grow, it cannot be a steady state. OK then, if capitalism cannot be a steady state, then neither can a steady state be capitalism. So let’s not speak of “steady-state capitalism.” I, for one, never have–although Mr. Smith tendentiously attributes that term to me. By the same logic, following Marx, one might define socialism as a classless society based on overwhelming material abundance arrived at through rapid economic growth under the centrally planned dictatorship of the proletariat. Socialism also depends on growth. Therefore steady-state socialism is impossible. It was precisely to avoid such sterile definitional disputes that I always said “steady-state economy,” and never “steady-state capitalism,” or socialism for that matter.

Empty world models will no longer work in our full world. Photo Credit: www.TheEnvironmentalBlog.org

Would it not be more productive to start by defining a steady-state economy, followed by arguments for its necessity and desirability? We could then avoid ideological classifications based on abstract definitions of what capitalism or socialism “essentially must always be.” We now live in a full world. Capitalism and socialism are both from the empty-world era in which growth was the desideratum. Must we insist on pouring new wine into old wineskins, and then watching them burst?

Smith’s unhappiness with me derives most specifically from my preference for the market over centralized planning as a tool for dealing with the single technical problem of allocative efficiency. Steady-state economics deals with three problems: sustainable scale, just distribution, and efficient allocation. It takes the first two issues, scale and distribution, away from the market. It calls for quantitative ecological limits on the throughput of resources so that the market can no longer determine the physical scale of the economy relative to the biosphere. It also advocates social limits to the range of income inequality, so that the market can no longer generate large inequalities of wealth. Subject to these two prior macro-level aggregate constraints, it then relies on the market to efficiently allocate resources. This is not advocacy of the Market with a capital M, the deified master evaluator and controller of life. This is market with a small m, a limited tool for rationing, communicating, and exchanging goods and services.

Reliance on markets for allocation (now within prior ecological and distributional limits) is further constrained, even within traditional microeconomics, by opposition to monopoly, and restriction of market allocation to rival and excludable goods. Non-rival and public goods have long been recognized to require some degree of non-market allocation. Even so, Mr. Smith is still unhappy with any role for markets.

Richard Smith deserves credit for recognizing and opposing the real evils of financial-monopoly-crony capitalism as it currently exists. And, unlike both traditional Marxists and neoclassical economists, he realizes that we cannot grow forever, and that we have in many dimensions already far overshot optimal scale. And he takes the trouble to debate critical issues rather than ignore them. However, he thinks only socialism can somehow cure these evils. The operative word here is “somehow.” Somehow we must wipe the slate clean of any institutions associated with markets, such as property, division of labor, exchange, and profit. How? By violent revolution? By rational persuasion? By moral conversion? That is left vague. It is all very well, for example, to point out the real problems with excess reliance on the profit motive. But if we abolish profit as a source of income then we also abolish self-employment. Everyone must then become an employee earning a wage. Who then is the employer? Do we all then work for Ajax United Amalgamated Corporations? Or for the Universal State Monopoly? Is there something about the mere act of exchange, and the category of profit, (not just excessive inequality and monopoly ownership of the means of production) that offends or confuses Marxists?

Nevertheless, if Marxists now advocate limiting growth, that is a big change. Maximizing growth to achieve overwhelming material abundance has been seen as the path to the “new socialist man,” who, according to Marx, can only be freed from his bourgeois greed by objective abundance, by the abolition of scarcity, not by the “utopian” morality of sharing. I have never seen a Marxist proposal to limit the scale of the macro economy to an ecologically sustainable level–nor for a maximum as well as a minimum income to limit the range of distributive inequality to a reasonable and fair degree. Rhetorical calls for absolute equality and abolition of private property abound, but are neither realistic nor fair.

Marxists also go far out of their way not to recognize overpopulation and the need to limit population growth (a critical dimension of both scale and distributive inequality, given class differentials in fertility and access to contraception). A stationary population is part of the definition of a steady-state economy. Furthermore, a limited range of income inequality would restrict the ability of the rich to bid necessities away from the poor in the market. Unjust distribution of income does get reflected in markets, but let us attack the cause, not the symptom. And quotas on basic resource throughput could raise prices enough to eliminate most frivolous and wasteful production, as well as stimulate recycling, and increase efficiency while ruling out the Jevons effect. If we start with depletion quotas on basic resources, then the resulting increase in resource prices and efficiency cannot lead to more use of the resource. Auctioning transferrable quotas rather than giving them away (markets rather direct government allocation, pace Mr. Smith) will raise enough revenue to greatly reduce taxes on the poor.

It is not at all clear why Smith thinks markets must always be bad masters rather than good servants. If we forgo markets, should we then perhaps have another go at central planning and collectivization of agriculture? Would Mr. Smith have preferred War Communism to Lenin’s New Economic Policy because the latter was really just “state capitalism” that re-established significant reliance on markets? To be fair, we do not know what Smith thinks about any historical experience with the abolition of markets because he does not mention any.

If “eco-socialists” reject the steady-state economy as “inherently capitalistic,” then what specific policies do they recommend? How do their policies differ from those of steady-state economics? Are there some policies we agree on?

Critics of the present growth economy, whether steady-state economy or “eco-socialist,” are, however, united in humility before a common dilemma–namely that the bought-and-paid-for government that would have to enact the programs needed for a steady-state economy is the same government that would have to run a socialist economy. A government that cannot even break up too big to fail monopolies, or provide debt-free money as a public utility, or tax carbon, will certainly not be able to administer a centrally planned economy–nor even a steady state. We have deeper problems of moral and spiritual renewal (in addition to recognition of finitude and laws of thermodynamics) that transcend both capitalism and socialism. It is admittedly hard to envision the source for the basic moral renewal required to face the enormous problems that are looming, but Marxist dialectical materialism and collectivism seem to me already to have historically demonstrated their failure in this regard. We need something new. Although things look bleak, we never know enough to justify giving up hope. But we should avoid repeating past mistakes.

Piketty Acknowledges a Limit to Inequality–Will He Acknowledge the Limits to Growth?

by James Magnus-Johnston

Johnston_photoIn Piketty’s celebrated new work, Capital in the 21st Century, we are treated to a robust argument about the mechanics of worsening structural inequality. He narrates why owners of capital assets–stocks, bonds, and real estate–historically realize higher returns than wage workers. Piketty uses econ-speak to describe this as a gap in “the capital-income ratio,” and explains how our present system is engineered to favour capital-owners or “rentiers.” In the 21st century, he predicts slower growth in population and productivity, but a higher rate of return on capital, pushing us into inequality levels not seen since the 19th century.

But the limits we face are far greater than limits to just the capital-income ratio. While many of us share Piketty’s anxiety about worsening inequality (for me, every time I see a headline celebrating the rise of house prices), worsening structural inequality at this stage in history is but one symptom of our obsession with growth. Like Piketty, many post-growth thinkers are calling for a system change so the distribution of wealth will not inevitably concentrate in fewer and fewer hands. But rather than Piketty’s proposed progressive tax on wealth, we are calling for a fundamental adjustment to the financial system to make it more socially equitable and ecologically sustainable.

It might be helpful to interrogate the question of inequality this way:

  • Why is it that rentiers can achieve such high rates of net worth?
    Because overly-inflated asset values make rentiers look great on paper, and those funds can be leveraged for even more consumption.
  • How did asset values become so inflated in the first place?
    Because everyone from hedge fund managers to real estate investors bid up prices.
  • Why can prices be bid up? 
    Because banks lend out historically unprecedented amounts of money in the form of debt.
  • Why do we need so much debt?
    Because if we fail to grow by at least the rate of interest, the entire financial system enters a state of default and collapse! Herman Daly proposes an increase to the fractional reserve requirement so that banks are able to lend out real money instead of just creating more debt.

While Piketty does acknowledge how the “financialization of the economy in no way contributes to the real economy,” he stops short of acknowledging that the volume of debt-money in the economy makes money scarce for some and abundant for others, and that the system is set up to either grow exponentially or fail spectacularly. More dubiously, in Robert Solow’s review of Piketty’s book, Solow suggests that “a society or the individuals in it can decide to save and to invest so much that they (and the law of diminishing returns) drive the rate of return below the long-term growth rate.” Not so in a debt-backed monetary system steeped in stratospheric and unprecedented levels of debt!

Piketty similarly avoids acknowledging peak oil or ‘limits to energy returns.’ At the most fundamental level, economic growth and capital accumulation require huge flows of matter and energy. This important consideration takes the form of but a few small caveats in Piketty’s book. He predicts that “wealthy countries” will grow at a rate of “1.2 percent,” while acknowledging that such a growth rate can only be achieved as “new sources of energy are developed to replace hydrocarbons.” I’m not sure how this prediction can be taken seriously when we are always and everywhere these days confronted by diminishing energy returns. These limits are evident in our reliance on unconventional oil, including fracking, the tar sands, and all of the new hazards that come with shipping it, such as building new pipelines and ports in fragile ecological zones, the release of methane and other undesirables from fracking, and the looming spectre of another Lac Megantic disaster. Add to this the uncounted costs of climate change–from private insured losses to government disaster expenses–and we wind up in the highly questionable position of counting disaster rebuilding efforts as additions to GDP!

DivideByZeroError

What happens if Picketty assumes a growth rate of zero? ERROR.

Perhaps, interpreted liberally, Piketty’s prediction of 1.2 percent growth is a couched acknowledgement that we have a failed growth economy on our hands. Or perhaps there is an even simpler methodological explanation for Piketty’s prediction, which is that if he were to assume a growth rate of zero, the “law” he applies–“beta equals savings divided by growth”–would yield absolutely no results whatsoever! And who can make newsworthy predictions with a divide-by-zero error message?

Piketty’s research is certainly useful and clearly resonates with a disillusioned public seeking to understand the causes of growing inequality. But without full acknowledgement of the limits to growth, there are also limits to his historical analogies–after all, the extent of ecological overshoot makes this period remarkably different from any period before it. Which means that the laws and formulae used throughout his book must be taken with a healthy dose of skepticism. EF Schumacher wrote

economists themselves, like most specialists, normally suffer from a kind of metaphysical blindness, assuming that theirs is a science of absolute and invariable truths, without any presuppositions. Some go as far as to claim that economic laws are as free from ‘metaphysics’ or ‘values’ as the law of gravitations.

Piketty makes a compelling, historically grounded argument about worsening structural inequality. But perhaps we can call for bolder action to respond to contemporary problems, including serious financial reform that reduces or extinguishes unsustainable debt; nurturing a grassroots movement toward more equitable, democratic work structures (so that more people have access to assets and ownership in the first place); and teaching a new generation of economists that all financial capital is fundamentally a gift from nature.

Iraq and the Military-Industrial Complex versus a True Cost Economy

by Brent Blackwelder

BlackwelderIraq has been in the news again as civil war looms. President Obama has sent several hundred military advisers to Iraq, perhaps in preparation for Iraq War III. George W. Bush proclaimed victory in Iraq War II and told the American Legion “Slowly but surely, we are helping to transform the broader Middle East from an arc of instability into an arc of freedom.” But the grim fact today is that US actions have achieved the very opposite of what was officially described to the American public as the objective.

A true cost or steady state economy can never be reached in a society consumed with perpetual war, especially warfare over oil. A steady state economy must have its energy supply based on renewable sources like solar and wind. To reach a true cost, steady state economy, the resources currently devoted to waging war must be transformed, and the use of natural resources like oil that are causing wars must be shifted.

Recent developments in Iraq highlight the decades of failure to put in place renewable energy that would have minimized the use of oil in the transportation sector. Trillions of dollars have now been spent on the Iraq II war, where more civilians than soldiers have been killed and billions more will need to be spent caring for severely wounded veterans from these ongoing wars.

A look at news coverage of the situation in Iraq shows what has been really driving the situation. In a June 3, 2013 New York Times article “China is Reaping Biggest Benefits of Iraq Oil Boom,” Michael Makovsky, former Defense Department official under the Bush administration, complained that “We lost out. The Chinese had nothing to do with the war, but from an economic standpoint they are benefiting from it, and our Fifth Fleet and air forces are helping to assure their supply.”

One year later, the New York Times featured a story about all this “progress” being put in jeopardy with the intense military offensive by extremist insurgents. The president of the oil service company Mediterranean International told the Times “The collapse of Iraq would bring an international oil crisis.”

Solar Panels

An important step towards escaping perpetual warfare over oil. Photo Credit: Michael Mazengarb

To escape from perpetual warfare over oil, I propose that the biggest category of funding in all the world’s military budgets should be for installing rooftop solar energy and wind turbines. These renewable resources are widely available, they do not require large central generating facilities for electricity or refineries and pipelines for oil and natural gas usage, they are tension reducers rather than enhancers, they are essentially waterless technologies, and they do not produce the serious pollution and climate disruption caused by fossil fuels.

The younger generation does not realize that Iraq War I in 1991 caused the largest oil spills in history: on the land, in the sea, and in the air. Massive clouds of oily pollution carried as far away as India. Did stability come as a result? Rather than stability, resentments worsened over the US behavior. Osama bin Laden cited the actions of the United States and transnational oil companies as the reason for his launching the terrorist bombing on 9/11.

While some strong efforts are being made to transform energy economies into a more environmentally sustainable form, particularly in some European nations, vast sums continue to be provided to support wars in Iraq and Afghanistan. The sums that could have been used for a solar revolution have fundamentally been undermining the movement for renewables.

But there is good news on the solar front. In one month this year, Germany got more than 70% of its electricity from renewable energy. Germany, with 36,000 megawatts (MW) in solar capacity, leads the world. But in 2013, China added at least 11,300 MW, making it second to Germany with 18,300 MW in overall capacity.

Solar power is starting to take off in the United States with about 4,800 MW added in 2013, increasing our total photovoltaic capacity by 65 percent to 12,000 MW–still far behind Germany, which is about the size of Montana.

President Obama supports legislation to deal with global climate disruption and has made some significant gains in transportation fuel economy, but the US is not a leader in bringing electric vehicles run by solar power into widespread use.

The price of rooftop solar has dropped 75 percent in the last five years and flat roofs are available throughout metropolitan areas, so the opportunity for Obama to do a lot more is present, but oil wars in the 20th Century have continued under his administration, even as many top military people worldwide are calling attention to environmentally driven conflicts as being top security threats.

Before launching a war against any country, the United States should take the vegetable test: would we be on the attack if that country’s leading export were carrots or green beans?

The key step to reaching a true cost, steady state economy is to keep the emerging solar revolution going full speed ahead. It is the underpinning of stability–the kind of stability needed for an environmentally sustainable economy.

Gross Domestic Problem: Don’t Shoot the Measurement

by Brian Czech

BrianCzechA battle is brewing on the outskirts of the general public. A rising tide of quixotic activists is trying to overthrow a time-tested American institution. Like the Battle in Seattle, where the IMF was put on public trial, this new struggle will get a lot of attention, but the institution will remain.

The “institution” in this case is a metric: GDP, or Gross Domestic Product. But GDP isn’t any old metric, like widgets assembled or the price of potatoes. GDP is thoroughly institutionalized at the center of our domestic policy arena. When fiscal and monetary policies are crafted, each is judged according to the likely effects on GDP. If something will increase GDP, it must be good and will likely be adopted. GDP growth is the king of policy goals.

The central logic of pursuing GDP growth is “a rising tide lifts all boats.” As long as GDP continues to grow, it is mathematically possible to have more jobs and increase the amount of GDP available per person. In other words, the “standard of living” can increase with GDP.

The rising tide logic made perfect sense during most of the 20th century, when there was a lot of open water and plenty of boat-building material. But such is not the case in the 21st century. Growing the GDP entails population growth or growth in consumption per person; usually both. Trying to grow the GDP these days causes as many problems as it solves. Biodiversity loss, climate change, and pollution are some of the obvious ones. Noise, congestion, and stress are too. It doesn’t look like GDP growth increases the standard of living after all, unless your idea of living standards is particularly anal.

Keystone Protest

GDP measures environmental impact and the size of our economy, not its health. Photo Credit: Stephen Melkisethian

A more nuanced problem is that GDP growth is addictive, kind of like NFL football or World Cup soccer. It has societies and governments all over the world scrambling like hamsters to keep “the score” from shrinking. Crazy things are done in the name of GDP growth: huge rivers are dammed, Keystone pipelines are built, Supreme Courts kick people out of their homes. (Remember Kelo vs. New London?) A society hell-bent on GDP growth is like a junkie doing whatever nasty thing it takes for the next high, rather than doing the right thing for himself and his family.

Yet the realization is gradually spreading that GDP growth can’t continue forever. This reality is causing societal angst and discomfort. For many, especially in the economics profession and business world, the response is denial. “The world can, in effect, get along without resources” is how Robert Solow, the Nobel prize-winning economist, put it.

But among those with their feet firmly on the ground, seeing the limits to growth materialize, the responses aren’t always prudent either. One such response has been to shoot the measurer, or to be more metaphorically accurate, to shoot the measurement of GDP. The politics of this makes for some exceptionally strange bedfellows. From tree-hugging Earth Firsters to staid Austrian-school economists to think tanks funded by the Rockefeller Brothers fund, performing an exorcism of GDP from the spirit of our political economy is all the rage.

The motives of the GDP antagonists differ wildly, reminiscent of the NRA joining the ACLU to fend off the NSA. Pro-growth, free-market economists don’t like government getting any credit for anything, and GDP calculations include government spending, so GDP must be an evil spirit. On the other end of the spectrum, no-growth proponents who see the government as a force to defeat the pro-growth capitalists (and economists) think… something quite odd. They think that, if we refuse to even acknowledge GDP, we’re less likely to be obsessed with its growth, and we can focus more on healthier goals such as better education and healthcare.

It’s shoddy logic at best. It’s akin to an alcoholic thinking, “If I don’t count those beers I drink, I’m not as likely to drink so many. Then I can focus more on my book-learning and health.”

Shall we have a toast? Let’s drink to not counting those beers!

No, the fact is that the alcoholic needs to count those beers more than ever. The diabetic needs to monitor that blood sugar. The obese patient needs to monitor that scale. You get the picture: As our economy exceeds the capacity of the planet to sustain us and future generations, we need to monitor the size of our economy more closely than ever. And there is no better measurement of the size of our economy than GDP.

Due to the fundamental structure of the economy, the size of the economy – as measured by GDP – is a perfectly valid indicator of environmental impact. Agricultural and extractive sectors form the base, which must expand to support the growth of manufacturing and service sectors – yes even the “information economy.” This structure, which is the closest thing in economics to an inescapable law of physics, gives us the “trophic theory of money,” which says that the level of expenditure (GDP, in other words) is proportionate to environmental impact including such tangibles as biodiversity loss, climate change, and pollution in the aggregate.

Those who think technological progress can somehow decouple GDP growth from environmental impact haven’t thought hard enough about the relationship between technological progress and the GDP growth that was based on pre-existing levels of technology. The two go hand in hand, which again in the 20th century was a fine thing. The two going hand in hand in the 21st century tells us nothing except that technological progress cannot reconcile the conflict between economic growth and environmental protection.

So let’s not shoot the measurer or the measurement. Let our friends in the Bureau of Economic Analysis calculate GDP as consistently as they’ve done for over 80 years. They perform a valuable service, and GDP is an invaluable metric. Instead of shooting it, let’s help to ensure the appropriate attitude toward ever-growing GDP: that is, a growing sense of alarm and a concomitant determination to stabilize the size of this economic ship before it sinks as surely as the Titanic.

News on Blue Planet Prize

Editor’s Note: the below is cross-posted from The Asahi Glass Foundation website. We are very excited Daniel Janzen, INBio, and (especially) Herman Daly’s achievements are being celebrated with this prestigious award. Congratulations! 

Announcing the winners for 2014 Blue Planet Prize

Today, we issued a press release announcing the winners of the 23rd Blue Planet Prize.

The winners are

Prof. Herman Daly (USA) Professor Emeritus, School of Public Policy, University of Maryland

Prof. Daniel H. Janzen (USA) Professor, Department of biology, University of Pennsylvania
Instituto Nacional de Biodiversidad (INBio) (Founded in Costa Rica)

The commemorative lectures by the winners will be held at the United Nations University (Shibuya Ward, Tokyo) on November 13 (Thursday). Details will be posted on our website at a later date.

2014 (23rd) Blue Planet Prize Winners

Herman DalyProf. Herman Daly (USA)
Professor Emeritus, School of Public Policy, University of Maryland

Prof. Daly redefined “steady state economics” through the concept of sustainability by incorporating such factors as the environment, local communities, quality of life, and ethics into economic theory, which lead to building a foundation of environmental economics. He has been questioning whether economic growth brings happiness to humans and has been issuing warnings to society, which tends to overemphasize economic growth. As a consequence, he has had a significant international influence.

23-Janzen_INBioProf. Daniel H. Janzen (USA)
Professor, Department of biology, University of Pennsylvania

Instituto Nacional de Biodiversidad (INBio) (Costa Rica)

Prof. Janzen and the Instituto Nacional de Biodiversidad of Costa Rica (INBio) propose measures and policies on sustainable development in harmony with local environmental conservation and local inhabitants and works on environmental education and the conservation of biodiversity. INBio’s activities serve as a valuable role model, from which people both in developed and developing countries around the world should learn.

Remarks from the Award Recipients upon Notification of their Selection

Prof. Daly
I am both honored and humbled to accept the magnanimous Blue Planet Prize from the Asahi Glass Foundation. The making of such important products as glass and chemicals is already a great benefit to the world. Encouraging and supporting others in their efforts to protect and improve our Earth home, as the Asahi Glass Foundation does, is truly an example of generosity and service. When one is treated generously, then one is inspired to treat others the same way. Thank you for that inspiration, and for including me among a list of recipients whom I have long admired.

This recognition is not only an encouragement to me, but also to many friends and colleagues who have worked hard to protect and preserve our Earth from the destruction caused by excessive growth and careless waste. Among these I especially include my colleagues in the International Society for Ecological Economics. If I have done anything to deserve this Prize it is to have provided a generational connecting link between my best teachers and my best students. May this award strengthen that continuing chain into the future!

Prof. Janzen
We – all of us, including 2.6% of the world’s biodiversity – are delighted and honored to learn of the Blue Planet Prize for us and Costa Rica’s INBio. This honor really is for a cast of thousands of Homo sapiens – Costa Ricans and internationals – dancing with billions of other beasts, each doing their part to keep alive some portion of the nature that produced all of us. It is wonderful and wise that years ago the Asahi Glass Foundation had the foresight to offer this support to attempts to move away from the very human tendency to consume and alter our nest. Yes, we can restore some of what we have destroyed, and yes, we can help the world to become biologically literate. Without bioliteracy, nature is just a green threatening mass and there is little hope of its peaceful coexistence with all of us. We, INBio, and Area de Conservacion Guanacaste, are happy recipients of this recognition of decades of trying to open the doors of conserved wildlands to non-damaging partnerships with humanity. Only through direct understanding of the wild world can society welcome it into the family, village and nation.

INBio
To receive the prestigious Blue Planet Prize, given in recognition of our voluntary efforts to conserve Costa Rica’s rich biodiversity is a great honor, which we appreciate in all of its significance. We are humbled to be among many of the most outstanding authorities and leaders in the quest for solutions to the global environmental problems who have been previously recognized with this award, as well as to share it with Dr. D.H. Janzen, a world authority in tropical ecology and conservation with whom INBio has worked in a mutually beneficial association.

What our National Biodiversity Institute has been able to achieve through its institutional efforts has been largely determined by an enabling national environment; the endorsement of the Government of Costa Rica; the support of bilateral and multilateral development agencies; the collaboration of the scientific community and the profound commitment of INBio’s community with the cause of promoting a greater awareness of the value of biodiversity in our society.

The Blue Planet Prize becomes a new source of inspiration and motivation to continue our search for a harmonious relationship between humanity and our living world.

Fresh Water, Growth, Degrowth, and the Steady State Economy

by Geoffrey Matthews

Geoffrey MatthewsIn Our Common Future, the 1987 report of the United Nations World Commission on Environment and Development, sustainable development is described as a process of change which meets the needs of the present generation without compromising the ability of future generations to meet their own needs and aspirations. To achieve this objective, the report suggests a series of goals that should underlie national and international action on development. In the authors’ opinion, the most important of these is “a production system that respects the obligation to preserve the ecological base for development.”

The only way to do this is to manage economic growth or degrowth by the adoption of an economic policy where development may not exceed ecological limits–precisely the definition of the steady state economy proposed by CASSE.

However, in spite of initiatives by extraordinarily committed individuals, developments in ecological economics, and publications by Herman Daly and other members of CASSE, the traditional development process continues almost unchanged. This process fails to appropriately prioritize the social, economic, and environmental sectors to ensure that the growth of each does not occur at the expense of the others. Consequently, the conflicts between economic growth and the environment continue unabated, improvements to quality-of-life are slow and unsustainable, and poverty continues to erode the advances that have been made.

I believe one of the major reasons the concept of a steady state economy is not gaining traction is the omission of the role of fresh water in the production and maintenance of all its ecosystem and economic goods and services. The value of fresh water is that it sustains the life support system via the hydrological cycle. This cycle is the natural phenomenon whereby solar energy evaporates water from the surface of the planet to form clouds, and returns the water back to the planet’s surface in the form of rain, mist, and snow.

Matthews, Fig 1This diagram represents the availability of water in the economy and the environment. The quantity (Q) will vary over time (T) due to changes in the hydrological cycle, climate variations, and pollution. These variations in availability will always affect the scale of the economy and the ecosystem, because fresh water is required for every environmental and economic activity on this planet. To ensure a steady state economy, the supply of fresh water required to satisfy the ecosystem demand must be maintained at the expense of the economy’s demand for fresh water. Therefore, the scale of an economy and the services it produces are subservient to the availability of fresh water and the maintenance of the ecosystem services in its region. This means an economy can only grow within the dynamic hydrological envelope, and under the red supply line. As soon as its demand reaches the available supply, growth must stop, as in the below figure.

Matthews, Fig 2Indeed, some planning committees have made explicit the understanding that economic scale is subservient to fresh water availability–for example, the Town of Okotoks, Alberta, Canada. In 2002, Okotoks designed a Water Management Plan based on the limits of the environmental carrying capacity of the Sheep River and its watershed, gross water consumption of about 300 liters per capita per day, and an urban development policy that provided no allowance for extending utility services outside the town’s municipal boundary. However, in 2013, after consulting the citizens of Okotoks, the town decided to pursue urban growth by annexing adjacent land, but not at the expense of the water required to satisfy the Sheep River ecosystem demand. The present population of Okotoks is about 27,000, and the actual water supply will permit this population to grow until it reaches 35,000. Beyond this limit, additional water will be drawn from a regional water supply system via Calgary.

Conversely, in the case of a drought, when the hydrological envelope shrinks naturally, the economy must downsize or degrow, as in the below figure. No continent is immune to this natural phenomenon, and issues of food security often become the main concern. The degree of intensity and duration of droughts vary, so the amount of downsizing or degrowing will depend on the ability of the citizens and local/regional authorities to cope. Holistic water resources management and drought preparedness are key to the coping capacity of communities. There are no easy solutions because humanity cannot, and will never, control the behaviour of the hydrological cycle.

Matthews, Fig 3So what does this mean in terms of a “full world”? To date, we are accustomed to talking about a finite planet and ecological footprints in terms of the number of planets needed to support us. Although correct, many people cannot easily sense the impact of the deterioration of the life support systems, the loss of biodiversity, and the depletion of renewable and non-renewable natural resources on his or her quality of life because the process is relatively slow. Compare this to the change in the supply of fresh water due to the behaviour of the climate or pollution. This is a daily topic of conversation because fresh water is vital, and people’s reactions in terms of quality of life, finance, effects on aquatic and terrestrial biodiversity, farming, industry, population carrying capacity, etc. are always immediate. In other words, they already know that “their world” is defined by the finite amount of water and quality of water in their region.

As fresh water is an important “full world” parameter, I propose fresh water management be incorporated more fully into steady state policies and discussions with, for example, Integrated Water Resources Management (IWRM). IWRM, as defined by the Global Water Partnership, is a process that promotes the coordinated development and management of water, land, and related resources, in order to maximize the resultant economic and social welfare in an equitable manner without compromising the sustainability of vital ecosystems.

Like the example of Okotoks above, Ecuador is aware that its water demand is reaching the limit of its resources, particularly due to increases in population from 2.8 million in 1950, to 14.7 million in 2013. To address this situation, the government began implementing IWRM and population management simultaneously. IWRM began on February 19, 2008, when the National Constitutional Assembly declared

The State should guarantee the preservation, conservation, protection, restoration, sustainable use and integrated management of watersheds, including necessary quality and quantity of ecological flows to sustain the integrity of all ecosystems associated with the hydrologic cycle, in order to safeguard the satisfaction of individual and collective human needs in function with societal health, including respecting the rights of nature and preserving biological diversity.

Population growth is being managed via free contraception, family planning, and education. As IWRM is designed to replace traditional top-down fragmented sector management with a bottom up cross-sector approach relying on cooperation, coordination, and population decrease, tangible results are not apparent at present. This will take time, perhaps a generation. While the dual policies of IWRM and population management have not been incorporated into a stated steady state economy objective, this is a very promising beginning.

Geoffrey Matthews is a water engineer, now living in France.

Integrating Ecology and Economics

by Herman Daly

Herman DalyAttempts to integrate economics and ecology have been based on one of three strategies: (1) economic imperialism; (2) ecological reductionism; (3) steady-state subsystem. Each strategy begins with the picture of the economy as a subsystem of the finite ecosystem. Thus all three recognize limits to growth. The differences concern the way they each treat the boundary between the economy and the rest of the ecosystem, and that has large policy consequences for how we accommodate to limits.

Ecology & Economy

 

Economic Imperialism

Economic imperialism seeks to expand the boundary of the economic subsystem until it encompasses the entire ecosphere. The goal is one system, the macro-economy as the whole. This is to be accomplished by complete internalization of all external costs and benefits into prices. Those myriad aspects of the biosphere not customarily traded in markets are treated as if they were by imputation of “shadow prices”–the economist’s best estimate of what the price of the function or thing would be if it were traded in a competitive market. Everything in the ecosphere is theoretically rendered comparable in terms of its priced ability to help or hinder individuals in satisfying their wants. Implicitly, the end pursued is ever-greater levels of consumption, and the way to effectively achieve this end is growth in marketed goods and services.

Economic imperialism is basically the neoclassical approach. Subjective individual preferences, however whimsical, uninstructed, or ill-considered, are taken as the ultimate source of value. Since subjective wants are thought to be infinite in the aggregate, as well as sovereign, there is a tendency for the scale of activities devoted to satisfying them to expand. The expansion is considered legitimate as long as “all costs are internalized.”

But many of the costs of growth we have experienced have come as surprises. We cannot internalize them if we cannot first imagine and foresee them. Furthermore, even after some external costs have become visible to all (e.g., climate change), internalization has been very slow and partial. Profit maximizing firms have an incentive to externalize costs. As long as the evolutionary fitness of the environment to support life is not perceived by economists as a value, it is likely to be destroyed in the imperialistic quest to make every molecule in creation pay its way according to the pecuniary rules of present value maximization.

Ironically, this imperialism sacrifices the main virtue of free market economists, namely their antipathy to the arrogance of central planners. Putting a price tag on everything in the ecosphere requires information and calculating abilities vastly beyond any imagined capacity.

There is no doubt that once the scale of the economy has grown to the point that formerly free environmental goods and services become scarce, it is better that they should have a positive price reflecting their scarcity than to continue to be priced at zero. But there remains the prior question: Are we better off at the new larger scale with formerly free goods correctly priced, or at the old smaller scale with free goods also correctly priced (at zero)? In both cases, the prices are right. This is the suppressed question of optimal scale, not answered, indeed not even asked, by neoclassical economics.

Ecological Reductionism

Ecological reductionism begins with the true insight that humans and markets are not exempt from the laws of nature. It then proceeds to the false inference that human action is totally explainable by, reducible to, the laws of nature. It seeks to explain whatever happens within the economic subsystem by exactly the same natural laws that it applies to the rest of the ecosystem. It subsumes the economic subsystem indifferently into the natural system, erasing its boundary. Taken to the extreme, in this view all is explained by a materialist deterministic system that has no room for purpose or will. This is a sensible vision from which to study the ecology of a coral reef. But if one adopts it for studying the human economy, one is stuck from the beginning with the important policy implication that policy makes no difference.

The reductionist vision frequently appeals to the Maximum Entropy Production Principle (often capitalized to elevate it to the same level as the Second Law of Thermodynamics). It says that whatever competing system maximizes entropy production will be competitively selected. Indeed one can appreciate the logic of this principle. The system that can monopolize and most rapidly degrade available sources of low entropy will displace competing systems by depriving them of their energy source. This insight should be taken seriously as a natural tendency. But when we apply it to the human economy it gives us an absurd policy implication. Namely, that the economy maximizes entropy production. Since maximizing entropy is the same as maximizing waste, that hardly offers a sensible rule for either understanding or directing the human economy!

The maximum entropy principle is more like the tragedy of open access commons than like the Second Law of Thermodynamics. That is, it is a trap–a competitive race to the bottom in the absence of collective action. The Second Law by contrast is an inevitability that we must recognize and adapt to; it has no known exceptions. The maximum entropy production principle is not a physical law. No action, collective or individual, can avoid the Second Law. Like the tragedy of the commons, the tragedy of entropy maximization is a detrimental competitive tendency that we must overcome by collective action. But if we mistakenly consider it a physical law on the level of the Second Law of Thermodynamics, then there is nothing to do but give up.

Economic imperialism and ecological reductionism have in common that they are monistic visions, albeit rather opposite monisms. It is the monistic quest for a single substance or principle by which to explain everything that leads to excessive reductionism on both sides. Certainly one should strive for the most reduced or parsimonious explanation possible without ignoring the facts. But respect for the basic empirical facts of natural laws on the one hand, and self-conscious purpose and will on the other hand, should lead us to a kind of practical dualism. After all, that our world should consist of two fundamental elements offers no greater inherent improbability than that it should rest on one only. How these two fundamental elements of our world (material cause and final cause) interact is a venerable mystery–precisely the mystery that the monists of both kinds are seeking to avoid. But economists are too much in the middle of things to adopt either extreme. Economists are better off denying the tidy-mindedness of either monism than denying the facts that point to an untidy dualism.

The Steady-State Subsystem

We must pay attention to the optimal scale of the human economy to protect the ecosystem we depend on. Photo Credit: Elisa Bracco

We must pay attention to the optimal scale of the human economy to protect the natural ecosystem we depend on. Photo Credit: Elisa Bracco

The remaining strategy is the steady-state subsystem. It does not attempt to eliminate the subsystem boundary, either by expanding it to coincide with the whole system or by reducing it to nothing. Rather, it affirms both the interdependence and the qualitative difference between the human economy and the natural ecosystem. The boundary must be recognized and drawn in the right place. The scale of the human subsystem defined by the boundary has an optimum, and the throughput by which the ecosphere physically maintains and replenishes the economic subsystem must be ecologically sustainable. That throughput is indeed entropic, but rather than maximizing entropy the goal of the economy is to minimize low entropy use needed for a sufficient standard of living–by sifting low entropy slowly and carefully through efficient technologies aimed at important purposes. The economy should not be viewed as an idiot machine dedicated to maximizing waste. Its final cause is not the maximization of waste but the maintenance and enjoyment of life.

The idea of a steady-state economy comes from classical economics, and was most developed by John Stuart Mill (1857), who referred to it as the “stationary state.” The main idea was that population and the capital stock were not growing, even though the art of living continued to improve. The constancy of these two physical stocks defined the scale of the economic subsystem. Birth rates would be equal to death rates and production rates equal to depreciation rates. Today we add that both rates should be equal at low levels rather than high levels because we value longevity of people and durability of artifacts, and wish to minimize throughput, subject to maintenance of sufficient stocks for a good life.

Ecological economics should seek to develop the steady-state vision, and get beyond the dead ends of both economic imperialism and ecological reductionism.

GDP: The Infinite Planet Indicator

by Eric Zencey

Eric ZenceyThe faults and flaws of Gross Domestic Product (GDP) as a measure of economic wellbeing are well-known. Nearly every introductory economics text lists the problems: it measures only the monetary value of final goods and services and doesn’t include non-market benefits like volunteer work and domestic production. It miscounts some costs as benefits, as when it adds in the money spent to prevent crime or remediate damage. And it doesn’t count the environmental costs of economic activity at all. Oddly, though, after listing all the shortcomings that prevent GDP from being an accurate measure of economic wellbeing, the typical introductory text goes on to use GDP as a measure of economic wellbeing.

“GDP is not the same as economic wellbeing,” Robert H. Franke and Ben S. Bernanke warn us in the second edition of their introductory textbook, Principles of Economics (emphasis in original). After a review of what GDP miscounts, they acknowledge “you might conclude…that GDP is useless as a measure of economic welfare.” But, they say, that conclusion isn’t justified: despite the measure’s flaws, there is nevertheless a strong correlation between GDP growth and growth in our material standard of living, which makes GDP an effective proxy measure of–yes–material wellbeing.

Or take Harvard Professor Gregory Mankiw, whose introductory text is widely used. “Surely,” he asks rhetorically, “we should value things that are not measured by GDP and that contribute to the quality of life and economic well-being . . . ?” But, like Franke and Bernanke, he falls into line with the status quo: while “GDP does not directly measure those things that make life worthwhile, . . . it does measure our ability to obtain the inputs into a worthwhile life,” which makes it a useful, important measure. (See Daniel Miller’s essay on Mankiw’s treatment of GDP.)

The cost of cleaning up this oil spill in Galveston, Texas is miscounted as a benefit in GDP. Photo Credit: Petty Officer 2nd Stephen Lehmann.

The cost of cleaning up this oil spill in Galveston, Texas is miscounted as a benefit in GDP. Photo Credit: Petty Officer 2nd Stephen Lehmann.

But the most puzzling case of the economics profession ignoring its own warnings can be found in the work of William Nordhaus, the Sterling Professor of Economics at Yale. Nordhaus was the co-originator (with James Tobin) of an alternative to GDP, the Measure of Economic Welfare (MEW). If any introductory textbook was going to be organized around a different economic indicator, you’d think it would be one that Nordhaus helped produce. In 1985 he began co-authoring the magisterially titled Economics, Paul Samuelson’s influential text, first published in 1948, which once had the market to itself and, despite competition, still manages to sell upwards of a quarter million copies a year. On the matter of GDP as an indicator of wellbeing, Nordhaus and Samuleson render these judgments: GNP (GDP’s predecessor statistic)

is an imperfect measure of genuine economic welfare . . . [because it] . . . includes many components that make no obvious contribution to individual well-being, and . . . some key satisfaction-producing consumption items are omitted.

These cautions are offered as a lead-in to the book’s brief discussion of Net Economic Welfare, a measure that traces to Nordhaus’ own work on the MEW. The idea behind both alternative indicators was the same: GNP needs to be corrected by subtracting costs that it ignores (like the cost of air and water pollution, or the lost leisure time that comes from longer working hours that bring higher wages) or mistakenly counts as benefits (like the costs of repairing infrastructure and replacing property after a destructive storm), and it needs to include economic benefits that don’t move through markets (like the value created through domestic production–cooking, cleaning, child- and eldercare, and so on).

Samuelson and Nordhaus have no problem in moving from objective description to the indicated prescription:

Along with adding in ‘goods,’ GNP should be adjusted so that it subtracts out ‘bads’ or the disamenities of modern life.

And yet, and yet: their text doesn’t follow their prescription; it generally ignores the alternative indicator they’ve introduced, the one that Nordhaus himself helped invent. The book’s 900-plus pages give the undergraduate reader a detailed introduction to a body of economic thinking that takes GNP as a useful and accurate measure of economic welfare. You find GNP throughout the book, from the flyleaf (on which a full-page graph compares “Real Output,” measured in inflation-corrected GNP, to Price Level over the years) to the index (which contains just two citations for the NEW but five and a half column inches, in 5 point type, on GNP).

In economics as in other professions, it takes vision and courage to break with consensus practice. And economists can always take shelter behind the myth that economics, properly understood, is purely descriptive–a science, not a species of prescriptive advocacy. And so it is that despite GNP’s flaws, and their own advocacy for using something better, Samuelson and Nordhaus tell beginning students of economics that this well-known statistic (and by implication its successor statistic, GDP) is “the best widely available measure of the level and growth of [economic] output” and “the carefully monitored pulse of the economy.” The message: we take GNP seriously as a measure of economic wellbeing because policy makers and other economists take it seriously as a measure of wellbeing, and while we’re perfectly capable of imagining an alternative measure, we’re not going to go against the professional consensus.

Thus is a perverse, anti-intellectual conservativism modeled for students of economics.

But we can still usefully ask: why does the discipline as a whole hang on to a statistical measurement that is so deeply flawed?

I think part of the answer is that GDP embodies a hidden presumption, one that is absolutely crucial to economics as it is widely practiced today. It’s a presumption that is killing us, literally. That presumption is that the planet is infinite.

The growth societies that developed in Western Europe in the past two centuries have, by and large, always treated the planet as though it were infinite, with an infinite capacity to offer up resources and an infinite capacity to absorb the wastes that industrial production inevitably generates. This counter-factual presumption is killing us, through climate change, species loss, and ecosystem degradation.

The tradition in economic theorizing that began in those growth societies needs the planet to be infinite, because even today its theorizing remains committed to economic growth as its primary project and takes that growth to be the measure of the success or failure of its theories.

If you adopt an alternative indicator and thereby begin to admit that economic development has environmental costs in pollution, climate change, resource depletion, lost leisure time, family dissolution, and other “disamenities,” then you have to be open to the possibility that there could be uneconomic growth–economic development that costs us more in damage and disamenities than it brings in benefits. To fix the flaws in GDP, to deduct environmental and social costs from economic benefits, is to call into question the perpetual growth dogmas of the discipline.

So, even though GDP fails in terms that are completely drawn from traditional economics, that failure has larger consequences for the tradition. Rejecting GDP as a basic economic indicator and adopting an alternative subverts a much larger body of economic theory and practice, because it encourages us to ask, and to get fresh answers to, a fundamental question: What’s the economy for, anyway?

As nations, states and localities begin developing their answers to that question, they are increasingly seeking to adopt and integrate into their policy making (economic and otherwise) new indicators that offer a more comprehensive measure of wellbeing.

In my next post, I’ll elaborate on last week’s post by John de Graaf, and talk more about how the state of Vermont has begun integrating the Genuine Progress Indicator into its policy processes.

 

Building a Movement for Happiness

by John de Graaf

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

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

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

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

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

Bhutan’s Challenge

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

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

Bhutan Monk - Credit-Otabi Kitahachi

Little Monk
Photo Credit: Otabi Kitahachi

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

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

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

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

The New Science of Happiness

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

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

Putting Happiness First

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

Ph

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

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

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

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

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

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

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