Krugman's Growthism

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Essays against growthism by Herman Daly

WEA Book series

Essays against growthism by Herman Daly

ISBN: 978-1-911156-27-7

Published by World Economics Association http://www.worldeconomicsassociation.org/

Cover artwork taken from Tree Nursery by Paul Klee 1929.

______All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form, or by any means, electronic, mechanical, photocopying, recording or otherwise without prior permission, in writing, from the publisher.

Herman Daly

About the book

When I worked at the World Bank, I often heard the statement, “There is no conflict between economics and ecology. We can and must grow the economy and protect the environment at the same time.” I still hear that a lot today. Is it true? Is it possible?

Although it is a comforting idea, I fear that it is at most half true. The “true” part comes from a confusion of reallocation with aggregate growth. There are generally always possibilities of better allocation – more of something desired in exchange for a reduction in something less desired. This is the domain of microeconomics. Aggregate growth, by contrast, means more of everything as measured by GDP – it is the domain of macroeconomics, and is the meaning of growth in this discussion.

The economy is an open subsystem of the larger ecosphere that is finite, non- growing, and materially closed, although open to a continual, but non-growing, throughput of solar energy. When the economy grows in physical dimensions it incorporates matter and energy from the rest of the ecosystem into itself. It must, by the law of conservation of matter and energy (First Law of Thermodynamics), encroach on the ecosystem, diverting matter and energy from previous natural uses. More human economy (more people and commodities) means less natural ecosystem. In this sense the statement is false. There is an obvious physical conflict between the growth of the economy and the preservation of the environment.

About the author

Herman E. Daly, often referred to as the dean of ecological economics, is one its primary inventors. As a critic of standard economic growth theory, Daly’s work is centred on the relationship of the economy and the ecosystem, and the relationship of the economy to ethics. He argues that human survival now requires policies that will guide society towards a constant population, a constant material standard of living, and an equitable distribution of wealth. His work draws on the laws of thermodynamics and climatology, especially in relation to levels of flows of materials and energy through economic systems.

“For clarity of vision and ecological wisdom Herman Daly has no peer among contemporary economists.” –David W. Orr, Oberlin College

Essays against growthism

Table of Contents Chapter 1 The economy as subsystem of the ecosphere 1

Chapter 2 An economics fit for purpose in a finite world 7

Chapter 3 Integrating Ecology and Economics 10

Chapter 4 Dualist economics 14

Chapter 5 Three limits to growth 19

Chapter 6 Depletion of moral capital as a limit to growth 22

Chapter 7 A population perspective on the steady state economy 25

Chapter 8 The Guardian and Monbiot versus Forbes and Worstall 30

Chapter 9 Use and abuse of the “natural capital” concept 34

Chapter 10 Cold war left-overs 38

Chapter 11 Krugman’s growthism 42

Chapter 12 Full employment versus jobless growth 45

Chapter 13 The negative natural interest rate and uneconomic growth 48

Chapter 14 Top 10 policies for a steady-state economy 53

Essays against growthism

Chapter 1 The economy as subsystem of the ecosphere

The economy, as shown in the Diagram 1, is an open subsystem of the larger ecosphere that is finite, non-growing, and materially closed, although open to a continual, but non-growing, throughput of solar energy. When the economy grows in physical dimensions it incorporates matter and energy from the rest of the ecosystem into itself. It must, by the law of conservation of matter and energy (First Law of Thermodynamics), encroach on the ecosystem, diverting matter and energy from previous natural uses. More human economy (more people and commodities) means less natural ecosystem. In this sense the statement is false. There is an obvious physical conflict between the growth of the economy and the preservation of the environment.

That the economy is a subsystem of the ecosphere seems perhaps too obvious to emphasize. Yet the opposite view is common in high places. For example:

“As the White Paper rightly emphasised, the environment is part of the economy and needs to be properly integrated into it so that growth opportunities will not be missed” (Dieter Helm, Chairman of the Natural Capital Committee, The State of Natural Capital: Restoring our Natural Assets, UK. 2014).

On the contrary, it is the economy that is the part and needs to be integrated into the whole of the finite and entropic ecosphere so that growth limits will not be missed.

But is this physical conflict economically important? Some think not.

Herman Daly

Some believe that we still live in an empty world. In the “empty world” the economy was small relative to the containing ecosystem, and our technologies of extraction and harvesting were not very powerful, and our numbers were small. Fish reproduced faster than we could catch them, trees grew faster than we could harvest them, minerals in the earth’s crust were abundant – natural resources were not really scarce. In the empty world it made economic sense to say that there was no conflict between economic growth and the ecosystem, even if it was not strictly true in a physical sense. But physical growth has transformed the empty world into a full world in which the remaining ecosystem is scarce. This has happened in a surprisingly short time thanks to the explosive nature of exponential growth.

Essays against growthism

Neoclassical economic theory developed during the empty-world era, and still embodies many assumptions from that past era. But the empty world has rapidly turned into the full world thanks to growth, the number-one goal of all countries, capitalist, communist, or in-between. In my lifetime the world population has more than tripled – from two billion to over seven billion. Similarly for the populations of cattle, chickens, pigs, and soybean plants and corn stalks. The non-living populations of cars, buildings, refrigerators and cell phones have grown even more rapidly. All these populations, both living and non-living, are what physicists call “dissipative structures” – that is, their maintenance and reproduction requires a metabolic flow, a throughput that begins with depletion of low-entropy resources from the ecosphere and ends with the return of polluting high-entropy waste back to the ecosphere. This metabolic throughput imposes a cost to the ecosphere at both ends, an unavoidable cost that is necessary for the production, maintenance, and reproduction of the stock of both people and wealth. Until recently the concept of metabolic throughput was absent from standard economic theory, and even now its importance is greatly downplayed, in spite of the important contributions of Nicholas Georgescu-Roegen and Kenneth Boulding.

Recognizing the concept of metabolic throughput in economics brings with it the laws of thermodynamics that are inconvenient to the growthist ideology. The First Law, as noted above, imposes a quantitative trade-off of matter/energy between the environment and the economy. The Second Law imposes a qualitative degradation of the environment – by extracting low- entropy resources and returning high-entropy wastes. The Second Law of Thermodynamics thus imposes an additional conflict between expansion of the economy and preservation of the environment, namely that the order and structure of the economy is paid for by imposing disorder in the sustaining ecosphere. Furthermore, this disorder, exported from the economy, disrupts the complex ecological interdependencies of our life-supporting ecosystem.

Another common denial of the conflict between growth and environment is the claim that because GDP is measured in value units it has no necessary physical impact on the environment. Although GDP is measured in value units, one must remember that a dollar’s worth of gasoline is a physical quantity – recently about one-fourth of a gallon in my country, and currently about a half a gallon. GDP is an aggregate of all such “dollar’s worth” quantities bought for final use, and is consequently a value-weighted index of physical quantities. GDP is certainly not perfectly correlated with resource throughput – but, for mater-dependent creatures like ourselves, the positive correlation is pretty high. Prospects for absolute “decoupling” of resource throughput from GDP are quite limited, even though much discussed and wished for.

Herman Daly

These limits are made visible by considering an input-output matrix for an economy. It reveals that nearly every sector requires inputs from, and provides outputs to, nearly every other sector. And these inputs require a further round of inputs for their production, etc. The economy grows as an integrated whole, not as a loose mix of sectors. Even the information and service sectors have substantial physical resource inputs. In addition to the supply limit of inter-industry dependence there is the demand limit of “lexicographic ordering of wants” – unless we first have sufficient physical food on the plate we are just not interested in the information contained in a million recipes on the Internet. The lexicographic sequence of demand provides an additional limit to any policy of lowering material intensity by substitution in the final bill of goods of GDP. And of course the Jevons Paradox leads us to do more of what has become more efficient, cancelling a large part of the resource savings. This is not to deny real possibilities of improved technical efficiency in the use of resources, or ethical improvement in the ordering of our priorities. These represent qualitative development and are frequently not captured in GDP in any case, which mainly reflects quantitative growth.

Since GDP reflects both costly and beneficial activity, ecological economists have not considered it to be a desideratum. Instead they have distinguished growth (quantitative increase in size by accretion or assimilation of matter), from development (qualitative improvement in design, technology, or ethical priorities). Ecological economists advocate development without growth – qualitative improvement without quantitative increase in resource throughput beyond an ecologically sustainable scale. Given this distinction, one could indeed say that there is no necessary conflict between qualitative development and the environment, and that would be true. But there is certainly a conflict between quantitative growth and the environment. Calling different things (quantitative increase and qualitative improvement) by the same name (GDP growth) is a recipe for confusion. It is better to call different things by different names. GDP accounting mixes together both growth and development, as well as costs and benefits. It is a number that confuses more than it clarifies.

When the entropic throughput becomes too large it overwhelms either the regenerative capacity of nature’s sources, or the assimilative capacity of nature’s sinks. That is the main signal that we no longer live in the empty world but now inhabit a full world. Natural resource flows are now the scarce factor, and labor and capital stocks are now relatively abundant. The basic pattern of scarcity has been reversed by a century of growth.

Essays against growthism

Figure 2

Empty World Full World

This simple picture is instructive. It tells us that in the past the fish catch was limited by number of fishing boats and fishermen. Now it is limited by number of fish and their capacity to reproduce. More fishing boats will not result in more caught fish. The limiting factor is no longer the manmade capital of boats, but remaining natural capital of fish populations and their aquatic habitat.

Economic logic says invest in the limiting factor. Economic logic has not changed, but the identity of the limiting factor has changed. The old economic policy of building more fishing boats is now uneconomic. We need to invest in natural capital, which is now the limiting factor. How do we do that? For one thing by reducing the catch to allow fish populations to increase to their previous levels, and by other measures such as fallowing agricultural land to refresh its fertility. More generally, by the kind of restoration ecology, biodiversity conservation, and sustainable use practices pioneered by the other 2014 Blue Planet Prize recipients, INBio, and Professor Janzen, and their colleagues.

One could draw similar pictures for other natural resources, not just fish.

What limits the production of cut timber? Is it the number of chainsaws, sawmills and lumberjacks, or the remaining forests and the growth rate of new trees?

What limits the crops from irrigated agriculture? Is it the number of pipes, sprinklers and pumps, or the stock of water in aquifers, their recharge rate, and the flow of surface water in rivers?

Herman Daly

What limits the number of barrels of pumped crude oil – the number of drilling rigs or the remaining accessible deposits of petroleum?

What limits the use of all fossil fuels – our mining equipment and combustion engines, or the capacity of the atmosphere to absorb the resulting greenhouse gasses without causing drastic climate change? In all cases it is the latter, the natural capital (whether source or sink), rather than the manmade capital.

I think these examples, while not rising to the level of proof, are enough to establish the strong presumption that the limiting factor is no longer manmade capital, but has become remaining natural capital. Traditional GDP growth, based on increasing manmade capital stocks, becomes uneconomic in the full world as the complementary factor of natural resources becomes limiting.

How have traditional economists reacted to this change in the identity of the limiting factor, this new pattern of scarcity? In three ways. First, by ignoring it – by continuing to believe that we live in the empty world. Second, by pretending that GDP is an ethereal angelic number rather than a physical aggregate. Third, by claiming that it cannot be true that natural capital has replaced manmade capital as the limiting factor, because manmade and natural capital are substitutes, they say. Only if factors are complements can the one in short supply be limiting. So even if natural capital is now scarcer than before that is no problem in their view because manmade capital, embodying new technology, is considered a “near perfect” substitute for natural resources.

While improved technologies can certainly reduce wastage in the use of resources, as well as make recycling easier, it is hard to imagine how the fund of agents of transformation (capital or labor) can substitute for or replace the flow of that which is being transformed (resources). Can we produce a ten- pound cake with only one pound of ingredients, simply by using more cooks and ovens? And further, how could we make more capital (or labor) without also using more natural resources? While a capital investment in sonar may help locate those remaining fish it is hardly a good substitute for more fish in the sea. And what happens to the capital value of fishing boats, including their sonar, as the fish disappear?

Essays against growthism

Chapter 2 An economics fit for purpose in a finite world

Causation is both “bottom up” and “top down”: material cause from the bottom, and final cause from the top, as Aristotle might say. Economics, or as I prefer, “political economy,” is in between, and serves to balance desirability (the lure of right purpose) with possibility (the constraints of finitude). We need an economics fit for purpose in a finite and entropic world.

As a way to envision such an inclusive economics, consider the “ends-means pyramid” shown below. At the base of the pyramid are our ultimate means, low entropy matter-energy – that which we require to satisfy our purposes – which we cannot make, but only use up. We use these ultimate means, guided by technology, to produce intermediate means (artifacts, commodities, services, etc.) that directly satisfy our needs. These intermediate means are allocated by political economy to serve our intermediate ends (health, comfort, education, etc.), which are ranked ethically in a hierarchy by how strongly they contribute to our best perception of the Ultimate End. We can see the Ultimate End only dimly and vaguely, but in order to ethically rank our intermediate ends we must compare them to some ultimate criterion. We cannot avoid philosophical and theological inquiry into the Ultimate End just because it is difficult. To prioritize logically requires that something must go in first place.

Herman Daly

The ends-means pyramid or spectrum relates the basic physical precondition for usefulness (low entropy matter-energy) through technology, political economy, and ethics, to the service of the Ultimate End, dimly perceived but logically necessary. The goal is to unite the material of this world with our best vision of the good. Neoclassical economics, in neglecting the Ultimate End and ethics, has been too materialistic; in also neglecting ultimate means and technology, it has not been materialistic enough.

The middle position of economics is significant. Economics in its modern form deals with the allocation of given means to satisfy given ends. It takes the technological problem of converting ultimate means into intermediate means as solved. Likewise it takes the ethical problem of ranking intermediate ends with reference to a vision of the Ultimate End as also solved. So all economics has to do is efficiently allocate given means among a given hierarchy of ends. That is important, but not the whole problem. Scarcity dictates that not all intermediate ends can be attained, so a ranking is necessary for efficiency–to avoid wasting resources by satisfying lower ranked ends while leaving the higher ranked unsatisfied.

Ultimate political economy (stewardship) is the total problem of using ultimate means to best serve the Ultimate End, no longer taking technology and ethics as given, but as steps in the total problem to be solved. The total problem is too big to be tackled without breaking it down into its pieces. But without a vision of the total problem, the pieces do not add up or fit together.

The dark base of the pyramid is meant to represent the fact that we have relatively solid knowledge of our ultimate means, various sources of low entropy matter-energy. The light apex of the pyramid represents the fact that our knowledge of the Ultimate End is much less clear. The single apex will annoy pluralists who think that there are many “ultimate ends.” Grammatically and logically, however, “ultimate” requires the singular. Yet there is certainly room for plural perceptions of the nature of the singular Ultimate End, and much need for tolerance and patience in reasoning together about it. However, such reasoning together is short-circuited by a facile pluralism that avoids ethical ranking of ends by declaring them to be “equally ultimate.” It is often the concrete bottom-up struggle to rank particular ends that gives us a clue or insight into what the Ultimate End must be to justify our proposed ranking.

As a starting point in that reasoning together, I suggest the proposition that the Ultimate End, whatever else it may be, cannot be growth in GDP! A better starting point for reasoning together is John Ruskin’s aphorism that “there is no wealth but life.” How might that insight be restated as an economic policy

Essays against growthism goal? For initiating discussion, I suggest: “maximizing the cumulative number of lives ever to be lived over time at a level of per capita wealth sufficient for a good life.” This leaves open the traditional ethical question of what is a good life, while conditioning its answer to the realities of economics and ecology. At a minimum, it seems a more convincing approximation to the Ultimate End than today’s impossible goal of “ever more things for ever more people forever.

Herman Daly

Chapter 3 Integrating ecology and economics

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

Economic imperialism

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

Essays against growthism consumption, and the way to effectively achieve this end is growth in marketed goods and services.

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

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

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

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

Ecological reductionism

Ecological reductionism begins with the true insight that humans and markets are not exempt from the laws of nature. It then proceeds to the false inference that human action is totally explainable by, reducible to, the laws of nature. It seeks to explain whatever happens within the economic subsystem by exactly the same natural laws that it applies to the rest of the ecosystem. It subsumes the economic subsystem indifferently into the natural system, erasing its

Herman Daly boundary. Taken to the extreme, in this view all is explained by a materialist deterministic system that has no room for purpose or will. This is a sensible vision from which to study the ecology of a coral reef. But if one adopts it for studying the human economy, one is stuck from the beginning with the important policy implication that policy makes no difference.

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

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

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

Essays against growthism denying the tidy-mindedness of either monism than denying the facts that point to an untidy dualism.

The steady-state subsystem

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

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

Herman Daly

Chapter 4 Dualist economics

Frederick Soddy (1877–1956) discovered the existence of isotopes and was a major contributor to atomic theory, for which he received the Nobel Prize in Chemistry in 1921. He foresaw the development of an atomic bomb and was disturbed by the fact that society often used the contributions of science (for which he was partly responsible) for such destructive purposes. The reason for this was, in his view, faulty economics, so in the second half of his 80 years he set out to reform economics. He was the first person coherently to lay out the policy of 100% reserve banking, later taken up by the Chicago School economists and by Irving Fischer of Yale – and still an excellent idea. Soddy was considered an outsider and a “monetary crank” by mainstream economists. Nevertheless, his views on money are sound and highly relevant to today’s financial debacle. Another neglected but increasingly relevant contribution is his philosophical vision of the place of economics in the larger intellectual map of the world.

For Soddy economics occupies the middle ground between matter and spirit, or as he put it, “between the electron and the soul”:

“In each direction possibilities of further knowledge extend ad infinitum, but in each direction diametrically away from and not towards the problems of life. It is in this middle field that economics lies, unaffected whether by the ultimate philosophy of the electron or the soul, and concerned rather with the interaction, with the middle world of life of these two end worlds of physics and mind in their commonest everyday aspects, matter and energy on the one hand, obeying the laws of mathematical probability or chance as exhibited in the inanimate universe, and, on the other, with the guidance, direction and willing of these blind forces and processes to predetermined ends” (Cartesian Economics, p. 6).

Soddy did not mean that economists should neglect the two end worlds of electron and soul – much to the contrary he insisted that wealth must reflect the independent reality of both end worlds. What must be resisted is the “obsessive monism” of either idealism or materialism. We must recognize the fundamental dualism of the material and the spiritual and resist attempts to reduce everything to one or the other.

Wealth has both a physical dimension, matter-energy subject to the laws of

Essays against growthism inanimate mechanism, especially the laws of thermodynamics, and a teleological dimension of usefulness, subject to the purposes imposed by mind and will. Soddy’s concept of wealth reflects his fundamental dualism and is why his first lectures on economics were entitled Cartesian Economics, meaning in effect, “Dualist Economics” (not, as might be imagined today, economics diagrammed in terms of Cartesian coordinates). The subtitle of Cartesian Economics, “The Bearing of Physical Science on State Stewardship,” better reflects his dualism in the contrast between “physical science” and “stewardship.”

Philosophically Rene Decartes accepted dualism as a brute fact even though the interaction of the two worlds of mind and matter, of soul and body, of res cogitans and res extensa, remained mysterious. Subsequent philosophers have in Soddy’s view succumbed to monistic reductionism, either materialism or idealism, both of which encounter philosophical problems no less grave than dualism, as well as provoke greater offenses against both common sense and direct experience. It is fashionable to reject dualism nowadays by saying that humans are a “psychosomatic unity” even while recognizing a “polarity” within that unity. Nevertheless, the two poles of electron and soul are very far apart, and the line connecting them is, as Soddy argued, twice discontinuous. While we are surely in some important sense a “unity,” it would be good to recognize the legitimate claims of dualism by writing the word “psycho–somatic” with a long double hyphen.

Herman Daly

Soddy’s view can be represented by a vertical line connecting the electron (physical world, useful matter-energy, ultimate means) at the bottom, to the soul (will, purpose, ultimate end) at the top. In the middle is economics (efforts in ordinary life to use ultimate means to serve the ultimate end). Soddy did not draw such a diagram, but it is implicit in his writing. The vertical connecting line has two mysterious discontinuities that thwart monistic attempts to derive soul from electron, or electron from soul. The first discontinuity is between inanimate mechanism and life. The second discontinuity is between life and self-conscious mind (will, soul). Monists keep trying, and failing, to leap over both chasms. Dualists accept them as irreducible brute facts about the way the world is.

Dualists use the axiom of duality to interpret other phenomena instead of vainly pursuing the illusion of reductive monism. Nowadays the dominant monistic obsession is materialism, supported by the impressive successes of the physical sciences, and the lesser but still impressive extrapolations of Darwinist biologism. Idealism does not have so much support at present, although modern theoretical physics and cosmology seem to be converting electrons and elementary matter into mathematical equations and strange Platonic ideas that reside more in the minds of theoretical physicists than in the external world, thus perhaps bending the vertical line connecting mind and matter into something more like a circle.

Also, a Whiteheadean interpretation of the world as consisting most fundamentally of “occasions of experience” rather than substances, is a way to bridge dualism, but only with the help of widely separated and mysteriously combined “polarities” of mentality and physicality posited or anticipated in each occasion of experience. While these are challenging and important philosophical developments, it remains true that materialism currently retains the upper hand and is claiming an ever-expanding monistic empire, including the middle ground of economics. In addition, physics’ modern revival of idealism so far seems morally vacuous – among the equations and Platonic ideas of modern physics one does not find ideas of justice or goodness, or even purpose, so the fact-value dimension of dualism remains.

As Soddy insisted, economics occupies the middle ground between these dualistic extremes. Economics in its everyday aspects remains largely “unaffected whether by the ultimate philosophy of the electron or the soul,” but this may be the big weakness of economics, the myopia that leads to its growth-forever vision. Each end world reflects unrecognized limits back toward the middle world – limits of possibility from below, and limits of desirability from above. Economics seems to assume that if it is possible it must be desirable, indeed practically mandatory. Similarly, if it is desirable it

Essays against growthism must be possible. So everything possible is considered desirable, and everything desirable is considered possible. Ignoring the mutually limiting interaction of the two end worlds of possibility and desirability has led economists to assume a permissiveness to growth of the middle world of the economy that is proving to be false. For Soddy this is reflected concretely in the economy by our monetary conventions – fractional reserve banking, which allows alchemical creation of money as interest-bearing private debt:

“You cannot permanently pit an absurd human convention, such as the spontaneous increment of debt [compound interest], against the natural law of the spontaneous decrement of wealth [entropy]” (Cartesian Economics, p. 30).

Debt is confused with wealth. But unlike debt, wealth has a physical dimension that limits its growth. This reflects mainly a misunderstanding of the physical world and its limits on wealth. But Soddy also saw limits coming from the end world of the soul.

“Just as I am constrained to put a barrier between life and mechanism in the sense that there is no continuous chain of evolution from the atom to life, so I put a barrier between the assimilation and creation of knowledge” (Cartesian Economics, p. 28).

For Soddy the assimilation of knowledge was mere mimicry, and was discontinuous with the creation or discovery of new knowledge, which he saw as also involving a spiritual top down influence from the soul, from the mysteriously self-conscious mind that could not be derived from mere animate life by a continuous chain of evolution. Soddy said little about the life-mind discontinuity relative to the matter-life discontinuity, but it was clearly part of his philosophy, and has come to the fore in modern philosophical debates about the “hard problem of consciousness.”

To the mechanistic biologists, who were already around in his day, Soddy had the following barbed comment:

“I cannot conceive of inanimate mechanism, obeying the laws of probability, by any continued series of successive steps developing the powers of choice and reproduction any more than I can envisage any increase in the complexity of an engine resulting in the production of the “engine-driver” and the power of its reproducing itself. I shall be told that this is a pontifical expression of personal opinion. Unfortunately, however, for this

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argument, inanimate mechanism happens to be my special study rather than that of the biologist. It is the invariable characteristic of all shallow and pretentious philosophy to seek the explanation of insoluble problems in some other field than that of which the philosopher has first hand acquaintance” (Cartesian Economics, p. 6).

To generalize a bit, monists, who deny the two discontinuities, seek to solve the insoluble problems that they thereby embrace, by shallowly and pretentiously appealing to some other field than that of which they have first- hand experience. This is a serious indictment – is it true? I will leave that question open, but will note on Soddy’s behalf that regarding the matter-life discontinuity, Francis Crick evidently thought it more likely that first life arrived from outer space (directed panspermia) than that it formed spontaneously from inanimate matter on earth, given the demonstration by Pasteur and Tyndall that “spontaneous generation is not occurring on the earth nowadays.” And, as already mentioned, a number of philosophers and neuroscientists (including John Eccles and Karl Popper) have declared that the life-mind discontinuity presents “the hard problem of consciousness,” judged by many to be unbridgeable.

The relevance of Soddy’s dualistic economics to steady-state economics is that there are two independent sets of limits to growth: the bottom-up biophysical and the top-down ethical-economic. The biophysical limit says real GDP cannot grow indefinitely; the ethical-economic limit says that beyond some point GDP growth ceases to be worth what it displaces, although it may still be bio-physically possible. Certainly Soddy did not speak the last word on dualism versus monism. Nevertheless, he was truly a pioneer in ecological economics, seen as the middle ground between the electron and the soul. Although no ecological economist has won the ersatz “Swedish National Bank’s Memorial Prize in Economics in Honor of Alfred Nobel,” pioneer ecological economist, Frederick Soddy, has the distinction of having won a real Nobel Prize in chemistry. That doesn’t mean that he is right about dualist economics, but I think it earns him a serious hearing.

Essays against growthism

Chapter 5 Three limits to growth

As production (real GDP) grows, its marginal utility declines, because we satisfy our most important needs first. Likewise, the marginal disutilitiy inflicted by growth increases, because as the economy expands into the ecosphere we sacrifice our least important ecological services first (to the extent we know them). These rising costs and declining benefits of growth at the margin are depicted in the diagram below.

From the diagram we can distinguish three concepts of limits to growth.

1. The “futility limit” occurs when marginal utility of production falls to zero. Even with no cost of production, there is a limit to how much we can consume and still enjoy it. There is a limit to how many goods we can enjoy in a given time period, as well as a limit to our stomachs and to the sensory capacity of our nervous systems. In a world with considerable poverty, and in which the poor observe the rich apparently still enjoying their extra wealth, this futility limit is thought to be far away, not only for the poor, but for everyone. By its “non satiety” postulate, neoclassical economics formally denies the concept of the futility limit. However, studies showing that beyond a threshold self- evaluated happiness (total utility) ceases to increase with GDP, strengthen the relevance of the futility limit.

2. The “ecological catastrophe limit” is represented by a sharp increase to the

Herman Daly vertical of the marginal cost curve. Some human activity, or novel combination of activities, may induce a chain reaction, or tipping point, and collapse our ecological niche. The leading candidate for the catastrophe limit at present is runaway climate change induced by greenhouse gasses emitted in pursuit of economic growth. Where along the horizontal axis it might occur is uncertain. I should note that the assumption of a continuously and smoothly increasing marginal cost (disutility) curve is quite optimistic. Given our limited understanding of how the ecosystem functions, we cannot be sure that we have correctly sequenced our growth-imposed sacrifices of ecological services from least to most important. In making way for growth, we may ignorantly sacrifice a vital ecosystem service ahead of a trivial one. Thus the marginal cost curve might in reality zig-zag up and down discontinuously, making it difficult to separate the catastrophe limit from the third and most important limit, namely the economic limit.

3. The “economic limit” is defined by marginal cost equal to marginal benefit and the consequent maximization of net benefit. The good thing about the economic limit is that it would appear to be the first limit encountered. It certainly occurs before the futility limit, and likely before the catastrophe limit, although as just noted that is uncertain. At worst the catastrophe limit might coincide with and discontinuously determine the economic limit. Therefore it is very important to estimate the risks of catastrophe and include them as costs counted in the disutility curve, as far as possible.

From the graph it is evident that increasing production and consumption is rightly called economic growth only up to the economic limit. Beyond that point it becomes uneconomic growth because it increases costs by more than benefits, making us poorer, not richer. Unfortunately it seems that we perversely continue to call it economic growth! Indeed, you will not find the term “uneconomic growth” in any textbook in macroeconomics. Any increase in real GDP is called “economic growth” even if it increases costs faster than benefits.

Economists will note that the logic just employed is familiar in microeconomics – marginal cost equal to marginal benefit defines the optimal size of a microeconomic unit, be it a firm or household. That logic is not usually applied to the macro-economy, however, because the latter is thought to be the Whole rather than a Part. When a Part expands into the finite Whole, it imposes an opportunity cost on other Parts that must shrink to make room for it. When the Whole itself expands, it is thought to impose no opportunity cost because it displaces nothing, presumably expanding into the void. But the macro-economy is not the Whole. It too is a Part, a part of the larger natural economy, the ecosphere, and its growth does inflict opportunity costs on the

Essays against growthism finite Whole that must be counted. Ignoring this fact leads many economists to believe that growth in GDP could never be uneconomic.

Standard economists might accept this diagram as a static picture, but argue that in a dynamic world technology will shift the marginal benefit curve upward and the marginal cost curve downward, moving their intersection (economic limit) ever to the right, so that continual growth remains both desirable and possible. However, the macroeconomic curve-shifters need to remember three things. First, the physically growing macro-economy is still limited by its displacement of the finite ecosphere, and by the entropic nature of its maintenance throughput. Second, the timing of new technology is uncertain. The expected technology may not be invented or come on line until after we have passed the economic limit. Do we then endure uneconomic growth while waiting and hoping for the curves to shift? Third, let us remember that the curves can also shift in the wrong directions, moving the economic limit back to the left. Did the technological advances of tetraethyl lead and chlorofluorocarbons shift the cost curve down or up? How about nuclear power? Adopting a steady state economy allows us to avoid being shoved past the economic limit. We could take our time to evaluate new technology rather than letting it blindly push growth that may well be uneconomic. And the steady state gives us some insurance against the risks of ecological catastrophe that increase with growthism and technological impatience.

Herman Daly

Chapter 6 Depletion of moral capital as a limit to growth

In Social Limits to Growth, Fred Hirsh argues that,

“Morality of the minimum order necessary for the functioning of a market system was assumed, nearly always implicitly, to be a kind of permanent free good, a natural resource of a non depleting kind.”

Elaborating the relation of Adam Smith’s Theory of Moral Sentiments to his Wealth of Nations, Hirsh points out that for Smith, men could safely be trusted not to harm the community in pursuing their own self interest not only because of the invisible hand of competition, but also because of built-in restraints on individual behavior derived from shared morals, religion, custom, and education. The problem that Hirsh sees is that:

“continuation of the growth process itself rests on certain preconditions that its own success has jeopardized through its individualistic ethos. Economic growth undermines its social foundations.”

The undermining of moral restraint has sources on both the demand and supply sides of the market for commodities. In his essay, “The Growth of Affluence and the Decline of Welfare,” E. J. Mishan has noted that:

“a society in which ‘anything goes’ is ipso facto, a society in which anything sells”.

A corollary is that self-restraint or abstinence in the interests of any higher claims than immediate gratification by consumption is bad for sales, therefore bad for production, employment, tax receipts, and everything else. The growth economy cannot grow unless it can sell. The idea that something should not be bought because it is frivolous, degrading, tawdry, or immoral is subversive to the growth imperative. If demand is to be sufficient for continual growth then everything must sell, which requires that “anything goes.”

On the supply side, the success of science-based technology has fostered the pseudo-religion of “scientism,” i.e., the elevation of the deterministic, materialistic, mechanistic, and reductionistic research program of science to the status of an ultimate World View. Undeniably, the methodological approach of scientific materialism has led to great increases in our

Essays against growthism technological prowess. Its practical success argues for its promotion from working hypothesis or research program to World View. But a World View of scientific materialism leaves no room for purpose, for good and evil, for better and worse states of the world. It erodes morality in general and moral restraint in economic life in particular. As power has increased, purpose has shrunk.

The baleful consequence of this fragmenting of the moral order, which we are depleting just as surely as we are wrecking the ecological order, is, as Mishan points out, that:

“effective argument [about policy] becomes impossible if there is no longer a common set of ultimate values or beliefs to which appeal can be made in the endeavor to persuade others.”

Just as all research in the physical sciences must dogmatically assume the existence of objective order in the physical world, so must research in the policy sciences dogmatically assume the existence of objective value in the moral world. Policy must be aimed at moving the world toward a better state of affairs or else it is senseless. If “better” and “worse” have no objective meaning, then policy can only be arbitrary and capricious. C. S. Lewis forcefully stated this fundamental truth:

“A dogmatic belief in objective value is necessary to the very idea of a rule which is not tyranny or an obedience which is not slavery”.

Likewise, Mishan claims that:

“a moral consensus that is to be enduring and effective is the product of a belief only in its divine origin.”

In other words, an enduring ethic must be more than a social convention. It must have some objective, transcendental authority, regardless of whether one calls that authority “God,” or ‘the Force,” or whatever. All attempts to treat moral value as entirely a part of nature to be manipulated and programmed by psychology or genetics only ends in a logical circularity.

Moral value cannot be reduced to or explained as a mere result of genetic chance and natural selection, without at the same time losing its authority. Even if we knew how to remake moral values as human artifacts, we must still have a criterion for deciding which values should be emphasized and which stifled in the new order. But if that necessary criterion is itself an artifact of humanly manipulated mutation and selection, then it too is a candidate for

Herman Daly being remade. There is nowhere to stand.

Once the false belief spreads (and it already has) that morality has no basis other than random chance and natural selection under impermanent environmental conditions, then it will have about as much authority and truth claim as the Easter Bunny. In sum, the attitudes of scientific materialism and cultural relativism actively undercut belief in a transcendental basis for objective value, which in turn undercuts moral consensus. Lacking that consensus there is no longer the “morality of the minimum order necessary for the functioning of a market system” presupposed by Adam Smith and his followers.

Essays against growthism

Chapter 7 A population perspective on the steady state economy

A steady state economy is defined by a constant population and a constant stock of physical capital. In a way it is an extension of the demographer’s model of a stationary population to include non-living populations of artifacts, with production rates equal to depreciation rates, as well as birth rates equal to death rates. The basic idea goes back to the classical economists and was most favorably envisioned by John Stuart Mill.

The population problem should be considered from the point of view of all populations – populations of both humans and their things (cars, houses, livestock, crops, cell phones, etc.) – in short, populations of all “dissipative structures” engendered, bred, or built by humans. Both human bodies and artifacts wear out and die. The populations of all organs that support human life, and the enjoyment thereof, require a metabolic throughput to counteract entropy and remain in an organized steady state. All of these organs are capital equipment that support our lives. Endosomatic (within skin) capital – heart, lungs, kidneys – supports our lives quite directly. Exosomatic (outside skin) capital supports our lives indirectly, and consists both of natural capital (e.g., photosynthesizing plants, structures comprising the hydrologic cycle), and manmade capital (e.g., farms, factories, electric grids).

In a physical sense, the final product of the economic activity of converting nature into ourselves and our stuff, and then using up or wearing out what we have made, is waste. What keeps this from being an idiotic activity – depleting and polluting, grinding up the world into waste – is the fact that all these populations of dissipative structures have the common purpose of supporting the maintenance and enjoyment of life. As John Ruskin said, “there is no wealth but life.”

Ownership of endosomatic organs is equally distributed, while the ownership of exosomatic organs is not, a fact giving rise to social conflict. Control of these external organs may be democratic or dictatorial. Our lungs are of little value without the complementary natural capital of green plants and atmospheric stocks of oxygen. Owning one’s own kidneys is not enough to support one’s life if one does not have access to water from rivers, lakes, or rain, either because of scarcity or monopoly ownership of the complementary exosomatic organ. Therefore all life-supporting organs, including natural capital, form a unity with a common function, regardless of whether they are located within the boundary of human skin or outside that boundary.

Herman Daly

Our standard of living is traditionally measured by the ratio of manmade capital to human beings – that is, the ratio of one kind of dissipative structure to another kind. Human bodies are made and maintained overwhelmingly from renewable resources, while capital equipment relies heavily on nonrenewable resources as well. The rate of evolutionary change of endosomatic organs is exceedingly slow; the rate of change of exosomatic organs has become very rapid. In fact the collective evolution of the human species is now overwhelmingly centered on exosomatic organs. We fly in airplanes, not with wings of our own. This exosomatic evolution is goal- directed, not random. Its driving purpose has become “economic growth,” and that growth has been achieved largely by the depletion of non-renewable resources.

Although human evolution is now decidedly purpose-driven, we continue to be enthralled by neo-Darwinist aversion to teleology and devotion to random. Economic growth, by promising more for everyone, becomes the de facto purpose, the social glue that keeps things from falling apart. But what happens when growth becomes uneconomic, when it begins to increase environmental and social costs faster than production benefits? How do we know that this is not already the case? If one asks such questions, one is told to talk about something else, like space colonies on Mars, or unlimited energy from cold fusion, or geo-engineering, or the wonders of globalization, and to remember that all these glorious purposes require growth, in order to provide still more growth in the future. Growth is the summum bonum – end of discussion!

In the light of these considerations, let us reconsider the idea of demographic transition. By definition this is the transition from a human population maintained by high birth rates equal to high death rates, to one maintained by low birth rates equal to low death rates, and consequently from a population with low average lifetimes to one with high average lifetimes. Statistically such transitions have often been observed as standard of living increases. Many studies have attempted to explain this correlation, and much hope has been invested in it as an automatic cure for overpopulation. “Development is the best contraceptive” is a related slogan, partly based in fact, and partly in wishful thinking.

There are a couple of thoughts I’d like to add to the discussion of demographic transition. The first and most obvious one is that populations of artifacts can undergo an analogous transition from high rates of production and depreciation to low ones. The lower rates will maintain a constant population of longer-lived, more durable artifacts. Our economy has a GDP- oriented focus on maximizing production flows (birth rates of artifacts) that

Essays against growthism keeps us in the pre-transition mode, giving rise to low product lifetimes, planned obsolescence, and high resource throughput, with consequent environmental destruction. The transition from a high maintenance throughput to a low one applies to both human and artifact populations independently. From an environmental perspective, lower throughput per unit of stock (longer human and product lifetimes) is desirable in both cases, at least up to some distant limit.

The second thought I would like to add is a question: does the human demographic transition, when induced by rising standard of living, as usually assumed, increase or decrease the total load of all dissipative structures on the environment? Specifically, if Indian fertility is to fall to the Swedish level, must Indian per capita possession of artifacts (standard of living) rise to the Swedish level? If so, would this not likely increase the total load of all dissipative structures on the Indian environment, perhaps beyond capacity to sustain the required throughput?

The point of this speculation is to suggest that “solving” the population problem by relying on the demographic transition to lower birth rates could impose a larger burden on the environment, rather than the smaller burden hoped for. Of course indirect reduction in fertility by automatic correlation with rising standard of living is politically easy, while direct fertility reduction is politically very difficult. But what is politically easy may be environmentally ineffective.

Also, even if a nation follows the demographic transition and achieves a balance between births and deaths, there is still the problem of immigration. In the US, Canada, and Western Europe, for example, nearly all population growth is due to net immigration. A mix of genuine humanitarianism and legitimate refugee needs on the one hand, with class-based cheap labor policies and ethnic politics on the other, has made immigration control politically divisive. If population pressure in pre-transition countries is eased by net emigration, while the benefits of population equilibrium in post-transition countries are erased by growth from net immigration, does that not weaken the basic causes of the demographic transition itself? In the face of increasingly open borders, high fertility seems less likely to be brought down by the automatic demographic transition. True, high-fertility immigrants into low-fertility countries eventually adopt the fertility behavior of the receiving country, but that takes a generation or more.

In a finite world, some populations grow at the expense of others. Homo sapiens and Mechanistra automobilica are now competing for land, water, and sunlight to grow either food or fuel. More nonhuman “bodies” will at some

Herman Daly point force a reduction in human bodies. This forced demographic transition is less optimistic than the voluntary one induced by chasing a higher standard of living by engendering fewer dependents. In an empty world we saw the trade- off between products and people as motivated by desire for a higher standard of living. In the full world, that trade-off is forced by competition for limited resources.

The usual counter to such thoughts is that we can improve the efficiency by which resource throughput maintains dissipative structures. For example, a car that lasts longer and gets better mileage is still a dissipative structure, but with a more efficient metabolism that allows it to live on a lower rate of throughput. Likewise, human organisms might be genetically redesigned to require less food, air, and water. Indeed smaller people would be the simplest way of increasing metabolic efficiency (measured as number of people maintained by a given resource throughput). To my knowledge no one has yet suggested breeding smaller people as a way to avoid limiting the number of births, and neither do I. We have, however, been busy breeding and genetically engineering larger and faster-growing plants and livestock, as well as building larger exosomatic organs, so that we become smaller relative to the other organisms we depend on, although we remain the same size absolutely. So far, in the empty world, the latter dissipative structures have been complementary with populations of human bodies, but in our finite and full world, the relationship has become competitive.

Indeed, if we think of population as the cumulative number of people ever to live over time, instead of those simultaneously living, then many artifact populations have long been competitive with the human population. That is, more consumption today of terrestrial low entropy in non-vital uses (Cadillacs, rockets, weapons) means less terrestrial low entropy available for tomorrow’s vital use of capturing solar energy (plows, solar collectors, dams, windmills). The solar energy that will still fall on the earth for millions of years after the material structures needed to capture it are dissipated, will be wasted, just like the solar energy that currently shines on the barren moon.

If our ethical understanding of the value of “sustainability” (longevity with sufficiency) is to “maximize” cumulative lives ever to be lived, subject to a per capita consumption level sufficient for a good life, then we must limit the load we place on the earth at any one time. Fewer people, and lower per capita resource consumption, facilitated by more equitable distribution, mean more (and more abundant) lives for a longer, but not infinite, future. There is no point in maximizing the cumulative number of lives lived in misery, so the qualification “sufficient for a good life” is important, and requires deep rethinking of economics, and a shift of focus from growth to sufficiency,

Essays against growthism including sufficient habitat for other species. It also requires rethinking of the traditional pro-natalist dogmas of the fundamentalist branches of most religions, including Christianity, Islam, and Judaism. The modern secularist religions of Marxism and Scientism likewise proselytize for the Ecumenical Church of Growthism while ignoring population.

Herman Daly

Chapter 8 The Guardian and Monbiot versus Forbes and Worstall

In his Guardian column, criticizing growth as “The Insatiable God,” George Monbiot writes:

“Is it not also time for a government commission on post-growth economics? Drawing on the work of thinkers like Herman Daly, Tim Jackson, Peter Victor, Kate Raworth, Rob Dietz and Dan O’Neill, it would investigate the possibility of moving towards a steady state economy: one that seeks distribution rather than blind expansion; that does not demand infinite growth on a finite planet…”

It is no surprise that we at CASSE strongly agree with Monbiot. Nor does it come as a surprise that a columnist for Forbes, Tim Worstall, would disagree. What is surprising is that Worstall uses me in support of his position (with which I disagree) and against Monbiot (with whom I agree). How does he manage such a reversal? By conflating growth (quantitative physical increase) with development (qualitative improvement), and claiming that 80% of GDP increase is due to qualitative “growth” (total factor productivity), and is therefore independent of increase in physical resource use–when in reality the “total” factor productivity increase in question is mainly caused by an increase in physical resource throughput. This requires further explanation.

In a previous article, also criticizing Monbiot, Worstall states his position more completely, as quoted below, [my brackets inserted].

“Value add [added] is economic growth, not more stuff. And we can take this insight to an extreme as well, that extreme being the steady state economy proposed by Herman Daly. In this world resources are only abstracted from the environment if this can be done sustainably. And we recycle everything of course [not energy or highly dispersed materials]. So, in such a world can we still have economic growth? We have no more access to more stuff to make stuff out of: so is growth still possible? Yes, of course it is. For we can still discover new methods of adding value to those resources that we do have available to us through our recycling. Daly calls this qualitative growth rather than the quantitative growth that we cannot have. [Actually I speak of “qualitative improvement” to emphasize that technology is not a

Essays against growthism

cardinally measurable quantity that can properly be said to grow]. But there’s absolutely no difference at all between this and the more conventional economic descriptions of growth. Qualitative growth is akin to growth through an increase in total factor productivity as opposed to growth via the use of more inputs [only remember that “more inputs” should include natural resources, but does not]. And Bob Solow once pointed out that 80% of the growth in the market economies in the 20th century came from tfp (total factor productivity) growth, not the consumption of more resources. We’re just using different words to describe exactly the same thing here [not really].”

Now if this were true we could keep resource throughput constant, avoiding most of the increasing environmental costs of growth, and still have 80% of historical GDP growth. Once matter-energy throughput is stabilized at an ecologically sustainable level we could presumably have significant GDP growth forever with minimal environmental costs, thanks to increasing total factor productivity. I would be happy if that were true, but I am pretty sure that it is not. Nevertheless, if Forbes believes it, maybe they would then endorse a policy of limiting resource throughput (cap-auction-trade or carbon tax), and be content with still significant GDP growth based only on total factor productivity increase? Don’t hold your breath. Worstall explicitly discounts any notion of resource scarcity, so why limit throughput? But, just for good measure, he argues here that even with resource scarcity, technology can, by itself, provide most of our accustomed growth, as it supposedly has in the past.

Worstall’s source for the 80% figure is the “Solow Residual,” which is commonly misinterpreted as a measure of total factor productivity. As calculated, it is a measure of “two-factor” productivity, the two factors being labor and capital. The Cobb-Douglas production function that underlies this calculation omits natural resources, the classical third factor. This means that it cannot possibly be an accurate analytical representation of production. It is like a recipe that includes the cook and the oven, but omits the list of ingredients.

Value added has to be added to something, namely natural resources, by something, namely labor and capital. The cook and the oven add value to the ingredients, but nothing happens without the ingredients. Our empty-world economic accounting attributes all value to labor and capital, and treats natural resources in situ as superabundant free gifts of nature. But in today’s full world, resources are not only scarce but have become the limiting factor. Leaving the limiting factor out of the analysis makes the Cobb-Douglas

Herman Daly production function not only incomplete, but also actively misleading.

Nevertheless, Worstall’s 80% figure comes from respected economists who have used the Cobb-Douglas production function in a statistical correlation – an exercise to see how much of increased production can be statistically explained by increases in labor and capital. The residual, what is not explained by labor and capital increase, is attributable to all causes other than labor and capital, including, for example, technology improvement and increased material and energy throughput (natural resource use).

A large residual indicates weak explanatory power of the theory being tested – in this case the Cobb-Douglas theory that production increase is due only to capital and labor increase. But instead of being embarrassed by a large unexplained residual, some economists were eager to “explain” it as an indirect measure of technological progress, as a measure of improvement in total factor productivity. But is technology the only causative factor reflected in the residual? No, there are surely others, most especially the omitted yet rapidly increasing flow of natural resources, of energy and concentrated minerals. The contribution of energy and materials from nature to production is also part of the residual, likely dwarfing technological improvement. Yet the entire residual is attributed to technology, to total factor productivity, or more accurately “two-factor” productivity, in the absence of natural resources, the classical third factor.

As the natural resource flow greatly increases, and capital and labor transform that growing resource flow into more products, then of course the measured productivity of capital and labor increases.

This increased “total” factor productivity, due mostly to increase in the ignored factor of natural resources, is then appealed to as evidence of the unimportance of natural resources, given the “empirical finding” that total factor productivity improvement (technology) “explains” so much of the observed increase in production. This reasoning is clearly specious. It is the increased resource use that explains the increase in total factor productivity (i.e. two-factor productivity), which cannot then be used as a reason to discount the importance of its own cause, namely an increased flow of natural resources. Indeed, the unimportance of natural resources could not possibly be an empirical finding of any statistical analysis based on the Cobb-Douglas production function, because that function assumes the unimportance of natural resources from the beginning by omitting them as a factor of production. This is a big confusion and Worstall is not the only one misled by it.

Essays against growthism

In conclusion, I think the Guardian and Monbiot’s position is not in the least weakened by the criticism from Forbes and Worstall, but that reliance on the Cobb-Douglas production function should certainly be weakened.

Herman Daly

Chapter 9 Use and abuse of the “natural capital” concept

Some people object to the concept of “natural capital” because they say it reduces nature to the status of a commodity to be marketed at its exchange value. This indeed is a danger, well discussed by George Monbiot. Monbiot’s criticism rightly focuses on the monetary pricing of natural capital. But it is worth clarifying that the word “capital” in its original non-monetary sense means “a stock or fund that yields a flow of useful goods or services into the future.” The word “capital” derives from “capita” meaning “heads,” referring to heads of cattle in a herd. The herd is the capital stock; the sustainable annual increase in the herd is the flow of useful goods or “income” yielded by the capital stock–all in physical, not monetary, terms. The same physical definition of natural capital applies to a forest that gives a sustainable yield of cut timber, or a fish population that yields a sustainable catch. This use of the term “natural capital” is based on the relations of physical stocks and flows, and is independent of prices and monetary valuation. Its main use has been to call attention to and oppose the unsustainable drawdown of natural capital that is falsely counted as income.

Big problems certainly arise when we consider natural capital as expressible as a sum of money (financial capital), and then take money in the bank growing at the interest rate as the standard by which to judge whether the value of natural capital is growing fast enough, and then, following the rules of present value maximization, liquidate populations growing slower than the interest rate and replace them with faster growing ones. This is not how the ecosystem works. Money is fungible, natural stocks are not; money has no physical dimension, natural populations do. Exchanges of matter and energy among parts of the ecosystem have an objective ecological basis. They are not governed by prices based on subjective human preferences in the market.

Furthermore, money in the bank is a stock that yields a flow of new money (interest) all by itself without diminishing itself, and without the aid of other flows. Can a herd of cattle yield a flow of additional cattle all by itself, and without diminishing itself? Certainly not. The existing stock of cattle transforms a resource flow of grass and water into new cattle faster than old cattle die. And the grass requires sunlight, soil, air, and more water. Like cattle, capital transforms resource flows into products and wastes, obeying the laws of thermodynamics. Capital is not a magic substance that grows by creating something out of nothing.

While the environmentalist’s objections to monetary valuation of natural

Essays against growthism capital are sound and important, it is also true that physical stock-flow (capital- income) relations are important in both ecology and economics. Parallel concepts in economics and ecology aid the understanding and proper integration of the two realities – if their similarities are not pushed too far!

The biggest mistake in integrating economics and ecology is confusion about which is the Part and which is the Whole. Consider the following official statement, also cited by Monbiot:

“As the White Paper rightly emphasized, the environment is part of the economy and needs to be properly integrated into it so that growth opportunities will not be missed” (Dieter Helm, Chairman of the Natural Capital Committee, The State of Natural Capital: Restoring our Natural Assets, Second report to the Economic Affairs Committee, UK, 2014).

If the Chairman of the UK Natural Capital Committee gets it exactly backwards, then probably others do too. The environment, the finite ecosphere, is the Whole and the economic subsystem is a Part – a completely dependent part. It is the economy that needs to be properly integrated into the ecosphere so that its limits on the growth of the subsystem will not be missed. Given this fundamental misconception, it is not hard to understand how other errors follow, and how some economists, imagining that the ecosphere is part of the economy, get confused about valuation of natural capital.

In the empty world, natural capital was a free good, correctly priced at zero. In the full world, natural capital is scarce. How do we take account of that scarcity without prices? This question is what understandably leads economists to price natural capital, and then leads to the monetary valuation problems just discussed. But is there not another way to recognize scarcity, besides pricing? Yes, one could impose quotas – quantitative limits on the resource flows at ecologically sustainable levels that do not further deplete natural capital. We could recognize scarcity by living sustainably off of natural income rather than living unsustainably from the depletion of natural capital.

In economics, “income” is by definition the maximum amount that can be consumed this year without reducing the capacity to produce the same amount next year. In other words, income is by definition sustainable, and the whole reason for income accounting is to avoid impoverishment by inadvertent consumption of capital. This prudential rule, although a big improvement over present practice, is still anthropocentric in that it considers nature in terms only of its instrumental value to humans. Without denying the obvious instrumental value of nature to humans, many of us consider nature

Herman Daly to also have intrinsic value, based partly on the enjoyment by other species of their own sentient lives. Even if the sentient experience of other species is quite reasonably considered less intrinsically valuable than that of humans, it is not zero. Therefore we have a reason to keep the scale of human takeover even below that indicated by maximization of instrumental value to humans. On the basis of intrinsic value alone, one may argue that the more humans the better – as long as we are not all alive at the same time! Maximizing cumulative lives ever to be lived with sufficient wealth for a good (not luxurious) life is very different from, and inconsistent with, maximizing simultaneous lives.

In addition, speaking for myself, and I expect many others, there is a deeper consideration. I cannot reasonably conceive (pace neo-Darwinist materialists) that our marvelous world is merely the random product of multiplying infinitesimal probabilities by infinitely many trials. That is like claiming that Hamlet was written by infinitely many monkeys, banging away at infinitely many typewriters. A world embodying mathematical order, a system of evolutionary adaptation, conscious rational thought capable of perceiving this order, and the moral ability to distinguish good from bad, would seem to be more like a creation than a happenstance. As creature-in-charge, whether by designation or default, we humans have the unfulfilled obligation to preserve and respect the capacity of Creation to support life in full. This is a value judgment, a duty based both historically and logically on a traditional theistic worldview. Although nowadays explicitly rejected by materialists, and by some theists who confuse dominion with vandalism, this worldview fortunately still survives as more than a vestigial cultural inheritance.

Whatever one thinks about these deeper issues, the point is that determination of the scale of resource throughput cannot reasonably be based on pseudo prices. But scale does have real consequences for prices. Fixing the scale of the human niche is a price-determining macro decision based on ethical and religious criteria. It is not a price-determined micro decision based on market expression of individual preferences weighted by ability to pay.

However the scale of the macro-limited resource flow is determined, we next face the question of how to ration that amount among competing micro claimants? By prices. So we are back to pricing, but in a very different sense. Prices now are tools for rationing a fixed predetermined flow of resources, and no longer determine the volume of resources taken from nature, nor the physical scale of the economic subsystem. Market prices (modified by taxes or cap-auction-trade) ration resources as an alternative to direct quantitative allocation by central planning. The physical scale of the economy has been

Essays against growthism limited, and the resulting scarcity rents are captured for the public treasury, permitting elimination of many regressive taxes. Dollars become ration tickets; no longer votes that determine how big the scale of the economy will be relative to the ecosystem. The market no longer conveys the message “we can grow as much as we want as long as we pay the price.” Rather the new message is, “there is only so much to go around, and dollars are your ration ticket for a part of the fixed quota, not a vote that can be cast for growth.” Equitable distribution of dollar incomes (ration tickets) will then be seen as the serious matter that it is, to be solved by sharing, not evaded by growth, especially not by uneconomic growth.

Unfortunately, the more common approach in economics has been to try somehow to calculate that price that internalizes sustainability and impose it via taxes. The right price, given the demand curve, will result in the corresponding right quantity. However, there is a two-fold problem: first, methods of calculating the “right” price are usually specious (e.g. contingent valuation); and second, we don’t really know where the shifting demand curve is, except on the blackboard. In fixing prices, errors in demand estimation result in variations in quantity. In fixing quantity, errors result in variations in price. The ecosystem is sensitive to quantity, not price. It is ecologically safer to let errors in estimation of demand result in price changes rather than quantity changes. This is one advantage of the cap-auction-trade system relative to carbon taxes.

Although a great improvement over the present, carbon taxes attempt to ration carbon fuels without having really limited their supply. Nor are the “dollar ration tickets” limited, given the fractional reserve banks’ ability to create money, and the Fed’s policy of issuing more money whenever growth slows down.

A monetary reform to 100% reserve requirements on demand deposits would be a good policy for many reasons, to which we can add, as a necessary supplement to a carbon tax. It would not be necessary as a supplement to cap-auction-trade, but should be adopted for independent reasons. A good symbol should not be allowed to do things that the reality it symbolizes cannot do. One hundred percent reserves would require the symbol of money to behave more like real wealth, at least in some important ways. But this is another story.

Herman Daly

Chapter 10 Cold war left-overs

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

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

Recently, another socialist (I am not sure if he considers himself a Marxist) has criticized the steady-state economy for being essentially capitalist. This is economic historian Richard Smith. He sees the steady-state economy as a distraction from “eco-socialism.”

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

Essays against growthism

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

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

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

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

Herman Daly

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

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

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

Essays against growthism use of the resource. Auctioning transferrable quotas rather than giving them away (markets rather direct government allocation, pace Mr. Smith) will raise enough revenue to greatly reduce taxes on the poor.

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

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

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

Herman Daly

Chapter 11 Krugman’s growthism

Paul Krugman often writes sensibly and cogently about economic policy. But like many economists, he can become incoherent on the subject of growth. Consider his New York Times piece, published in April 2014:

“…let’s talk for a minute about the overall relationship between economic growth and the environment.

Other things equal, more G.D.P. tends to mean more pollution. What transformed China into the world’s largest emitter of greenhouse gases? Explosive economic growth. But other things don’t have to be equal. There’s no necessary one-to-one relationship between growth and pollution.

People on both the left and the right often fail to understand this point…On the left, you sometimes find environmentalists asserting that to save the planet we must give up on the idea of an ever-growing economy; on the right, you often find assertions that any attempt to limit pollution will have devastating impacts on growth…[Krugman says both are wrong]…But there’s no reason we can’t become richer while reducing our impact on the environment [emphasis mine].”

Krugman distances himself from “leftist” environmentalists who say we must give up the idea of an ever-growing economy, and is himself apparently unwilling to give it up. But he thinks the “right-wingers” are wrong to believe that protecting the environment will devastate growth. Krugman then advocates the more sensible goal of “becoming richer,” but fails to ask if growth in GDP is any longer really making us richer. He seems to equate, or at least fails to distinguish, “growing GDP” from “becoming richer.” Does he assume that because GDP growth did make us richer in yesterday’s empty world it must still do so in today’s full world?

The usual but unjustified assumption of many economists is that a growing GDP increases measured wealth by more than it increases unmeasured “illth” (a word coined by John Ruskin to designate the opposite of wealth). To elaborate, illth is a joint product with wealth. At the current margin, it is likely that the GDP flow component of “bads” adds to the stock of “illth” faster than the GDP flow of goods adds to the stock of wealth. We fail to measure bads and illth because there is no demand for them, consequently no market and

Essays against growthism no price, so there is no easy measure of negative value. However, what is unmeasured does not for that reason become unreal. It continues to exist, and even grow. Since we do not measure illth, I cannot prove that growth is currently making us poorer, any more than Krugman can prove that it is making us richer. I am just pointing out that his GDP growthism assumes a proposition that, while true in the past, is very doubtful today in the US.

To see why it is doubtful, just consider a catalog of negative joint products whose value should be measured under the rubric of illth: climate change from excess carbon in the atmosphere; radioactive wastes and risks of nuclear power plants; biodiversity loss; depleted mines; deforestation; eroded topsoil; dry wells, rivers and aquifers; the dead zone in the Gulf of Mexico; gyres of plastic trash in the oceans; the ozone hole; exhausting and dangerous labor; and the un-repayable debt from trying to push growth in the symbolic financial sector beyond what is possible in the real sector (not to mention military expenditures to maintain access to global resources).

These negative joint products of GDP growth go far beyond Krugman’s minimal nondescript category of “pollution.” Not only are these public bads un- subtracted, but the private anti-bads they make necessary are added to GDP! For example, the bad of eroded topsoil is not subtracted, but the anti-bad of fertilizer is added. The bad of Gulf and Arctic oil spills is not subtracted, but the anti-bad of clean-up is added. The natural capital depletion of mines, wells, forests, and fisheries is falsely accounted as income rather than capital draw-down.

Such asymmetric accounting alone is sufficient to refute growthism, but for good measure note that the growthists also neglect the most basic laws of economics, namely, the diminishing marginal benefit of income and increasing marginal cost of production. Why do they think these two curves will never intersect? Is Krugman just advocating temporary growth up to some level of optimality or sufficiency, or an ever-growing economy? If the latter, then either the surface of the Earth must grow at a rate approximating the rate of interest, or real GDP must become “angel GDP” with no physical dimension.

Krugman is correct that that there is no necessary “one-to-one relationship between growth and pollution.” But there certainly is a very strong positive correlation between real GDP growth and resource throughput (the entropic physical flow that begins with depletion and ends with pollution). Since when do economists dismiss significant correlations just because they are not “one- to-one”?

Probably we could indeed become richer (increase net wealth) while reducing

Herman Daly our impact on the environment, as Krugman hopes. But it will be by reducing uneconomic growth (in throughput and its close correlate, GDP) rather than by increasing it. I would be glad if this were what Krugman has in mind, but I doubt that it is.

In any case, it would be good if he would specify whether he thinks current growth in real GDP is still economic in the literal sense that its benefits exceed its costs at the margin. What specifically makes him think this is so? In other words, is GDP growth currently making us richer or poorer, and how do we know?

Since GDP is a conflation of both costly and beneficial activity, should we not separate the cost and benefit items into separate accounts and compare them at the margin, instead of adding them together? How do we know that growth in GDP is a sensible goal if we do not know if the associated benefits are growing more or less rapidly than the associated costs? Mainstream economists, including Krugman, need to free their thinking from dogmatic GDP growthism.

Essays against growthism

Chapter 12 Full employment versus jobless growth

The Full Employment Act of 1946 declared full employment to be a major goal of U.S. policy. Economic growth was then seen as the means to attain the end of full employment. Today that relation has been inverted. Economic growth has become the end, and if the means to attain that end – automation, off- shoring, excessive immigration – result in unemployment, well that is the price “we” just have to pay for the glorified goal of growth in GDP. If we really want full employment we must reverse this inversion of ends and means. We can serve the goal of full employment by restricting automation, off-shoring, and easy immigration to periods of true domestic labor shortage as indicated by high and rising wages. In addition, full employment can also be served by reducing the length of the working day, week, or year, in exchange for more leisure, rather than more GDP.

Real wages have been falling for decades, yet our corporations, hungry for cheaper labor, keep bleating about a labor shortage. What the corporations really want is a surplus of labor. With surplus labor, wages generally do not rise and therefore all the gains from productivity increase will go to profit, not wages. Hence the elitist support for automation, off-shoring, and lax enforcement of democratically enacted immigration laws.

Traditional stimulus policies do little to reduce unemployment, for several reasons. First, the jobs that workers would have gone back to have largely been off-shored as employers sought cheap foreign labor. Second, cheap foreign labor by way of illegal immigration seems to have been welcomed by domestic employers trying to fill the remaining jobs at home. Third, jobs have been “outsourced” to automation – to robots in the factory and to the consumer, who is now her own checkout clerk, travel agent, baggage handler, bank teller, gas station attendant, etc. And fourth, quantitative easing has kept interest rates low and bond prices high to the benefit of banks’ balance sheets more than employment. The public benefits from lower mortgage rates, but loses more from reduced interest earnings on savings, which does not help employment.

These facts argue for a return to the original intent of the Full Employment Act of 1946 – specifically that full employment, not growth, should be the goal. Let us consider four further reasons for this return.

First, off-shoring production and jobs cannot be justified as “trade.” The good whose production has been off-shored is sold in the U.S. to satisfy the same

Herman Daly market that its domestic production used to satisfy. Off-shoring increases U.S. imports, and since no product has been exported in exchange, it also increases the U.S. trade deficit. Because the production of the good now takes place abroad, stimulus spending in the U.S. largely stimulates U.S. imports and employment abroad. Demand for U.S. labor consequently declines, lowering U.S. employment and/or wages. It is absurd that off-shoring should be defended in the name of “free trade.” No goods are traded. The absurdity is compounded by the fact that off-shoring entails moving capital abroad, and international immobility of capital is one of the premises on which the doctrine of comparative advantage rests – and the policy of free trade is based on comparative advantage! If we really believe in comparative advantage and free trade then we must place limits on capital mobility and off- shoring.

Second, for those jobs that have not yet, or cannot easily be off-shored (e.g., services such as bartending, waiting tables, gardening, medical care, etc.), cheap foreign labor has become available via illegal immigration. Many U.S. employers seem to welcome illegal immigrants. Most are good and honest workers, willing to work for little, and unable to complain about conditions given their illegal status. What could be better for union busting and driving down wages of the American working class, which, by the way, includes many legal immigrants? The federal government, ever sensitive to the interests of the employing class, has done an obligingly poor job of enforcing our immigration laws.

Third, the automation of factory work, services of bank tellers, gas station attendants, etc. is usually praised as labor-saving technical progress. To some extent it is that, but it also represents substitution of capital for labor and labor-shifting to the consumer. The consumer does not even get the minimum wage for her extra work, even considering the dubious claim that she enjoys lower prices in return for her self-service. Ordinary human contacts are diminished and commerce becomes more sterile and impersonally digitized. In particular daily interaction between people of different socio-economic classes is reduced.

Fourth, a “Tobin tax,” a small percentage tax on all stock market, bond market, and foreign exchange transactions would slow down the excessive trading, speculation, and gambling in the Wall Street casino, and at the same time raise a lot of revenue to help close the federal deficit. This could be enacted quickly. In the longer run we should move to 100% reserve requirements on demand deposits and end the commercial banks’ alchemy of creating money out of nothing and lending it at interest. Every dollar loaned by a bank would be a dollar previously saved by the owner of a time deposit,

Essays against growthism respecting the classical economic balance between abstinence from consumption and new investment. Most people mistakenly believe that this is how banks work now. Our money supply would move from being mainly interest-bearing debt of private banks, to being non-interest-bearing government debt. Money should be a public utility (a unit of account, a store of value, and a medium of exchange), not an instrument by which banks extort unnecessary interest payment from the public – like a private toll booth on a public road.

Cheap labor and funny money policies in the name of “growth and global competitiveness” are class-based and elitist. Even when dressed in the emperor’s fashionable wardrobe of free trade, globalization, open borders, financial innovation, and automation, they remain policies of growth by cheap labor and financial delusion. And we wonder why the U.S. distribution of income has become so unequal? We are constantly told it is because growth is too slow – the single cause of all our problems! That we would be better off if we were richer is a definitional truism. The question is, does further growth in GDP really make us richer, or is it making us poorer by increasing the uncounted costs of growth faster than the measured benefits? That simple question is taboo among economists and politicians, lest we discover that the falling benefits of growth are all going to the top 1%, while the rising costs are “shared” with the poor, the future, and other species.

Herman Daly

Chapter 13 The negative natural interest rate and uneconomic growth

In a speech to the International Monetary Fund, in November 2013, economist Larry Summers argued that since near zero interest rates have not stimulated GDP growth sufficiently to reach full employment, we probably need a negative interest rate. By this he means a negative monetary rate set by the Fed to equal the “natural” rate, which he believes is now negative. The natural rate, as Summers uses the term, means the rate that would equalize planned saving with planned investment, and thereby, as Keynes taught us, result in full employment. With near zero monetary rates, current inflation already pushes us to a negative real rate of interest, but that is still insufficiently negative, in Summers’ view, to equalize planned investment with planned saving and thereby stimulate GDP growth sufficient for full employment. A negative interest rate is a stunning proposal, and it takes some effort to work out its implications.

Suppose for a moment that GDP growth, economic growth as we gratuitously call it, entails uneconomic growth by a more comprehensive measure of costs and benefits – that GDP growth has now begun to increase counted plus uncounted costs by more than counted plus uncounted benefits, making us inclusively and collectively poorer, not richer. If that is the case, and there are good reasons to believe that it is, would it not then be reasonable to expect, along with Summers, that the natural rate of interest is negative, and that maybe the monetary rate should be too? This is hard to imagine, but it means that savers would have to pay investors (and banks) to use the funds that they have saved, rather than investors and banks paying savers for the use of their money. To keep the GDP growing sufficiently to avoid unemployment we would need a growing monetary circular flow, which would require more investment, which, in turn, would only be forthcoming if the monetary interest rate were negative (i.e., if you lost less by investing your money than by holding it). A negative interest rate “makes sense” if the goal is to keep on increasing GDP even after it has begun to make us poorer at the margin – that is after growth has already pushed us beyond the optimal scale of the macro-economy relative to the containing ecosphere, and thereby become uneconomic.

A negative monetary interest rate means that citizens will spend rather than save, so savings will not be available to finance the investments that produce the GDP growth needed for full employment. The new money for investment comes from the Fed. Quantitative easing (money printing) is the source of the

Essays against growthism new money. The faith is that an ever-expanding monetary circulation will pull the real economy along behind it, providing growth in real income and jobs as previously idle resources are employed. But the resulting GDP growth is now uneconomic because in the full world the “idle” resources are not really idle – they are providing vital ecosystem services. Redeploying these resources to GDP growth has environmental and social opportunity costs that are greater than production benefits. Although hyper-Keynesian macroeconomists do not believe this, the micro actors in the real economy experience the constraints of the full world, and consequently find it difficult to follow the unlimited growth recipe.

Summers (along with other mainstream growth economists), does not accept the concept of optimal scale of the macro-economy, nor the possibility of uneconomic growth in the sense that growth in resource throughput could reduce net wealth and wellbeing. Nevertheless, it is at least consistent with his view that the natural rate of interest is negative.

A positive interest rate restricts the total volume of investment but allocates it to the most productive projects. A negative interest rate increases volume, but allows investment in practically anything, increasing the probability that growth will be uneconomic. Shall we become hyper-Keynesians and push GDP growth to maintain full employment, even after growth has become uneconomic? Or shall we back off from growth and seek full employment by job sharing, distributive equity, and reallocation toward leisure and public goods?

Why would we allow growth to carry the macro-economy beyond the optimal scale? Because growth in GDP is considered the summum bonum, and it is heresy not to advocate increasing it. If increasing GDP makes us worse off we will not admit it, but will adapt to the experience of increased scarcity by pushing GDP growth further. Non-growth is viewed as “stagnation,” not as a sensible steady state adaptation to objective limits. Stimulating GDP growth by increasing consumption and investment, while cutting savings, is the only way that hyper-Keynesians can think of to serve the worthy goal of full employment. There really are other ways, and people really do need to save for security and old age, as well as for maintenance and replacement of the existing capital stock. Yet the Fed is being advised to penalize saving with a negative interest rate. The focus is on what the growth model requires, not on what people need.

A negative interest rate seems also to be the advice from Paul Krugman, who praises Summers’ insights. It is understandable from their viewpoint because in their vision the economy is not a subsystem, or if it is, it is infinitesimal

Herman Daly relative to the total system. The economy can expand forever, either into the void or into a near infinite environment. It does not grow into a finite ecosphere, and therefore has no optimal scale relative to any constraining and sustaining environment. Its aggregate growth incurs no opportunity cost and can never be uneconomic. Unfortunately, this tacit assumption of the growth model is seriously wrong.

Welcome to the full-world economy. In the old empty-world economy, assumed in the macro models of Summers and Krugman, growth always remains economic, so they advocate printing more and more dollars to expand the economy to take over ever more of the “unemployed” sources and sinks of the ecosystem. If a temporary liquidity trap or zero lower bound on interest rates keeps the new money from being spent, then low or even negative monetary interest rates will open the spending spigot. The empty world assumption guarantees that the newly expanded production will always be worth more than the natural wealth it displaces. But what may well have been true in yesterday’s empty world is no longer true in today’s full world.

This is an upsetting prospect for growth economists – growth is required for full employment, but growth now makes us collectively poorer. Without growth we would have to cure poverty by redistributing wealth and stabilizing population, two political anathemas, and could only finance investment by reducing present consumption, a third anathema. There remains the microeconomic policy of reallocating the same GDP to a more efficient mix of products by internalizing external costs (getting prices right). While this certainly should be done, it is not macroeconomic growth as pursued by the Fed.

These painful choices could be avoided if only we were richer. So let’s just focus on getting richer. How? By growing the aggregate GDP, of course! What? You repeat that GDP growth is now uneconomic? That cannot possibly be right, they say. OK, that is an empirical question. Let’s separate costs from benefits in the existing GDP accounts, and develop more inclusive measures of each, and then see which grows more as GDP grows. This has been done (ISEW, GPI, Ecological Footprint), and results support the uneconomic growth view. If growth economists think these studies were done badly they should do them better rather than ignore the issue.

The leftover Keynesians are correct in pointing out that there is unemployed labor and capital. But natural resources are fully employed, indeed overexploited, and the limiting factor in the full world is natural resources, not labor or capital as used to be the case in the empty world. Some growth economists think that the world is still empty. Others think there is no limiting

Essays against growthism factor – that capital is a good substitute for natural resources. This is wrong, as Nicholas Georgescu-Roegen has shown long ago. Capital funds and natural resource flows are complements, not substitutes, and the one in short supply is limiting. Increasing a non-limiting factor doesn’t help. Growth economists should know this.

Although the growthists think quantitative easing will stimulate demand they are disappointed, even in terms of their own model, because the banks, who are supposed to lend the new money, encounter a “lack of bankable projects,” to use World Bank terminology. This of course should be expected in the new era of uneconomic growth. The new money, rather than calling forth new wealth by employing all these hypothetical idle resources from the empty world era, simply bids up existing asset prices in the full world. Most asset prices are not counted in the consumer price index, (not to mention exclusion of food and energy) so economists unconvincingly claim that quantitative easing has not been inflationary, and therefore they can keep doing it. And even if it causes some inflation, that would help make the interest rate negative.

Aside from needed electronic transaction balances, people would not keep money in the bank if the interest rate were negative. To make them do so, the alternative of cash would basically have to be eliminated, and all money would be electronic bank deposits. This intensifies central bank control, and the specter of “bail-ins” (confiscations of deposits) as occurred in Cyprus. Even as distrust of money increases, people will not immediately revert to barter, in spite of negative interest rates. Barter is so inconvenient that money remains more efficient even if it loses value at a rapid rate, as we have seen in several hyperinflations. But transactions balances will be minimized, and speculative and store-of value-balances will be diverted to real estate, gold, works of art, tulip bulbs, Bitcoins, and beanie babies, creating speculative bubbles. But not to worry, say Summers and Krugman, bubbles are a necessary, if regrettable, means to boost spending and growth in the era of newly recognized negative natural interest rates – and still unrecognized uneconomic growth.

A bright silver lining to this cloud of confusion is that the recognition of a negative natural interest rate may be the prelude to recognition of the underlying uneconomic growth as its cause. For sure this has not yet happened because so far the negative natural interest rate is seen as a reason to push growth with a negative monetary interest rate, rather than as a signal that growth has become a losing game. But such a realization is a reasonable hope. Perhaps a step in this direction is Summers’ suggestion that the old Alvin Hansen thesis of secular stagnation might deserve a new look.

Herman Daly

The logic that suggests negative interest also suggests negative wages as a further means of increasing investment by lowering costs. To maintain full employment via GDP growth, not only must the interest rate now be negative, but wages should become negative as well. No one yet advocates negative wages because subsistence provides an inconvenient lower positive bound below which workers die. On this “other side of the looking glass” the logic of uneconomic growth pushes us in the direction of a negative “natural” wage, just as with a negative “natural” rate of interest. So we artificially lower the wage costs to “job creators” by subsidizing below-subsistence wages with food stamps, housing subsidies, and unpaid internships. Negative interest rates also subsidize investment in job-replacing capital equipment, further lowering wages. Negative interest rates, and below-subsistence wages, further subsidize the uneconomic growth that gave rise to them in the first place.

The leftover Keynesians tell us, reasonably enough, that paying people to dig holes in the ground and then fill them up, is better than leaving them unemployed with no income. But paying people to deplete and pollute the Creation on which our lives and welfare ultimately depend, in order to expand the macro-economy beyond its optimal or even sustainable scale, is surely worse than just giving them a minimum income, and some leisure time, in exchange for doing no harm.

An artificial monetary rate of interest forced down by quantitative easing to equal a negative natural rate of interest resulting from uneconomic growth is not a solution. It is just baling wire and duct tape. But it is all that even our best and brightest economists can come up with as long as they are imprisoned in the empty world growth model. The way out of this trap is to recognize that the growth era is over, and that instead of forcing growth into uneconomic territory we must seek to maintain a steady-state economy at something approximating the optimal scale. Since we have overshot the optimal scale of the macro-economy, this will require a period of retrenchment to a reduced level, accompanied by much more equal sharing, frugality, and efficiency. Sharing means putting limits on the range of inequality that we permit; it has huge moral and social benefits, even if politically difficult. Frugality means using less resource throughput; it results in less depletion and pollution and more recycling and efficiency. Efficiency means squeezing more life-support and want-satisfaction from a given throughput by technological advance and by improvement in our ethical priorities. Economists need to replace the Keynesian-neoclassical growth synthesis with a new version of the classical stationary state, as outlined in the next and concluding essay.

Essays against growthism

Chapter 14 Top 10 policies for a steady-state economy

Let’s get specific. Here are ten policies for ending uneconomic growth and moving to a steady-state economy. A steady-state economy is one that develops qualitatively (by improvement in science, technology, and ethics) without growing quantitatively in physical dimensions; it lives on a diet – a constant metabolic flow of resources from depletion to pollution (the entropic throughput) maintained at a level that is both sufficient for a good life and within the assimilative and regenerative capacities of the containing ecosystem.

Ten is an arbitrary number – just a way to get specific and challenge others to suggest improvements. Although the whole package here discussed fits together in the sense that some policies supplement and balance others, most of them could be adopted singly and gradually.

1. Cap-auction-trade systems for basic resources. Caps limit biophysical scale by quotas on depletion or pollution, whichever is more limiting. Auctioning the quotas captures scarcity rents for equitable redistribution. Trade allows efficient allocation to highest uses. This policy has the advantage of transparency. There is a limit to the amount and rate of depletion and pollution that the economy can be allowed to impose on the ecosystem. Caps are physical quotas, limits to the throughput of basic resources, especially fossil fuels. The quota usually should be applied at the input end because depletion is more spatially concentrated than pollution and hence easier to monitor. Also the higher price of basic resources will induce their more economical use at each upstream stage of production, as well as at the final stages of consumption and recycling. Ownership of the quotas is initially public – the government periodically auctions them to individuals and firms. There should be no “grandfathering” of quota rights to previous users, nor “offshoring” of quotas for new fossil fuel power plants in one by place by credits from planting trees somewhere else. Reforestation is a good policy on its own. It is too late for self-canceling half measures – increased carbon sequestration and decreased emissions are both needed. The auction revenues go to the treasury and are used to replace regressive taxes, such as the payroll tax, and to reduce income tax on the lowest incomes. Once purchased at auction the quotas can be freely bought and sold by third parties, just as can the resources whose rate of depletion they limit. The cap serves the goal of sustainable scale; the auction serves the goal of fair distribution; and trading allows efficient allocation – three goals, three policy instruments. Although mainly applied to nonrenewable resources, the same logic works for limiting the off-take from renewable resources, such as

Herman Daly fisheries and forests, with the quota level set to approximate a sustainable yield.

2. Ecological tax reform. Shift the tax base from value added (labor and capital) to “that to which value is added,” namely the entropic throughput of resources extracted from nature (depletion), and returned to nature (pollution). Such a tax shift prices the scarce but previously un-priced contribution of nature. Value added to natural resources by labor and capital is something we want to encourage, so stop taxing it. Depletion and pollution are things we want to discourage, so tax them. Payment above necessary supply price is rent, unearned income, and most economists have long advocated taxing it, both for efficiency and equity reasons. Ecological tax reform can be an alternative or a supplement to cap-auction-trade systems.

3. Limit the range of inequality in income distribution with a minimum income and a maximum income. Without aggregate growth poverty reduction requires redistribution. Unlimited inequality is unfair; complete equality is also unfair. Seek fair limits to the range of inequality. The civil service, the military, and the university manage with a range of inequality of a factor of 15 or 20. Corporate America has a range of 500 or more. Many industrial nations are below 25. Could we not limit the range to, say, 100, and see how it works? This might mean a minimum of 20 thousand dollars and a maximum of two million. Is that not more than enough to give incentive for hard work and compensate real differences? People who have reached the limit could either work for nothing at the margin if they enjoy their work, or devote their extra time to hobbies or public service. The demand left unmet by those at the top will be filled by those who are below the maximum. A sense of community, necessary for democracy, is hard to maintain across the vast income differences current in the United States. 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.

4. Free up the length of the working day, week, and year – allow greater option for part-time or personal work. Full-time external employment for all is hard to provide without growth. Other industrial countries have much longer vacations and maternity leaves than the United States. For the classical economists the length of the working day was a key variable by which the worker (self-employed yeoman or artisan) balanced the marginal disutility of labor with the marginal utility of income and of leisure so as to maximize enjoyment of life. Under industrialism the length of the working day became a parameter rather than a variable (and for Karl Marx was the key determinant of the rate of exploitation). We need to make it more of a variable subject to choice by the worker. Milton Friedman wanted “freedom to choose” – OK,

Essays against growthism here is an important choice most of us are not allowed to make! And we should stop biasing the labor-leisure choice by advertising to stimulate more consumption and more labor to pay for it. At a minimum advertising should no longer be treated as a tax-deductible expense of production.

5. Re-regulate international commerce – move away from free trade, free capital mobility, and globalization. Cap-auction-trade, ecological tax reform, and other national measures that internalize environmental costs will raise prices and put us at a competitive disadvantage in international trade with countries that do not internalize costs. We should adopt compensating tariffs to protect, not inefficient firms, but efficient national policies of cost internalization from standards-lowering competition with foreign firms that are not required to pay the social and environmental costs they inflict. This “new protectionism” is very different from the “old protectionism” that was designed to protect a truly inefficient domestic firm from a more efficient foreign firm. The first rule of efficiency is “count all the costs” – not “free trade,” which coupled with free capital mobility leads to a standards-lowering competition to count as few costs as possible. Tariffs are also a good source of public revenue. This will run afoul of the World Trade Organization/World Bank/International Monetary Fund, so….

6. Downgrade the WTO/WB/IMF. Reform these organizations based on something like Keynes’s original plan for a multilateral payments clearing union, charging penalty rates on surplus as well as deficit balances with the union – seek balance on current account, and thereby avoid large foreign debts and capital account transfers. For example, under Keynes’s plan the U.S. would pay a penalty charge to the clearing union for its large deficit with the rest of the world, and China would also pay a similar penalty for its surplus. Both sides of the imbalance would be pressured to balance their current accounts by financial penalties, and if need be by exchange rate adjustments relative to the clearing account unit, called the “bancor” by Keynes. The bancor would also serve as the world reserve currency, a privilege that should not be enjoyed by any national currency, including the U.S. dollar. Reserve currency status for the dollar is a benefit to the U.S. – rather like a truckload of free heroin is a benefit to an addict. The bancor would be like gold under the gold standard, only you would not have to tear up the earth to dig it out. Alternatively a regime of freely fluctuating exchange rates is a viable possibility requiring less international cooperation.

7. Move away from fractional reserve banking toward a system of 100% reserve requirements. This would put control of the money supply and seigniorage (profit made by the issuer of fiat money) in the hands of the government rather than private banks, which would no longer be able to live

Herman Daly the alchemist’s dream by creating money out of nothing and lending it at interest. All quasi-bank financial institutions should be brought under this rule, regulated as commercial banks subject to 100% reserve requirements. Banks would earn their profit by financial intermediation only, lending savers’ money for them (charging a loan rate higher than the rate paid to savings or “time- account” depositors) and charging for checking, safekeeping, and other services. With 100% reserves every dollar loaned to a borrower would be a dollar previously saved by a depositor (and not available to him during the period of the loan), thereby re-establishing the classical balance between abstinence and investment. With credit limited by prior saving (abstinence from consumption) there will be less lending and borrowing and it will be done more carefully – no more easy credit to finance the massive purchase of “assets” that are nothing but bets on dodgy debts. To make up for the decline in bank-created, interest-bearing money the government can pay some of its expenses by issuing more non-interest-bearing fiat money. However, it can only do this up to a strict limit imposed by inflation. If the government issues more money than the public voluntarily wants to hold, the public will trade it for goods, driving the price level up. As soon as the price index begins to rise, the government must print less and tax more. Thus a policy of maintaining a constant price index would govern the internal value of the dollar. The Treasury would replace the Fed, and the target policy variables would be the money supply and the price index, not the interest rate. The external value of the dollar could be left to freely fluctuating exchange rates (or preferably to the rate against the bancor in Keynes’s clearing union).

8. Stop treating the scarce as if it were free, and the free as if it were scarce. Enclose the remaining open-access commons of rival natural capital (e.g., the atmosphere, the electromagnetic spectrum, and public lands) in public trusts, and price them by cap-auction-trade systems, or by taxes. At the same time, free from private enclosure and prices the non-rival commonwealth of knowledge and information. Knowledge, unlike the resource throughput, is not divided in the sharing, but multiplied. Once knowledge exists, the opportunity cost of sharing it is zero, and its allocative price should be zero. International development aid should more and more take the form of freely and actively shared knowledge, along with small grants, and less and less the form of large interest-bearing loans. Sharing knowledge costs little, does not create un-repayable debts, and increases the productivity of the truly rival and scarce factors of production. Patent monopolies (aka “intellectual property rights”) should be given for fewer “inventions,” and for fewer years. Costs of production of new knowledge should, more and more, be publicly financed and then the knowledge freely shared. Knowledge is a cumulative social product, and we have the discovery of the laws of thermodynamics, the double helix, polio vaccine, etc. without patent monopolies and royalties.

Essays against growthism

9. Stabilize population. Work toward a balance in which births plus in- migrants equals deaths plus out-migrants. This is controversial and difficult, but as a start contraception should be made available for voluntary use everywhere. And while each nation can debate whether it should accept many or few immigrants, and who should get priority, such a debate is rendered moot if immigration laws are not enforced. We should support voluntary family planning and enforcement of reasonable immigration laws, democratically enacted.

10. Reform national accounts – separate GDP into a cost account and a benefits account. Natural capital consumption and “regrettably necessary defensive expenditures” belong in the cost account. Compare costs and benefits of a growing throughput at the margin, and stop throughput growth when marginal costs equal marginal benefits. In addition to this objective approach, recognize the importance of the subjective studies that show that, beyond a threshold, further GDP growth does not increase self-evaluated happiness. Beyond a level already reached in many countries, GDP growth delivers no more happiness, but continues to generate depletion and pollution. At a minimum we must not just assume that GDP growth is economic growth, but prove that it is not uneconomic growth.

Currently these policies are beyond the pale politically. To the reader who has persevered this far, I thank you for your willing suspension of political disbelief. Only after a significant crash, a painful empirical demonstration of the failure of the growth economy, would this ten-fold program, or anything like it, stand a chance of being enacted.

To be sure, the conceptual change in vision from the norm of a growth economy to that of a steady-state economy is radical. Some of these proposals are rather technical and require more explanation and study. There is no escape from studying economics, even if, as Joan Robinson said, the main reason for it is to avoid being deceived by economists. Nevertheless, the policies required are far from revolutionary, and are subject to gradual application. For example, 100% reserve banking was advocated in the 1930s by the conservative Chicago School and can be approached gradually, the range of distributive inequality can be restricted gradually, caps can be adjusted gradually, etc. More importantly, these measures are based on the impeccably conservative institutions of private property and decentralized market allocation. The policies here advocated simply reaffirm forgotten pillars of those institutions, namely that: (1) private property loses its legitimacy if too unequally distributed; (2) markets lose their legitimacy if prices do not tell the truth about opportunity costs; and as we have more recently learned (3) the

Herman Daly macro-economy becomes an absurdity if its scale is required to grow beyond the biophysical limits of the Earth.

Well before reaching that radical biophysical limit, we are encountering the classical economic limit in which extra costs of growth become greater than the extra benefits, ushering in the era of uneconomic growth, whose very possibility is denied by the growthists. The inequality of wealth distribution has canceled out the traditional virtues of private property by bestowing nearly all benefits of growth to the top 1%, while generously sharing the costs of growth with the poor. Gross inequality, plus monopolies, subsidies, tax loopholes, false accounting, cost-externalizing globalization, and financial fraud have made market prices nearly meaningless as measures of opportunity cost. For example, a policy of near zero interest rates (quantitative easing) to push growth and bail out big banks has eliminated the interest rate as a measure of the opportunity cost of capital, thereby crippling the efficiency of investment. Trying to maintain the present growth-based Ponzi system is far more unrealistic than moving to a steady-state economy by something like the policies here outlined. It is probably too late to avoid unrealism’s inevitable consequences. But while we are hunkered down and unemployed, enduring the crash, we might think about the principles that should guide reconstruction.