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Pandemic and the Policy Roots of a Steady State Economy

Published by Anonymous (not verified) on Thu, 09/07/2020 - 11:30pm in

By James Magnus-Johnston

Over a decade ago, a chorus of voices called for sensible policy priorities for a post-growth transition; it took a pandemic for a few of these priorities—like a universal basic income—to become a reality nearly overnight. Not that recent policy reforms have been conducted with a steady state economy in mind. Rather, politicians have been attempting to “stimulate” a moribund economy.

Let’s imagine for a moment, however, that instead of “keeping the wheels on” and propping up a struggling growth economy in the midst of a pandemic, we intentionally build the better world our hearts know is possible. How do we nurture the roots of a just transition?

As a result of global economic hardship, many jurisdictions have recently instituted ideas that inch us closer to a steady state economy, including cash benefits that resemble a basic income and increased work flexibility. New Zealand has demonstrated to the world how to prioritize wellbeing over GDP. Many other places have begun to tax environmental costs in the form of a carbon tax.

It feels like the transition to a post-growth society may slowly be taking root, but it’s worth considering some of the reasons to be even more intentional about choices going forward.

Limit Inequality to Preserve Social Stability

During the global pandemic, cracks of injustice have been exposed, including racial, financial, and gender disparities. Manifestations of inequality are complex and structural. Fundamentally, however, when people are unable to meet their needs or control their destinies, it’s more likely that political cleavages will be exacerbated.

I recently wrote about warrants for a universal basic income, but wealth inequality remains a concern after a UBI floor is established. Herman Daly writes that by permitting wealth disparities in which the richest earn 500 times more than the poorest, the sense of community necessary to foster a just and democratic society becomes prohibitive. He notes that “rich and poor separated by a factor of 500 have few experiences or interests in common and are increasingly likely to engage in violent conflict.”

Growth is said to improve income inequality because it provides new opportunities for the poorest members of society. However, over the last decade, growth has not been shared equitably and has disproportionately benefited society’s most privileged. Reducing poverty and ensuring social cohesion and stability requires meaningful income redistribution, including a basic income, a minimum employment income, and—perhaps controversially—a maximum income for top earners.

Homelessness and post-growth society

Economic growth benefits the wealthy quite exclusively, further widening the income gap and rending communities. (Image: CC BY-SA 2.0, Credit: Ed Yourdon)

Let’s consider the latter, which will be harder to accomplish. In the USA, where the cracks of injustice have been particularly jagged, corporate America has a 500-factor wealth disparity. Czech argued in Supply Shock (2013, New Society) for launching sectoral salary caps at fifteen times the minimum in-sector salary, noting the popular precedent for salary caps (albeit with gaudy salaries) in professional sports. In Enough Is Enough (2013, Berrett-Koehler), Dietz and O’Neill touted the Mondragon cooperative, in which members earn a maximum pay of nine times the minimum. Even starting at a limit of 100 would be better than the present-day skewness. If a minimum of $20,000 per year was the floor of a basic income, a maximum of $2 million per year would be allowed to reward ambition and initiative. Those who perform their work at a minimum level of income could live simply but with lower levels of stress than many high-paid executives. Many already do, enjoying it and devoting their extra time to public service or recreational subsistence pursuits such as firewood gathering, fishing, and mushroom picking.

Increased Work Flexibility, But with Greater Social Infrastructure

As a result of the pandemic, those with stable employment have found themselves in the midst of a work-routine transition. While full-time employment for all may be hard to provide without growth, it’s also true that growth already provides too much employment for some and not enough for others, particularly those denied opportunity on the basis of race or gender. With greater freedom over their work hours, people can embrace healthier, more balanced, and more life-affirming routines.

Dog and post-growth society

In many sectors, flexible hours and telework put less stress on people and planet.
(Image: CC0, Credit: Allie)

Intergenerationally, baby boomers have high-income jobs and continue accumulating earnings. Some of them are abandoning the rat race, spurred by pandemic fears, but it’s primarily the younger generations experiencing the pros and pitfalls of working less. In addition to a lack of opportunity, youth also face income stagnation, poor employment prospects, high debt loads, and fears that climate change will interfere catastrophically with the economy in their retirement years. It stands to reason that the post-covid welfare state should institutionalize supports for part-time and flexible work routines—starting with an unqualified UBI and universal childcare benefits. In Canada, there are calls to amend the Labour Code so that employees have the right to request a flexible work arrangement from their employers, particularly if they are providing care for loved ones.

The industrialized world’s “40-hour work week” and the “nine-to-five” workday are relatively recent historical inventions that many of us see as the norm rather than variables we have freedom to control. Yet numerous studies have shown that many workers would prefer to spend less time working, while few would prefer to spend more.

There are examples of successful alternatives. Germany’s Kurzabeit job-sharing program, in which 1.4 million workers and 63,000 employers participated in 2009, has lowered unemployment rates while effectively reducing the number of hours worked per person. There are similar success stories in France, the Netherlands, and the U.S. state of Utah.

With greater work flexibility, people are more likely to provide necessary care for loved ones, consume less, and embrace more creative pursuits. All this improves our overall quality of life and takes pressure off the biosphere.

Prioritize Wellbeing Over Income

As we seek to cultivate a new normal in which health is prioritized, New Zealand offers a glimpse of the way forward while the USA lurches toward a health catastrophe. As I mentioned in a recent post, the postwar-capitalist framework equated economic “health” with income growth, price stability, and full employment. The pandemic has revealed how problematic it is to think of “health” as a capitalist metaphor (as in the USA) rather than a desirable end goal (as in New Zealand). 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.

The Wellbeing Economy Alliance (WeAll) has suggested that the pandemic’s “Great Pause” provides us with an opportunity to focus on our wellbeing by reminding us that:

(1) The stock market does not represent or reflect our economic reality.

(2) We will enter a recession, and that’s okay.

(3) Economic policies can help us endure the Great Pause.

(4) We can build back better.

Going Forward

Policy ideas that appeared difficult or impossible just a few short months ago have suddenly become palatable and necessary, especially in the ways they may indirectly address pervasive inequality and injustice. Daly wrote in 2013 that such reforms would appear palatable “only after a significant crash, [or] a painful empirical demonstration of the failure of the growth economy.” Well, here we are in the midst of a radical disruption; and here we are, nurturing the roots of a just transition. Whichever way events unfold over the coming years, it’s clear that returning to the pre-pandemic status quo is less realistic and more difficult than embracing the change that’s well underway.

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

The post Pandemic and the Policy Roots of a Steady State Economy appeared first on Center for the Advancement of the Steady State Economy.


To Be or Not to Be: Is the European Degrowth Movement Courting an Identity Crisis?

Published by Anonymous (not verified) on Thu, 02/07/2020 - 3:59am in

By Brian Czech

 

To be or not to be

Shakespeare and degrowth

Shakespeare would have a question for degrowthers. (Image: CC0 1.0, Credit: The Washington Times)

for lowering GDP.

Deciding is the fee

for degrowthers to be free!

(Free of confusion, that is, and degrees of self-defeat.)

 

In the heart of the Cold War, John F. Kennedy proclaimed, “Ich bin ein Berliner.” More than halfway to a century later, my solidarity is with a different European ideology, which traces its roots to the French scholar Serge Latouche. I say, “Je suis pour la décroissance.”

Yes, I am a degrowther, secondarily at least. I prefer to identify primarily as a steady stater, but by now—well into the 21st century—we steady staters realize the global economy is almost certainly beyond its long-term capacity. No one in steady-state economics is advancing the notion of a perpetual, pre-covid $88 trillion economy. In other words, we’re all for “degrowth toward a steady state economy.”

In many ways, steady staters were the original degrowthers, with Herman Daly at the forefront since the 1960s. I joined the pack around 1995, in the midst of my Ph.D. research, which included an interpretation of the Endangered Species Act as an unintended prescription for a steady state economy. As the author of the CASSE position on economic growth (with input from Daly and others), and as alluded in the last two clauses thereof, degrowth was on my radar more than 20 years ago.

In the “old days,” though, the degrowth movement in English-speaking circles often went by another slogan, “contraction and convergence.” Informed by yet other steady staters—notably the ecological footprint trackers Bill Rees and Mathis Wackernagel—scholars started calling for a contraction of the global economy before striving for a steady state. Knowing such contraction wasn’t politically viable globally without the spreading of some wealth from richer to poorer nations, they coupled the concept of contraction with the concept of convergence. A convergence of wealth, income, and opportunity was required if there was to be any hope for “steady statesmanship” in international diplomacy.

Why bother with the mini-history? Because there seems to be a peculiar notion (to be explored shortly) coming out of pockets of the degrowth movement, particularly in Western Europe. In my opinion, it’s a notion that threatens the credibility and effectiveness of the broader non-growth or post-growth movement. Therefore, it becomes important at this stage to wrangle a bit on the identity and future of the movement.

Such wrangling should start with the realization that no one has a monopoly over the word “degrowth.” While the socially constructed Wikipedia might relay the notion that “degrowth” is “a political, economic, and social movement,” in reality, “degrowth” is a word, and a word with a perfectly clear meaning. The political, economic, and social program entailing degrowth can rightly be called a “degrowth movement,” but not “degrowth” per se.

Degrowth: The Meaning vs. the Movement

Hearkening back to our Shakespearian poem, and speaking as an original degrowther, I for one don’t have any doubt. Why of course I’m for lowering GDP! Not recklessly, draconianly, or stupidly. But certainly and significantly. Why deny it?Commoner's dictionary

Yet many degrowthers—or many who identify themselves thusly—seem quite agnostic about GDP degrowth. Some readers are probably wondering, “Seriously? Can there actually be degrowthers—people calling for degrowth—who deny that degrowth entails a declining GDP?” And who could blame the poor reader, as the very first metric that would come to most minds, when thinking of degrowth, would indeed be GDP. From the Cold War to Brundtland Commission win-win rhetoric to Trumpian politics identifying GDP growth as Goal #1, growth has always been about GDP! When growth is all about GDP, why certainly degrowth would be all about GDP, or at a minimum decisively in favor of declining GDP!

Might I be making a mountain of a molehill? I don’t think so. Maybe a knoll from a hummock, but even a hummock is an obstacle, and hummocks have potential for growing into knolls.

As evidence for the hummock, I would like to quote a degrowther (who shall remain anonymous) who replied to a tweet in which CASSE polled the Twittersphere, “What should the priority be in the post-COVID economy?” First, let’s consider the poll results:

Twitter poll

Of course the poll was not conducted with Pew-like research methods and standards. CASSE is followed on Twitter largely by those who get it about limits to growth, so no one would claim the results to be representative of the general public. Furthermore, the difference between steady-state and degrowth votes is statistically insignificant. The key point here, though, is not so much the tally, but rather some verbal responses to the poll and to the covid-caused recession in general, starting with the aforementioned, anonymous degrowther.

The degrowther stated in an email, “What this tweet suggests is that the current situation of economic crisis corresponds to degrowth. The problem is not just that this statement is inaccurate since degrowth does not equal less GDP, but also that it is damaging to the advocacy work that we do here…” (emphasis added).

The full email suggested that the quotee is no muddleheaded green growther, but rather a reputable and scholarly degrowther, and perhaps something of a leader in the field. Therefore, I do not think the quotee was implying, much less believing, that degrowth is congruent with a growing GDP. Rather, I think the quotee was striving to emphasize—and wanted others to strive likewise—that, in the European degrowth movement, “degrowth” is supposed to connote far more than a decreasing GDP, including a thorough political package of social justice. Unfortunately, however, the language used to de-emphasize GDP is often confusing and too inconclusive about the need for lowering GDP.

Giorgos Kallis and the degrowth movement

Giorgos Kallis, European degrowth leader. A Shakespearean steady stater might opine, “Kallis doth protest too much, methinks.”  (Image: CC BY-SA 4.0, Credit: Riccardo Mastini)

One degrowth leader, Giorgos Kallis, doesn’t offer much clarity, at least not in writing, by insisting that “Degrowth is anything but a strategy to reduce the size of GDP.” Similar to the anonymous quotee, he surely doesn’t believe in “green growth,” as the corresponding video (and recent scholarship) helps to clarify. Yet he wants the degrowth movement “to be distinguished from recession or depression” so much that he downplays the need for declining GDP.

A similar lack of enthusiasm for lowering GDP is found in the article, “Their Recession Is Not Our Degrowth!” The author, Federico Demaria, wrote about degrowth, “Our proposal is not necessarily to reduce GDP (an arbitrary indicator), but rather to ask new questions and search for alternatives to today’s society based on a predatory, unjust and unsustainable capitalist economic system.”

The Significance of GDP in Growing, Degrowing, and Steady State Economies

If Mark Twain were a steady stater (which would not be surprising), he might apprise, “The reports of GDP’s arbitrariness are greatly exaggerated.” In fact, GDP is perhaps one of the least “arbitrary” of all the macro indicators on Earth. GDP growth has been soberly and deliberately (albeit unwisely in recent decades) selected as a central economic policy goal for close to a century. The outcomes are far from unclear, either. GDP serves as an indicator of dozens or hundreds of things, and it is a rock-solid indicator of at least five:

  • Energy and material throughput
  • Pollution
  • Biodiversity loss
  • Environmental impact
  • Ecological footprint

Now this isn’t the article for refuting the increasingly irrelevant neoclassical growth economists who believe in perpetual GDP growth. That can be and has been done in many other venues. This is an opportunity, on the other hand, for squaring up degrowth and steady-state messages. Let’s start with the five points noted above.

The trophic structure of the human economy establishes that a growing GDP requires increasing throughput, even with technological progress. Pollution is an inevitable function of the second law of thermodynamics, and increases with GDP. The causes of biodiversity loss are like a Who’s Who of the economy. Biodiversity is in turn the top indicator of ecological integrity and environmental health, which decline as the economy grows. We might even view the economy as an $82 trillion giant, stomping across the landscape, leaving its ecological footprint.

In addition to the five points above, it’s no stretch of common sense—much less sound science—to identify tight linkages between GDP and:

  • Noise
  • Traffic
  • Stress
  • Soil depletion
  • Water shortages
  • Competition for resources
  • International strife
  • War

Then, of course, we have greenhouse gas emissions, climate change, and sea-level rise. While neither Kallis nor myself think there’s a Thanksgiving turkey’s chance of decoupling today’s GDP from greenhouse gas emissions, even a “renewably” energized future is hellish enough, given the relentless efforts to push GDP perpetually upward. 

So, does anyone still feel like ignoring GDP? Or downplaying the importance of degrowing it? Here then is one last try to get us over the hump.

The GDP Question in the Politics of Degrowth: We Can Handle It

Assuming we truly do want a decreasing GDP—which we desperately need for the sake of environmental protection, economic sustainability, national security, and international stability—we must strive for it as politically effectively as possible. For degrowthers in western Europe, apparently this entails assuaging the concerns of those who want “degrowth” to automatically connote goodness, or at least improvement from current badness. Connoting goodness or improvement is a tough sell when the public is accustomed to thinking of improvement (if not goodness) in terms of a growing GDP. But that’s our job!

One subtle approach is Timothée Parrique’s proposal (page 326 of his Ph.D. dissertation) for distinguishing linguistically, and thus connotatively, between “degrowth” and “de-growth.” The unhyphenated “degrowth,” then, would connote the broader degrowth movement and all it stands for. “De-growth,” on the other hand, would be limited to the trend in GDP.

Parrique’s approach resonates with CASSE, as we have long distinguished between the “steady-state economy” of neoclassical economics and the “steady state economy” of ecological economics. In the hyphenated phrase of neoclassical economics, “steady-state economy” connotes simply a stabilized capital:labor ratio, and almost always with growing GDP! In the non-hyphenated phrase favored by CASSE, “steady” modifies “state,” and “state” modifies “economy.” In other words, “steady state economy” connotes a political state in which GDP is stabilized.

Our attempt to distinguish, via hyphen, between neoclassical and sustainable concepts would be well understood in only a tiny corner of academia where political science and ecological economics meet (and where neoclassical economists rarely interlope). Outside of that corner, any effects would be marginal. The hope, though, is that neoclassical growth theory will fade far enough away as to leave the “steady state economy” as the only entry that really matters for purposes of politics and policy, even if “steady state” is occasionally or inadvertently hyphenated.

Similarly, I suspect Parrique’s distinction will be understood only within the tight confines of the academic degrowth literature. Outside those confines, especially all the way into public dialogue, “degrowth” will be used just as it sounds and—pursuant to the “Commoner’s Dictionary”—just as it means: Decreasing and, in particular, decreasing GDP.

The bigger point is, that’s not a bad thing! It is decidedly, decisively a good thing in the 21st century. We want GDP degrowth, all the way back to a sustainable and ideally an optimal steady state economy. Of course, it’s not the ultimate end-all goal, but it’s much more than a trivial means to an arguable end. GDP degrowth is such a necessary condition for sustainable wellbeing, it’s crucial that we strive for it.

So, if degrowthers are worried about the tarnishing of their message with the connotations associated with recession, coronavirus, or a covid-caused recession, my response is: That’s life. It’s not easy. It will take plenty of political prudence, and tireless determination, to advance the steady state economy—or degrowth toward a steady state economy—as the central economic policy of the 21st century. We have to learn how to communicate, with clarity if not flair, what Herman Daly has long emphasized; namely that a failed growth economy is not the same as a successful steady state (or successfully degrowing) economy. I think we can do it, but not if we waffle on the need to degrow GDP, which only confuses observers and allows for the persistence of “green growth” fantasies.

Je suis pour la décroissance. That’s right, I am a degrowther. And I’m all for GDP degrowth!

Brian Czech

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

The post To Be or Not to Be: Is the European Degrowth Movement Courting an Identity Crisis? appeared first on Center for the Advancement of the Steady State Economy.


More Thoughts on the Recession, Stimulus, and Recovery

Published by Anonymous (not verified) on Thu, 25/06/2020 - 3:29am in

As we get more data in, it seems increasingly likely that we are looking at a horrible and prolonged recession, not a complete economic collapse of Great Depression proportions. The May employment report showed a substantial bounce back in employment, with jobs up by more than 2.5 million from the April level. Retail sales had a huge 17.7 percent jump in May, by far the largest on record, although they are still 6.1 percent below the May 2019 level.

Mortgage applications also show a considerable degree of confidence about the future, with both refinancing and purchase mortgages soaring. Mortgage applications for refinancing are up more than ten-fold from year-ago levels, while purchase applications are up 268.6 percent to the highest level in more than 11 years. The latter is far more important for the economy since it implies people are buying homes, which typically lead to the purchase of new appliances and spending on renovations.

These data, and a variety of surveys of consumers and businesses, do not show an economy in collapse. At the same time, there is little reason to believe that we will see a robust rebound to anything resembling normal. We lost 22 million jobs between February and April. Even if we had seven more months adding jobs back at the May rate, we would still be down by more than 2 million jobs from the pre-pandemic level. And, we are not likely to see seven more months with job growth anything like May’s pace, without some very serious fiscal stimulus.

A new paper from Raj Chetty and co-authors provides some interesting insights on the problem the economy faces. Using real-time data from a number of private sources, it finds that there has been a sharp fall in consumption by people in the top income quartile of households, with relatively little change in consumption from the other three quartiles.

This drop is overwhelmingly associated with a sharp drop in demand for services, like restaurant meals, hair salons, and other personal services. Interestingly, the size of the drop is not affected to any substantial extent by laws on shutdowns. Areas where these services were fully available saw comparable declines in spending as areas where these services were still subject to lockdowns.

There are two major takeaways from these findings. First, the drop in demand that we have seen to date has little to do with declines in income. The top quartile has reduced its spending not because it lacks the income to spend, it has reduced spending because it is scared to spend in the areas where it would ordinarily be spending its money.

An implication is that any further efforts at boosting the economy should be better targeted than the first rounds. For example, giving $1,200 to every adult in the country was not a very effective way to boost the economy. While this was payment was phased out for very high-end earners, the phase out only affected the top 2-3 percent of the income distribution, the bulk of the top quartile received their checks even though they were not suffering any income loss as a result of the pandemic.

The other major take away is that if we want people to use restaurants, hair salons, gyms, and other services, the issue of legal shutdowns matters far less important than ensuring their safety. This means actually getting the pandemic under control. While virtually every wealthy country has been able to do this, outside of the Northeast corridor, new infections are higher than ever in the United States. This means that without a vaccine and/or effective treatment, we are likely to see demand for a wide range of services badly depressed for the foreseeable future.

This matters in a big way because these industries provide tens of millions of jobs largely to less-educated workers. These sectors also disproportionately employ women and people of color. If they continue to see demand at far below pre-pandemic levels, it will mean a massive and persistent increase in unemployment for the less-educated segments of the workforce. This will quickly reverse all the gains that lower-paid workers were able to make as the labor market tightened in the prior five years.

 

Shaping the Stimulus

The most immediate need in the next round of a rescue package to come from Congress is for money for state and local governments. Their budgets have been devastated by the loss of tax revenue due to the shutdown and the additional demand for services. The Center on Budget and Policy Priorities calculated that the shortfalls could be as high as $500 billion.

They have already laid off 1.6 million workers and this number will hugely increase if Congress does not provide a large chunk of money to make up for their shortfalls. Some people have pointed out that the laid-off workers were largely teachers, who were not paid for the period in which schools were shut down. This is true, but if state and local governments cannot get the money to make up shortfalls, many of these teachers may not be called back in the fall and other workers are likely to be laid off to make up the cost of paying the teachers who are called back. Cutbacks at the state and local level were one of the main reasons that the recovery from the Great Recession was so slow. We should not make an even larger mistake now.

The Post Office will also need substantial funding to stay in business, as it has seen both a sharp decline in revenue and sharp increase in spending due to efforts to keep its workers safe. As with state and local governments, the employees of the Post Office are disproportionately Black. This is due to the fact that Black workers in the public sector have faced less discrimination than Black workers in the private sector. As a result, the public sector has historically been an important source of middle-class jobs for Black workers. This will be threatened if the fallout from the pandemic forces large cutbacks in employment.

There has been a peculiar debate over the extension of the $600 weekly supplements to unemployment benefits that are scheduled to end next month. It is important to remember the reason these were included. We gave people this supplement because we did not want them to work. The point was to keep people whole through a period in which the economy was largely shut down in an effort to contain the virus.

In this context, the question we should be asking in deciding whether to continue the supplement is whether it is safe to work. This depends on our progress on containing the virus. One obvious way to determine the extent to which the pandemic has been contained is the positive rate on new tests. If the positive rate is below some low level, say 3 percent, then it would be reasonable to remove the supplement in that area (this can be county specific), however, if we are seeing high positive rates, then as a matter of policy it would make more sense to encourage people to stay at home than to work.

For the areas where the virus is under control, it would still be desirable to have some supplement to the standard benefit. Benefits in many states have been eroded in recent decades so that it would be very difficult for unemployed workers to survive on them. In a context where the nationwide unemployment rate is virtually certain to be in double digits through the rest of the year, most of the unemployed are not going to be able to find work. For these reasons, a smaller supplement, perhaps $200 a week, should be left in place until the economy has recovered more.

In addition, we should also increase SNAP benefits to protect those at the bottom of the income ladder. Food prices have risen sharply since the pandemic hit. These increases may be reversed in the months ahead, but for now, low-income families have to cope with high food prices, with no increase in benefits. It is also important to remember that SNAP spending is a small share of the total budget. At $70 billion a year, it is just 1.6 percent of total spending. It is less than one-fifth of the premium we pay each year for prescription drugs because of government-granted patent monopolies.

 

Longer Term Recovery

 

At the point where we have developed effective treatments and/or a vaccine, many people will go back to eating at restaurants and flying for vacations. However, there are some changes in spending patterns that are likely to be enduring.

It is likely that much of the increase in telecommuting will be permanent. This means that many fewer people will be going to downturn offices and taking advantage of restaurants, bars, gyms, and other services in central cities at lunch and after work. People are also likely to be taking many fewer business trips, as meetings will take place on Zoom. Also, many colleges and universities will likely be downsized, as more instruction takes place on the web, decreasing retail sales in college towns.

While there will be other long-term changes resulting from the pandemic (maybe even some questioning of government-granted patent monopolies for prescription drugs), the basic point is that large numbers of workers are likely to still be displaced even after the immediate impact of the pandemic is over.

This actually presents a great opportunity. If the private sector is not spending enough to fully employ the workforce, then the public sector has to fill the gap. In this case, we don’t need to have make-work jobs, we have enormous unmet needs.

Most obviously we need people to increase our capacity for clean energy and conservation. This can mean millions of jobs for people installing solar panels, insulation, and other energy-saving measures. We also need to ramp up our child care capacity. The lack of adequate child care was driven home in the pandemic as many health care and other essential workers had difficulty making arrangements when child care facilities shut down. We also need more health care workers as we move towards establishing a universal Medicare system. This will likely mean many more nurses, nurses’ assistants, and other health care professionals. And we will need social workers or other trained professionals who can be the first responders in many non-violent situations where the police are currently called in.   

We can’t imagine that all the people who lose their jobs in restaurants and hotels will be able to work installing solar panels or train to be nurses, but that is not how the labor market functions. In a normal pre-pandemic month, more than five and a half million workers lost or left their job every month. As jobs are generated in these new areas, many currently employed people will look to fill them. That will create job openings that former restaurant and hotel workers can fill. The story is not as simple as this, as we know there is considerable discrimination in the labor market and many pockets of high unemployment, but we don’t have to imagine that we need to match up displaced workers directly with the newly created jobs in clean energy, child care and health care. The labor market is far more flexible than this story implies.

Anyhow, a full discussion of the post-pandemic economy is a much longer story, but the basic picture is actually a positive one. More telecommuting will mean a more productive and less polluting economy. It will also lead to more dispersion of higher paid jobs, benefiting many of the areas that have been left behind in the last four decades and lowering rents and house prices in places like New York City and San Francisco. If we can get through a very bad stretch for the country and the economy, the future could actually be quite bright. 

The post More Thoughts on the Recession, Stimulus, and Recovery appeared first on Center for Economic and Policy Research.


Building Upon the Trophic Theory of Money: Preliminary Results from Canada

Published by Anonymous (not verified) on Thu, 25/06/2020 - 12:18am in

By James Magnus-Johnston

The human economy doesn’t just mimic the economy of nature; it is part of it. It is woven directly into the ecological system of producers and consumers. Due to the technological prowess of Homo sapiens, though, the human presence dominates, threatening other species and the life support system of the planet. Human dominance over non-human life leads us to acknowledge some uncomfortable truths, particularly for proponents of “green growth.”

The first pertains to the loss of biodiversity. As the human economy grows, biodiversity must be sacrificed. The economy grows from the “bottom up,” starting with the agricultural and extractive activity that displaces non-human species. This is the essence of what Brian Czech calls the “trophic theory of money.”

 



In this anchored clip, Brian Czech defines the trophic theory of money in a 2018 presentation to the Royal Society of New South Wales.

 

The trophic theory of money changes the way we think about pathways toward a greener, sustainable society. For example, it makes us think twice about strategies for “green growth,” including the following two:

  1. Using sectors like tech and tourism to shift away from farming and extraction (“dematerialization”).
  2. Investing in a renewable energy strategy that shifts the economy away from fossil fuels.

While both strategies have merit, it’s important to consider the systemic material implications of each strategy: How does each relate to the agro/extractive base of the economy and biodiversity loss? What are their rebound effects?

An alternative warrant for a greener society would be to use the trophic theory of money as an overarching design constraint. Instead of attempting to “dematerialize” GDP, we can instead work toward social wellbeing at an appropriately scaled, non-growing GDP. We can, in other words, opt for a steady state economy at some relatively optimal level. Before we can expect widespread acceptance of this option, however, we’ll probably need wider-spread knowledge of trophic principles.

What is the “Trophic Structure” of the Economy?

It takes producers and production to support consumers and consumption. In any ecosystem, from local to planetary, primary consumers (like voles and rabbits) require producers (like grasses and forbs), while secondary consumers (like shrews and weasels) require primary consumers (like voles and rabbits). For an ecosystem to be sufficiently developed to host tertiary consumers (like bobcats and eagles), there must be plenty of production, primary consumption, and secondary consumption “below.”

Trophic theory of money

The trophic structure of the economy consists of producers, manufacturing sectors, and services. The corresponding trophic theory of money is that “money originates via the agricultural surplus that frees the hands for the division of labor unto manufacturing and service sectors.” In other words, the real economy is reflected by flows of real (inflation-adjusted) money.

These “trophic levels”—producers, primary consumers, secondary consumers, etc.—comprise the “trophic structure” of nature. “Trophic” simply refers to the flow of energy and material, or the “low-entropy flow” described by Herman Daly. Each time biomass (plant material or animal flesh) is consumed for the growth or maintenance of the consumer, waste is co-produced and energy is lost as heat. The certainty of waste follows from the second law of thermodynamics (that is, the entropy law).

In the human economy, manufacturing sectors build upon the agricultural and extractive base. Service sectors are not as readily assigned to particular levels in the trophic structure. Some service sectors—tourism for example—are best modeled as high trophic levels. Tourism doesn’t literally “serve” other sectors, but rather comprises a high level of consumption allowed for by surplus production starting at the trophic base. Other service sectors, though, are more appropriately modeled as interwoven throughout all trophic levels. For example, the transportation sector serves virtually all other sectors ranging from agricultural and extractive all the way through the manufacturing sectors and up to tourism and entertainment sectors.

Why is this trophic structure consequential? Because the clearly “material” sectors (agriculture, extraction, and manufacturing) are inseparable from the “immaterial” sectors (i.e., services such as insurance and finance). In fact, the material and immaterial sectors are mutually dependent, and ultimately the primary dependence is upon the agricultural and extractive sectors. Manufacturing and services would not exist without the agricultural and extractive base; more manufacturing and services require more agricultural and extractive surplus.

The money-material correlation might be less evident in national economies where services predominate, but that doesn’t mean the trophic dynamics don’t exist. For example, a Swiss investor might be earning revenue from resource extraction in Mali. What appears as “immaterial” financial sector revenue in Swiss accounting still has a large material footprint in Mali.

As resources are exchanged up the trophic pyramid, value is created and revenue is produced. In this way, value (represented by real money) becomes a unit of pressure on the environment. Every time a trophic conversion happens, it produces waste (material waste and waste heat) as well as a stream of revenue. The trophic theory of money suggests that the generation and flow of real money—namely the flow of expenditure contributing to GDP—is concurrently, concomitantly a measure of economic output and environmental impact (including especially biodiversity loss).

As Czech has pointed out, inflation, technological progress, and international trade can warp the tight linkage between GDP and environmental impact. But, as we hope to demonstrate with further research results, these phenomena do not affect the underlying trophic structure of the economy, nor do they refute the trophic theory of money.

Initial Research: Money-Material Correlation in Canada

Almost fifteen years ago, without the benefit of numerous intervening studies, Herman Daly wrote, “ecological economics sees coupling [between income and environmental degradation] as by no means fixed, but not nearly as flexible as neoclassicals believe it to be—in other words, the ‘dematerialization’ of GNP and the ‘information economy’ will not save growth economics.”[i] I tested the idea in 2010 by comparing materials use with income (GDP) in the Canadian economy over a quarter-century. I found that the coupling of aggregate materials and aggregate inflation-adjusted income in Canada is indeed pretty tight. I called this coupling the “money-material correlation.”

        Money-Material Correlation in Canada, 1980-2006

Income flow

In the first phase of the study—the phase producing the figure above—I considered materials use (material flow or MFA); later I also considered the ecological footprint. I wanted a metric that would concretize the idea of material growth (that is, resource use), and MFA fit the bill. I also wanted to understand the general environmental impact of GDP growth, and looked to the ecological footprint for a general understanding. In both the MFA and ecological footprint studies, as one might expect, the correlation with GDP was tight.

My study was, in fact, a test of the trophic theory of money. The results were promising. That said, further testing is probably required before we can establish GDP as a widely accepted indicator of environmental impact.

Future Testing

The trophic theory of money would seem to set design constraints for the pursuit of a greener society, whether as a shift toward tech/tourism, or toward “green” energy. Pursuant to the trophic theory, the economy cannot be “dematerialized” by substituting agro-extractive activities with services like tourism or tech. While the notion of dematerialization has largely been debunked in ecological economics, it remains a popular idea in neoclassical economics and political circles. Further evidence corroborating the trophic theory of money could be the nail in the coffin for dematerialization and “green growth.”

The second argument to consider through the lens of trophic theory is whether or not energy sources are substitutable. The answer will have implications for where we should invest our time and money in the effort to build a better world. The trophic model helps us to recognize that the raw materials required for all energy systems need fossil energy: first to extract; and then to produce and maintain. Fossil energy, as explored in depth by Vaclav Smil and others, is not always substitutable. Fundamentally, whether referring to hydro, nuclear, solar, or wind, each of these energy sources requires oil and other raw materials to build and maintain, in addition to the metabolic and transportation needs of the human beings who design and maintain the systems.

Whether referring to economic sector substitution or energy substitution, the general design principle in operation here is similar: We must consider the metabolic needs of the system and the full spectrum of land and energy inputs. By evaluating the economy as a complete system, we can determine the raw inputs and fossil energy requirements of services or renewables in the trophic structure. More importantly, as resources “climb” up the trophic levels and material conversions take place, the resulting revenue streams are likely to signal biodiversity loss (and other aspects of environmental impact) as much as income gain.

To test the trophic theory of money, then, I intend to reproduce the money-material correlation in other jurisdictions with diverse economies and widespread agro-extractive activities, including China, the USA, and Russia. If there proves to be a strong link between GDP and various indicators of environmental impact under such differing models of political economy, it would be wise for us to include the trophic theory of money as a central feature of ecological macroeconomics, as well as economic policy for the 21st century.

[i] Daly, H. 2007. Ecological Economics and Sustainable Development. Edward Elgar Publishing, Cheltenham, U.K. See page 88.

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

The post Building Upon the Trophic Theory of Money: Preliminary Results from Canada appeared first on Center for the Advancement of the Steady State Economy.


The New York Times Doesn’t Like It When Workers Have Job Security: The Case of Japan

Published by Anonymous (not verified) on Tue, 23/06/2020 - 7:58am in

The New York Times had a fascinating piece pointing out that Japan’s unemployment rate has barely budged in response to the pandemic recession, even as the U.S. rate (adjusted for measurement issues) has topped 15.0 percent. But the piece comes with an important warning:

“Critics say it makes companies reluctant to take risks in hiring new employees, reducing options for the country’s young workers. It may also make it more difficult for businesses to retool their work forces to adapt to changing conditions, making them less productive and hurting their ability to compete in the global economy.”

There actually is little evidence for the unnamed critics’ assertion. According to the OECD, since 2005, U.S. GDP per hour worked (the broadest measure of productivity) has increased at an annual rate of 1.1 percent. By comparison, Japan’s productivity has increased at a rate of 0.7 percent. This is a notable difference over time but does not imply that the U.S. is seeing a hugely different picture. In terms of international competitiveness, Japan has a trade surplus of roughly 3.5 percent of GDP, while the U.S. has a trade deficit of 2.4 percent of GDP.

In short, while it is clear that Japan’s workers enjoy much greater employment security than workers in the United States, it is not clear that the country is experiencing the negative outcomes of which the article warns.

The post The New York Times Doesn’t Like It When Workers Have Job Security: The Case of Japan appeared first on Center for Economic and Policy Research.


Can the World Get Along Without Natural Resources?

Published by Anonymous (not verified) on Thu, 18/06/2020 - 11:46pm in

If it is very easy to substitute other factors for natural resources, then there is in principle no “problem”. The world can, in effect, get along without natural resources.

Robert Solow, 1974

In the distant future, aliens come to Earth. They find a planet devoid of life. Looking closer, the aliens see that life on Earth was once abundant, but was wiped out by a mass extinction. Curiously, this event was driven not by geological disaster, but by one of the extinct species itself. In an orgy of consumption, an odd little animal put the planet under enough stress to drive itself —and the rest of life — extinct.

Then comes a startling discovering. Preserved in the sediment lies a document written by a member of the doomed species. What secrets does it contain? The aliens work for years to translate it, hoping that it offers a clue about what drove the species to overconsume. And indeed it does. The document heralds a remarkable delusion: “The world can, in effect, get along without natural resources.

What a naive animal, the aliens conclude. While sucking the planet dry, the animal proclaimed its independence from natural resources. No wonder it went extinct.

✹ ✹ ✹

Let’s hope this future is apocryphal. If, in the distant future, aliens do visit the Earth, I hope they find a planet teeming with life. Maybe they’ll even find an industrious, upright-walking animal that has learned to live sustainably.

If this bright future does come to pass, it will be because we’ve manage to shed our delusions. Contrary to the proclamations of neoclassical economists (like Robert Solow), the world cannot get along without natural resources. That this fact needs stating is a testament to the shallowness of economic theory.

In this post, I show you how economists reached such bizarre conclusions. And I offer some thoughts about the role that resources actually play in sustaining human societies.

The original sin

From its outset, the field of political economy was not designed, in any meaningful sense, to understand resource flows. Instead, it was designed to explain class relations. The goal of early political economists was to justify the income of different classes (workers, landowners and capitalists). They chose to do so by rooting this income in the ‘production of wealth’. What followed from this original sin was centuries of conflating income with ‘production’. This conflation is what allowed Robert Solow to proclaim that the world could “get along without natural resources”.

Let’s retrace this flawed thinking. It starts with a failure to understand property rights. Political economists largely understand property as a productive asset — a way of thinking that dates to the 17th-century work of John Locke (or perhaps earlier). Locke proclaimed that property rights stemmed from ‘natural law’. A man, Locke argued, has a natural right to own what he ‘produces’:

… every Man has a Property in his own Person. This no Body has any Right to but himself. The Labour of his Body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property. It being by him removed from the common state Nature placed it in, hath by this labour something annexed to it, that excludes the common right of other Men. For this Labour being the unquestionable Property of the Labourer, no man but he can have a right to what that is once joyned to, at least where there is enough, and as good left in common for others.

Locke’s thinking became known as the ‘labor theory of property’. This theory (and its derivatives) is why political economists misunderstand the role of natural resources. Here’s what happens. If we accept Locke’s argument that you have a right to own what you produce, it follows that your wealth should stem from your output.

Most political economists after Locke accepted this reasoning (at least in part). That meant that the debate was not about whether wealth was ‘produced’, but rather, about which ‘factors of production’ were ‘productive’. The physiocrats thought land alone was productive. Marx insisted that only labor was productive. Neoclassical economists proclaimed that, alongside labor, capital too was productive. The debate between these schools played out over centuries. The problem, though, is that it’s based on a flawed premise. The debate assumes that value is ‘produced’. (It’s not.)

To see the flaw, let’s go back to Locke’s theory of property rights. Notice that it’s not really a ‘theory’ in the scientific sense. It doesn’t explain why property rights exist. It explains why they ought to exist. Locke proclaimed that a man ought to own what he produces. That is his ‘natural right’.

This change from ‘is’ to ‘ought’ is important. It means that we’re not dealing with a scientific theory. We’re dealing with a system of morality. The philosopher David Hume was perhaps the first to understand this moral sleight of hand. He noticed that moral philosophers made their arguments more convincing by framing what ‘ought’ to be in terms of what ‘is’. Here’s Hume reflecting on this trick:

In every system of morality, which I have hitherto met with, I have always remarked, that the author proceeds for some time in the ordinary way of reasoning, and establishes the being of a God, or makes observations concerning human affairs; when of a sudden I am surprised to find, that instead of the usual copulations of propositions, is, and is not, I meet with no proposition that is not connected with an ought, or an ought not. This change is imperceptible; but is, however, of the last consequence.

With David Hume’s observation in mind, let’s return to Locke’s ‘theory’ of property. It’s not a ‘theory’ at all — it’s a morale treatise. According to Locke, we ought to own what we produce. But that doesn’t mean that we do.

To see the consequences of this mistake, we need an actual scientific theory of property rights — a theory that explains why property exists, not why it ‘ought’ to exist. The most convincing theory of private property, in my opinion, comes from the work of Jonathan Nitzan and Shimshon Bichler. To understand property, Nitzan and Bichler argue that we should turn Locke’s idea on its head. Property isn’t a ‘natural right’. It’s an act of power.

Property, Nitzan and Bichler observe, is an act of exclusion. If I own something, that means that I have the right to exclude others from using it. It’s this exclusionary power that defines private property. Here are Nitzan and Bichler describing this act:

The most important feature of private ownership is not that it enables those who own, but that it disables those who do not. Technically, anyone can get into someone else’s car and drive away, or give an order to sell all of Warren Buffet’s shares in Berkshire Hathaway. The sole purpose of private ownership is to prevent us from doing so. In this sense, private ownership is wholly and only an institution of exclusion, and institutional exclusion is a matter of organized power.

When we think like Nitzan and Bichler, we get a very different view of income. Recall that most political economists see property in terms of the ‘things’ that are owned. They then argue that income stems from these ‘things’. Nitzan and Bichler upend this logic. Property, they argue, is about the act of ownership — the institutional act of exclusion. Income stems from this exclusionary act. We earn income from the fence of property rights, not from what’s inside the fence. In other words, if you can’t restrict access to your property, you can’t earn income from it. (For more discussion of Nitzan and Bichler’s theory of property rights, see this post. Or better yet, read their book Capital as Power.)

With Nitzan and Bichler’s theory of private property in hand, let’s look at what goes wrong in political economy. Economists see income and conclude that it indicates the productivity of the owner’s property. This means that when the distribution of income changes, it appears that the relative ‘output’ of each ‘factor of production’ also changes. So when the income flowing to natural resource owners declines, economists conclude (wrongly) that the resources themselves are becoming less important.

Here’s an example. Most early political economists argued that there were three ‘factors of production’: land, labor and capital. But over time, land was slowly dropped, leaving only labor and capital. Here are William Nordhaus and James Tobin noting this shift:

The prevailing standard model of growth … is basically a two-factor model in which production depends only on labor and reproducible capital. Land and resources, the third member of the classical triad, have generally been dropped.

… Presumably the tacit justification has been that reproducible capital is a near perfect substitute for land and other exhaustible resources.

According to Nordhaus and Tobin, land was dropped as a ‘factor of production’ because it could be replaced by capital. In other words, capital had become so productive that there was no longer a need for land.

Let’s dissect this logic. Economists dropped land as a ‘factor of production’ not because of any change in physical reality. Humans, like all organisms, depend on the Earth’s bounty for our survival. Without land, there is no food. And without food, there are no humans. So the importance of natural resources hasn’t changed. Why, then, did economists rid their theory of land? They did so because of the original sin in political economy: from declining income, economists inferred declining contribution to output. As societies industrialized, the share of income flowing to agricultural land owners declined. To economists, this signaled that land had become less important.

Let’s make this shift more concrete. Go back a few centuries and the wealthiest people were, without exception, land owners. Fast forward to the present, however, and this landed aristocracy hardly exists. The wealthiest people are now almost exclusively the owners of capital. And these capitalists sometimes own nothing but ideas (intellectual property). Wealth, it seems, is dematerializing. The world can get along without natural resources!

No. This thinking is flawed. It’s the Lockean mistake in action. Economists assume (wrongly) that income reflects productivity. They then mistake income redistribution — from the landed aristocracy to industrial capitalists — as a decline in the importance of ‘land’. But it is no such thing. Land remains the basis of all human activity.

Agriculture? We can do without it

The conflation of income with productivity has led economists to misunderstand the role of natural resources in human societies. Economists see that the owners of natural resources earn a trivial share of income. And so they conclude (wrongly) that natural resources themselves play a trivial role in the economy. It’s an embarrassing mistake with troubling consequences.

Take, as an example, the need to fight climate change. If you ask a climate scientist, they’ll likely say that climate change poses a dire threat to humanity. Their reasoning is simple. Climate change could potentially make farming impossible in much of the world. So if we want to avoid mass starvation, we’d best curb our fossil fuel habit.

In contrast, if you ask a neoclassical economist about fighting climate change, you’ll get a very different answer. Climate change, they’ll likely say, isn’t much of a problem. True, it may cause much of our arable land to become barren … but don’t worry. Agriculture, they’ll observe, is a tiny part of GDP. So even if we destroy our ability to farm, ‘economic output’ will remain virtually unchanged.

Given its absurdity, you might think that I’m making this reasoning up. But I’m not. William Nordhaus — whose work on the economics of climate change has been enormously influential — uses the same reasoning to downplay the impact of global warming. Here’s how he peddles it:

[T]he process of economic development and technological change tend progressively to reduce climate sensitivity as the share of agriculture in output and employment declines and as capital-intensive space heating and cooling, enclosed shopping malls, artificial snow, and accurate weather or hurricane forecasting reduces the vulnerability of economic activity to weather

… More generally, underground mining, most services, communications, and manufacturing are sectors likely to be largely unaffected by climate change—sectors that comprise around 85 percent of GDP.

Although climate change may destroy our food supply, we shouldn’t worry. According to Nordhaus, we’ll all be safe inside our air-conditioned offices, with productivity unimpaired. For this tortured logic, Nordhaus was awarded the (fake) Nobel prize in economics. Noting the irony, anthropologist Jason Hickel aptly called it the “The Nobel Prize for Climate Catastrophe”. (If you’re appalled by Nordhaus’ work — and you should be — check out Steve Keen’s in-depth debunking of it).

Here’s what’s wrong with Nordhaus’ reasoning: it conflates income with productive importance (political economy’s original sin). Nordhaus sees agriculture’s declining share of national income and concludes (wrongly) that farming is becoming less important to human societies.

Let’s quantify the trend. Figure 1 shows the share of US income earned by people working in agriculture. This share declined precipitously over the last two centuries. In 1840, more than half of all income went to people in agriculture. But by 2010, this figure had shrunk to less than 1%. Today, US farmers earn a trivial share of all income.

Figure 1: The share of agriculture in US national income. For data sources, see notes.

If you think like Nordhaus, the evidence in Figure 1 tells you that agriculture is becoming less important. It’s such a minuscule part of the economy that if we got rid of it entirely, GDP would shrink by less than 1%. So bring on the climate change!

No.

There’s a fatal flaw in this thinking. The decline in agriculture’s income share says nothing about agriculture’s biophysical importance. To see the biophysical importance of agriculture, we should look not at the income-accounting table, but at the kitchen table. No agriculture … means no food … means no humans.

Far from indicating agriculture’s irrelevance, the evidence in Figure 1 shows agriculture’s continued importance. Industrial society is possible only because so few people are needed to grow food. (That’s why farmers earn such a tiny share of all income. There are hardly any of them!) Modern farmers harvest a staggering quantity of food. This allows the rest of us to do the non-farming activities that we take for granted.

Let’s look at the growth of this agricultural harvest. Figure 2 shows the labor productivity of US farmers over the last two centuries. I’ve plotted the harvest of three crops: wheat, cotton and corn. For these crops, the increase in labor productivity is spectacular — about 50-fold for wheat and 100-fold for corn and cotton. This enormous harvest is the basis for our industrial society. Without the bounty of modern agriculture, urban life would be impossible.

Figure 2: The exploding labor productivity of US agriculture. I plot here the trend in the output per labor hour of US-produced wheat, cotton and corn. Data is indexed so that productivity equals 1 in the year 1800. Output is measured in physical units (bushels for wheat and corn, bales for cotton). For data sources, see notes.

We can now see the flaw in Nordhaus’ reasoning. If climate change decreases the productivity of agriculture, we lose the basis for our industrial society. If farmers can’t feed people in cities, urban-dwellers will have to move back onto the land. Presto … no more industrial society.

The price problem

In tying the concept of ‘output’ to income, neoclassical economists fool themselves. Their accounting system leads them to believe that natural resources are unimportant. Here’s what happens. When the price of a natural resource decreases, so does its apparent contribution to ‘output’. So as resources become cheaper, economists mistakenly think that societies are becoming less dependent on the Earth.

This thinking gets it utterly wrong. The price of a natural resource doesn’t indicate its importance to society. The role of natural resources is, in reality, invariant. Today — just as we have always been — we are utterly dependent on natural resources for our survival.

So what, then, should we make of the price of natural resources? In an important sense, the price of a resource is inversely related to the resource’s importance. The cheaper a resource becomes, the more we tend to depend on it.

As an example, take electricity. A century ago, electricity was expensive and its use was rare. Today, electricity is cheap and we use it in almost all aspects of life. Figure 3 quantifies this cheapening of electricity, measured in terms of work time. I’ve plotted here the work time required for an average US worker to purchase 1 megawatt-hour of electricity. (A megawatt-hour is roughly the amount of electricity used by a modern US household in a month.) In 1900, it took about 1000 hours of paid work to purchase this amount of electricity. Today it takes about 5 hours — a 200-fold decrease.

Figure 3: The falling relative price of electricity. I plot here the average number of working hours required for a US production worker to buy 1 MWH of electricity at the residential price. For data sources, see notes.

Electricity is, for modern Americans, astonishingly cheap. To neoclassical economists, this cheapness signals that electricity production contributes virtually nothing to economic output. But this conclusion is fallacious. Americans use electricity in profligate quantities precisely because it is cheap. Less than 1% of national income is devoted to buying utilities.

For neoclassical economists like William Nordhaus, this means that we could wipe out the entire utilities sector, but still retain 99% of economic ‘output’. In the real world, things are different. If we wipe out the utilities sector, industrial society disappears.

The energetic basis of society

Unlike economists, physicists have long understood the importance of natural resources to society. And they’ve recognized that energy is the ‘master resource’.

Without the flow of energy, the universe would be a boring place. There would be no galaxies, no stars, no planets and no life. Absent energy flows, the universe would be an unchanging soup of matter and radiation. All of the structures that we take for granted are created by energy flows. (For a compelling exposition of this principle, see Eric Chaisson’s book Cosmic Evolution: The Rise of Complexity in Nature.)

Back to economics. I could dive into the physical laws that tell us why energy is important to human society. But instead, I’ll defer to Steve Keen, who has a knack for good metaphors. When it comes to the importance of energy to the economy, Keen notes:

[L]abour without energy is a corpse, and capital without energy is a sculpture.

An apt metaphor. Without energy flows, our machinery would be useless. Not to mention we’d all be dead. But beyond metaphors like this, how do we understand the importance of energy to the economy? A popular approach among ecological economists is to reform neoclassical theory by adding energy to production functions. The idea is that, alongside labor and capital, energy is a ‘factor of production’.

While well intentioned, I’m skeptical of this approach. There are many problems, but I’ll focus here on just two. First, I think that the concept of ‘factors of production’ is flawed. It’s rooted in a mistaken attempt to explain class-based income in terms of the contribution to production. The problem is that class divisions don’t tell us about the biophysical underpinnings of society. They never have and they never will.

Second, I think it’s a mistake to even try to explain ‘economic output’. Why? Because I don’t think it exists. Ask yourself this question — what is the ‘output’ of a cow? What is the ‘output’ of a bacteria? Are you struggling to find an answer? That’s because the question is ill-posed. Organisms don’t have ‘outputs’ in any meaningful sense. They have throughputs. Organisms transform matter and energy into forms that are useful. Both the cow and the bacteria take in energy and matter, and then use it to maintain their structure and to enable their activity. They have no ‘output’ … only energy throughput.

When we think this way, production functions become irrelevant. There’s no need to relate economic inputs to economic outputs, because the latter doesn’t exist. Instead, there’s only the flow of energy. When framed this way, the study of ‘economic growth’ becomes the study of energy transformations. We needn’t get ‘real’ GDP involved. (That’s good, because it’s a flawed metric.)

Using energy to harvest energy

When it comes to understanding the role of energy, one of the most interesting things we can do is study the use of energy to harvest energy. In broad terms, this is what life is all about. Organisms use energy so that they can harvest more energy. A gazelle eats grass so that it can find more grass. A lion eats a gazelle so that it can find more gazelle. And so on.

In this regard, natural systems are fairly static. We don’t see lions investing ever-increasing energy in hunting their prey. If a lion pride reaps a bonanza (like an elephant), they don’t turn around and immediately hunt for more elephants. They eat the bonanza and then sleep for days. For most of our history, humans probably did something similar. We harvested the energy we needed, and no more. If there was an excess supply of energy, we (like the lion) used it up with leisure time.

Then something changed. At some point in our history (probably when we started farming) humans started to behave differently. We invested excess energy into harvesting still more energy. This new behavior created a dramatic feedback loop that eventually led to industrial society.

Let’s think about how this feedback loop works, using the example of harvesting coal. Humans have mined coal for millennia. For most of this time, we used nothing but a pick. Even today, that’s how coal is mined in some parts of the world. It’s a back-breaking task filled with danger.

A coal miner in Punjab, India. Source: Reuters

Let’s think about this coal mining in energetic terms. When we mine by hand, we’re using our bodies to convert food energy into work. In return, we get energy from coal. Note that the two types of energy come in different forms (food and coal). Since it’s hard to use coal to grow more food, there’s a limit to how much coal we can mine by hand. (If everyone mines coal, no one can grow food.)

The solution to this problem is to use coal power to mine coal. This sets the feedback loop free. We mine coal and then convert it into electricity (or, in the earlier days, convert it into steam power). Then we use this electricity to harvest more coal. By the earlier 20th century, many coal miners were no longer using picks. Instead, they used pneumatic drills like the one below. They were using fossil-fuel power to harvest more fossil fuels.


A coal miner with a pneumatic drill. Source: Maria’s Rhetoric and Civic Life Blog.

Modern coal miners have taken this process to a monumental scale. They don’t even bother with hand-held tools. Instead, they use giant excavators to mine coal on a scale that is hard to fathom. Here, for instance, is an excavator in a German coal mine. Each bucket on the extraction wheel is the size of a car.


An excavator at the Garzweiler coal mine in Germany. Source: pixabay

On the surface, this feedback loop appears as changing technology. The imagery above makes that clear. But under the hood, the feedback loop is fundamentally about energy. We are using ever increasing quantities of energy to harvest still more energy.

Let’s have a look at this energy feedback loop in quantitative terms. We’ll compare the energy harvested by the energy sector to the energy used by this sector. Figure 4 shows such a comparison in the US oil and gas sector. The blue curve shows the energy harvested per worker in the oil and gas sector. The red curve shows the energy consumed per worker in this sector. As expected, the correlation is tight. The only way to harvest more energy is to use more energy.

Figure 4: Using energy to harvest energy in the US oil and gas sector. For data sources, see notes.

A side note about history. Figure 4 vividly shows the impact of the 1970s oil crisis — the confluence of two different events. First, US oil production peaked in 1970. Second, in the 1970s the oil cartel OPEC limited the export of oil to the United States. Because of both of these factors, the price of oil rose rapidly. In response, exploration for oil exploded. Thousands of people pored into the energy sector hoping to earn a wildcat windfall. But little new oil was found, and so the energy harvested per worker declined. When the price of oil eventually fell (in the 1980s) people stopped wildcatting. The production of oil, however, remained roughly constant. So the oil harvested per worker increased. (Since 2010, thanks to the exploitation of shale reserves, US oil extraction has exploded. I’d like to plot this trend, but my data for oil-and-gas-sector energy use ends in 2007.)

The US oil and gas sector is hardly alone in using energy to harvest energy. We expect this linkage in all societies. Looking at European countries (Figure 5), we see similar behavior. The energy harvested by the energy sector is tightly linked to the energy used by this sector.

Figure 5: Using energy to harvest energy in European countries. The x-axis shows the energy used by the energy sector (per labor hour) in various EU countries. The y-axis shows the energy harvested (per labor hour) by the same sector. For data sources, see notes.

The scale of energy flow

Most of us (myself included) don’t appreciate the magnitude of our fossil fuel habit. To put the scale of fossil fuel exploitation in perspective, it’s helpful to compare it to something we’re more familiar with — food. Let’s convert the energy harvested by an industrial nation into the energy equivalent in corn. We’ll use Norway as our example.

Norway’s energy sector harvests about 100 billion joules of energy for every person-hour. That’s equivalent to harvesting 27 metric tonnes of corn for every hour worked. Think about that — nearly 30 tonnes of corn for every hour of work.

How much corn is this? It’s about 4000 times more corn per labor hour than pre-industrial farmers could harvest. And it’s about 30 times more corn per hour than modern industrial farmers can harvest. (See my calculations here.) This is the potency of fossil fuels.

We cannot do without natural resources

The physicist Arthur Eddington once remarked: “if your theory is found to be against the [laws] of thermodynamics I can give you no hope; there is nothing for it but to collapse in deepest humiliation.” Neoclassical economics profoundly contradicts these laws. Yet sadly, we’re still awaiting its humiliating collapse.

Neoclassical economics is founded on an embarrassing error. It assumes that income indicates contribution to production. For a century, this error has led economists to conclude that natural resources are unimportant. They see that the natural resource sector earns a tiny fraction of all income. And so they infer that we could get rid of this activity and still retain the vast majority of ‘economic output’.

Unfortunately, the real world doesn’t work like that. Income doesn’t tell us about the importance of resource flows. It never has and it never will. As long as we think that it does, we’re headed down a dangerous path. Let’s not let the delusions of neoclassical economics seal our fate. The planet deserves better.

Notes

Agriculture share of US national income:

  • 1839–1899: Historical Statistics of the United States Bicentennial Edition, Table F238-249
  • 1900–1928: Historical Statistics of the United States Bicentennial Edition, Table F250-261
  • 1929–present: Bureau of Economic Analysis Tables 6.1A–D. (Table 6.1A isn’t available online. You can get it here).

Labor productivity of US agriculture is from Historical Statistics of the United States Millenial Edition, Table Da1143-1171.

US price of electricity

  • 1902–2000: Historical Statistics of the United States Millenial Edition, Table Db235 (residential electricity)
  • 2001–present: Bureau of Labor Statistics, CPI series CUSR0000SEHF01

US production worker wages are from MeasuringWorth.com

US oil and gas energy production is from:

  • 1919–1948: Historical Statistics of the United States Millenial Edition, Table Db155-163.
  • 1949–present: Energy Information Agency Table 1.2

Energy consumption by the US oil and gas sector is from Guilford et al. 2007, Table 6 (direct energy use).

US oil and gas employment is from:

  • 1919: Census of Mineral Industries 1958, Table 1
  • 1929–present: Bureau of Economic Analysis Tables 6.8A–D, persons engaged in production. (Note that Table 6.8D is discontinuous with 6.8A–C because of the transition from SIC to NAICS classification. I splice 6.8D by indexing it to 6.8C.

Eurozone energy production and consumption (by the energy sector) is from the Eurostat energy balance tables. Eurozone labor hours are from Eurostat table nama_10_a64_e.

Calculations

Corn has about 90 kilocalories of energy per 100g. There are 4184 joules in a kilocalorie, giving 376,560 joules per 100 g of corn. That’s 3765.6 joules per gram.

Norway’s energy sector produces about 100 GJ of energy per labor hour. That’s 100 billion joules. Translating to corn, we divide 100 billion joules by 3765.6 joules per gram. That gives 2,6556,193 grams, which is about 27 metric tons. So for every hour of work, a Norwegian energy-sector worker produces (transforms) the energy equivalent of 27 tonnes of corn.

Let’s compare that to the corn produced by US farmers. In 1800, it took US farmers about 344 hours (on average) to produce 100 bushels of corn. A bushel of corn is roughly 25 kg. So pre-industrial US farmers produced about 7 kg of corn per hour — 0.007 tonnes. In contrast, it takes modern US farmers about 3 hours to produce 100 bushels of corn. That translates to about 0.8 tonnes per hour.

Further reading

Chaisson, E. (2002). Cosmic evolution: The rise of complexity in nature. Cambridge, Mass.: Harvard University Press.

Fix, B. (2015). Rethinking economic growth theory from a biophysical perspective. New York: Springer.

Guilford, M. C., Hall, C., O’Connor, P., & Cleveland, C. (2011). A new long term assessment of energy return on investment (EROI ) for US oil and gas discovery and production. Sustainability, 3(10), 1866–1887.

Hall, C., & Klitgaard, K. (2012). Energy and the wealth of nations: Understanding the biophysical economy. New York: Springer.

Nitzan, J., & Bichler, S. (2009). Capital as power: A study of order and creorder. New York: Routledge.

Nordhaus, W. D., & Tobin, J. (1973). Is growth obsolete? In The measurement of economic and social performance (pp. 509–564). Nber.

Solow, R. M. (1974). The economics of resources or the resources of economics. The American Economic Review, 64(2), 1–14.

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Social Justice in the Steady State

Published by Anonymous (not verified) on Thu, 18/06/2020 - 3:07am in

By Brian Snyder

It is a luxury to be able to worry about future generations, biodiversity loss, or climate change, and it is only available to me because of a great deal of privilege. I don’t have to worry about affording food for my family, or finding a safe place to live, and I’m confident that my kids will inherit much of the same bourgeois life that I did. My privilege frees me to think, worry, and write about the environment, energy, and economic growth. However, in all this self-important thinking about the Anthropocene, it can be easy to forget that the USA, and the rest of the world, is already in severe political and environmental danger. It is easy to forget that the hellscape I worry about future generations inheriting is not dissimilar from the daily experience of billions of people currently living on Earth.

Sustainability Venn diagram

It’s time to rethink the sustainability Venn diagram. How do we ensure that social justice is not viewed as a third wheel? (Image: CC BY-SA 3.0, Credit: Sustainability Hub)

This critique about environmental concern—that it ignores the suffering of the present to replicate a prosperous life for the wealthy—is not new. However, the protests convulsing American cities should be a wakeup call for folks like me who tend to be more concerned about long-term sustainability than short-term justice. There are morally compelling issues of injustice happening right now, and any solution we propose to address long-term ecological crises must explicitly address these immediate issues as well.

Just as this critique of environmentalism isn’t new, neither is the observation that “sustainable” solutions must be socially just. Indeed, this linkage is often expressed as a Venn diagram of overlapping “social,” “environmental,” and “economic” circles. In my experience, those of us concerned about sustainability tend to focus on the economic and the environmental and minimize the importance of the social. The social circle is often seen as sort of a third wheel, something we should be mindful of, a side effect of a well-designed policy perhaps, but not the goal of sustainability. It feels tacked on.

No Sustainability Without Social Justice

However, building a socially just society is every bit as critical to sustainability as maintaining natural capital or ending overconsumption. A sustainable system requires social justice, but not just because it is in the Venn diagram. Without a socially just system of government and equitable treatment across race, gender, and class, we will not have a stable, sustainable socioeconomic system.


Black Lives Matter demonstrations are subtly congruent with advancing the steady state economy. (Image: CC BY 2.0, Credit: Fibonacci Blue)

Imagine a steady state economy, but one in which some people are born into generational poverty or otherwise unable to provide meaningful, healthy lives for themselves. In such a world, this hereditary underclass will oppose the sociopolitical system and the policies that limit economic growth. From their perspective, the planet may be sustainable, but they remain impoverished and marginalized. Such an economic system will fail due to internal strife.

Thus, we should see the current protests for criminal justice and police reform as a core component of the movement toward a steady state economy because social justice is a prerequisite of sustainability. A common protest sign reads, “No Justice, No Peace.” We could modify that to read, “No Justice, No Sustainability,” and it would remain true. If we cannot figure out how to end racial discrimination, and particularly racial economic inequality, we will not build a sustainable environment.

In other words, the Venn diagram concept of sustainability is short-sighted. There are not three separate but overlapping circles of social, economic, and environmental solutions, but a single circle in which social justice, economic efficiency, and environmental sustainability must be simultaneously solved.

Or perhaps sustainability is more like a Rubik’s cube. In a Rubik’s cube, if one side is wrong, the problem is not solved. Sustainability is likewise; if one systemic issue is not solved, nothing is solved. A steady state economy in a racist society is as useless as a half-solved Rubik’s cube.

Rubik's cube

The steady state economy as a Rubik’s cube. All sides must be solved to achieve equality and sustainability. (Image: CC0 1.0, Source)

This is both good and bad news. It is bad news because those of us who are concerned about environmental sustainability must consider another universe of problems when one universe is already overwhelming. But it is also good news because it highlights the systemic, ethical nature of the problem. Perhaps getting the ethics right will solve problems in each universe.

We often get the impression from media and academics that we are just an innovation away from solving our environmental problems. Sometimes, we are told that if we increase renewable energy use our struggles will fade away; other times, carbon dioxide removal or geoengineering is the solution. While I do not intend to denigrate those ideas, they will not fix systemic environmental problems caused by economic activity and human greed. A new invention will not change the 2nd law of thermodynamics, but a new ethical framework might change our avarice.

Our allies protesting for social and racial justice have a similarly daunting ethical problem. It appears that our ethnocentrism and xenophobia is as hard-wired as our greed. While criminal justice reform is needed, public policy will not solve millennia of racism and xenophobia. Only a cultural and ethical change can move society toward a post-racist future. As in our environmental crises, there is no easy fix.

 

Sustainability, Social Justice, and the Golden Rule

Yet, because our environmental and social problems are fundamentally ethical and cultural, the good news is that fixing one will likely fix the other. Any coherent ethical philosophy that favors social and racial justice will also favor sustainability and vice versa. This occurs because social justice and sustainability are applications of the Golden Rule, the precept in every major world religion that one should treat others as they would like to be treated. Social justice is based on the idea that societies and governments are responsible for following the Golden Rule, and sustainability is simply the application of the Golden Rule to future generations. Thus, a socially just society is one that treats its current citizens by the Golden Rule, and a sustainable society is one that treats its current and future inhabitants by the Golden Rule. As a result, if we move toward a more socially just society that implements the Golden Rule across its contemporary population, we are likely to pursue a more sustainable society that expresses the same ethic to its future population.

Perhaps we should see the protests for social and racial justice as the start of a movement that may be more significant than ending police brutality. The extraordinary progress toward sustainability made in the 1960s and early 1970s did not begin with the publication of Silent Spring or the Cuyahoga River fires. Instead, it emerged from the unrest and uprising of the civil rights and anti-war movements. Without those larger social movements to galvanize and educate people, elect new leaders, and, most importantly, change the ethics of American society, we may never have passed the Clean Air or Clean Water Acts. We might imagine that something similar could happen half-a-century later, and as we solve one side of our Rubik’s cube, the other sides will fall into place too.

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

The post Social Justice in the Steady State appeared first on Center for the Advancement of the Steady State Economy.


Terrestrial and Solar Resources in a Steady State Economy

Published by Anonymous (not verified) on Fri, 12/06/2020 - 1:42am in

By Herman Daly

Let us consider a different slant on the current discussion about the necessity versus sufficiency of renewable energy for a steady state economy at the present physical scale.

Pursuant to the pioneering economics of Nicholas Georgescu-Roegen (G-R), we recognize two sources of the low-entropy flow that sustains our lives: the solar and the terrestrial. They differ in their pattern of scarcity. The solar energy source is practically infinite in its stock dimension, but finite and dispersed (yet abundant) in its flow rate of arrival to earth. The terrestrial source of low-entropy matter-energy consists of concentrated deposits of minerals in the earth’s crust, including fossil fuels which are ancient solar energy accumulated over billions of years.

 


“Low entropy” means highly concentrated, in the case of energy, and highly ordered in the case of materials. Low-entropy resources such as timber, steel, and refined oils are more valuable and useful than high-entropy resources such as sawdust, rusted metals, and crude oil. (Highest entropy is pollution or, more philosophically, physical chaos.) (Image: CC BY 3.0, Credit: Ibrahim Dincer and Yunus A. Cengel)

 

Terrestrial low entropy is limited in its stock dimension, but can be used up at a flow rate of our own choosing. We cannot mine the sun to use tomorrow’s solar energy today, we must wait for it to arrive tomorrow. We can, however, mine and use up today the accumulated solar energy of Paleolithic summers, and have chosen to use it rapidly, at least during the past two centuries. We have thereby become more dependent on the scarcer terrestrial source, rather than the abundant solar source, than we were in pre-industrial times. We prefer the terrestrial source because it is already here and already concentrated—and we are impatient to use it to grow. We, especially economists, think that thanks to growth the future will be richer than the present, and, therefore, the (growth-inflicted) costs of depletion and pollution will be easier to bear.

Solar energy is abundant and renewed every day. To capture its flow requires extended space covered by a “net” made out of highly structured materials. These structures wear out over time and need maintenance, as well as replacement, and of course require initial construction. These needs must be largely met out of our diminishing terrestrial stock of low-entropy matter-energy. Current sunlight and terrestrial material collectors are complementary factors. The one in short supply is therefore limiting. The limiting factor is terrestrial low-entropy, concentrated materials in the earth’s crust, including fossil fuels. To see how useless abundant solar energy would be without material structures capable of capturing it, one need only look at the barren moon, or Mars, etc.

Prudential Use of the Limiting Factor

The economic question then is, how best to use the limiting factor? We should focus our attention on how to allocate our scarce dowry of terrestrial low entropy. We have two general alternatives. We can consume it directly in building cruise ships, jetliners, rockets, and Cadillacs—or we can invest it in structures that tap into our more abundant solar source of low entropy. We collect solar energy in two basic ways. The first way is indirectly through the photosynthesis of plants in agriculture, forestry, ranching, hunting, fishing, etc. Other species concentrate, to our benefit, the solar energy captured in the process of photosynthesis. And we exploit their population growth, either by taking only a renewable yield or by extinguishing the entire population for our one-time greedy bonanza. The other way is by investing in direct solar collection by modern technologies such as photovoltaics (PV) and concentrating solar-thermal power (CSP).

Cadillac

Producing a Cadillac comes at the cost of future human lives. (Image: CC BY-SA 3.0 DE, Credit: M 93)

Our human lives require the conversion of incoming solar energy by photosynthesizing plants and thenceforth other species at lower trophic levels into food and fiber above their own maintenance requirements. Given sufficient bounty from these other species, we can then invest resources beyond our own mere maintenance. Investing terrestrial low entropy in a plow, for example, increases our ability to tap incoming sunlight for vital purposes. Investing in a Cadillac, on the other hand, is not a vital purpose but rather a luxury expenditure of our limiting factor. This led G-R to a rather dramatic conclusion: The upshot is clear. Every time we produce a Cadillac, we irrevocably destroy an amount of low entropy that could otherwise be used for producing a plow or a spade. In other words, every time we produce a Cadillac, we do it at the cost of decreasing the number of human lives in the future.”[i]

It seems that in spending our limiting factor we face a tradeoff. Spending it on present luxury has the opportunity cost of fewer lives in the future (fewer plows, less sunlight captured, less food, fewer people). Saving it for future plows has the opportunity cost of less luxury in the present. This basic tradeoff exists regardless of how efficient the solar collectors may be.

No Wealth But Life

John Ruskin

“There is no wealth but life. Life, including all its powers of love, of joy, and of admiration. That country is the richest which nourishes the greatest number of noble and happy human beings.” –John Ruskin
(Image: CC0 1.0, Credit: William Downey)

G-R’s argument was anticipated by Henry David Thoreau’s oft-quoted insight that “the cost of a thing is the amount of what I will call life which is required to be exchanged for it, immediately or in the long run.” Or as John Ruskin put it more succinctly, “There is no wealth but life.” Life requires current sunlight, and the most vital use of accumulated Paleozoic sunlight is to build or preserve material structures capable of increasing our ability to capture current sunlight.

The realization that the cost of present luxury is foregone future lives is dramatic and sobering. However, life with zero luxury at a mere basic subsistence may not offer much enjoyment, and reasonable people are certainly not willing to live that way. Yet extravagant luxury and gross inequality become less tolerable when the same reasonable people recognize the opportunity cost in terms of “good life” foregone. So, we are forced to ponder a big question posed by G-R: “Is it not true that mankind’s problem is to economize S (a stock) for as large an amount of life as possible, which implies to minimize sj (a flow) for some ‘good life’?”[ii]

Or, to put it more simply, should we not strive to maximize cumulative lives ever to be lived over time by depleting terrestrial low-entropy stocks at a rate that is low but sufficient for a “good life”? There is no point in maximizing years lived in misery, so the qualification “for a good life” is important.

I have always thought that G-R should have put that question in bold in the text rather than hiding it in a footnote. True enough, eventually the terrestrial stocks will be gone, even as the sun continues to shine. Mankind will revert to what G-R called “a berry-picking economy” until the sun burns out—if not driven to extinction sooner by some other event, as seems increasingly likely.[iii] But in the meantime, striving for a steady state with a rate of resource use sufficient for a good (not luxurious) life, and sustainable for a long (not infinite) future, seems to me a worthy goal. It’s a goal of maximizing the cumulative life satisfaction possible under finite and depleting terrestrial resource constraints.

Key Questions for Citizens and Policy Makers

G-R’s big question raises a number of others that get more pressing by the year as GDP pushes upward to the unsustainable brink:

  • How much resource use per capita is sufficient for a good life?
  • How do we ensure that everyone gets that amount?
  • How large a population can a viable technology support at that standard of consumption without excessively sacrificing carrying capacity and future life?
  • How much of the scarce terrestrial stock of low entropy can be economically invested in further tapping the abundant solar flow? In other words, do proposed direct solar technologies have an EROI greater than one?
  • Is indirect or direct collection of solar energy a more economic investment at the present margin (i.e., more reforestation and conservation of ecosystems, or more PV and CSP)?

These questions have not been central to modern growthist economics—indeed, not even peripheral! That is why steady-state economics puts them front and center, even into proposed legislation such as the Full and Sustainable Employment Act (pursuant to which the cabinet-level Commission on Economic Sustainability would grapple with such questions). In a steady state economy, technology is encouraged to increase the quality of life but not the quantity we know as GDP, the growth of which entails more population, consumption, and throughput of low-entropy resources.

The debate about net energy yields of direct solar capture is important, although difficult to resolve by calculation because of hard-to-define boundary conditions. Does the energy cost of a solar collector include the energy expended in mining the materials? Out of today’s mines or tomorrow’s depleted mines? In transporting the materials? Do we count the energy used to produce the products consumed by the miners? By the miners’ families? By the engineers who never set foot in the mine but design the process? By the teachers who trained the engineers and the miners? By the bankers and lawyers who finance the mine’s operation? Etc.

Yet the problem is resolvable by experiment, if not by calculation. Moreover, the experiment is also a very reasonable economic policy: Raise the price of the limiting factor by a stiff carbon severance tax (or preferably a strict cap-auction-trade system on carbon extraction) and redistribute the revenue progressively. Then, if a technology uses a greater integrated sum of fossil fuels (terrestrial low entropy) than it replaces or saves, it will be more expensive and selected against. If on the other hand it saves or replaces more than it uses it will be less expensive and selected for.

More efficient technologies for using terrestrial resources—including for the purpose of capturing the solar flow—increase the range of feasible answers to the tradeoffs identified by G-R’s analysis, but his fundamental questions are economic and ethical, and remain central regardless of technical efficiency. In policy, sequence matters: “limits first” induces “efficiency second.” Putting efficiency first makes limits less pressing and encourages continuing temporarily along the stupidly happy growth path to depletion, pollution, and collapse.

[i] Georgescu-Roegen, N. 1976. Energy and Economic Myths: Institutional and Analytical Economic Essays. Pergamon, New York. See page 59.

[ii] Georgescu-Roegen, N. 1975. Energy and economic myths. Southern Economic Journal 41:(3), 347-381. See in particular page 368.

[iii] Georgescu-Roegen, N. 2011. “Energy and economic myths.” From Bioeconomics to Degrowth: Georgescu-Roegen’s ‘New Economics’ in Eight Essays, Edited by M. Bonaiuti. Routledge, New York.

Herman DalyHerman Daly is CASSE Chief Economist, Professor Emeritus (University of Maryland), and past World Bank senior economist.

The post Terrestrial and Solar Resources in a Steady State Economy appeared first on Center for the Advancement of the Steady State Economy.


Economic Growth Theory … Bah Humbug!

Published by Anonymous (not verified) on Wed, 10/06/2020 - 8:00pm in

I’ve written a lot on this blog about the absurdity of marginal productivity theory. But I haven’t said much about the other pillar of mainstream economics: neoclassical growth theory. Today I’ll break that silence.

Neoclassical growth theory is a textbook example of Murphy’s law. Everything that could go wrong with the theory did go wrong. From conceptual foundation to application to interpretation, neoclassical growth theory is a lesson in how not to do science.

I’ve compiled here a list of neoclassical growth theory’s failures. Each one of them is, in my opinion, fatal. Yet none of them has stopped neoclassical economists from applying their theory to the real world.

Failure 1: A flawed foundation

Neoclassical economics assumes that we can separate society into different ‘factors of production’. This thinking dates back to the origin of political economy itself. The field arose in the 18th century to explain the distribution of income between classes. Here’s how David Ricardo put it:

The produce of the earth … is divided among three classes of the community; namely, the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated.

… To determine the laws which regulate this distribution, is the principal problem in Political Economy.

In attempting to solve Ricardo’s ‘principal problem’, political economists made three foundational mistakes. They assumed that:

  1. Wealth is ‘produced’. (It’s not.)
  2. Social classes represent different ‘factors of production’. (They don’t.)
  3. Wealth production can be attributed to one or more of these ‘factors of production’. (It can’t.)

Once these (false) conceptual foundations were set, the fight became about which factors of production were ‘productive’. The physiocrats (most famously, François Quesnay) thought that land was the source of all value. Classical political economists like Adam Smith, David Ricardo and Karl Marx argued that labor was the source of value. Neoclassical economists like John Bates Clark and Philip Henry Wicksteed added capital to the list of value producers.

The debate about the ‘source’ of value is long, bitter, and largely fruitless. The problem is simple: value has no source. It’s a cultural construct. So it’s impossible to tie value to ‘production’.

That’s the short summary of the problem. The longer summary is that political economists conflated two distinct processes: (1) resource exploitation; and (2) resource distribution. Looking at resource exploitation, political economists saw ‘wealth production’. That was a mistake. Resources aren’t produced. They’re transformed. And this transformation has nothing to do with ‘value’, as humans understand it. Yes, different factions of society are able to demand prices for various resources. But the prices are invented, not ‘produced’. They are a way of organizing the distribution of resources. Prices have nothing to say about the quantity of resource flows (and vice versa).

The easiest way to see the problem is to look outside our own myopia. Humans do the same thing as every other living organism. We transform matter and energy into forms that are useful to us. Attributing this process to a ‘factor of production’ is like attributing an animal’s metabolism to one or more of its organs.

Ask yourself these questions: What portion of a cow’s metabolism is ‘produced’ by the digestive tract? What portion is ‘produced’ by the heart? By the brain? By the hooves?

These questions have no answer because they are conceptually flawed. Organisms function collectively to harvest resources. So it’s meaningless to attribute metabolism to any one organ. The same goes for human societies.

Let’s take the metaphor a step further. Within organisms, we might think of hormones as the equivalent of prices. They convey information that then influences the behavior of different components of the organism. Releasing adrenaline, for instance, takes resources away from the digestive tract and sends them to the skeletal muscles.

Now imagine we analyzed an organism’s body the same way that political economists analyze society. We see that adrenaline influences how resources are distributed within the organism. We then trace the synthesis of adrenaline to the adrenal glands. Aha! We surmise that metabolism is ‘produced’ by this gland. We’ve found our ‘factor of production’!

If this operation seems foolish, that’s because it is. It’s foolish when applied to organisms. And it’s foolish when applied to human societies. Value is not ‘produced’. And there are no ‘factors of production’.

Failure 2: The one-commodity world

Modern humans consume a dizzying variety of commodities. Not so in neoclassical theory. Dating back to the work of John Bates Clark, neoclassical theory assumes that human societies produce a single commodity.

Why adopt such a bizarre assumption? Because it’s required for neoclassical theory to be logically consistent. According to marginal productivity theory, each factor of production earns its (marginal) product. The problem is that to compare the productivity of different individuals (or groups), everyone must produce the same thing.

In the real world, this condition is never met. So when John Bates Clark formulated marginal productivity theory, he should have concluded that his theory had no foundation. It required a single-commodity world — a world that does not exist. So the theory was a dead end.

That’s not, however, what Clark concluded. Instead, he forged ahead with a theory that said nothing about the real world. He assumed that everyone produced and consumed a single commodity. Then he ‘proved’ that in this fictitious world, everyone earned their (marginal) product.

Neoclassical growth theory continues this dubious tradition. It assumes that there is a single commodity that serves as both capital and output. As with marginal productivity, this bizarre assumption is a requirement for neoclassical growth theory to be logically consistent. If there is more than one commodity, the quantity of both capital and output becomes ambiguous, and the theory falls apart [1]. The consequence is that neoclassical growth theory says nothing about the real world.

Failure 3: Unmeasurable components

When economists move from the imaginary world of a single commodity to the real world of many commodities, they encounter a problem. The components of their theory — the quantity of capital and the quantity of output — become ambiguous.

This problem was pointed out in the 1950s in a debate now called the ‘Cambridge capital controversy’. Economists Paul Samuelson and Robert Solow, hailing from Cambridge, Massachusetts, forged ahead with neoclassical growth theory. Continuing in the tradition of John Bates Clark, they developed their theory by assuming a single-commodity world. Then they applied this theory to the many-commodity world. The trick to doing so, they argued, was to aggregate all commodities into a single stock. Then you could treat this stock (they claimed) as consisting of a single commodity.

Economists Joan Robinson and Piero Sraffa, hailing from Cambridge, UK, saw through the trick. They pointed out that the capital stock couldn’t be aggregated objectively. (Curiously, they didn’t say the same thing about economic output, even though identical reasoning applies). The capital stock, they noted, was composed of different commodities that had no common ‘natural’ unit. This fact made aggregation ambiguous — it depended on the particular choice of dimension. Worse still, neoclassical economists used prices as their dimension of aggregation. This made the whole operation circular. Neoclassical theory was supposed to explain income as an outcome of productivity. But economists tested their theory by using income to measure productivity.

The critique raised by Robinson and Sraffa is, in my opinion, unassailable. The aggregation of many commodities is always subjective, depending on the particular choices made by the analyst. (I explore this issue in detail here.)

How did neoclassical economists respond to the Cambridge (UK) critique? Mostly by ignoring it. As an example, take Gregory Mankiw’s textbook Principles of Macroeconomics. Used to train a generation of economists, the textbook simply ignores the Cambridge capital controversy — as if it never happened.

Failure 4: A failed prediction becomes a ‘discovery’

Neoclassical theory proposes that capital and labor are the two ‘factors of production’. Logically, then, it follows that the growth of economic output should stem from the growth of capital and labor inputs.

Let’s put aside, for the moment, the (insurmountable) problems with measuring the growth of capital and the growth of output. Even though the foundations are dubious, economists forged ahead with growth accounting. And still they ran into a problem. The growth of capital and labor, they found, could not explain the growth of ‘output’ (as it was officially measured). Output grew far more than predicted by the growth of capital and labor alone.

The response to this failure was instructive. Instead of seeing this result for what it was — a failed prediction — economists claimed it as a discovery. This trick was first proposed by Robert Solow. He postulated that the growth residual (the portion of economic growth that was unexplained by neoclassical theory) was actually a measurement of ‘technical progress’. With this postulate, Solow invented the field of growth accounting. Economists could now ‘measure’ the growth of technical progress! And so they did. Today, if you google ‘total factor productivity’ (economists’ term for their measurement of technological progress), you’ll get some 3.5 million results.

Despite the ubiquity of growth accounting, economists seem to forget that there’s trouble underneath the hood. Their ‘measurement’ of technological progress is nothing of the sort. It’s actually a failed prediction that is turned into a ‘discovery’. The reality is that neoclassical economists have never measured technical progress. They have measured their own ignorance. [2]

Failure 5: The accounting identity

Despite the failures of neoclassical growth theory, economists cling to their model. One reason they do so is because they claim that the model ‘works’. By this, economists mean that neoclassical growth theory gives results that are consistent with marginal productivity theory.

Let’s unpack this claim. According to neoclassical growth theory, the growth of output is caused by the growth of capital and labor inputs. Economists postulate that there exists a ‘production function’ that relates output to these inputs. Importantly, this production function must be consistent with marginal productivity theory. That is, it must show that both workers and capitalists earn their marginal product.

The convention, in neoclassical economics, is to assume a ‘Cobb-Douglas’ production function. This is an equation named after the economists who first proposed it (Charles Cobb and Paul Douglas). The equation looks like this:

Y = A L^{\beta} K ^{\alpha}

Here Y is economic output, L is labor input, and K is the capital stock. The parameter A was initially assumed to be a constant. Later, however, it came to represent the growth of technological progress.

Let’s talk about the exponents α and β. In the Cobb-Douglas equation, these exponents are free parameters, determined by regressions on real-world data. But if neoclassical theory is correct, these exponents have a special meaning. They should represent each factor’s share of income: α is capital’s share of income; β is labor’s share.

When economists started using the Cobb-Douglas equation, they found that their results supported marginal productivity theory. When they regressed this equation onto empirical data, the fitted values for α and β almost always summed to one — just as they should if they represented each factor’s share of income. Moreover, the fitted value for β was close to labor’s share of income. This seemed to confirm marginal productivity theory.

Writing in 1963, A. A. Walters celebrated this success. The Cobb-Douglas equation seemed to ‘work’, he noted, in two ways:

First, the sum of the coefficients usually approximates closely to unity. The linearity of the production function seems to be a remarkably consistent finding between one country and another. The second important result is the agreement between the labour exponent and the share of wages in the value of output. These two findings have been interpreted as confirmation that the aggregate production function has constant returns to scale and that the marginal productivity of labour is equal to the wage rate.

Despite the many problems in their theory, neoclassical economists clung to this success. Their theory ‘worked’.

The trouble was, the Cobb-Douglas function ‘worked’ even when it shouldn’t. This startling fact was discovered in 1971 by Franklin Fisher. He had created a simulation in which the Cobb-Douglas production function shouldn’t work. The simulation consisted of many different firms, each of which had its own production function. Fisher purposefully designed the model so that the conditions for an aggregate production function were not met. (These conditions, Fisher noted, were “far too stringent to be believable”.)

Now comes the interesting part. Fisher found that he could still fit his simulated economy with an aggregate Cobb-Douglas function. All that was needed for a successful fit, Fisher discovered, was that labor’s share of income be roughly constant over time. This suggested that something strange was going on. Neoclassical growth theory seemed to ‘work’ even when it shouldn’t. How could this be?

In 1974, Anwar Shaikh found the answer. He showed that when labor’s share of income was constant, the Cobb-Douglas function ‘worked’ because it was a tautology. It was a rearrangement of a national accounting identity. To show this fact, Shaikh noted that in the national accounts, national income (Y) is defined as the sum of labor and capitalist income:

Y = \text{labor income} + \text{capitalist income}

Labor income, in turn, equals the average wage w times labor hours L. And capital income equals the return on capital r times the value of the capitalist stock K. So national income is defined as:

Y = wL + rK

Shaikh showed that with a little algebra, you could rearrange this identity into the Cobb-Douglas equation. The term β in the Cobb-Douglas equation, Shaikh found, was algebraically equivalent to wL/Y — labor’s share of national income.

Shaikh’s discovery was an academic mic drop. The Cobb-Douglas equation ‘worked’ because it had to. It was a mathematical rearrangement of a national accounting identity — an equation that was true by definition. To illustrate the point, Shaikh successfully fit the Cobb-Douglas function to an economy who’s production traced the word ‘HUMBUG’. (See the cover image.)

How did neoclassical economists respond to this devastating discovery? Mostly by ignoring it. Again, take Gregory Mankiw’s macroeconomics textbook as an example. It contains 19 references to ‘accounting identities’. None of them is Shaikh’s identity.

The winners write history

What’s most frustrating to heterodox economists is not that neoclassical growth theory is irredeemably flawed. It’s okay for a theory to be wrong — that’s part of doing science. What’s infuriating is that neoclassical growth continues to be taught as if it had no problems. Search standard economics textbooks for a discussion of the problems reviewed here, and you’ll likely find nothing.

This blistering silence is a classic example of the winner writing history. Neoclassical economists dominate economics departments in universities, and so they can promulgate their vision without challenge. Neoclassical textbooks are massive lies — the equivalent of a European history book that omits colonialism.

Will the repeated failures of economic growth theory eventually make it into mainstream textbooks? Time will tell. But I’m not holding my breath.

Notes

[1] In deriving the neoclassical model of economic growth, Robert Solow tucked in a subtle admission. He needed a world with only one commodity so he could “speak unambiguously of the community’s real income”.

[2] I wish I had invented the term ‘measure of ignorance’. But Moses Abramovitz beat me to it. Writing in 1956 about the residual between the measured and predicted growth of output, he wrote: “this element may be taken to be some sort of measure of our ignorance about the causes of economic growth in the United States.”

[Cover image is from Anwar Shaikh’s paper Laws of Production and Laws of Algebra: The Humbug Production Function]

Further reading

Cohen, A. J., & Harcourt, G. C. (2003). Retrospectives: Whatever happened to the Cambridge capital theory controversies? Journal of Economic Perspectives, 17(1), 199–214.

Felipe, J., & Holz, C. A. (2001). Why do aggregate production functions work? Fisher’s simulations, Shaikh’s identity and some new results. International Review of Applied Economics, 15(3), 261–285.

Fisher, F. M. (1971). Aggregate production functions and the explanation of wages: A simulation experiment. The Review of Economics and Statistics, 53(4), 305–325.

Fix, B. (2015). Rethinking economic growth theory from a biophysical perspective. New York: Springer.

Fix, B. (2019). The aggregation problem: Implications for ecological and biophysical economics. BioPhysical Economics and Resource Quality, 4(1), 1.

Hodgson, G. M. (2005). The fate of the Cambridge capital controversy. In Capital controversy, post keynesian economics and the history of economic thought (pp. 112–125). Routledge.

McCombie, J. S. L. (2001). What does the aggregate production function show? Further thoughts on Solow’s “second thoughts on growth theory”. Journal of Post Keynesian Economics, 23(4), 589–615.

Robinson, J. (1953). The production function and the theory of capital. The Review of Economic Studies, 21(2), 81–106.

Shaikh, A. (1974). Laws of production and laws of algebra: The humbug production function. The Review of Economics and Statistics, 56(1), 115–120.

Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65–94.

Solow, R. M. (1957). Technical change and the aggregate production function. The Review of Economics and Statistics, 39(3), 312–320.

Sraffa, P. (1960). Production of commodities by means of commodities: Prelude to a critique of economic theory. London: Cambridge University Press.

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The Steady Stater Stance on Renewable Energy: A Clarification

Published by Anonymous (not verified) on Wed, 03/06/2020 - 2:14am in

By Brian Czech

Ever since my review of Michael Moore’s Planet of the Humans, some misunderstandings have come to light about the stance of myself, and by extension CASSE, on renewable energy. One such misunderstanding—spread far and wide—is that we are “against renewables.” A clarification is definitely in order.

CASSE and steady staters at large are all for renewable energy. Of course! Along with the steady state economy as the sustainable alternative to growth, renewable energy is the sustainable alternative to fossil fuels. What we oppose is the fallacious notion of “green growth” that has come to dominate pro-renewable political discourse. We also oppose the wholesale, automatic acceptance of any and every wind and solar project; not everything touted as “green” turns out to be ecologically economic. Along those lines, we certainly don’t support the liquidation of biomass stocks that otherwise provided crucial ecosystem services.

We also suggest putting the political horse before the technological cart. As I, Herman Daly, and Bill Rees have each pointed out independently, a sustainable shift to renewables must follow a conscious, intentional adoption of the steady state economy (entailing a phase of de-growth) as a policy goal. Otherwise, with the goal of economic growth ruling the policy arena, renewables and nuclear plants will be used to supplement rather than replace fossil fuels, and the resulting amount of destructive economic activity will only increase. Adding insult to injury, not only will the destruction on the ground increase, but greenhouse gas emissions as well!

renewable energy and nuclear power plant

As long as GDP growth is the goal, renewable energy will add to—not replace—fossil and nuclear plants. (Image: CC0, Source)

That said, a certain amount of respect is due those who are so passionate to save the planet that they’ll do just about anything, as soon as possible, for a transition to renewables. As with passionate people in other walks of life, they can be obsessive and zealous. It’s hard to blame them, because climate change is a current psychological threat as well as a mounting existential one. They lose sleep at night (well-documented especially in children) and develop ulcers over the relentless forcing of greenhouse gases into the precious atmosphere of our common home. They are ready to go to verbal war (and maybe more) with anyone who detracts—or who they think detracts—from the transition to renewable energy. They are in some ways heroic and tragic figures, as haunted by the fossil-fueled world as steady staters are by the pro-growth world.

Furthermore, some are doubly haunted. That is, they fully acknowledge the need for a steady state economy as well as renewable energy. Yet, not abiding the wisdom of Daly that “sequence matters,” their days are spent not in advancing the steady state economy but rather in developing renewable energy technology, designing renewable energy projects, or pushing politically for renewable energy. Maybe they hope that others will prevail in advancing the steady state economy, such that solar and wind actually replace rather than supplement fossil fuels.

The decision for any one person or organization about what to prioritize—advancing the steady state economy or advancing renewables—entails a number of factors. One such factor is the technical background of the individual. All else equal, someone whose expertise is primarily in renewable energy is better suited to advancing renewables. If the background is in ecological economics, then advancing the steady state economy is a better fit.

Another factor is age. A young renewable energy scholar who concludes that advancing the steady state economy is the first order of business may find it feasible to steer further academic and professional development toward advancing the steady state economy. An elder statesman of renewable energy may not.

As other factors come into play, almost all steady staters conduct a mix of advancing the steady state economy and renewable energy, but with a decided emphasis on the former. Indeed, it would seem to be the emphasis on advancing the steady state economy that makes one a “steady stater.”

Aside from one’s expertise and age, two other prioritization factors warrant a closer look. One is the marginal benefit of “steady statesmanship” vs. renewable energy action. Which offers the biggest bang for the buck? Another is an overlooked ecological footprint; we’ll follow it among the technological trees while remaining cognizant of the sustainability forest.

Biggest Bang for the Buck

How many people and organizations support renewable energy? Could we even stop counting? We could go on and on, starting with steady staters and moving into ever-widening circles of sustainability scholars, environmental activists, professional scientific societies, little environmental NGOs, big NGOs, and even many corporations, utilities, and politicians. Most importantly, it includes a substantial share of the general public, and even most nations!

Now, how many people and organizations support the steady state economy? Again we can start with the steady staters. Next, we can include a fair number of sustainability scholars and environmental activists, plus a tiny number of environmental NGOs and a handful of professional scientific societies. That’s about where it stops. So far we haven’t been able to get a Pew researcher, much less a Roper poll-taker, even interested in the steady state economy, so we have only a vague idea what the general public thinks. This is one of the main reasons we strive to obtain signatures on the CASSE position on economic growth; to demonstrate public support for the steady state economy, empowering NGOs to tell it like it is about limits to growth, and empowering politicians to support steady-state policies such as the Full Seas Act. While the current number of almost 15,000 signatories is nothing to sneeze at (especially given such notable signatories) it must be millions if not billions less than the number of people who support renewable energy.

So, if you are a student, scholar, activist, or philanthropist wondering which activity—advancing the steady state economy or promoting renewable energy—needs more help and offers a higher marginal benefit from your studies, scholarship, action, or philanthropy, consider the proportions above. Unless you believe in “green growth,” it should be more obvious by the GDP-bloated day that the bigger bang for the sustainability buck comes from advancing the steady state economy.

Technological Progress: The Forgotten Footprint

There is room for disagreement about how much additional, destructive GDP will transpire as renewable energy is added to the mix of fossil, nuclear, and (semi-renewable) hydrological sources. Clearly there will be additional destruction as long as GDP growth is the overriding domestic policy goal, but the destruction can be lessened to the extent that steady statesmanship prevails. Moderate success in steady statesmanship reduces the GDP growth rate. Full success is when the steady state economy is recognized as an a priori goal and deliberately accomplished with effective policies. With fully successful steady statesmanship, the ecological footprint from renewable energy may be offset by a reduced footprint from non-renewable energy. How will this happen, though, if advancing the steady state economy is the exercise of such a small minority?

Meanwhile, arriving at ever-higher proportions of renewable (as opposed to fossil) energy entails its own ecological footprint. This is an ecological footprint quite beyond that of the activities fueled by renewable energy. For starters, we have the obvious ecological and economic costs of retrofitting the fossil-fueled grid and the energy system at large. These costs includes the surveying, excavation, construction, and circuitry entailed in the development of wind and solar harvesting and delivery facilities. It also refers to the demolition of fossil-fueled plant and infrastructure, plus the disposal and replacement of fossil-fueled implements and appliances en masse. For example, approximately 40% of American homes have gas stoves, which means about 50 million stoves must be replaced or retrofitted in the USA alone to convert (on a one-to-one service basis) from fossil-fueled power to renewables.

Now let’s dig a level deeper. What about all the analyses, presentations, meetings, conferences, slideshows, websites, videos, magazines, community relations campaigns, planning, lobbying, negotiations, settlements, legislation, subsidies, loan assistance, bureaucratic reorganization, personnel management, tax reforms, and regulations that have been and must be devised and performed for purposes of moving the energy system toward renewables? These were, are, and by no means will be cheap. We might loosely call these “transaction costs.” Don’t take the wrong point from this; the transaction costs might be worth it, especially if the transactions are actually effective. The point, however, is that resources are required—energy and other natural resources—to fund all the transactive activity, because in our triangular economy money originates as a function of the agricultural and extractive surplus that frees the hands for the division of labor, all the way to presenting, meeting, conferencing, etc.

Every single expenditure, in other words, takes an ecological footprint. No such footprint can be overlooked if we want a thorough understanding of sustainability. This is why we consistently point out at CASSE that GDP is the single best indicator of environmental impact in the aggregate. Expenditure entails environmental impact. That’s Ecological Macroeconomics 101, trophic levels and all.

So, let’s go to a deeper level still. No one woke up one morning decades ago and said, “Let’s replace the fossil-fueled system with solar and wind. We already have all the technology to do it.” Instead—and as part of a bloating GDP—vast amounts of research and development had to be conducted in order to arrive at a point whereby wind and solar technology was capable of significant coverage of our energy needs, such as in oft-cited Germany. Vast amounts more are required to accomplish full powering of national and global economies, assuming that is even possible. “Full powering” means not just the electricity grid but transportation (including the manufacturing of the fleet), off-grid building management, and what Jeffrey Sachs calls the “hard sectors” such as aviation, ocean shipping, steelmaking, cement, and petrochemicals.

For almost a decade now, global investment in renewable energy has exceeded $200 billion annually; it now approaches $300 billion! This is higher than the GDPs of Greece, Iraq, or most African countries combined. In fact, less than a quarter of all nations on the planet have the dubious distinction of “achieving” the $300 billion level—and many will drop below it post-COVID.

National Renewable Energy Laboratory.jpg

National Renewable Energy Laboratory, Golden, CO. Excavation of the site is an obvious footprint. But what about the forgotten footprint? That is, how much agricultural and extractive surplus was required at the trophic base of the economy to generate the money required for planning, excavation, and construction? How much more agricultural and extractive activity is required on an ongoing basis to generate the money for conducting the research programs managed therein? (Credit: CC0, Image: Dennis Schroeder)

Now, much of the renewable energy technology availed to us via already-conducted R&D should of course be employed, especially if replacing fossil fuel plant and infrastructure. The ecological footprint of the R&D expenditure has already transpired. Why let it go to waste, assuming the transaction costs are not prohibitively destructive. But does anyone think that moving from, say, 40 percent renewable energy to 80 percent will be as easy as the original 40 percent? Not me. I expect diminishing returns to scale as the lowest-hanging thermodynamic fruits (such as Sonoran Desert sunlight) are picked and siting becomes ever more competitive—and ever more biodiversity-busting—in a bloated global economy. Therefore, I expect the R&D needs to increase substantially, and I’m not alone in this opinion. The International Renewable Energy Agency (IREA) says we need “accelerating research for a low-carbon future.”

On several major fronts, we’re nowhere near any kind of renewable solution. As the IREA describes, “For one-third of the world’s anticipated energy use in the coming 20-25 years, no practical decarbonisation solutions exist today. Nearly all of this relates to energy demand for end uses, such as buildings, heat and transport.” They conclude that R&D “needs to happen faster to make renewable solutions viable in these areas.” Not that they think we are out of the woods already with wind and solar technology for the grid, either. “The share of wind and solar photovoltaic (PV) in power systems can increase significantly to cover half of all generation by 2050. Effective integration of these variable sources will depend on accelerated innovation.” For additional insights on the extent, complexity, and expense of renewable energy R&D, check out what the US Department of Energy is up to, including a coupling of nuclear power to wind and solar in the name of “clean energy.”

I also expect the transaction costs to mount as the efforts required for full transition become more apparent to consumers, rate payers, utilities, and politicians. While I find it hard to appreciate pro-growth analyses that fail to acknowledge the profound perils of climate change, some are proficient at pointing out the conventional costs, at least, of transition to renewable energy. Note that they’re not even addressing the ecological costs of generating and expending money on R&D and transactive struggles.

So, when we recognize the ecological footprint of expenditure, we see renewable energy transition in a whole new light. It’s as if we were tracking in the forest, looking for “unsustainability varmints.” While we saw the typical tracks of well-known varmints such as fossil fuels, plastics, and Roundup, one ecological footprint was hard to spot; that is, the footprint of renewable energy transition. Now that we see it in light of the environmental impact of generating money to invest or in any way expend, the ecological footprint seems quite big! In fact, it’s been a bit like running into a dinosaur track. We didn’t see it because we weren’t looking for an outline so large, but there it is for the tracking.

What’s Next?

At the end of the day, those who are passionate about promoting renewable energy—especially those with expertise in the subject and a little late in the game for re-tooling a career—will continue emphasizing renewable energy. Hopefully more of them will start explicitly acknowledging the need for a steady state economy as well.

Degrowth protest

Renewable energy is an important alternative to fossil fuels. But if we are to establish renewable energy as a solution, then we must also pursue a steady state economy through degrowth. (Image: CC BY-SA 3.0 DE, Credit: Klimagerechtigkeit Leipzig)

That leaves a large number of younger students, scholars, professionals and activists to reconsider, if not their career path, then at least the emphasis of their activism. With a recognition of the prohibitive costs and heavy ecological footprint of a full-fledged transition to renewables, plus the coupling of renewable energy interests with the “green growth” paradigm, they may decide their time is better spent in advancing the steady state economy. Hopefully this personal decision-making is also reflected at the organizational level, starting with the emphases of environmental NGOs and foundations.

Coming full circle, yes, steady staters support renewable energy as the sustainable alternative to fossil fuels. Yet we cannot support the notion of “green growth,” and we’re not even convinced that a full-fledged transition to renewables at the currently sized global economy can be ecologically economic, all ecological footprints considered. On the other hand, we do realize that the fossil-fueled economy at the current level is an existential threat. The common theme here is the “current level” of the economy. The current level just doesn’t allow for sustainable options. Therefore, we conclude that the most salient emphasis to have at this time is the transition from the paradigm of economic growth to that of the steady state economy, via a phase of de-growth.

Brian Czech

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

The post The Steady Stater Stance on Renewable Energy: A Clarification appeared first on Center for the Advancement of the Steady State Economy.


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