consumption

Housing consumption and investment: evidence from the Help to Buy scheme

Published by Anonymous (not verified) on Wed, 20/05/2020 - 6:00pm in

Matteo Benetton, Philippe Bracke, João F Cocco and Nicola Garbarino

Academics have made the case for mortgage products with equity features, so that gains and losses due to fluctuations in house values are shared between the household and an outside investor. In theory, the equity component expands the set of affordable properties, without increasing household debt, and default risk. These products have not become mainstream, but in a recent paper, we study a large UK experiment with equity-based housing finance — the Help To Buy Equity Loan scheme. We find that equity loans are mainly used to overcome credit constraints, rather than to reduce investment risk. Unconstrained household prefer mortgage debt over equity loans, suggesting optimism about house price risk. Equity loans could still contribute to house price inflation: we don’t find evidence that houses purchased with equity loans are overpriced, but an assessment of the aggregate effects is beyond the scope of the paper.

The economic rationale for equity loans

Mortgage-financed house purchases create a levered position in real estate that amplifies the effects of house price fluctuations on the household’s net worth (Campbell and Cocco (2003)). These risks are correlated across households and have aggregate consequences, as evident during the Great Recession. Under traditional mortgages, households bear almost all house price risk, and the only risk-sharing mechanism is defaulting. Academics, most notably Shiller (1994), have proposed alternative financing structures that make the payoffs to investors who provide financing contingent on future house values. As house price risk is shared between households and investors, both the amount of vanilla debt and default probabilities are reduced.

The Help-To-Buy Equity Loan scheme

In spite of their large potential benefits, these hybrid products, with debt and equity features, have not become mainstream. An important exception is the recent Help-to-Buy Equity Loan (EL) scheme introduced by the UK government in April 2013. The EL scheme provides capital of up to 20% (40% in London since February 2016) of the property purchase price in exchange for the same share of its future value. The scheme is limited to new properties with a value below £600,000. To qualify, households have to provide a 5% down payment, and there are no restrictions in terms of age, income or wealth (but EL cannot be used to purchase a second home). As the name indicates, the scheme was motivated by affordability, rather than risk-sharing, considerations. From the scheme’s inception until end of June 2018, the total value of the equity provided by the UK government was £9.9 billion for the acquisition of properties with a total value of £46.5 billion.

In this paper we study the reasons behind the large demand for ELs. Homebuyers can use ELs as an alternative to traditional mortgage financing, in order to reduce their leverage and exposure to house price shocks (the risk-sharing motivation studied by academics). But ELs can also be used in addition to a traditional mortgage, in order to overcome credit constraints and purchase more expensive properties (the affordability issues that motivated the launch of the scheme).

The role of credit constraints

To understand the role of credit constraints, we study the distribution of origination loan-to-value (LTV) and loan-to-income (LTI) ratios for eligible property transactions between 2013 and 2017. Lenders use LTV and LTI ratios to determine the maximum loan amount and as cut-off criteria above which they reject mortgage applications, but the EL is not included in their calculations. We show that an overwhelming proportion of borrowers would not have, without the EL or a larger down payment, been able to borrow the mortgage amount needed to purchase their property. As a benchmark, in Panel A of Figure 1 we plot the distribution for borrowers who were eligible for the EL scheme (ie bought a new property under £600,000 after 2013) but chose not to use it. Very few mortgages have LTV above 90% and none has LTV above 95%. Very few mortgages are above the 4.5 LTI cut-off. In Panel B we report the distributions for EL borrowers, and, in addition to LTV and LTI ratios calculated using the mortgage debt, we plot cumulative LTV (CLTV) and LTI (CLTI). The majority of EL borrowers take out a mortgage with 75% LTV, which allows them to purchase the property with the maximum equity loan (20%) and the minimum down payment (5%). The corresponding CLTV is 95%. Compared to non-EL borrowers, the LTI distribution of EL borrowers is shifted to the right and bunched towards the 4.5 LTI threshold. The corresponding CLTI distribution shows that many EL borrowers are over the 4.5 limit.

Figure 1: Loan-to-value and loan-to-income distributions (new properties with value below £600,000, April 2013-March 2017)

EL borrowers also take mortgages with longer maturities, which relaxes payment-to-income constraints. They are significantly younger, much more likely to be first-time buyers, and they use a significantly lower down payment than those who buy properties just above the threshold.

The London experiment

To provide causal evidence on how borrowers react to the availability of equity financing, we exploit a change that took place in February 2016, when the maximum EL contribution for the acquisition of properties in London increased from 20% to 40% of their price. We use a difference-in-difference methodology to show that a large number of individuals took advantage of the increased scheme contribution to buy more expensive properties, instead of reducing their mortgage debt and house price risk exposure. The properties are more expensive because they are better quality (eg more square meters) rather than overpriced — the results are very similar when we into account local house price inflation. This is again evidence of the role that credit constraints have in the scheme take-up.

House price expectations

In spite of its success, a large number of homebuyers who could have taken advantage of the EL scheme and of the government subsidy that it involves, have not done so. Why not? Homebuyers who have not used the EL scheme could have bought the same house using the EL and a 20% lower LTV mortgage. Their mortgage payments would have been lower due to both the lower mortgage amount and the fact that a mortgage with a 20% lower LTV has a lower interest rate. For borrowers with an original mortgage LTV over 85% the reduction in monthly (median) mortgage payments would have been substantial: from £823 in the base case to £528.

On the other hand homebuyers would have had to give 20% of the future value of the house to the government at EL termination. We calculate the minimum (break-even) rate of expected house price appreciation that a risk neutral individual, or one that ignores house price risk, requires to be better off without the EL. Our calculations show that for individuals who did not make use of the scheme and took a mortgage with an LTV greater than 85%, the average break-even rate of annual house price appreciation is as high as 7.7%. The choices not to use EL can therefore be rationalized by a high expected rate of house price appreciation. (We assume that house buyers are risk-neutral, but risk-averse individuals should require an even higher return on their investment). Alternatively, one may interpret the high implied house price expectations as a proxy for informational or cognitive frictions that affect households’ awareness and evaluation of the scheme.

Conclusions

We provide evidence that the main driver of the large demand for ELs in the UK comes from a desire to overcome credit constraints, and increase housing consumption. Our data cover a period of fast house price appreciation (which is when affordability problems become more acute) and households may behave differently when prices decline. Any macroeconomic benefits from these products will also depend on their effect on house prices, the risk for investors, and the risks faced by suppliers of equity loans — all issues that are outside the scope of this paper.

Matteo Benetton works at the Haas School of Business, University of California, Berkeley, Philippe Bracke works at the Financial Conduct Authority, João F Cocco works at the London Business School and Nicola Garbarino works in the Bank’s Prudential Policy Directorate.

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A Post-COVID Vision: The Full and Sustainable Employment Act

By Brian Czech

If COVID-19 has taught us anything, it is that the Great God of GDP is a false god after all, impotent as Baal. The mighty American economy, with unprecedented GDP, has been knocked to its knees by one of the lowest conceivable life forms, a mere virus possessing not a single strand of DNA. Politicians who thought their legacies would be associated with “the greatest economy ever” now look like ridiculous priests of a sham religion.

GDP exceeding $21 trillion in 2019 ($87 trillion globally) has been powerless to cure the sickness, financial trauma, and fear experienced by millions of Americans and billions of souls worldwide. Adapting to the new reality of a COVID-infected world and the uncertain hope for a vaccine is depressing in the best of scenarios and devastating in the worst. Yet adapt we must, and that includes public policy as much as individual behavior.

Coronavirus briefing. We need a Full and Sustainable Employment Act.

Pushing for growth vs. protecting the public: COVID-19 as the latest episode. (Image: CC0, Credit: The White House)

The CDC, NIH, and WHO have provided recommendations for lowering the spread of the virus and helping infected patients survive. Politicians are attempting to balance such recommendations with the concern for a healthy economy. The problem is that virtually every major politician in the USA, as well as a majority of politicians in the world, think of economic health in terms of GDP growth. For that matter, so do the economists advising these politicians and appearing on mainstream media. Their “adaptation” to the COVID-caused recession is nothing more than a hapless attempt to get back to business as usual; that is, growing the GDP through fiscal and monetary “stimulus.” In other words, it’s no adaptation at all!

Common sense and a pair of eyes is enough to recognize that the need for social distancing—effective adaptation to COVID-19 at the individual level—translates into lower levels of economic activity and a lower velocity of money. Unfortunately, politicians are now handling public health as they handled environmental protection for decades, acting as if we can have our cake and eat it too. They seem to think that, with enough Plexiglas panels on factory floors and retail counters, we can stimulate the economy back into $21-trillion territory without suffering a pandemic death toll. We can expect claims of “there is no conflict between growing the economy and protecting public health,” echoing the decades-old mantra that “there is no conflict between growing the economy and protecting the environment.”

Will we be fooled again by the win-win rhetoric? I don’t think so—at least not nearly so many of us—because this time the threat of the growth obsession is a direct, imminent matter of life or death. As employees are prematurely pressured to return to work “for the economy,” knowing fully well that doing so increases their odds of contracting the deadly virus, surely they will rethink what “the economy” is really for and who is behind the push to “stimulate” it.

There will be a significant percentage of individuals who decide more or less happily never to return to the jobs that dominated their life pre-COVID. Many will wrestle with trade-offs, such as extra gardening and more childcare, and certainly less luxury goods and entertainment. Some will have saved enough—and were cautious enough to avoid debt traps—such that they may find the new lifestyle to be empowering and even more joyful than the old 9-to-5 grind. They won’t be contributing much to GDP, but they’ll be healthier and happier, and will hardly be a burden on the nation’s infrastructure and budget.

Unfortunately, many others will be desperate to return to work or find a new job. They may have little means of subsistence—no lawn for a victory garden—and some will be threatened with homelessness when they can’t pay the rent. Even they, however, will see through the lie that “there is no conflict between growing the economy and protecting the public from COVID-19.” They are victims of an unfair capitalist system who must go to work “for the economy” and risk their health in the process.

The experience of individuals far and wide, then, will be conducive to a sea-change in attitudes toward the economy, GDP growth, and the government’s role in defending its own taxpaying citizens.

A New Economic Policy for 21st Century America

A new policy vision for the post-COVID economy entails replacing the current policy. So, what exactly is the current policy? What is it that steers us constantly, relentlessly back onto the GDP growth path? Let’s take a short trip down institutional memory lane…

Harry Truman and the Full and Sustainable Employment Act

President Harry Truman signed the Employment Act in 1946; a first step in the formal pursuit of GDP growth. (Image: CC0, Credit: Abbie Rowe)

As a response to the Great Depression, Franklin Delano Roosevelt gave Americans the New Deal. Most of the work programs were cultural successes and employed significant numbers of young men. Yet the Depression wasn’t “solved” until World War II, with the mobilization of the civilian labor force and technological progress spinning out of war-time laboratories. Most Americans know this basic story of the Great Depression, New Deal, and World War II, but few seem aware of the Employment Act of 1946. We must be fully aware of it to move toward a new economic policy for the 21st century.

The Employment Act was a Keynesian adaptation to the experience of the Great Depression; that is, it was largely a result of John Maynard Keynes’ General Theory of Employment, Interest, and Money. Prior to Keynes, economists clung stubbornly to their ideal of laissez faire (let do; non-interference) as the proper governmental approach to economic affairs. General Theory was the paradigm-shifting book that persuaded Western governments to take active fiscal and monetary measures for ensuring adequate demand for goods and full employment of the labor force.

In crafting the Employment Act, the 78th Congress was especially concerned about the social and cultural ravages of unemployment. It was less concerned with any explicit notion of economic growth. For one thing, national income accounting was in its infancy. Also, Congress was still reluctant to get the federal government very involved in economic affairs, especially with heightened concerns over the sway of communist ideology. That said, the Employment Act did establish the Council of Economic Advisors, which turned out to be a highly influential pro-growth institution for decades to come.

The American economy ran fairly smoothly and grew very rapidly for the next couple of decades, but by the 1970s, American political leadership was beside itself with the problem of stagflation, that is, recession (“stagnation”) concurrent with inflation. Economists thought you could have only one or the other for any significant period of time and that they were, in fact, countervailing forces. Unlike World War II, though, the Vietnam War wasn’t sufficient to kick the real economy into high gear. Efforts to stimulate investment and consumer spending by loosening the money supply only led to inflation. Thus, stagflation.

The bedeviling bouts of stagflation finally led Richard M. Nixon to announce, “We are all Keynesians now,” recognizing that conservative diehards were some of the last to accept any government involvement in macroeconomic policy. Nixon had established the Bureau of Economic Analysis in 1972 for state-of-the-art accounting and GDP calculation. The 95th Congress, led by Hubert Humphrey and Augustus Hawkins, worked to update the Employment Act, which was finally amended as the Full Employment and Balanced Growth Act (FEBGA) and signed by President Carter in 1978. As of then, the US government was fully and formally committed to GDP growth as central economic policy.

It was easy for supporters of FEBGA to argue mathematically that, all else equal, more jobs could be had with greater GDP. It was also easy for Big Money to hide behind pro-growth policy for purposes of accumulating more capital and increasing CEO salaries, without any concern for creating more jobs. Not surprisingly, FEBGA ended up a thick mix of fiscal and monetary policy that serves the capitalist as well as the labor force.

FEBGA is often referred to with the shorthand “Employment Act,” saving a number of syllables and reminding us of its original (1946) focus. I favor the full 1978 title, even if only via acronym, as a reminder that GDP growth is not just some wistful political notion or rhetorical tool but rather a formal, central policy of the USA pursued with fiscal, monetary, and deregulatory means, as well as diplomacy and terms of trade in international affairs.

Now, more than a half century later and in the midst of an economy-crushing pandemic, it’s time to rewrite FEBGA. We need a Full and Sustainable Employment Act, with the very name change communicating that growth is no longer sustainable.[1] The Full and Sustainable Employment Act will mark the transition from economic growth to a steady state economy, politically and every bit as formally as FEGBA called for growth.

Pro-growth politicians (or perhaps Big Money) came up with the brilliant metaphor, “A rising tide lifts all boats.” While at least one source attributes the phrase to President John F. Kennedy, it seems like the stuff of Madison Avenue. And, when limits to growth aren’t acknowledged, the logic illustrated by the metaphor is unassailable. All else equal (“ceteris paribus” in econ-speak), a growing GDP means more jobs. Of course the devil is in the phrase “all else equal,” because little is equal on the tilted chess board of a capitalist economy. Instead of more jobs, a growing GDP too often means more expensive technology and billionaire CEOs, who are just as effective at blasting ships out of the water as making way for more boats.

Either way, the metaphor of the rising tide sinks like a presidential approval rating when limits to growth are recognized, as they increasingly are and should especially be in the context of COVID-19. There is only so much water; the tide can’t rise forever. There is a limit to the number of boats at sea, too, and even a limit to boat-building material on shore. It’s high time for the “rising tide” metaphor to ebb all the way back into the rustic recesses of faded political minds.

It so happens that the acronym of Full and Sustainable Employment Act—FSEA—is useful for nailing the coffin shut on the “rising tide” metaphor. Combining “F” (for Full) and “SEA” invokes the image of a full sea. Why not take advantage of such a linguistic coincidence and make the message a little clearer yet? It is not unprecedented for Congress to wax metaphorical with the short title of a paradigm-shifting statute; they might as well call this one the “Full Seas Act.”

ships and the Full Sustainable Employment Act

“A rising tide lifts all boats” was a fine metaphor for the 20th century, but in the 21st century the seas are full. (Image: CC0, Credit: Good Free Photos)

What might the Full Seas Act actually look like? How will it conduce a steady state economy? What happens to the pro-growth arrangements established by FEBGA? The best way to envision these developments is to consider a proposed Section 2.[2]

Full Seas Act—Findings and Declaration

In a typical act of Congress, Section 1 provides a short title (“Full Seas Act” in this case). Section 2 is in many ways the most important section of a path-breaking statute because it establishes the key findings and declarations of Congress. It comprises a sort of preamble and emanates the spirit of the law. It justifies the details laid out in subsequent sections, and future policy development at the agency level will be informed by its content as well.

On the other hand, readers should keep in mind that Section 2 is never designed to address all the details of the challenge at hand, much less all the problems of the world. The crux of the Full Seas Act is a formal transition from economic growth to the steady state economy (most likely via degrowth). Therefore, Section 2 will not include references to specific policy tools such as minimum wages, energy caps, banking reforms, etc. Sections 3 and beyond just as surely will, however.

Without further ado, then, the initial public offering of the Full Seas Act, Section 2, more or less consistent with the canons of statutory construction:

 

SEC. 2.

(a) FINDINGS. The Congress finds that—

(1) Economic growth, as measured with gross domestic product (GDP), requires a growing human population, increasing per capita consumption, or both.

(2) Consistent with the natural sciences, including basic principles of physics and biology, there are limits to economic growth within and among nations.

(3) There is a fundamental conflict between economic growth and environmental protection, including the maintenance of: clean air and water; productive soils; biological diversity; stocks of natural resources including water, timber, fisheries, minerals, and fossil fuels, and; funds of ecosystem services including nutrient cycling, pollination, waste absorption, and carbon sequestration.

(4) A well-maintained, non-degraded environment is the foundation of a productive economy. Therefore, and because of the fundamental conflict between economic growth and environmental protection, there is also a fundamental conflict between economic growth and the long-term maintenance of the economy including jobs, income, and wellbeing.

(5) A well-maintained economy is vital to national defense. Therefore, and because of the fundamental conflict between economic growth and the long-term maintenance of the economy, there is a fundamental conflict between economic growth and national security.

(6) There is abundant environmental and economic evidence that long-term limits to growth have been and are being reached and exceeded in the Nation, other nations, and globally.

(7) There is abundant evidence that perennial fiscal and monetary efforts to stimulate GDP growth are increasingly causing environmental, economic, and social harm while resulting in fewer benefits, with the harm gradually exceeding the benefits.

(b) DECLARATION. The Congress declares that—

(1) It is heretofore the policy of the Nation to undertake a gradual but certain transition from the goal and pursuit of economic growth to the goal and pursuit of a sustainable steady state economy, with stabilized or mildly fluctuating population and per capita consumption as generally indicated, all else being equal, by a mildly fluctuating GDP.

(2) The transition to a steady state economy must be undertaken with every intent and effort to achieve and maintain the full employment of the labor force consistent with environmental protection and other aspects of economic sustainability including a balanced federal budget and the effective control of inflation.

(3) The President, President’s Cabinet, Council of Economic Advisors, Federal Reserve, and federal agency directors will immediately cease and desist from developing strategies and initiatives to grow or stimulate the economy. Existing policies, programs, and projects designed explicitly to grow or stimulate the economy shall not be extended beyond fiscal year 2021 or beyond the designated sunset date, whichever comes later.

(4) The Congressional Research Service, collaborating with the Office of Management and Budget and Council of Economic Advisers, will review and summarize the federal agency mission statements, goals, objectives, policies, programs, and practices designed for GDP growth, producing a Report on Federal Growth Incentives no later than 30 April 2022.

(5) A Commission on Economic Sustainability (“the Commission”) is hereby established to include the Administrator of the Environmental Protection Agency and the Secretaries of Agriculture, Energy, and Commerce, chaired by the Secretary of the Interior, to estimate and monitor environmentally sustainable levels of population and socially optimal levels of GDP. The Commission will produce a Report on Sustainable Population and Optimal GDP no later than 31 August 2022.

(6) The Commission Chair, with counsel of the Chairman of the Council of Economic Advisors, Secretary of Commerce, Federal Reserve Chair, and Secretary of the Treasury, drawing on the Report on Federal Growth Incentives and the Report on Sustainable Population and Optimal GDP, and pursuant to the framework provided in subsequent sections herein, will develop and deliver to the President, no later than 31 August 2023, a 25-year Steady-State Transition Plan detailing and scheduling the adjustments, modifications, additions, and deletions necessary to establish a system of government operations most conducive to a steady state economy at an estimated optimal level of GDP.

(7) The President, Cabinet secretaries, and federal agency directors shall not overlook the existence, neglect the enforcement, or underfund the performance of the Clean Air Act, Clean Water Act, Endangered Species Act, National Environmental Policy Act, or any other of the Nation’s environmental laws or regulations on grounds that said laws or regulations may interfere with the workings of the economy or slow the rate of GDP growth.

 

Stay Tuned for the Rest of the Full Seas Act

For policy wonks and steady-state advocates, exciting times lie ahead as Sections 3 and beyond of the Full Seas Act will feature long-awaited steady-state policy instruments. The starting point should be the top ten policies favored by Herman Daly. Chapter 11 of Supply Shock is largely for purposes of informing the Full Seas Act. And, at the risk of unintentionally omitting dozens of helpful individuals, now is the time to revisit specific proposals of scholars such as Peter Victor, Tim Jackson, Dan O’Neill, and Phil Lawn as well as the rich mix of overlapping ideas emanating from the European degrowth movement.


“Steady statesmanship” an essential aspect of the Full Seas Act. (Image: CC0, Credit: U.S. Department of State)

Speaking of the latter, the Full Seas Act could hardly be effective in a world pursuing GDP growth with only rare exceptions such as Bhutan and New Zealand. Ramped up levels of international trade will be difficult to reconcile with the steady state economy of a huge nation-state. Therefore, the Full Seas Act must address the need for steady statesmanship in international diplomacy.

We should take a page from the playbook of the 93rd Congress, which passed the Endangered Species Act of 1973. Congress used Section 8 largely to implement American obligations pursuant to the Convention on International Trade in Endangered Species of Wild Fauna and Flora, or “CITES,” one of the most sweeping international conservation agreements to date.

Our approach in the Full Seas Act needs to be more proactive, because in this case there is no convention ready and waiting to be implemented. We should devote one section, then, to fleshing out and pursuing the development of a Convention on Economic Sustainability, most likely with a United Nations secretariat. This convention will be assembled for purposes of addressing global limits to growth and the need for “contraction and convergence,” or the acceptance of degrowth in wealthy countries while nations with ubiquitous poverty are assisted to the extent that they have diplomatically established their own sustainable steady-state goals.

Steady statesmanship may be even more difficult than the domestic policy reforms required for an American steady state economy. Yet the harsh realities of COVID make such statesmanship feasible as well. In any event, does it matter how difficult it is, in deciding whether to pursue it? After all, what is the alternative? As we like to say at CASSE, peace is a steady state economy.

And so is health.

[1] See Chapter 11, “A Call for Steady Statesmen,” in Czech, B., Supply Shock: Economic Growth at the Crossroads and the Steady State Solution (2013, New Society Publishers) for the initial proposal of the Full and Sustainable Employment Act along with numerous policy tools and institutions to be considered in drafting the legislation.
[2]The Section 2 proposed herein does not include amending specifications. The bill presented to Congress will specify which clauses of FEBGA are to be amended, and how. Basically, however, the intent is to replace Section 2 of FEBGA with the proposed Section 2 herein.

Brian Czech

Brian Czech is the Executive Director of the Center for the Advancement of the Steady State Economy.

The post A Post-COVID Vision: The Full and Sustainable Employment Act appeared first on Center for the Advancement of the Steady State Economy.


Book Review: The Green New Deal and Beyond: Ending the Climate Emergency While We Still Can by Stan Cox

Published by Anonymous (not verified) on Sat, 16/05/2020 - 3:46am in

By Gerry Greaves
Stan Cox Book

The Green New Deal and Beyond: Ending the Climate Emergency While We Still Can
By Stan Cox
City Lights Books
$16.95

Achieving sustainable societies globally is likely to be a defining challenge of the 21st century. There is a growing realization that we must act to mitigate the climate crisis. There is also a growing understanding that social and economic injustice must be solved simultaneously. There are many ideas of how to achieve this, but none seems to have caught widespread attention as much as the Green New Deal. This resolution of the U.S. House of Representatives is not an action plan. It is more like a high-level set of guiding principles.

In his new book, The Green New Deal and Beyond, Stan Cox makes the case that even though the Green New Deal Resolution is broad, it doesn’t cover all environmental and economic issues. First, even though there is a focus on eliminating greenhouse gas emissions and developing renewable energy, there are no explicit means to eliminate fossil fuels. This is a serious shortcoming. A more serious shortcoming is that the Green New Deal encourages economic growth. Economic growth makes it far more difficult to eliminate greenhouse gas emissions and exacerbates a host of other environmental issues. A small but rapidly growing group of people think that economic growth must be halted or even reversed to achieve sustainable societies. This is not to say this is an end to progress. Instead progress will be measured by the ability of people to live healthier, happier, and more fulfilling lives.

The first half of the book provides a good overview of the economic and social justice progress made over the last 100 years or so. From the 1920s through the 1970s, great progress was made with the original New Deal, Social Security, workers’ rights, welfare, and the civil rights movement. However, starting in the 1980s progress slowed and then eroded. Today economic inequality is similar to what it was in the 1920s. The civil rights wins of the 1960s have proven to not be as successful as they seemed.

The second half of the book focuses on policies beyond the Green New Deal, such as eliminating fossil fuels. Dr. Cox proposes a system he calls “cap and ration” whereby greenhouse gas emissions are capped by issuing or auctioning permits. Over time the cap would be lowered to zero. The cap would be aggressive, forcing a reduction in total energy brought to market, increasing prices and resulting in the need for price controls. To manage a fair distribution of the reduced energy inputs, a rationing system would be required down to the individual household level. He describes a “Victory Plan” to administer this as follows:

Modeled in part on the civilian mobilization for World War II, the Victory Plan would be carried out by a broad array of agencies, including a Climate Mobilization Board, which would administer caps on fossil fuels and materials and oversee production goals. The Mobilization Board would be an analog of the War Production Board of the 1940s. Another agency from that era, the Office of Price Administration, would be revived under its original name to oversee price controls and rationing.

Overall, The Green New Deal and Beyond is well written and accessible. It includes almost 300 endnotes but unfortunately no index. The assessment of our environmental and economic challenges is spot on; so is his vision of a sustainable society as a steady state economy that uses less energy and other natural resources. On the other hand, his proposal for the transition from our consumerist society to a sustainable one is heavy-handed, overly complex, and too reliant on central planning. The only time large-scale central planning has worked well is for short-term civilian mobilizations for war. In his 2014 blog article, “Cold War Leftovers,” Herman Daly very succinctly addresses the issue of what should be planned and what should be left to the market. He wrote:

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.

Daly’s guidance seems wiser by the day, especially when we consider his further admonition to distinguish rival and excludable goods from those which are not, when identifying which goods are fit for market allocation.

fossil fuel

Dr. Cox’s Victory Plan would entail caps on fossil fuels and ration energy use down to the individual household level. (Image: CC BY-SA 3.0, Credit: Sebastian Schlüter)

So, where does this leave us? We have an ecological imperative to address climate change and a moral imperative to address economic inequality. Executing a transition to a sustainable society is, of course, an extremely difficult challenge. If done well, this can be a real human advancement; however, if botched, it can become an epic catastrophe.

While this transition is partly an engineering problem, it also involves climatology, politics, policy debates, ideological differences, economics, and power struggles. How do we find a path to sustainable societies, then? It may be helpful to look at how difficult problems have been addressed in the past. Often various ideas are proposed. They are criticized, tested, modified, debated, combined, and sometimes abandoned. The best ones survive. We need diverse ideas to come into the light of day where they can be debated and advanced, or abandoned. Time is short. We have only about a decade to get this right. Dr. Cox has offered some bold ideas. It’s up to the rest of us to read them and join the conversation.

Gerry GreavesGerry Greaves is a retired engineer and the CASSE Chapter Director for Upstate South Carolina.

The post Book Review: <em>The Green New Deal and Beyond: Ending the Climate Emergency While We Still Can</em> by Stan Cox appeared first on Center for the Advancement of the Steady State Economy.


New Zealand Deprioritizes Growth to Improve Health and Wellbeing

Published by Anonymous (not verified) on Tue, 12/05/2020 - 11:00pm in

By James Magnus-Johnston

Last May, New Zealand Prime Minister Jacinda Ardern released a budget to improve the “wellbeing” of citizens rather than focusing on productivity and GDP growth. And, not so coincidentally, New Zealand has one of the best coronavirus outcomes of any democracy in the world. Perhaps this provides a global model to make economic health cohere with health for all life.

Jacinda Ardern

New Zealand’s Prime Minister, Jacinda Ardern, has deprioritized GDP growth in favor of improving wellbeing, and her personal approval rating is 65 percent. (Image: CC BY 4.0, Credit: Ministry of Justice of New Zealand)

To improve wellbeing, Ardern emphasized goals that focus on care for people and the planet. Goals included community and cultural connection as well as intergenerational equity. Under the policy, new spending had to focus on one of five priorities: improving mental health, reducing child poverty, addressing inequalities of indigenous peoples, thriving in a digital age, and transitioning to a low-emission economy.

While New Zealand isn’t the only country to float the idea of wellbeing over income, it is the first country to make it a reality. Guided by this philosophy, New Zealand is not in a rush to open its economy even as the headlines of a “stock market crash” or a “recession worse than 2008-09” appear in newspapers across the globe. Is Ardern’s example wise? Can we build upon it to further improve life after COVID?

Health and the Economy

In the postwar-capitalist framework, economic “health” became equated to income growth, price stability, and full employment. There are increasingly serious pitfalls to thinking of “health” as a capitalist metaphor rather than a desirable end goal. Using GDP and stock market values as measures of overall economic health made sense in the postwar era, when growth was necessary to improve human wellbeing by raising material living standards. In much of the Global North, it is now necessary to focus instead on improving wellbeing without growing our material footprint. Ardern gestures at this by focusing on mental health, inequality, and poverty, without emphasizing income.

By the postwar logic, human health and wellbeing can be upheld when there is enough money to purchase and provide care. After all, supplies and infrastructure need to be paid for. But as the American and British pandemic strategies have demonstrated, a growing economy in which GDP (or “opening the economy”) is prioritized over general wellbeing doesn’t always improve health outcomes. The USA has one of the highest COVID death rates in the world, and the US infection rate is rising as states open up. Experts on public health and leadership, like those writing in the Harvard Business Review, suggest that New Zealand’s Ardern provides a system that prioritizes maintaining and improving public health that global leaders should follow.

We can also think of health in the broader sense, i.e., health for nonhuman life. The economy is a trophic system, which means that economic health requires the consumption (i.e., death) of nonhuman life. And presently, growth is occurring on a scale that is unsustainable. Here, too, Ardern doesn’t suggest a transition to degrowth, but she does emphasize the need for a low-emission economy. Her movement away from GDP growth as a metric of economic “health” does provide an opportunity to make economic health cohere with the idea of ecological health: sustaining the power and vitality that supports all life.

One of the other tangible ways in which some have experienced a positive impact to their wellbeing during the pandemic is a temporary reprieve from productivist pressures and workplace stress. As I mentioned in a previous article, the term “capitalism” refers to Max Weber’s “modern Kultur” centering around a code of values for the 20th-century West. In this new economy, the highest virtue became “the making of money and ever more money, without any limit.” Growth-as-prosperity requires a certain level of constant busyness to prop up the outputs for mass consumption and technological improvement rather than human warmth and connection.

As a result of the pandemic, many of us have gained clarity about the things we value most, such as food, health, income security, education, mobility, access to nature, social connection, and public services. An economy designed for wellbeing can prioritize these tangible things rather than assuming that income will deliver them.

How Can We Build on Arden’s Success?

As we seek to cultivate a new normal in which health is prioritized, perhaps New Zealand offers a glimpse of the way forward. The Wellbeing Economy Alliance published a piece by Amanda Janoo and Gemma Bone Dodds that suggests that the COVID-caused “Great Pause,” as it were, provides an opportunity to improve our focus on wellbeing. They provide an argument in four parts: (1) The stock market is not a reflection of our economic reality; (2) We will enter a recession, and that’s okay; (3) Economic policies for a Great Pause; and (4) Building back better.

Basic needs

The pandemic has revealed how important it is for basic needs to be met through redistributive cash benefits. (Image: CC0, Credit: Mick Haupt)

With respect to the first two, Janoo and Bone Dodds argue that the stock market can’t possibly predict the future because the future will look starkly different from the past. As a result, trades merely reflect anxiety rather than future prosperity. Secondly, while policymakers are presently fearing a recession—a fall in GDP for two consecutive quarters—inevitably the economy will contract to ensure our collective wellbeing. As they point out, just because the economy contracts, that doesn’t mean our basic needs can’t be met. If anything, this situation has revealed that basic needs might be better met by providing cash benefits (or a universal basic income) where income is redistributed to preserve social solidarity and care. The economy won’t disappear, it will just focus on providing basic needs first. Particularly the ones that our free market sometimes fails to provide for a large part of society.

And to “build back better,” we could examine Ardern’s model and take it one small step further. To focus on health and wellbeing, economic policies should ensure basic needs are met through redistributive mechanisms without trying to balance budgets through austerity measures. Philosophically, this is an opportunity to consider how to live full and meaningful lives without unnecessary excesses. Janoo and Bone Dodds also note that during this time we’ve witnessed how many of our most precarious and poorly-paid workers, including “healthcare workers, farmers, grocery clerks, delivery drivers, and caregivers,” are in fact the most critical for our collective wellbeing.

An economy focused on improving wellbeing is not a distant theoretical idea. The postwar social welfare system helped raise material living standards by improving incomes. But in the 21st century, we have new social and ecological constraints. Ardern has provided a model for the world to refocus on health and wellbeing, and the global pandemic reveals how wise this strategy truly is.

James Magnus-Johnston headshotJames Magnus-Johnston is a PhD researcher at McGill University in the Leadership for the Ecozoic program.

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Sequence Matters

Published by Anonymous (not verified) on Fri, 08/05/2020 - 2:11am in

By Herman Daly
Nuclear power plant and Planet of the Humans

When prioritized over sustainability, techno-fixes are often dangerous. (Image: CC0, Credit: Not available)

The main message of the controversial documentary, Planet of the Humans, is that unrestrained economic and population growth should be the target of environmentalists’ efforts, not technological fixes. Techno-fixes can be helpful, but belong in second place. If put in first place they are often dangerous (e.g., nuclear power, green revolution, biomass fuel, space colonization, etc.). Technocrats enjoy usurping first place and are not humble about it.

In reviews some have alleged that Michael Moore and Jeff Gibbs (producer and director, respectively) must be misanthropists, eco-fascists, racists and sexists, as well as shills for fossil fuel interests. Maybe they are just filmmakers who sometimes overstate an important truth that they are trying to present to an unreceptive audience. When the ideological dust settles maybe there can be a reasonable debate on the proper sequencing of limiting growth vs. accommodating growth by technical fixes.

Michael Moore and Planet of the Humans

Michael Moore, inveterate challenger
of the status quo; suddenly a shill for
fossil fuel interests?
(Image: CC BY-SA 2.0, Credit: Nicolas Genin)

Big Environmentalism had a reason to put techno-fixes in first place—to avoid confronting the Great God of Growth, and thereby offending wealthy contributors, politicians, and technocrats. Big Green suggests that a policy of complete substitution of fossil fuels by renewable energy is viable. It would surely be viable at some smaller scale of population and per capita resource use, but not at the present scale, not in a reasonable time period, and certainly impossible at the continually growing scale advocated by most economists and politicians. But neither Big Money nor Big Green can accept an end to economic growth, much less a decline.

However, technocrats should be given a chance and encouraged to prove their worth—in the proper sequence. Let us first limit growth in resource throughput, and then encourage the technologists to grow our wealth by increasing resource productivity, rather than growing the volume of resources depleted and transformed into polluting wastes. Sequence makes a difference. First put on your pants—then your shoes.

Tsonga

Big environmental NGOs: Time to change a losing game? (Image: CC BY-SA 2.0, Credit: Carine06)

A further challenge raised by the documentary is to recognize that the environmental movement is failing. We are losing the game—just read the newspapers! As my high school tennis coach frequently had to remind me, the first rule of strategy is to “always change a losing game.” The documentary invites us environmentalists to change our losing game. The invitation was dramatic, poignantly graphic, and forceful. It was also rude, ungenerous, and sometimes unfair. But if it had been polite and technically impeccable I’m afraid we would still be sleepily trying to pull our pants on over our shoes.

Herman DalyHerman Daly is an author, professor emeritus, and Nobel Peace Prize nominee.

The post Sequence Matters appeared first on Center for the Advancement of the Steady State Economy.


Building a Steady State Economy in a System Evolved for Growth

Published by Anonymous (not verified) on Thu, 16/04/2020 - 2:45am in

By Brian F. Snyder
Tiger King's Doc Antle

Tiger King: our ethical guidepost? (Image: CC BY 2.0, Credit: Wolfrage)

If you’ve been on the internet recently you’ve been exposed to Tiger King, the wildly popular Netflix series that revolves around the conflict among a bizarre set of humans feuding over the proper way to hold big cats in captivity. Watching the show is a bit like watching a train derail in slow motion, but for our purposes what is important is that it illustrates the discrepancy between the way the world is and the way the world ought to be. There are no heroes in Tiger King, and indeed a limited number of characters that might be considered psychologically whole, but in the final episode, one of the saner characters notes that this years-long feud and a resulting 19-count federal indictment has wasted millions of public and private dollars which could have been better spent on protecting the few remaining tigers in the wild. That is, he notes the discrepancy between the way the world is and the way the world ought to be.

David Hume may have insight in the steady state economy

David Hume’s is/ought fallacy: an ever-present danger in thinking about economic growth. (Image: CC0, Credit: Allan Ramsay)

It seems obvious that Tiger King does not depict the way the world ought to be, but the confusion between is and ought is so common and pervasive that David Hume, the brilliant 18th century Scottish philosopher called it the is/ought fallacy. We observe the way the world isperhaps in our economic systemsand assume that is the way the world ought to be. Doing so is no more rational than observing the characters of Tiger King and assuming they provide exemplars of human ethics. Put simply, none of our data about the world describe how the world should be.

The fundamental reason that using data (is) to inform ought is fallacious is that the way the world is (the data) is a result of evolution. Human cultures and economic systems evolved through natural selection in much the same manner as our physical traits, and taking ethical advice from nature is problematic because evolution is value-neutral. Evolution has no way to produce objectively good or bad behavior, just beings that are good at reproducing. Thus, evolution has no means for producing right and wrong. Using it to inform our ethical choices is akin to entrusting Bernie Madoff with our financial planning: there is simply no reason to trust evolution to know right from wrong.

This is important for those interested in a steady state economy because a steady state economy is not natural, or in fancier language, it is not an evolutionary stable strategy. Imagine two ancient societies living near each other, one growth society developing new technologies for farming and raising their population size, while the other steady state society lives a quieter, stable existence. In this empty world of vast resources, the growing society continues to grow and absorb resources until it outcompetes and assimilates or annihilates the steady state society. We have witnessed this process occur throughout history as more industrialized societies have replaced less industrialized ones. Thus, for humans, what has been selected by evolution, what is natural, is industrialization and growth.

Of course, that does not say whether industrialization and growth are good.  Nor does that imply that growth is adaptive in the current world full of 7.6 billion people. But it does imply that we have evolved for growth. Understanding this may be important for a transition to a steady state because it gives us an idea of the scale of the challenge. If human populations have been selected for millennia to grow then there may be both genetic and cultural adaptations that favor growth. For example, we might view greed as an adaptation; greedy individuals and greedy societies may be more likely to extract more material and energy from the environment and may thus have more surviving progeny than less greedy people or groups. Similar logic might apply to territoriality, war, and economic/political systems like democratic capitalism and Marxism.  The societies and peoples that grow the fastest outcompete the others and their genetic and cultural traits get passed on to future generations.

But if this is the ultimate explanation for our unsustainable societies, what can we do about it? Perhaps it might start with the recognition that the way we have evolved is not objectively good. That is, that we have created a rapid-growth economy because we are evolved to have done so but that does not mean such an economy is right. Our current economic system was not handed down by God. Nor, of course, does that imply that a growth economy is evil. Instead, we might see the system that we live in today as one of a number of options; we might understand that none of these options are objectively good or bad, and we might seek to discern which economic system is, in our collective subjective opinions, preferred. That is, the first step is understanding that we have a choice about what sort of economic system we want and that any such system will have tradeoffs.

Communist Revolution

Communist revolution, 1917. (Image: CC0, Source)

Second, we must understand that changing economic systems has occurred numerous times through history and so can occur again. The communist revolutions in the 20th century are the most obvious example, but the birth of capitalism in the 17th century was just as revolutionary. A transition to a steady-state system would be arguably less transformative (at least, as proposed by CASSE) than either of these revolutions. In other words, economic systems are a product of evolutionary change, and thus, they change over time.

Third, the adaptive view of economic systems implies that there are traits at both the personal and societal level that keep us in the growth economy, and that changing from a growth to a steady state economy would require both individual and collective change. At the individual level, much of what pastors call “sin” can be understood as an adaptation for growth and reproduction. Greed and jealousy can be viewed as traits, either learned or hardwired, that propel us to consume more resources and thus increase our survival and reproduction. Thus, to shift from a growth to a steady state economy will require, not a shift in our ethical principles, but a recollection of the ethical principles we already claim to hold. This is a point Herman Daly and John Cobb made insightfully in their book, For the Common Good.

However, the adaptation toward growth is most visible in groups and thus group-level change is especially critical. But how do you move a social group that is adapted towards growth to shift towards a steady-state system? This question is especially difficult. Herman Daly, Phil Lawn, Brian Czech, Rob Dietz, Dan O’Neill, and other steady-state economists have addressed the policies that would need to change, but how does one accomplish this change, especially if the system is evolved toward growth. Perhaps rephrasing the question would be helpful; assuming that humans are evolved towards growth, how do you reverse evolution?

Biological systems, including human social systems, evolve to be adapted to their environment. Humans are adapted to a growth environment because we evolved in an empty world. In the fuller world in which we now live, growth may be less adaptive. Already, we have seen extraordinary declines in human fertility rates around the world and it is possible that this represents an evolutionary change in humans towards a lower-growth system. Thus, perhaps the relevant question is less, “how do we transition to a steady state economy?” and more, “how do we modify the human environment to lead humans to evolve into a steady state economy?” That is, what are the environmental factors that lead social groups to favor decreased reproduction, decreased consumption, and decreased work hours and how do we build societies that foster those traits?

Brian F. Snyder is an assistant professor of environmental science at Louisiana State University and CASSE’s LSU Chapter director.

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The Triangular Economy: Behind the Circular Flows

Published by Anonymous (not verified) on Wed, 08/04/2020 - 3:23am in

By Brian Czech

The “circular economy” is a response to the environmental problems and resource shortages that arise as the human economy expands. The focus of the circular economy literature is on efficiency which, in terms of economic production, means more output per unit of input. All else equal, increasing efficiency means higher profits, too. That’s real motivation for the corporation.

Efficiency connects to the human propensity to innovate, too. From childhood on, humans enjoy tinkering and improving processes in order to get “more with less.” Plenty of pride is taken in jobs efficiently done.

As the latest model to highlight efficiency, the circular economy is sanctioned by dozens of influential entities ranging from Coca-Cola to the United Nations Environment Programme, all of whom collaborate on the Platform for Accelerating the Circular Economy (PACE). The principals involved in PACE see the circular economy as capable of “decoupling” materials (and even energy in some cases) from the process of economic growth, and thereby keeping the environment intact while growing GDP.

A Primer on Economic Growth

The meaning of economic growth is often taken for granted, leading to misunderstandings about its relationship to the environment and sustainability. Therefore, a brief revisiting of the concept is in order.

Economic growth is simply an increase in the production and consumption of goods and services in the aggregate. It entails an increasing population and/or consumption per person. Economic growth is measured with GDP, or Gross Domestic Product. GDP is the amount of money spent on (and conversely, income gained from) the final goods and services produced annually within the boundaries of a nation (or some other polity such as a state or province).

By definition, then, economic growth is a macroeconomic process. It is not equivalent to the growth of a business, a bank account, or an industry. Nor is it, for example, the appearance of solar panels here and the disappearance of coal-fired plants there. Such trends are sectoral adjustments, which may or may not be concurrent with economic growth.

While we eagerly conceive of certain businesses and sectors approaching a circular model of production—with very little waste and ultra-high efficiency—circularity is not an option for the economy at large. We can view the circular sectors as eddies or whirlpools in the Big River of GDP, a linear river drawing from the “headwaters” of energy and materials and depositing products (and pollutants) in the delta of the marketplace. That’s basic physics and the examples are everywhere. There’s no unburning of fuels, no recycling of rubber particles left on the roadways, and no way to perform any work whatsoever without the flow of energy.

So, in addition to the linear river and the circular eddies, a sufficient vision for sustainability requires us to consider one more geometric shape: the triangle.

The Triangular Economy

In the economy of nature, with its non-human species, nothing makes a living without the “producers” at the base. These producers are the plants; they literally produce their own food (C6H12O6—the basic sugar molecule) in the process of photosynthesis. When producers are sufficiently developed and widespread, a collection of “consumer” species may also be supported.

The “primary consumers” consume plants directly. When primary consumers are likewise sufficiently developed, “secondary consumers” may also evolve. They eat the primary consumers. A simple example of this fundamental food chain in the economy of nature is grass → rabbits → foxes (Figure 1).

Trophic levels

Figure 1. Producers, primary consumers, and secondary consumers comprise “trophic levels” in the economy of nature. (In ecology, “trophic” refers to flows of energy, nutrition, and body mass.)

Of course, it’s not as if we can support one fox with merely one rabbit. Nor can we support one rabbit with one blade of grass. Rather, a great deal of grass is required to produce a large number of rabbits, which in turn is needed to support a viable population of foxes. These proportions are what give our triangle its shape, with its broad base of producers.

It’s hard to beat billions of years of evolution for developing efficient practices and eliminating wasteful activities. Therefore, circular economy entrepreneurs look to nature for examples of highly efficient processes. In fact, “biomimicry” is a buzzword among the circular economy crowd. For better or worse, though, humans never really escaped nature. As classic omnivores (somewhat similar to bears) they occupy primary and secondary consumer levels, consuming a great variety of plants and animals.

Meanwhile in the human economy proper, some aspects of nature are built in as surely as gravity. One such aspect is the trophic structure comprising producers and consumers. The base of producers centers around agriculture and other food-producing activities such as commercial fishing and livestock production. Only when the producers supply sufficient food can there be any division of labor; otherwise everyone is busy growing or gathering their own food!

The extractive sectors such as logging, mining, and energy extraction fill out the producer base of the economy. Each of these sectors takes the rawest materials from nature, which may then “feed” the heavy manufacturing sectors such as lumber milling, steel smelting, etc. Moving up the trophic structure ultimately allows for the lightest manufacturing of cans, cameras, and computer chips.

What is the significance of this triangular structure? It provides crucial context for sustainability thinking. Imagine the manufacturing of aluminum cans becoming so efficient that each can is recycled. That certainly makes the can manufacturing sector more sustainable, vis-à-vis aluminum, but each act of recycling takes energy, and each can must be filled with something. The can, the energy to produce or recycle it, and the foods to fill it (and the fuels to ship it to market) all come ultimately from the producers at the base of the economy. So, here we have a circular flow of aluminum—an eddy in the Big River of GDP—helping to alleviate aluminum shortages while still requiring surplus production at the trophic base of the economy.

The Trophic Theory of Money: Simpler Than it Sounds

The triangle is the sturdiest shape in architecture and a veritable workhorse in geometry. From the ancient pyramids to the Pythagorean theorem, triangles have powerful properties. Perhaps it shouldn’t be so surprising, then, that the triangular economy comes complete with…a theory of money!

extractive resources in a triangular economy

Figure 2. Trophic levels in the human economy consist of agricultural/extractive sectors (producers), heavy manufacturing (primary consumers), and light manufacturing (secondary consumers).

The “trophic theory of money” is that money originates via the agricultural and extractive surplus that frees the hands for the division of labor into manufacturing and service sectors. Prior to agricultural surplus there was no money; indeed money would have been a meaningless concept. This seems like a no-brainer, yet it deserves close attention because it means that the money supply (a stock) and GDP (a flow) are invariably indicators of environmental impact.

Circular eddies in the manufacturing sectors may help prevent, for example, litter from aluminum cans. We can’t discount, however, the indelible holes and “forever” pollutants left by the original aluminum mining. Meanwhile the ongoing agriculture to fill the cans and energy extraction to recycle the cans has direct and inevitable impacts on the landscapes and ecosystems of the planet.

This is not to pick on the aluminum industry. Every manufacturing sector—and every service sector—exists only as part of the broader trophic structure; i.e., “the economy” at large. The structure cannot grow without more surplus coming from the producer base, which is essentially nature or the environment. This helps to explain why many scientific organizations have described a “fundamental conflict” between economic growth and environmental protection.

Great Expectations Meet the Maximum Power Principle

The ideal of circularity in the production process is a bit like the ideal of civility in electoral politics. It is commendable, everybody wants it, and many profess to pursue it. Yet harsh realities systematically diminish the odds of achieving the ideal.

All else equal, efficiency is more profitable, so it would seem that all businesses in all sectors would do their best to maximize it. The key phrase, though, is “all else equal” (the notorious ceteris paribus in economic jargon). One of the unequal variables, when we compare economic processes, is the speed of production.

The most rigorous approach to considering all these variables is the “maximum power principle” described by the great systems ecologist H.T. Odum (1924-2002). Odum was a master of physics and used the Atwood machine to demonstrate the principles. Fortunately, most of the formulae aren’t relevant or required for the current purposes, so I’m going to channel Odum’s principle and Atwood’s machine with a simpler device known to nearly all; namely, the teeter-totter (aka “seesaw”).

Imagine a tin can on the teeter seat, which sits on the ground. Your job is to lift the can to a head-high shelf. If you can manage to place a one-ton rock on the totter seat, and let it drop, the can will shoot up to shelf level in an instant! The job was performed, but nearly a ton’s worth of kinetic energy was wasted as the rock smashed—totter seat and all—to the ground.

Now imagine an identical set-up but, instead of using a one-ton rock, you place an identical tin can—plus a pebble—onto the totter seat. Assuming it’s a well-greased teeter-totter (and given a little boost of start-up energy) you’ll get the job done, but progress will be agonizingly slow. In purely physical terms, you were far more efficient, but you were hardly competitive in the market.

To maximize profits, you’d use a weight that moves the can quickly, but without wanton waste of energy or the likelihood of a disastrous wreck! In other words, you’d strive to perform the job with an intermediate level of efficiency, in order to get it done in a timely fashion for success in the can market. The tension between maximizing production (at market speed) and maximizing efficiency is another overlooked reality, even in those sectors where we hope for circular flows.

The Sustainable Solution

“The ultimate solution is truth.” Was it Plato, Copernicus, or Abraham Lincoln who spoke thus? Evidently none of them, if Google be our guide, yet doesn’t it sound like each? Perhaps they didn’t utter the words because the logic seemed too obvious. After all, if a proposed solution isn’t based on the truth, the whole truth, and nothing but the truth, is it ultimately a “solution” at all?

Similarly, a big-picture solution cannot be arrived at without considering the entire picture. The entirety of the picture amounts to the wholeness of the truth. Wholeness, in the case of big-picture sustainability, is a triangular economy.

We should encourage as much circularity as can truly be achieved, especially in the manufacturing sectors where circular eddies can most readily form in the river of GDP. In all sectors, too, we should strive for as much efficiency as comports with a relatively free market (as opposed to dictatorial planning). Without a doubt, circular economies and efficiency in general will buy us some time for avoiding supply shocks and environmental calamities.

Yet if we are truly concerned with sustainability—natural resource conservation, maintenance of biodiversity, and a stable climate for starters—we must confront the truth that perpetual growth is impossible, much less reconcilable with environmental protection. Real sustainability boils down to a steady state economy with a stabilized population and per capita consumption. That’s the big-picture solution.

We live, after all, in a triangular economy.

Brian Czech

Brian Czech is the Executive Director of the Center for the Advancement of the Steady State Economy.

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Reply to Troy Vettese’s “Against Steady-State Economics” 1

Published by Anonymous (not verified) on Thu, 19/03/2020 - 3:00am in

By Herman Daly

Steady staters are used to being attacked by right-wing neoliberals. Attacks from left-wing neo-Marxists are new and require a reply. To put the matter simply, Marxists hate capitalism, and they mistakenly assume that steady-state economics is inherently capitalist. Vettese is a Marxist; ergo, Vettese hates steady-state economics.

To spell this out, let’s begin by giving Marx due credit for emphasizing the reality of class exploitation under all heretofore existing economic systems, including especially capitalism, although excluding future idealized communism. Communism arrives after the Revolution in which the dictatorship of the proletariat seizes control of the enormous powers of capitalist production. With overwhelming abundance, bourgeois man is freed from scarcity-induced greed and acquisitiveness, giving birth to the “new socialist man” and the Marxist eschatology of heaven on earth.

Karl Marx

Marx noted injustices of capitalism and predicted political crises, yet failed to foresee limits to growth. (Image Source, Credit: John Jabez Edwin Mayal)

History has not been kind to this Marxist fairy tale, except for the part about inequality under capitalist growthism (the part which doesn’t take a Marxist to recognize). Socialist growthism also had serious problems but let’s leave that aside. There is, however, a new problem with growthist economies that Marxists did not foresee in their eagerness to appropriate the abundance that capitalism historically created. Growth in a finite and entropic world now produces “illth” (depletion and pollution) faster than wealth, thus becoming uneconomic growth and threatening the overwhelming abundance required for the advent of the new socialist man.

This unexpected emergence of uneconomic growth, plus the economic failures and enormous political repressions of 20th-century communist states (not to mention the intellectual discrediting of dialectical materialism and historical determinism) has left the poor orphaned Marxists without an ideological home. As their red house collapsed, the green house down the street began to look attractive. After all, the greens do recognize major problems with capitalism, the big enemy, even if they are problems that Marxists have failed to recognize. So, these Marxists paint themselves green and hyphenate their name, calling themselves not eco-Marxists but, less specifically, “eco-socialists,” hoping to appeal to reasonable leftists in addition to fellow neo-Marxists. They aim to revive moribund Marxism by usurping the place of ecological economics.

Many greens, eager for allies, welcome the eco-Marxists and accept the red cuckoo eggs deposited in the green nest in the hope that the hatchlings will be more green than red. Steady-state economists certainly need friends and allies, but reading Vettese has reminded me of an aphorism my mother taught me: “Better alone than in bad company.”

Specifically, Vettese has deposited three Marxist cuckoo eggs in the steady-state nest: (1) Markets are bad; (2) Central planning is good;2 and (3) “Malthusianism” is wrong as demonstrated by Julian Simon. This is an odd collection of eggs that demonstrate the confusion of Vettese. If one accepts Simon’s view that there is no need to stop the drive for endless economic growth, then whence the necessity to abolish markets and establish central planning? The confusion hardly stops there. Let’s consider each egg in turn.

(1) Markets are All Bad

The Market with a capital “M” is indeed a poor master and should be demoted to “markets” with a small “m” which can be good servants. Marxists tried to completely abolish all markets, along with money, in the early days following the Russian Revolution, and they attempted instead the direct physical requisitioning of resources and goods by central planners. This was the period of War Communism. It was a failure and was soon replaced by Lenin’s New Economic Policy, which restored significant reliance on markets, although not The Market. Today all countries, including the remaining communist ones, rely on markets to a significant degree, usually constrained by elements of collective action. Indeed, socialist-economic theorists, such as Oskar Lange in his On the Economic Theory of Socialism, have long shown how markets can serve collective goals as well as individualistic ones.

So much for the 20th-century economic history ignored by Vettese. What about 21st-century economic policy? Ecological economists recognize that we live in a capitalist market economy, like it or not. It is our historically given starting point. Trying to wipe the slate clean with the bloody shirt of Revolution is a very bad idea. Instead, it’s better to restrict the individualistic-capitalist market by two collective limits. First, given that the market does not count the cost of economic growth displacing the very ecosphere on which the economy (and life itself) depends, we must impose macro constraints on the size of the economy. Second, because a capitalist market economy generates extreme inequality in the distribution of income and wealth, a direct solution is to constrain the inequalities between minimum and maximum incomes, supplemented by wealth and inheritance taxes. Do eco-Marxists advocate limiting the range of income inequality by a maximum as well as a minimum income?

Graph of distribution of wealth within the market

How do we change these statistics? Through a bloody revolution? Or with policies conducive to a steady state economy? (Image: CC BY-SA 3.0, Credit: Guest2625)

A specific policy for achieving both limits (before they are self-limited, that is) is the cap-auction-trade approach to conserving and allocating basic resources. Vettese totally opposes cap-and-trade auctions because they make use of markets. He can almost be heard complaining, “How unfair of the auctioneer to sell to the highest bidder instead of my more deserving nephew! Putting a price on the free gifts of nature is crude and immoral too!”

While Vettese appears to be advocating for a more ethical use of basic resources, he fails to recognize that free gifts can also be scarce and require rationing. These preciously purist sensitivities lead Vettese to oppose any use of markets. No markets mean no exchange, no prices, no need for money, no specialization, and no division of labor. Well, who is going to abolish markets and centrally plan the production, allocation, and distribution of everything? Not Troy Vettese and his fellow pretenders who don’t have a clue, but “the new socialist man” who is still being materialized in the Marxist dialectical womb of history!

Markets are necessary for allocating goods but not sufficient. In addition to offering macro policies to correct the market’s scale and distribution failures, steady-state economics also emphasizes that many goods can be physically non-rival and legally non-excludable. Yet market allocation works only for rival and excludable goods. In other words, non-rival and non-excludable goods cannot be efficiently or fairly allocated by markets and require planning and collective action at a more micro than macro level.

(2) Central Planning is Good

Macro limits on scale and distribution require considerable planning. Micro intervention in the allocation of non-market goods takes even more planning. Given all the economic planning needs, why bother to defend any role at all for markets? Why not centrally plan production and distribution of everything “for the good of society” as advocated by Vettese? First, remember the failed Soviet experiment with War Communism and collectivization of agriculture. Second, consider the following thought experiment.

Imagine the consequences of rival market goods (food, clothing, and shelter, plus a whole lot more) being freely distributed, according to the will of the citizens, as eco-Marxists envision. The democratic will of the citizens is to be expressed by voting. One decision concerns the amount of steel to produce. Citizens place their votes, but their collective decision leads to another question: How much of that steel will go to the production of, say, wood screws as opposed to a million other uses? The citizens vote again, and more subsequent questions arise: Of the wood screws, how many will be round-head, flat-head, slot-head, or Phillips-head? How many cadmium-plated; how many chrome-plated? Also, some screws are made of brass or aluminum, not steel. And for each type of screw, how many of each length and diameter? And who shall receive how many of each type? The citizens robustly and democratically vote again and again as conditions change, although most are unaware of the myriad special uses of different types of screws and may not even know which end of a screwdriver to hold.

Meanwhile those people who actually use screws and know their uses are unable to “vote” with their money in markets, and are thereby prohibited from conveying reliable information to producers about the mix of the infinitely many types of screw that would be most needed and most profitable to produce. Instead we have citizens spending absurd amounts of time “democratically” voting, mostly about things they don’t understand, while those with the most information about actual use-values of screws are “disenfranchised” by the absence of markets.

Ironically, eco-Marxists claim that in a planned economy, use-value, not exchange value, would be the only criterion for the production of goods and services. Use-value as judged mostly by non-users—what could possibly go wrong?

With so much effort wasted on attempting to plan the allocation of market goods, there will be little capacity left to plan the use of true public goods or to avoid the tragedy of the commons resulting from open-access exploitation of rival but non-excludable goods (such as oceanic fisheries). The larcenous market enclosure of non-rival goods, such as knowledge and information, will be difficult to avoid as well. Eco-Marxists expect that as the transition moves forward, more goods and services critical for meeting fundamental human needs would be freely distributed according to the democratic will of the citizens effected by the central planners.

Carbon emissions

Vettese may oppose cap-and-trade auctions, but what is his solution for addressing resource scarcity? (Image: CC BY-SA 2.0, Credit: Bernard Bradley)

Without markets (that is to say without supply and demand, prices, and yes, profit), there could be no self-employment. No one could identify a needed good or service and make a living by taking the initiative to provide it. Everyone would be a salaried employee of the state, giving the state monopsony power in the labor market and stifling initiative.

Most objections to market allocation would disappear if the underlying inequality of wealth and income distribution were limited by cap-and-trade auctions or ecological tax reform. Opposition would also dwindle if the throughput of energy and materials was restricted to an ecologically sustainable level. Instead of correcting excessive throughput and distributional inequality—which of course get reflected in distorted market prices and allocation—eco-Marxists attack market allocation itself, as if underlying sustainability and equality problems could be solved by breaking the mirror that reflects them.

What are the eco-Marxist policies for directly limiting throughput and distributional inequality? If they don’t like cap-and-trade auctions, distribution limits, or ecological tax reform, then let them suggest something better. However, preferably not the Revolution, the Singularity, the Rapture, or the advent of the New Socialist Man.

(3) Malthusianism is an Evil Fiction

Thomas Robert Malthus and markets

Thomas Robert Malthus: His thesis was “false” according to Vettese. (Image Source, Credit: Popular Science Monthly Volume 74)

Marx’s hatred for Malthus is well known and prevalent among Marx’s disciples as well. For all his faults, it is hard to find a historically more influential figure than Thomas Robert Malthus. In addition to his enormous impact on Marx, Malthus was a key influence on Alfred Russell Wallace and Charles Darwin as they independently developed their theories of natural selection. Malthus’ theory of under-consumption also greatly influenced John Maynard Keynes’ theory of unemployment. Not to mention the whole neo-Malthusian birth control and planned parenthood movement. For Vettese, however, Malthusianism is merely the “false” idea that resource scarcity and overpopulation are real. For Marx poverty was caused only by class exploitation, and he rejected any cause stemming from nature as undermining the call for Revolution. Marx’s anti-Malthusian denial of natural resource limits and demographic pressure continue in Vettese and the faithful band of eco-neo-Marxists.

Curiously Vettese’s modern anti-Malthusian champion is the late Julian Simon, a staunch neoclassical economist of the most cornucopian variety, who vigorously opposed environmentalism. This third cuckoo egg (which is contradictory to the first two, as noted earlier) seems to have hatched prematurely and will likely get kicked out of the green nest, exposing Vettese as more red than green. Vettese accuses steady-state economists, specifically me, of having ignored Julian Simon’s critique: “Moreover, the neo-liberal Julian Simon developed a powerful critique of environmentalism in the 1980s, which Daly has not responded to” (p. 35). Actually, I published critical reviews of two of Simon’s books, and I do not have space here to repeat my response, so refer Vettese back to what he overlooked.3

An Issue of Representation

I’ll conclude with one last point, quite distinctive from the preceding. Vettese has taken me as representative of the entire field of steady-state economics. That is not fair to the many scholars whose steady-state findings have been quite independent of mine. Indeed, some of these scholars may sometimes call themselves “eco-socialists.”

Furthermore, given the central role of the steady state economy in ecological economics, Vettese’s attack on steady-state economics (were it successful) would also stain the broader field of ecological economics.

However, I am afraid that I have also treated Vettese as representative of eco-Marxists in general. That is not really fair to other Marxists or eco-socialists of various stripes, some of whom (John Bellamy Foster and Paul Burkett, for example) I have benefitted from reading, regardless of differences.

1 Vettese, T. 2020. Against steady-state economics. The Ecological Citizen 3:35–46.

2 On these two points Vettese is clear and emphatic: “…the only way to stop the drive for endless economic growth is to undo the necessity to participate in markets. That is, the conscious political control over production and distribution through central planning is the only way to stop and reverse capitalism’s ceaseless incorporation of the natural world” (pp. 37-8).

3 Daly, H. 1982. Review of The Ultimate Resource. Bulletin of the Atomic Scientists 38(1):39-42.
Daly, H. 1984. The resourceful earth. Environment 26:25, 27-28.

Herman DalyHerman Daly is an author, professor emeritus, and Nobel Peace Prize nominee. He currently serves as the chief economic advisor for CASSE publications and projects and is on the CASSE Board of Directors.

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Population and the Outbreak of Peace

Published by Anonymous (not verified) on Thu, 27/02/2020 - 3:02am in

By Max Kummerow

Adelyne More’s 1917 feminist pamphlet Fecundity and Civilization stated flatly that population stabilization “is the most effective way of ensuring the cessation of war.”[1] All species’ potential rates of reproduction enable exponential population growth. Population numbers are kept within environmental capacity by rising mortality as populations increase. Ecologists call this process “density-dependent mortality.” Many “group-selected” social species fight territorial wars as populations grow, such as chimpanzees, lions, wolves, hyenas, baboons, ants and humans.

Chimpanzee fight

Population density is a huge factor for fights among chimpanzees. The threat of losing territory and resources creates tension and physical confrontation until there is a standing winner. Sound familiar? (Image CC BY-SA 2.0, Credit: Chris Allen)

Writer Michael Balter concluded from a study of 100 incidents (in which chimpanzees inflicted deaths on rival bands) that population growth leads to violent conflict. Studies of hunter-gatherer cultures, as well as historical records of modern societies, show that wars, famine, and disease reduce life expectancy as populations push environmental limits.

Humans and many other species also “regulate” population, not necessarily intentionally, within environmental capacity through behaviors that reduce birth rates (“density-dependent natality”).

Scholars present multifaceted causes of violence and war. In Causes of War, Levy and Thompson describe how “Scholars disagree not only on the specific causes of war, but also on how to approach the study of war…psychologists generally emphasize psychological factors, economists emphasize economic factors, anthropologists emphasize cultural factors, and so on.”[2] Philosopher A.C. Grayling quotes I.A. Novikov on the purpose of war: “men fought…in order to obtain food, women, wealth, the profits derived from possession of the government, or in order to impose a religion or a type of culture…war is a means to an end.”[3]

In Better Angels of Our Nature, Steven Pinker cites The Civilizing Process (1939) in which Norbert Elias argued that progress in norms and institutions encourages settlement of disputes by law and negotiation.[4] The “do unto others” ethic and the development of altruism and empathy was slowly leading to the rejection of war, slavery, and subjugation of races, cultures, and social classes. In the place of dictatorial and genocidal behavior, more inclusive and pacifist patterns were starting to prevail.

Syrian War

Noted for being one of the deadliest wars of the 21st century, the Syrian civil war has killed thousands of people and spawned military conflicts outside of its borders. (Image source, Credit: Voice of America News)

Tragically, shortly after Elias’s civilizing book was published, barbarism re-emerged with the horrors of the Holocaust. Elias fled to the USA, but his parents fell victim to the genocide in Eastern Europe. Regarding this tragedy as well as the increase in threats of nuclear war and the ongoing bloodshed in Syria, Ukraine, and elsewhere, it is clear, as Pinker admits, that reduction in violence may not be enduring.

 

 

 

 

 

 

Population Regulation and Peace

Nothing in sociobiology, genetics, or cultural studies provides compelling evidence that war is absolutely inevitable or, on the other hand, can be thoroughly eliminated. That said, there is strong evidence that ending population growth facilitates enduring peace. I classified 150 countries into three violence categories.[5] The table compares fertility rates and population change. Total fertility rate (TFR) is a statistic summarizing numbers of births per woman.

Table 1: Violence and Fertility Rates

Violence Category

 
Number of Countries
Average 2013 TFR
2013 Population (billions)
% Population Change 1960-2013

 

Peaceful
39
1.6
2.09
56%

Medium
54
2.6
3.44
206%

Violent
57
4.2
1.55
269%

Total
150
2.9[6]
7.08
191%

Source: World Bank, World Development Indicators. Countries missing fertility data and countries with <1,000,000 population in 2013 and four oil sheikdoms with major in-migration were omitted.

TFRs averaged 1.6 in recently peaceful, formerly violent countries and 4.2 in recently violent countries. Using ANOVA or CHI2 statistics to test the null hypothesis of “no difference between group fertility rates” gave a p-value of 10-12, confirming what is obvious from casual inspection of the data: High fertility rates are strongly correlated with mass violence and low fertility rates with peace.

Life expectancy at birth was 23.4 years longer in the peaceful countries. Average 2008 infant mortality rates were 8.5 per 1000 people in peaceful, low-fertility countries versus 83/1000 in violent, high-fertility countries. Per capita incomes in high-fertility violent countries averaged 13.8% of the average per capita income in the low-fertility/peaceful countries—$4,155 versus $30,020.[7]

Low fertility rates are strongly associated with peaceful outcomes, even in formerly violent cultures whose neighbors are so-called “hereditary enemies.”[8] Declines in fertility rates nurture and enable peace.

Solutions to the Many Influences of Violence

United Nations generally assembly

United Nations representatives meet in yearly general assembly meetings hoping to find solutions for lasting peace. (Image CC BY 2.0, Credit: Basil D Soufi.)

Many other factors aside from population growth influence outbreaks of mass violence. Propaganda can increase hatred and foment violence. Incompetent or power-hungry leaders blunder into wars. But there are solutions our society can pursue: Institutions such as the United Nations can help maintain peace; peace treaties can resolve disputes; and cultural and institutional changes can reduce tendencies to violence.

The rejection (or adoption) of violence entails in-depth analysis and, often, the climbing of learning curves. Yet underlying all other factors is the fact that population growth creates rising competition for scarce territory and resources. Conversely, population decline reduces motivation and necessity for violent conflicts and fosters higher education levels, rule of law, and trust.

Peace and justice advocates should devote more attention to supporting family planning and the demographic transitions that have helped women and children enjoy longer lives. These demographic transitions also enable countries to remain above poverty levels and peacefully coexist with former enemies.

Why are so few peace and justice advocates talking about population stabilization?

[1] More, A. 1917. Fecundity and Civilization: a contribution to the study of over-population as the cause of war and the chief obstacle to the emancipation of women; with special reference to Germany. Allen and Unwin, London.

[2] Levy, J. and William R. Thompson. 2010. Causes of War. Blackwell Publishing, Chichester, UK.

[3] Grayline, A.C. 2017. War: An Enquiry. Yale University Press, New Haven, USA. This echoes Thucydides who summed up causes of war as fear, glory, and interest (desires for gold, territory, slaves, etc.).

[4] Pinker, S. 2011. The Better Angels of Our Nature. Penguin, New York.

[5]“Violent” were roughly defined as “thousands killed in the past 40 years in war, civil strife, or genocide.” “Peaceful” were “peaceful since WWII.” Admittedly, this was a “quick and dirty” classification effort based on news accounts, historical reading, and general knowledge. I looked at deaths in war statistics and found them to be surprisingly hard to pin down. Estimates of deaths vary greatly depending on source. The “medium” category is really “not sure” in some cases.  Results are so clear that no change in the overall conclusion could result from a few misclassifications.

[6] Figures in Table 4 are averages of country statistics, not weighted by country population. Global average fertility weighed by population was around 2.5 in 2013.

[7] Statistics all from World Bank, World Development Indicators data.

[8] My relatives fought and died in the World Wars between France and Germany that killed millions. Now those countries share a common currency, lasting peace and low fertility rates.

Max Kummerow, Ph.D., is a retired business school professor and population activist who researches demography, ecology, and economic development. He has presented papers at ESA, PJSA, NCSE, PAA, and EAERE meetings showing the benefits of accelerating the world’s stalled demographic transition toward lower fertility rates.

 

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