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.

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.)

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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.

The Hidden Costs of Cheater Economics on Human Health & the Future of Life on Earth

by Brent Blackwelder

BlackwelderIn a true cost steady state economy, the real costs of goods and services would not be disguised, hidden, or kept off the accounting ledger. The former head of Friends of the Earth England, Tony Juniper, makes a significant contribution to the discussion of a true cost economy in his new book What Has Nature Ever Done For US? How Money Really Does Grow on Trees.

Cheater economics enables polluting products to be sold cheaper than many clean products. Cheater economics includes subsidies for fossil fuels, pesticides, and toxic chemicals. Cheater economics tolerates pollution externalities, as economists have noted. For example, many damages caused by air pollution from coal-fired power plants are not incorporated into the price of coal but simply borne by the victims. The act of mountain top mining eliminates forests and streams while air pollution from burning coal results in loss of crops, damage to buildings, health problems, and mercury contamination of fisheries, etc.

Here is a sample of the astonishing set of ecological costs stemming from economic activities that damage or rearrange ecosystems that are presented in What Has Nature Ever Done For US?

Vultures in India

Photo Credit:  Nagarjun Kandukuru

Perching vulture in India. Photo Credit: Nagarjun Kandukuru

India has almost lost its total population of 40 million vultures as a result of anti-inflammatory drugs injected into cattle and water buffalo. The vultures consumed the carcasses of these and other dead creatures and accumulated a fatal dosage. Now 12 million tonnes of animal flesh that vultures consumed annually is left rotting, fed upon by growing packs of dogs that have caused a massive outbreak of rabies among the human population. The annual medical costs exceed $30 billion as a result of the demise of the vulture population, which had previously provided free of charge essential garbage/carrion collection services.

Pollinators of Human Food Crops

About two thirds of the world’s food crops require animal pollination and one trillion dollars of the $3 trillion annual sales of agricultural products are dependent on animal pollinators such as honey bees and bumblebees. Certain pesticides are killing off these crucial pollinators. In the 1980s, extensive use of pesticides in part of Sichuan, China, eliminated the bee pollinators. Today in this region, about 40,000 people now have to pollinate apple and pear trees by hand.

The United Nations Food & Agriculture Organization (FAO) reports that in 146 countries, 90% of the food supply is provided by 100 crops. What is significant is that 71 of these 100 crops are pollinated primarily by wild bees. These crops include squashes, cherries, plums, cucumbers, strawberries, and pears.

Destruction of Ocean Fisheries via Subsidies

Ocean fisheries contribute $274 billion for global GDP but various countries provide $16 billion in subsidizing fishery harvesting practices that are highly damaging to fish stocks: i.e., the equivalent of killing the goose that laid the golden egg.

Photo Credit: Jim Winstead

Mangrove in Thailand. Photo Credit: Jim Winstead

Mangrove Forest Loss & Coastal Flooding

One square kilometer of mangrove forest is worth between $200,000 and $900,000 annually. Destruction of coastal mangrove forests, as occurs with Asian shrimp farms, eliminates the storm protection barrier that is increasingly important in the face of sea level rise.

High Health Care Costs as Result of Destroying Natural Areas

To deal with the poor health of people in the polluted Gateshead area in Northeast England, a group of British public agencies in 2004 initiated a program of walks in a 360 hectare mixed forest zone. Tony Juniper reports that these walks were very effective in improving patients’ health and were far superior to the alternative of exercise in a gymnasium.

A growing body of evidence points to the health benefits from interactions with nature. Dr. William Bird, a British doctor, ran a diabetic clinic in the 1990s in Oxfordshire where he initiated a very successful program of health walks in natural areas. But the sad fact is that natural areas are declining in many urban areas. In Sheffield, England, the “roaming” range for children has declined over 5 generations from six miles when the great-grandparents were children to about 300 yards today for children. The health costs of destroying natural areas globally is simply a pollution externality for developers and extractors and is shoved off on the public.

Pharmaceuticals & the Loss of Tropical Rainforests

Experts estimate that between a quarter and a half of the $640 billion global pharmaceutical market is based on natural genetic diversity. Tropical rainforests contain a significant portion of the genetic diversity on earth, but despite the grave concerns about deforestation, an area the size of Germany or Montana was lost between 2000 and 2013.

To establish a true cost economy, we must get the ecological price right on products and services. The examples presented in Juniper’s book illustrate the extraordinarily large benefits provided by nature but neglected in today’s economic accounting. These compelling illustrations can be of great benefit in pushing toward a paradigm shift in current mainstream economic thinking. They are straightforward matter-of-fact descriptions of externalities that are undermining the life-support ecosystems of the Earth.

The Securities and Exchange Commission (SEC) should be requiring companies to disclose their pollution externalities annually so as to alert investors and the public to the true cost of their products. However, not only will a steady state economy depend on accounting for these costs and putting an end to cheater economics, but will also depend on changing our macroeconomic policy goal of continuous growth. Only then can we begin to stop the destruction of our planet and ensure our health and the environment are protected for generations to come.

The One Percent: Not Kristallnacht but Lebensraum

By Brian Czech

BrianCzechRemember Tom Perkins? Probably nobody wants to, but with all the talk about the profligacy of the one percent, Perkins comes iconically to mind. He’s the billionaire who nauseated the ninety-nine percent by suggesting that American “progressive” (his word) thinking was tilting toward Kristallnacht, due to an attitude toward the one percent. As if he and his capitalist captain cronies were innocent street-corner merchants and the rest of us jack-booted Nazis. What a way to win friends and influence people!

If we’re going to use World War II analogies, let’s at least use the correct one.  In this case it’s not Kristallnacht, but Lebensraum. And the one percent would be the perpetrators, not the victims.

Recall that the pursuit of Lebensraum — living space — was Hitler’s stated excuse for invading Poland, the beginning of World War II. It’s a doctrine to be ever wary of, and it might not always be as explicit as Hitler made it. (The relevance to Putin and Ukraine, for example, is left for others to speculate on.)

To understand the logic of Lebensraum, we need a quick review of structural economics. The economy has three basic sectors: agricultural/extractive, manufacturing, and services. (The “financial sector” is fairly distinct, but falls within the general category of services.) It seems like this basic structure ought to be conventional wisdom, but in the age of the Internet, economic wisdom is disappearing by the bitcoin. If we’re not careful we’ll end up like King Midas, a foolish one percenter if there ever was one.

TL Most Basic With Caption III

The three basic sectors of the human economy, with agriculture/extraction lumped together as “producers” of food, energy, and raw materials.

 

Every economy on the planet — and every political state — depends on its agricultural and extractive base for everything else. It doesn’t matter where the agricultural base is situated, or who controls it. Whether it’s the financial sectors of Hong Kong, the ecotourism of Costa Rica, or the State of Rhode Island, it’s agricultural and extractive surplus, coming from somewhere, that frees the hands of society for the division of labor. Adam Smith noted as much in Wealth of Nations. It’s the stuff of statecraft. Thomas Jefferson knew all about it.

 

 

TL with Arrows with Caption

The basic sectors re-arranged as trophic levels. Strictly speaking, the producers (farmers and extractors) and manufacturing sectors (from heaviest to lightest) are true trophic levels. Service sectors operate throughout the trophic structure, much like pollinators, scavengers, and decomposers operate in the “economy of nature.”

The basic economic sectors amount to the “trophic levels” of economic activity, to borrow a term from ecology. It’s a term worth borrowing, too, given that ecology is all about the “economy of nature.” A little ecology goes a long way toward understanding the plight of Homo sapiens in the 21st century. Humans are stuck with the same physical and biological laws that operate in the economy of nature.  There’s no making something from nothing — Lebensraum for example — and no waving a magic wand to make all the competitors disappear. Guns and bombs are not magic wands.

Of course we all know that the American economy has a lot more than the basic farms, factories, and financial firms. For example there are some really fancy watches, 289-foot yachts, and even personal submarines. You know, the kind of stuff Tom Perkins has to have. Well, with plenty of agricultural and extractive surplus at the base, there’s enough money left over in society for such luxuries, at least for those who commandeer a high enough percentage of the money.

Note that word “money” in the context of trophic levels. This is the “trophic theory of money” — more and more real money (adjusted for inflation, technological progress, and purchasing power) requires more and more agricultural and extractive activity at the base of the economy.  In other words more and more money takes more and more resources.  It takes more… Lebensraum.

Now who among us contributes most to the pressure for Lebensraum? (Hint: It’s easy to tell with the trophic theory of money.) All else equal, it’s those who require and spend the most money, because the amount of money indicates the level of agricultural and extractive surplus that had to be issued from the base of the economy.

The point here seems even more obvious when the expenditure is on luxury material goods, say for example “your typical football field size yacht,” as Perkins referred to his “Maltese Falcon.” The point is more nuanced when it comes to spending hundreds of millions on, say, derivatives in Hong Kong or ecotourism in Costa Rica. But whether the millions are spent on nuts, bolts, or pure nonsense, the origination of the money required Lebensraum at the base.

Pressure for Leb With Caption

Unsustainable consumption of the one percent and pressure for Lebensraum. Note how disproportionate the extremely luxurious goods and services are. The alarming disproportionality indicates how the base of the economy must grow outward to support the acquisition of such goods and services. In other words, if agriculture and extraction is at full capacity within the borders, the nation must commandeer Lebensraum to support the luxurious consumption (Photo Credit: Greg Covey.)

At the Earth Summit in Rio de Janeiro, 1992, George H. W. Bush said, “The American way of life is not up for negotiation.” The problem with that attitude is the American way of life, taken as a whole, includes an unhealthy dose of Perkins-like consumption. If that’s not up for negotiation, war is a matter of time.

And please, don’t tell us the real onus is on the 99%. Obviously every bit of conservation helps, but how much do you spend in a year? Somewhere between $20,000 and $60,000? That means a guy like Perkins or Trump or Schwarzman spends not 10 times as much as you, not 100, but more like a thousand or even 10,000 times as much. That requires a helluva lot more Lebensraum! I don’t know about you, but I don’t think that should be part of the American way.

This is not to say the one percent is guilty of conspiring to precipitate a war for Lebensraum. It’s hard to imagine the Donald, for example, having any type of geopolitical strategy. And if there is one thing I have learned as a visiting professor of natural resource economics, it’s just how deeply misinformed people are about the trophic origins of money. Our society, political system, and even academia abound with fuzzy notions of “dematerializing” the economy and “green growth.” It would be hard to blame the one percent for an ignorance of ecological economics.

On the other hand, somewhere around 99% of us, if stopped for violating a relatively obscure statute or regulation, will be told, “Ignorance of the law is no excuse.” In this case we are talking about natural law; the physics and biology establishing the trophic structure of the economy.  A guy like Perkins is supposed to be a cut above the rest; a brilliant captain of industry, high-tech industry no less. Shouldn’t we expect more acumen with regard to the functioning of the economy he has supposedly mastered?

Frankly, I’m not so sure Perkins is blissfully ignorant after all.  His 60 Minutes interview suggested he knows something is wrong with the gaudy expenditures on yachts and moats and such.  In fact, he was too embarrassed to say how much he spent on the Maltese Falcon because he admitted the money could have been used for far more beneficial and charitable purposes.  Yet he just can’t control the urge to have the biggest and most expensive toys, largely to stroke his ego, he admits.

Now in America there are other behaviors, stemming from supposedly uncontrollable urges, that wreak havoc in society. These behaviors are not only frowned upon but punishable by law. Why are there no deterrents to reckless levels of consumption?

It bears repeating that pushing for perpetually more stuff — especially luxury goods and services, the biggest, best, and most expensive — is tantamount to Lebensraum doctrine. It may not be intentional, but it’s basic economics. And bad economics.