ECONOMICS

ECONOMICS IN A FULL WORLD BY HERMAN E. DALY The global economy is now so large that society can no longer safely pretend it operates within a limitless ecosystem. Developing an economy that can be sustained within the finite biosphere requires new ways of thinking

Growth is widely thought to be the , producing “bads” panacea for all the major economic ills of faster than goods—making us poorer, not the modern world. Poverty? Just grow the richer [see box on page 103]. Once we economy (that is, increase the production pass the optimal scale, growth becomes of goods and services and spur consumer stupid in the short run and impossible to spending) and watch wealth trickle down. maintain in the long run. Evidence sug- Don’t try to redistribute wealth from rich gests that the U.S. may already have en- to poor, because that slows growth. Un- tered the uneconomic growth phase [see employment? Increase demand for goods box on page 105]. and services by lowering interest rates on Recognizing and avoiding uneconom- loans and stimulating investment, which ic growth are not easy. One problem is leads to more jobs as well as growth. that some people benefit from uneconom- Overpopulation? Just push economic ic growth and thus have no incentive for growth and rely on the resulting demo- change. In addition, our national accounts graphic transition to reduce birth rates, do not register the costs of growth for all as it did in the industrial nations during to see. the 20th century. Environmental degra- Humankind must make the transition dation? Trust in the environmental to a sustainable economy—one that takes Kuznets curve, an empirical relation pur- heed of the inherent biophysical limits of porting to show that with ongoing growth the global ecosystem so that it can con- in (GDP), pollu- tinue to operate long into the future. If we tion at first increases but then reaches a do not make that transition, we may be maximum and declines. cursed not just with uneconomic growth Relying on growth in this way might but with an ecological catastrophe that be fine if the global economy existed in a would sharply lower living standards. void, but it does not. Rather the economy is a subsystem of the finite biosphere that The Finite Biosphere supports it. When the economy’s expan- most contemporary economists sion encroaches too much on its sur- do not agree that the U.S. economy and rounding ecosystem, we will begin to sac- others are heading into uneconomic rifice (such as fish, miner- growth. They largely ignore the issue of als and fossil fuels) that is worth more and trust that because we MAN-MADE OBJECTS are crowding out the than the man-made capital (such as roads, have come so far with growth, we can environment. Ways of thinking about the factories and appliances) added by the keep on going ad infinitum. Yet concern economy that worked well in an empty world

growth. We will then have what I call un- for sustainability has a long history, dat- no longer suffice in such a full world. JONATHAN MILNE, REPRESENTED BY WWW.FOLIOART.CO.UK

100 SCIENTIFIC AMERICAN SEPTEMBER 2005 TOPIC C REDI T

www.sciam.com SCIENTIFIC AMERICAN 101 ing back to 1848 and John Stuart Mill’s famous chapter “Of the Stationary State,” a situation that Mill, unlike other classi- cal economists, welcomed. The modern- day approach stems from work in the 1960s and 1970s by Kenneth Boulding, Ernst Schumacher and Nicholas Georges- cu-Roegen. This tradition is carried on by those known as ecological economists, such as myself, and to some extent by the subdivisions of mainstream economics called resource and environmental eco- MAN-MADE CAPITAL cannot substitute for natural capital. Once, catches were limited by the nomics. Overall, however, mainstream number of fishing boats (man-made capital) at sea (left). Today the limit is the number of fish in the ocean (right); building more boats will not increase catches. To ensure long-term economic (also known as neoclassical) economists health, nations must sustain the levels of natural capital (such as fish), not just total wealth. CROSSROADS FOR consider sustainability to be a fad and are than a dollar’s worth of something else. overwhelmingly committed to growth. Conventional macroeconomics, the THE ECONOMY But the facts are plain and uncontest- study of the economy as a whole, has no able: the biosphere is finite, nongrowing, analogous “when to stop” rule. THE PROBLEM: closed (except for the constant input of Because establishing and maintain- ■ The economic status quo cannot solar energy), and constrained by the ing a sustainable economy entails an be maintained long into the future. laws of thermodynamics. Any subsys- enormous change of mind and heart by If radical changes are not made, tem, such as the economy, must at some economists, politicians and voters, one we face loss of well-being and possible ecological catastrophe. point cease growing and adapt itself to a might well be tempted to declare that dynamic equilibrium, something like a such a project would be impossible. But steady state. Birth rates must equal death the alternative to a sustainable economy, THE PLAN: rates, and production rates of commod- an ever growing economy, is biophysi- ■ The economy must be transformed ities must equal depreciation rates. cally impossible. In choosing between so that it can be sustained over the long run. It must follow three In my lifetime (67 years) the human tackling a political impossibility and a precepts: population has tripled, and the number biophysical impossibility, I would judge 1. Limit use of all resources to rates of human artifacts, or things people have the latter to be the more impossible and that ultimately result in levels of produced, has on average increased take my chances with the former. waste that can be absorbed by the by much more. “Ecological footprint” ecosystem. studies show that the total energy and What Should Be Sustained? 2. Exploit renewable resources at materials needed to maintain and replace so far i have described the “sus- rates that do not exceed the ability of the ecosystem to regenerate our artifacts has also vastly increased. As tainable economy” only in general terms, the resources. the world becomes full of us and our as one that can be maintained indefinite- 3. Deplete nonrenewable resources stuff, it becomes empty of what was here ly into the future in the face of biophysi- at rates that, as far as possible, do before. To deal with this new pattern cal limits. To implement such an econo- not exceed the rate of development of scarcity, scientists need to develop a my, we must specify just what is to be of renewable substitutes. “full world” economics to replace our sustained from year to year. Economists ) traditional “empty world” economics. have discussed five candidate quantities: Deforestation in In the study of microeconomics, the GDP, “utility,” throughput, natural Washington State branch of economics that involves the capital and total capital (the sum of illustration careful measuring and balancing of costs natural and man-made capital). and benefits of particular activities, indi- Some people think that a sustainable viduals and businesses get a clear signal economy should sustain the rate of

of when to stop expanding an activity. growth of GDP. According to this ); MATT COLLINS ( When any activity expands, it eventually view, the sustainable economy is displaces some other enterprise and that equivalent to the growth economy, and

displacement is counted as a cost. People the question of whether sustained photograph stop at the point where the marginal cost growth is biophysically possible is equals the marginal benefit. That is, it is begged. The political purpose of not worth spending another dollar on ice this stance is to use the buzzword

cream when it gives us less satisfaction “sustainable” for its soothing rhetorical DANIEL DANCER (

102 SCIENTIFIC AMERICAN SEPTEMBER 2005 effect without meaning anything by it. ments than substitutes and that natural suggest that the lack of fish can be dealt Even trying to define sustainability in capital should be maintained on its own, with by building more fishing boats. terms of constant GDP is problematic be- because it has become the limiting fac- Strong sustainability recognizes that cause GDP conflates qualitative improve- tor. That goal is called strong sustain- more fishing boats are useless if there are ment (development) with quantitative ability. For example, the annual fish too few fish in the ocean and insists that increase (growth). The sustainable econ- catch is now limited by the natural capi- catches must be limited to ensure main- omy must at some point stop growing, tal of fish populations in the sea and no tenance of adequate fish populations for but it need not stop developing. There is longer by the man-made capital of fish- tomorrow’s fishers. no reason to limit the qualitative im- ing boats. Weak sustainability would The policy most in accord with main- provement in design of products, which can increase GDP without increasing the amount of resources used. The main idea behind sustainability is to shift the path WHEN GROWTH IS BAD of progress from growth, which is not sustainable, toward development, which UNECONOMIC GROWTH OCCURS when increases in production come at an presumably is. expense of resources and well-being that is worth more than the items made. It arises from an undesirable balance of quantities known as utility and disutility. Utility is the level of The next candidate quantity to be satisfaction of the population’s needs and wants; roughly speaking, it is the population’s sustained, utility, refers to the level of level of well-being. Disutility refers to the sacrifices made necessary by increasing “satisfaction of wants,” or level of well- production and consumption. Such sacrifices can include use of labor, loss of leisure, being of the population. Neoclassical depletion of resources, exposure to pollution, and congestion. economic theorists have favored defin- ing sustainability as the maintenance (or ECONOMIC GROWTH UNECONOMIC GROWTH Environmental increase) of utility over generations. But catastrophe y

that definition is useless in practice. Util- lt ti

ity is an experience, not a thing. It has no su Economic limit

unit of measure and cannot be bequeathed Di or UTILITY EXCEEDS DISUTILITY DISUTILITY EXCEEDS UTILITY y

from one generation to the next. it il ity Natural resources, in contrast, are Ut util al dis things. They can be measured and be- Margin 0 queathed. In particular, people can mea- Futility limit sure their throughput, or the rate at Increasing Production and Consumption which the economy uses them, taking them from low-entropy sources in the One way to conceptualize the balance of utility and disutility is to plot what is called marginal utility (blue line) and marginal disutility (orange line). Marginal utility is the ecosystem, transforming them into use- quantity of needs that are satisfied by going from consuming a certain amount of goods ful products, and ultimately dumping and services to consuming one unit more. It declines as consumption increases because them back into the environment as high- we satisfy our most pressing needs first. Marginal disutility is the amount of a sacrifice entropy wastes [see box on next page]. needed to achieve each additional unit of consumption. Marginal disutility increases with Sustainability can be defined in terms of consumption because people presumably make the easiest sacrifices first. throughput by determining the environ- The optimal scale of consumption is the point at which marginal utility and marginal ment’s capacity for supplying each raw disutility are equal. At that point, a society enjoys maximum net utility (blue area). resource and for absorbing the end waste Increasing consumption beyond that point causes society to lose more in the form of products. increased disutility than it gains from the added utility, as represented by the red area of net disutility. Growth becomes uneconomic. To economists, resources are a form Eventually a population having uneconomic growth reaches the futility limit, the of capital, or wealth, that ranges from point at which it is not adding any utility with its increased consumption. The futility limit stocks of raw materials to finished prod- may already be near for rich countries. In addition, a society may be felled by an ucts and factories. Two broad types of ecological catastrophe, resulting in a huge increase of disutility (dashed line). This capital exist—natural and man-made. devastation could happen either before or after the futility limit is reached. Most neoclassical economists believe The diagram represents our knowledge of the situation at one point in time. Future that man-made capital is a good substi- technology might shift the lines so that the various features shown move to the right, tute for natural capital and therefore ad- allowing further growth in consumption before disutility comes to dominate. vocate maintaining the sum of the two, It is not safe to assume, however, that new technology will always loosen limits. For example, discovery of the ozone hole and global warming, both consequences of new an approach called weak sustainability. technologies, changed the graph as we knew it, shifting the marginal disutility line Most ecological economists, myself upward, moving the economic limit to the left and constraining expansion. included, believe that natural and man- —H.E.D.

JEN CHRISTIANSEN made capital are more often comple-

www.sciam.com SCIENTIFIC AMERICAN 103 ECONOMY AS AN HOURGLASS

HUMANKIND’S CONSUMPTION of resources is somewhat akin to sand flowing through an hourglass that cannot be flipped over. We have a virtually unlimited supply of energy from the sun (left), but we cannot control the rate of its input. In contrast, we have a finite supply of fossil fuels and Fixed stock of minerals minerals (right), but we can increase or decrease our and fossil consumption rate. If we use those resources at a high rate, we fuels in essence borrow from the supply rightly belonging to future generations and accumulate more wastes in the environment. Such activity is not sustainable in the long run. Fixed flow Some economists express these facts in terms of physical of solar Adjustable energy laws. They argue that this lack of sustainability is predicted by flow (rate of consumption) the first two laws of thermodynamics, namely that energy is conserved (finite) and that systems naturally go from order to disorder (from low to high entropy). Humans survive and make things by sucking useful (low-entropy) resources—fossil fuels Waste matter and concentrated minerals—from the environment and converting them into useless (high-entropy) wastes. The mass of wastes continuously increases (second law) until at some point all the fuel is converted to useless detritus. —H.E.D. UNLIMITED RESOURCES LIMITED RESOURCES taining natural capital is the cap-and- kets and government policy. Economic transition to a nongrowing population is trade system: a limit is placed on the to- theory has traditionally dealt mainly leading to a smaller number of working- tal amount of throughput allowed, in with allocation (the apportionment of age people and a larger number of retir- conformity with the capacity of the envi- scarce resources among competing ees. Adjustment requires higher taxes, an ronment to regenerate resources or to ab- uses). It has not dealt with the issue of older retirement age or reduced pensions. sorb pollution. The right to deplete sourc- scale (the physical size of the economy Despite assertions to the contrary, the es such as the oceans or to pollute sinks relative to the ecosystem). Properly system is hardly in crisis. But one or more such as the atmosphere is no longer a free functioning markets allocate resources of those adjustments are surely needed good but a scarce asset that can be bought efficiently, but they cannot determine for the system to maintain itself. and sold on a free market, once its initial the sustainable scale; that can be Product lifetimes. A sustainable ownership is decided. Cap-and-trade sys- achieved only by government policy. economy requires a “demographic tran- tems that have been implemented include sition” not only of people but of goods— the Environmental Protection Agency’s Adjustments Needed production rates should equal deprecia- scheme for trading sulfur dioxide emis- the transition to a sustainable tion rates. The rates can be equal, how- sion permits to limit acid rain and New economy would require many adjust- ever, at either high or low levels, and Zealand’s reduction of overfishing by in- ments to economic policy. Some such lower rates are better both for the sake dividual transferable fish-catch quotas. changes are already apparent. The U.S. of greater durability of goods and for The cap-and-trade system is an ex- Social Security system, for example, fac- attaining sustainability. Longer-lived, ample of the distinct roles of free mar- es difficulties because the demographic more durable products can be replaced more slowly, thus requiring lower rates of resource use. The transition is analo- THE AUTHOR gous to a feature of ecological succes- HERMAN E. DALY sion. Young, growing ecosystems have a tendency to maximize growth efficiency DALY is a professor in the School of Public Policy at the University of Maryland. From 1988 to 1994 he was senior economist in the environment department of the World measured by production per unit of ex- Bank, where he helped to formulate policy guidelines related to . isting biomass. In mature ecosystems He is a co-founder and associate editor of the journal and has the emphasis shifts to maximizing written several books. maintenance efficiency, measured by how much existing biomass is main-

tained per unit of new production—the MATT COLLINS

104 SCIENTIFIC AMERICAN SEPTEMBER 2005 inverse of production efficiency. Our not by being more efficient but simply be- fact trade is currently heavily regulated economic thinking and institutions cause they had not paid the cost of sus- in ways that are detrimental to the envi- must make a similar adjustment if sus- tainability. Regulated trade under rules ronment [see “Sustaining the Variety of tainability is to be achieved. One adap- that compensated for these differences Life,” by Stuart Lo Pimm and Clinton tation in this direction is the service con- could exist, as could free trade among Jenkins, on page 74]. tract for leased commodities, ranging nations that were equally committed to Taxes. What kind of tax system from photocopiers to carpets; in this sustainability. Many people regard such would best fit with a sustainable econo- scenario, the vendor owns, maintains, restrictions on trade as onerous, but in my? A government concerned with using reclaims and recycles the product at the end of its useful life. GDP growth. Because of qualitative improvements and enhanced efficiency, MEASURING WELL-BEING GDP could still grow even with constant throughput—some think by a great deal. TO JUDGE FROM how gross domestic product (GDP) is Environmentalists would be happy be- discussed in the media, one would think that everything good flows from it. Yet GDP is not a measure of well-being or even of cause throughput would not be growing; income. Rather it is a measure of overall economic activity. It is Alaskan oil slick economists would be happy because defined as the annual market value of final goods and services New York garbage dump GDP would be growing. This form of purchased in a nation, plus all exports net of imports. “Final” “growth,” actually development as de- means that intermediate goods and services, those that are fined earlier, should be pushed as far as it inputs to further production, are excluded. will go, but there are several limits to the GDP does not subtract either depreciation of man-made process. Sectors of the economy gener- capital (such as roads and factories) or depletion of natural ally thought to be more qualitative, such capital (such as fish and fossil fuels). GDP also counts so-called defensive expenditures in the plus column. These expenditures as information technology, turn out on are made to protect ourselves from the unwanted consequences of the production and closer inspection to have a substantial consumption of goods by others—for example, the expense of cleaning up pollution. physical base. Also, to be useful to the Defensive expenditures are like intermediate costs of production, and therefore they poor, expansion must consist of goods should not be included as a part of GDP. Some economists argue for their inclusion the poor need— clothing, shelter and because they improve both the economy and the environment. We can all get rich food on the plate, not 10,000 recipes on cleaning up one another’s pollution! the Internet. Even the wealthy spend To go from GDP to a measure of sustainable well-being requires many more most of their income on cars, houses and positive and negative adjustments. These adjustments include uncounted household trips rather than on intangibles. services (such as those performed for free by spouses); increased international debt;

) loss of well-being resulting from increasing concentration of income (the well-being The financial sector. In a sustainable induced by an extra dollar for the poor is greater than that for the rich); long-term dump ( economy, the lack of growth would most environmental damage such as ozone layer depletion or loss of wetlands and likely cause interest rates to fall. The fi- estuaries; and water, air and noise pollution. When all these adjustments are made, Corbis nancial sector would probably shrink, the result is the index of sustainable economic welfare (ISEW), as developed by because low interest and growth rates Clifford W. Cobb and John B. Cobb, Jr., and related measures. These indices have been could not support the enormous super- used by ecological economists but are largely ignored by others in the field. structure of financial transactions— For the U.S., it appears that, beginning in the 1980s, the negative factors in the ISEW

; JAMES LEYNSE have been increasing faster than the positive ones. Similar results have been found for ) based largely on debt and expectations the U.K., Austria, Germany and Sweden. bird

( of future economic growth—that now In other words, for some countries in sits uneasily atop the physical economy. 40,000 recent years, the costs of growth are In a sustainable economy, investment Gross domestic product per capita rising faster than the benefits. would be mainly for replacement and 30,000 Peter Arnold As important as empirical qualitative improvement, instead of for measurement is, it is worth

speculation on quantitative expansion, S. Dollars 20,000 remembering that when one jumps out U. and would occur less often. of an airplane, a parachute is more Trade. Free trade would not be fea- 05 beneficial than an altimeter. First 20 10,000 Index of sustainable

); RANDY BRANDON principles make it abundantly clear sible in a world having both sustainable economic welfare per capita and unsustainable economies, because that we need an economic parachute. graph Casual empiricism makes it clear that the former would necessarily count many 1950 1960 1970 1980 1990 we need it sooner rather than later. More costs to the environment and future that Year precise information, though not to be would be ignored in the growth econo- SUSTAINABLE WELL-BEING in the U.S. has disdained, is not necessary, and waiting mies. Unsustainable economies could been roughly static even as GDP has grown. for it may prove very costly. —H.E.D.

JEN CHRISTIANSEN ( then underprice their sustainable rivals,

www.sciam.com SCIENTIFIC AMERICAN 105 COUNTERPOINT

A MEASURED APPROACH By Partha Dasgupta

MOST CONTEMPORARY economists passage of time and may even improve. occurred because relative to population are optimistic about the future. They As defined by the famous Brundtland growth, investment in produced capital and observe that the Western world’s economic Commission Report of 1987, “sustainable improvements in institutions have not output has increased remarkably since the development” is development that meets compensated for the degradation of natural industrial revolution. They note that this the needs of the present without capital. Moreover, countries that have increase has been fueled by the compromising the ability of future experienced higher population growth have accumulation of produced capital assets generations to meet their own needs. To also lost wealth per capita at a faster rate. (such as roads, machinery, equipment and achieve this result, each generation should Better news comes from the buildings) and improvements in knowledge, bequeath to its successor at least as much economies of China and most of the OECD human skills and institutions (such as the wealth per capita as it itself inherited. (Organization for Economic Co-operation legal system). They argue that if knowledge Wealth is defined as the value of an and Development) countries: they have and skills are allowed to accumulate economy’s entire productive base, grown in terms of both GDP per capita and through education and research and comprising man-made capital, natural wealth per capita. These regions have more development, productivity can be further capital, knowledge, skills and institutions. than compensated for the decline in natural increased and the world economy will enjoy Economic development should be viewed capital by accumulating other types of growth in output for a very long while. as growth in wealth per capita, not growth capital assets and improving institutions. Some economists, however, note that in gross domestic product per capita. It would seem, therefore, that during the past three decades the rich world has 100 600 enjoyed sustainable development, while WEALTH PER CAPITA GDP PER CAPITA 70 OECD 70 development in the poor world (barring

19 19 500 e 50 China e China) has been unsustainable. 400 One can argue, however, that the China

e sinc e sinc above estimates of wealth movements are

as as 300 0 biased. Among the many types of natural re re 200 Indian Subcontinent capital whose depreciation do not appear in t Inc –50 t Inc OECD Africa the World Bank figures are freshwater, , en Indian Subcontinent en 100

rc rc ocean fisheries, and wetlands as

Pe Africa Pe –100 0 providers of ecosystem services, as well as 1970 Year 2000 1970 Year 2000 the atmosphere, which serves as a sink for particulates and nitrogen and sulfur TOTAL WEALTH (left) is a better measure of economic health than is GDP (right). oxides. Moreover, the prices the World Bank the earth is finite and reject this brand of There is a big difference between GDP has estimated to value the natural assets optimism, instead insisting that we are and wealth. GDP includes such factors as on its list are based on assumptions that already using nature’s services at or purchases of goods and services but does ignore the limited capacity of natural beyond the maximum rate that the not record the depreciation of capital systems to recover from disturbances. If biosphere can support in the long term. assets (such as degradation of both sets of biases were removed, we could They argue that policies should ecosystems). So GDP per capita can well discover that the growth in wealth in immediately be put in place to stop the increase even while wealth per capita China and the world’s wealthy nations has growth in the use of nature’s services. declines. GDP can be a hopelessly also been negative. These economists, such as Herman E. Daly misleading index of human well-being. The view prevalent in contemporary and those mentioned in his article, are How have nations been doing when economics is groundlessly optimistic. right to question the optimistic view for its judged by the criterion of sustainable Humanity must design institutions and neglect of nature’s limits, but they development? Figures recently published policies that will enable economies to themselves can be criticized on a number by the World Bank for the depreciation of attain sustainable development. To that of counts. In particular, they are silent on several natural resources (oil, natural gas, end, economists now have in hand a how to reach policy conclusions, and they minerals, the atmosphere as a sink for framework (estimates of wealth such as do not provide a meaningful way to judge carbon dioxide, and forests as sources of the ones given above) for making policy the human costs and benefits of stopping timber) indicate that in sub-Saharan Africa suggestions that are a lot sharper than the any further growth in the use of resources. both GDP per capita and wealth per capita cry that humanity must implement a

A few economists (I am among them) have declined in the past three decades steady-state economy now. seek to avoid both sets of weaknesses by (for the past decade, see graphs above). In refining the concept of sustainable develop- contrast, in the Indian subcontinent, even Sir Partha Dasgupta is Frank Ramsey ment—a path along which well-being across while GDP per capita has increased, wealth Professor of Economics at the University the generations does not decline with the per capita has declined. The decline has of Cambridge College, Cambridge. JEN CHRISTIANSEN

106 SCIENTIFIC AMERICAN SEPTEMBER 2005 point only relative position influences self-evaluated happiness. Growth cannot increase everyone’s relative income. People whose relative income increased as a result of further growth would be offset by others whose relative income fell. And if everyone’s in- come increased proportionally, no one’s relative income would rise and no one would feel happier. Growth becomes like an arms race in which the two sides SMOKESTACKS are subject to a cap-and-trade system to limit sulfur dioxide emissions. Such cancel each other’s gains. policies can help achieve sustainability. The wealthy countries have most like- ly reached the “futility limit,” at which natural resources more efficiently would in more of the total product accruing to point further growth does not increase alter what it taxes. Instead of taxing the capital (that is, the businesses and busi- happiness. This does not mean that the income earned by workers and business- ness owners profit from the product), consumer society has died—just that in- es (the value added), it would tax the and consequently less to the workers, creasing consumption beyond the suffi- throughput flow (that to which value is then the principle of distributing income ciency threshold, whether fueled by ag- added), preferably at the point where re- through jobs becomes less tenable. A gressive advertising or innate acquisi- sources are taken from the biosphere, the practical substitute may be to have wider tiveness, is simply not making people point of “severance” from the ground. participation in the ownership of busi- happier, in their own estimation. Many states have severance taxes. Such nesses, so that individuals earn income A fortuitous corollary is that for so- a tax induces more efficient resource use through their share of the business in- cieties that have reached sufficiency, in both production and consumption stead of through full-time employment. sustainability may cost little in terms of and is relatively easy to monitor and col- Happiness. One of the driving forces forgone happiness. The “political im- lect. Taxing what we want less of (re- of unsustainable growth has been the possibility” of a sustainable economy source depletion and pollution) and ceas- axiom of insatiability—people will may be less impossible than it seemed. ing to tax what we want more of (income) always be happier consuming more. But If we do not make the adjustments would seem reasonable. research by experimental economists needed to achieve a sustainable econo- The regressivity of such a consump- and psychologists is leading to rejection my, the world will become ever more tion tax (the poor would pay a higher of that axiom. Mounting evidence, such polluted and ever emptier of fish, fossil percentage of their income than the as work in the mid-1990s by Richard A. fuels and other natural resources. For a wealthy would) could be offset by spend- Easterlin, now at the University of South- while, such losses may continue to be ing the proceeds progressively (that is, ern California, suggests that growth masked by the faulty GDP-based ac- focused on aiding the poor), by institut- does not always increase happiness counting that measures consumption of ing a tax on luxury items or by retaining (or utility or well-being). Instead the resources as income. But the disaster a tax on high incomes. correlation between absolute income will be felt eventually. Avoiding this ca- Employment. Can a sustainable econ- and happiness extends only up to some lamity will be difficult. The sooner we omy maintain full employment? A tough threshold of “sufficiency”; beyond that start, the better. question, and the answer is probably not. In fairness, however, one must also ask if full employment is achievable in a growth economy driven by free trade, MORE TO offshoring practices, easy immigration of EXPLORE cheap labor and adoption of labor-saving The Green National Product: A Proposed Index of Sustainable Economic Welfare. technologies? In a sustainable economy, Clifford W. Cobb and John B. Cobb, Jr. University Press of America, 1994. maintenance and repair become more Will Raising the Incomes of All Increase the Happiness of All? Richard Easterlin in important. Being more labor-intensive Journal of Economic Behavior and Organization, Vol. 27, pages 35–47; 1995. Time Life Pictures/Getty Images than new production and relatively pro- Human Well-Being and the Natural Environment. Partha Dasgupta. Oxford tected from offshoring, these services University Press, 2001. may provide more employment. Ecological Economics: Principles and Applications. Herman E. Daly and Joshua Yet a more radical rethinking of how Farley. Island Press, 2004. people earn income may be required. If

CHARLES FENNOJACOBS automation and offshoring of jobs results

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