Saturday, July 20, 2013

The End of Growth

It's not the custom of people my age to go back and re-educate themselves on economics and I know why - ugh!  I thought I understood economics from three or four Econ courses I did in undergrad (psst, I did really, really well on them too).  I  was wrong.

Here's the thing.   In universities around the developed world they're still teaching the same orthodoxy they taught me - and it's wrong.   We didn't see it in my student days but you have to work hard not to see the contradictions, omissions and outright fallacies in classical economics in the context of today's reality.

Traditional economics is heavily based on concepts of growth.  It views the economy (macro, micro, global) in isolation.  It specifically does not consider the economy as a subset of the environment.  There's a reason for that.   The Earth is finite.  The Earth's resources and its environment are finite.   Thus, once you accept the economy as existing within our planet's environment, it too must become finite.   The economy must have very real limits to growth.  It is confined by walls just like all those other walls mankind keeps slamming into these days.   Real economists like Stephen Harper just don't wish to see these walls.  They prefer to keep the pedal to the metal.

It's no accident that the IMF has been trimming growth forecasts lately.   We find slumps in growth alarming, but why?   There is a simple reason.   We don't know how to live without it.   You can't live the way we live without it, can't be done.  We're locked in even though we also hold the key to our lock.  Prisoners of choice, I suppose.  The default option.

There's an article in today's Guardian about a study that shows the age of growth is over.

"...evidence has emerged that the era of booming economic growth is over, and that we are entering an age of permanently slow growth - at best.

"A new paper in the journal International Productivity Monitor finds that underlying the US recession is a long-term decline in productivity growth, interrupted briefly by the " revolution" for eight years, followed by a slump "to 1.47 in the past eight years."

"Study author US economist Prof Robert J Gordon of Northeastern University concludes:
"... we face a significant possibility that the disposable income growth for the bottom 99% of the income distribution could be as low as 0.5% per year, or perhaps even 0.2%."
"This conclusion complements Gordon's previous prediction last year that by 2100, the US economy would return to an annual growth rate of 0.2%. He describes the second industrial revolution as the core driver behind rocketing growth experienced over the last 250 years, noting that the main factor behind the continuing slump since 1970 - escalating over "the last eight years", was a lack of sufficient industrial innovation capable of fundamentally "changing labour productivity or the standard of living."'

Now, take a deep breath, relax.  This doesn't mean we're going back to live in caves and kill our food with a stick.   Depending on how we go about aligning how we're organized to conform to the limits of our environment, life could be about to get a lot better.

Here's an example.   Growth in terms of gross output may decline but that doesn't necessitate curbing growth in terms of the quality of that output.  Knowledge-based growth will remain unrestrained.  We'll learn to make things better - more meaningful, more helpful, more lasting... more enjoyable.   Psychotic consumerism and built-in obsolescence will falter and fade away.   Inequality, unless we're restored to some new form of feudalism, will be rectified.

We, or at least our great grandkids, will live in balance with their world knowing when they don't, they die.  That's one hell of an incentive.

I have become convinced that the way forward, or at least the best way forward, depends on accepting and adjusting our organization and institutions to "steady state" or "full Earth" economics.  That's basically living within our environmental means in the context of resources and population.  The question is how we make that transition to maximize the benefits and minimize the negatives.  To get an idea of what lies ahead - and may block our path - my summer reading begins with former World Bank economist Herman Daly's "Beyond Growth" and a few other books I've got stacked up.  I'll be back to share what I've learned.


Owen Gray said...

Interesting, Mound. The concept of "steady state" is at the heart of our first nations view of the world.

So who really is the wiser community?

The Mound of Sound said...

I suppose that depends, Owen, on a person's willingness to recognize that the economy is genuinely part of the environment which is itself finite. It's the inability or refusal of classical economics to hold the economy and the principles that govern it subordinate to the environment that supports the argument that traditional economics is no longer a social science but a mental disorder.

I don't know if any of us can speak reliably to the First Nations' historic view of the world, Owen. We'll never know what might have happened if they had the same technological and energy options as the Europeans. They didn't and we exploited that to keep them in that state to preserve our dominion over them.

Rural said...

Perhaps the problem is that 'economists' do not take account of anything other than the accumulation on 'money'. This is not the only measure of 'wealth', is the accumulation of managed forests, protected lands from mining, farm land, rivers and lakes from contamination and exploitation an 'asset' for us all.
Google Ed Deak from Alberta for a primer on economics from a different point of view.... NOT the professor from the US... the farmer from Alberta!!

The Mound of Sound said...

Hi, Rural. I managed to find some of Ed's stuff although not very much. He seems to be mirroring the concepts of natural capital and geologic capital of steady state economics. Natural capital is essentially renewable resources for production and natural sinks for the contamination we generate by production. Geological capital is the gamut of non-renewable resources that we have to view as belonging not just to the current generation but to future generations as well.

We go seriously astray when we treat geological capital, including fossil fuels, as ours to exploit as quickly as we can find markets for them. That is the mentality that has underpinned so much of our growth to unsustainable levels of population and consumption.

Unknown said...

The whole idea of growth economics is predicated on the belief of an infinite supply of cheap easily accessible oil. Conventional easy cheap oil has plateaued and all that's left is the unconventional dangerous expensive sources like Shale Gas and Bitumen. It's like a black hole, as conventional oil declines you have to invest more and more to discover new sources of energy which means you're diverting more resources from other parts of the economy. Quite simply we've reached the age of limits, you want a good example? Britain faces the specter of rolling blackouts from a horrendous energy crunch within the next year. It's going to do nothing but drag their economy into the dirt and you can bet people will be pissed when they're sitting there wondering why the lights are off in a first world nation that's had electricity for the last century. Things are gonna change.

Unknown said...

Forgot to add Mound if you want a good re-education website in regards to economics check this website out.

The Mound of Sound said...

Thanks for the link, CY. The videos were certainly interesting.

Steve Cooley said...

The Ed Deak that comes to my mind, is the one who comments regularly on The Tyee. He despises the economics taught in our universities. His mantra is that wealth is not created, but taken from some for the benefit of others (my paraphrase is guaranteed to be inaccurate).

Unknown said...

Yeah Ed's definition is that wealth is just the temporary control of energy whether it be a piece of bread in your hand or the control of millions of people working in the economy. So if you take that definition of wealth then wealth is subject (like everything) to the laws of thermodynamics which means wealth is not created nor destroyed but transferred from the natural world and future generations.

The Mound of Sound said...

Steady state economics, is more holistic than neoclassical economics precisely because of its focus on balance within environmental or ecological limits. In that respect it branches out into questions such as population sustainability, wealth distribution and resource allocation/sharing. It sees sustainable growth as qualitative, not quantitative. All said, it fits in somewhat with Lovelock's call for "sutainable retreat", getting more out of less while steadily growing smaller in our consumption of resources from food to energy.

Hugh said...

If I believe my wage will grow in the future, I can justify going deeper into debt.

Nations and provinces do the same thing.

Low interest rates help this wishful kind of thinking.

Anyong said...

David Suzuki: The absurdity of endless economic growth. He says, "we act as if the economy is larger than life. In the past, people trembled in fear of dragons, demons, gods, and monsters, sacrificing anything— virgins, money, newborn babies—to appease them. We know now that those fears were superstitious imaginings, but we have replaced them with a new behemoth: the economy", Suzuki states. Most strange is the fact economists believe that growth can go on forever. How can that happen with the increase in population and the dire need to do something about global warming. Suuki says, " our home—the biosphere, or zone of air, water, and land where all life exists—is finite and fixed. It can’t grow. And nothing within such a world can grow indefinitely. In focusing on constant growth, we fail to ask the important questions. What is an economy for? Am I happier with all this stuff? How much is enough?