Thursday, April 9, 2009

Prosperity without growth

by the Sandwichman

Prosperity without growth, a report of the UK Sustainable Development Commission (March 30, 2009) concludes:
The clearest message from the financial crisis is that our current model of economic success is fundamentally flawed. For the advanced economies of the western world, prosperity without growth is no longer a utopian dream. It is a financial and ecological necessity.
Step 5 of the report's "12 Steps to a Sustainable Economy":
In a declining or non-increasing economy, working time policies are essential for two main reasons: 1) to achieve macro-economic stability; 2) to protect people’s jobs and livelihoods. But in addition, reduced working hours can increase flourishing by improving the work-life balance. Specific policies need to include: reductions in working hours; greater choice for employees on working time; measures to combat discrimination against parttime work as regards grading, promotion, training, security of employment, rate of pay and so on; better incentives to employees (and flexibility for employers) for family time, parental leave, and sabbatical breaks.
The report's forward:
Every society clings to a myth by which it lives. Ours is the myth of economic growth. For the last five decades the pursuit of growth has been the single most important policy goal across the world. The global economy is almost five times the size it was half a century ago. If it continues to grow at the same rate the economy will be 80 times that size by the year 2100.

This extraordinary ramping up of global economic activity has no historical precedent. It’s totally at odds with our scientific knowledge of the finite resource base and the fragile ecology on which we depend for survival. And it has already been accompanied by the degradation of an estimated 60% of the world’s ecosystems.

For the most part, we avoid the stark reality of these numbers. The default assumption is that – financial crises aside – growth will continue indefinitely. Not just for the poorest countries, where a better quality of life is undeniably needed, but even for the richest nations where the cornucopia of material wealth adds little to happiness and is beginning to threaten the foundations of our wellbeing.

The reasons for this collective blindness are easy enough to find. The modern economy is structurally reliant on economic growth for its stability. When growth falters – as it has done recently – politicians panic. Businesses struggle to survive. People lose their jobs and sometimes their homes. A spiral of recession looms. Questioning growth is deemed to be the act of lunatics, idealists and revolutionaries. But question it we must. The myth of growth has failed us. It has failed the two billion people who still live on less than $2 a day. It has failed the fragile ecological systems on which we depend for survival. It has failed, spectacularly, in its own terms, to provide economic stability and secure people’s livelihoods.

Today we find ourselves faced with the imminent end of the era of cheap oil, the prospect (beyond the recent bubble) of steadily rising commodity prices, the degradation of forests, lakes and soils, conflicts over land use, water quality, fishing rights and the momentous challenge of stabilising concentrations of carbon in the global atmosphere. And we face these tasks with an economy that is fundamentally broken, in desperate need of renewal.

In these circumstances, a return to business as usual is not an option. Prosperity for the few founded on ecological destruction and persistent social injustice is no foundation for a civilised society. Economic recovery is vital. Protecting people’s jobs – and creating new ones – is absolutely essential. But we also stand in urgent need of a renewed sense of shared prosperity. A commitment to fairness and flourishing in a finite world.

Delivering these goals may seem an unfamiliar or even incongruous task to policy in the modern age. The role of government has been framed so narrowly by material aims, and hollowed out by a misguided vision of unbounded consumer freedoms. The concept of governance itself stands in urgent need of renewal.

But the current economic crisis presents us with a unique opportunity to invest in change. To sweep away the short-term thinking that has plagued society for decades. To replace it with considered policy capable of addressing the enormous challenge of delivering a lasting prosperity.

For at the end of the day, prosperity goes beyond material pleasures. It transcends material concerns. It resides in the quality of our lives and in the health and happiness of our families. It is present in the strength of our relationships and our trust in the community. It is evidenced by our satisfaction at work and our sense of shared meaning and purpose. It hangs on our potential to participate fully in the life of society.

Prosperity consists in our ability to flourish as human beings – within the ecological limits of a finite planet. The challenge for our society is to create the conditions under which this is possible. It is the most urgent task of our times.


Tim Jackson Economics Commissioner Sustainable Development Commission, March 2009
Not everyone agrees that the unambiguous goodness of economic growth is a myth. Amity Shlaes (with elocution rivaling George W. Bush's):
"One of the things that we started out this conversation about -- growth with -- was what is humane? So really, being humane and having growth go together -- growth is humane. It's one of the ways -- the most efficient ways to be humane. We all agree on that."

21 comments:

Robert D Feinman said...

Finally, one of my favorite topics (or rants, if you prefer).

They've got the problem stated properly, but the solutions are vague.

The fundamental problem is that we only are willing to consider a single economic system: capitalism. Job sharing or reducing the work week doesn't change this. Furthermore capitalism requires growth.

One borrows money (capital) to finance an endeavor and then makes back more through exploiting natural resources and the "profit" is used to pay interest to the investors. If there was no growth there would be no money for the interest.

In addition capitalism is fundamentally wasteful. In the US 4 out of 5 firms fail within five years. That means all the resources they consumed in setting up the establishment have be wasted. The same thing is true for unbridled competition where too many firms enter a market and create a glut of product.

Those who say that "socialism" or "communism" have been proven not to work are also missing the essentials. All three systems depend upon growth, the only difference is one of governance of the enterprise. This turns out to be a minor issue, despite all the blood and ink spilled over it the past two centuries.

What is needed is a new type of social and economic organization where the emphasis is not on "stuff" or even work. Most of the necessary stuff can be made with a tiny fraction of the population. Look at agriculture in the US which requires only 2% of the work force.

A society which focuses on other things beside materialism is viable and has existed in the past quite successfully for long periods of time. Even now there are societies which have much less than those in the US, but their members are happy and satisfied with life.

I've got many essay on all aspects of this on my web site. I'll only cite two:

Capitalism Must Die!

Planning for a steady-state society

Jack said...

Any public reference to Amity Shlaes, whether complimentary or not, is always uncalled for. The woman acts the fool in the employ of those who provide her an medium through which to support their myths regardless of the inadequacy of her method. If it talks like a fool, and sounds like a fool she is likely to be the fool.

Shag from Brookline said...

This paper runs over 100 pages so I may not get around to it until this weekend or next week. Based upon the excertps, I'm sure that as I read it, I'll be recalling Kurt Vonnegut's "Player Piano" which may have similar chords and refrains.

Michelle Schaeffer said...

"...that our current model of economic success is fundamentally flawed."

This just pisses me off. We are in what we call a market failure right now which is essentially the realization that markets aren't perfect. I get very upset with embittered investors when they down capitalism. People get very entranced by markets and end up investing or spending with no regard for recessions - but it is the model of capitalism to have recessions. Us economists call them business cycles and they happen and have been happening for hundreds of years. Our system is not flawed, our response to our system is. Regulation exists for the supposed purpose of reducing the magnitude of business cycles.

Furthermore, basic macroeconomics states that you must have growth from period to period for precisely that reason. In the simple models they say that economic growth must be proportional to population increases, but in more complex models, they take into account market transactions, such as interest. Why does this need to be revised?

In economics there are always winners and losers, obviously less losers in times of expansion and more in times of contraction (like now). Governments cannot issue a press release saying that it is inherent in the system that some people be losers - that's political suicide. So they have to go through all of these steps to appear to be helping the economy and making the business cycle last longer at a reduced magnitude than to just let the market deal with the failure by readjusting.

TheTrucker said...

"Regulation exists for the supposed purpose of reducing the magnitude of business cycles."

On this we can certainly agree. But it is politics (the desire to hold and gain power) that is destroying the functioning of government in the United States. Unfortunately, unless you want to see humans as evil then you cannot condemn ego as "evil". And current "economics" is as much the "stalking horse" of the "elected" government, as it is the "stalking horse" of the rich.

Imagine a "social science" in which there is no agreed upon definition of "good". That is the current state of political economy or economics. Is the "goodness" of the economy measured as the power of America or as the general prosperity of all of the people?

At present it is the abject fear of losing everything you have ever earned should someone in your family get cancer that promotes the current "protection racket" run by insurance companies and employers. Until that problem is addressed we will never see the end of wild market fluctuations. GM is just a shining example of what happens when social insurance is left to private enterprise. The same observation applies to the "financial sector". MONEY IS NOT CAPITAL and that needs to be understood. It is aggregation of land and money under the umbrella of "capital" that makes capitalism the disaster that it is. If capitalism was the private ownership of PRODUCED commodities including _real_ capital, durable goods, and fixed improvements to land then we would have no problem with "capitalism". The privatization of _real_ capital encourages the development of more _real_ capital and we all benefit therefrom. It is the inclusion of that which is NOT "capital" in the term "capitalism" that leads to the failures we see.

Natural resource taxes and extraction fees are the most rational means by which government (including insurance systems) can be supported. Carbon certificates are a tax on natural resource depletion (extraction fee) even as they are a "tax on bads".

Sandwichman said...

Our system is not flawed, our response to our system is.

Michelle, what the HELL are you talking about? "Our response to our system" is the system. That's why there needs to be such a concept as an 'economic agent'. Somebody's gotta be doing the actual buying and selling (or, outside of the exchange economy, making and using). If our response to the system is flawed, then the system is flawed...

Michelle Schaeffer said...

Sandwichman

Maybe I wasn't clear. Our "system" is capitalism (buying and selling to create optimal allocation in the market). Regulation is the response to this system, a structure that we set up to reduce the effect of market failures.

Just because our regulations set up by congress are flawed does not in any way imply that our system is flawed.

Sandwichman said...

Michelle,

Surely you don't mean to imply that an optimal allocation in the market would occur if only there was no regulation whatsoever? Not even about the enforcement of contracts? What would happen if I sold you a carload of watermelons and then didn't deliver?

No regulations. I didn't have to honor our contract. Tough luck, kiddo.

On the other hand, surely you don't mean to say that markets would optimally allocate resources if only we could devise a flawless set of regulations? If we were that clever, who would need markets? We could just directly allocate resources through direct regulation!

The notion that markets are in any sense efficient relies on the premise that allocating resources by fiat would be too complex and subject to manipulation. In that sense markets might be an improvement -- perhaps. But to claim that markets could be flawless in the optimal allocation of resources takes you back to the rock and the hard place described above of either no enforcement of contracts or such regulatory perfection that no markets would be needed!

So which is it? No regulation, perfect regulation or the recognition that markets themselves are not flawless?

By the way, if you haven't read my short piece on Adam Smith's parable about the poor man's son, please do. It addresses the Smith's myth of the invisible hand.

Jack said...

"Us economists call them business cycles and they happen and have been happening for hundreds of years. Our system is not flawed, our response to our system is. Regulation exists for the supposed purpose of reducing the magnitude of business cycles."

This is a strange set of statements. The content seems as flawed as is the grammer. Human behavior is flawed. How can any system of human activity not be equally so? Last time I checked the purpose of regulation was to restrain the more flawed aspects of human behavior, whether in economic activity or any other form of human activity. Regulations guide behavior, defining what is and is not legal or acceptable. Any effects on cycles of systemic behavior are secondary to the purpose of the regulations, sometimes intentional and sometimes unintended consequences.

Michelle Schaeffer said...

Sandwichman -

Though we are debating from opposite sides, I think that we aren't actually in complete disagreement. The system of capitalism is a theory and we have put it into practice, well-knowing that it is based on assumptions, albeit crazy ones.

I don't know where you got that I would prefer no regulation; I think that without laws and regulations (especially property law) then you cannot even establish a market. Further, I don't think a perfect set of regulations exists.



Jack -

"Last time I checked the purpose of regulation was to restrain the more flawed aspects of human behavior, whether in economic activity or any other form of human activity. Regulations guide behavior, defining what is and is not legal or acceptable"

I agree with you but I would put it differently. I think regulations are to guide human behavior through the correct incentives, not just to say whats legal and not. They exist in the form they do now to help induce rational behavior, among other things, which is the "response" to the system I'm talking about.

We understand that markets aren't perfect. I'm sure I'll get backlash for being wishy-washy here but I am not. I said our system is not flawed meaning that free-market capitalism is not flawed. Markets suffer from market failures; this is not a secret and is addressed in the most basic of economics literature - market failures are part of the system. Regulation is not perfect either. Many believe we are in this mess today because of liberal banking regulations. One could argue that the regulations allowed irrational behavior to result. This is unfortunate due to the assumption of free markets and the above-stated purpose of regulation.

And I'm no English major so call my grammar bad. I don't see anything wrong with that sentence except for the missing comma.

Jack said...

"I said our system is not flawed meaning that free-market capitalism is not flawed."

It is as flawed as may be any of its participants. In fact, there is no such system as a free-market driven towards equilibrium by some unseen hand of off setting forces.
To suggest some homeostatic process to a system of inter-related yet often contradictory activities is little more than an anthropomorphic confounding of the diffference between individual function and complex socio-economic phenomenon. As Sandwichman pointed out above, ours is a society based on the rule of law. Those laws include the regulations appl;ied to all forms of social and econommic activities. The free-market proponent only means to say that s/he wants to determiine which regulations are best suited to their own advantage.

Sandwichman said...

I don't know where you got that I would prefer no regulation

Michelle,

My exact phrasing, with emphasis added, was "surely you don't mean to imply..." So, no, I didn't make the mistake of thinking that you would prefer no regulation. I was simply trying to surface a tacit assumption in your argument that I thought you wouldn't agree with if stated explicitly.

I don't know what you mean when you say, "The system of capitalism is a theory and we have put it into practice, well-knowing that it is based on assumptions, albeit crazy ones."

What does "we have to put it into practice..." mean? Is that in reference to an analysis or to practice in the real world?

I don't accept the view that capitalism is a self-sufficient system. It is a sub-set of economic exchange relations that simply couldn't exist on its own. One can isolate a sub-system for the purpose of analysis -- the digestive system, for example, or cardio-vascular system -- but it would be utter folly to argue that such a sub-system could exist on its own or could be "perfected" by eliminating the encroachments on it of other elements of the larger context.

Too often the latter are the kinds of "crazy assumptions" (in your own words) we are asked to make by economists -- assumptions that confuse analytical isolation with a presumed actual isolation of the thing being analyzed. Even more unfortunately, such confusion is often used as a rhetorical stunt to win an argument.

reason said...

Sandwichman && Michelle Schaeffer

This is an interesting discussion mainly because I have never seen such a wonderful example of talking at cross purposes. Michelle - I also have no idea what you are trying to say, and even more so how it relates to the topic at hand. I won't make the mistake that Sandwichman makes in thinking you are hostile, I guess your views are pretty middle of the road. Could you make yourself clearer?

Sandwichman said...

the mistake that Sandwichman makes in thinking you are hostileSandwichman won't make the mistake reason makes in thinking that he knows what someone else is thinking.

As for what Michelle was trying to articulate, she opened by stating that the report's claim that our current model of economic success is flawed "pisses me off". Sandwichman doesn't consider that "hostile" but he does take it as contrary. To paraphrase, Michelle doesn't agree with the report's statement.

Beyond that clearly stated basic opposition, the Sandwichman lost the train of what Michelle was trying to say because it seemed to tack back and forth between "economics" as a name for what actually happens out there and "economics" as a name for what the mainstream discipline claims about what happens out there.

In short, Michelle appears to the Sandwichman to confuse the phenomena itself with a specific (and in S's opinion, narrow) description of the phenomena. I would agree that such confusion of object with perception is "pretty middle of the road," which is also to say muddled.

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reason said...

But Sandwichman - I couldn't find the quote she made, and her whole post seems insanely OT. I'm actually wondering if she posted it on the wrong thread.

reason said...

I think Michelle should go away and read Hermann Daly then come back and try again.

Hint: This has nothing to do with the current business cycle problems.

reason said...

Oops
sorry I see the quote at the top now - I wonder why my scan didn't find it.
Still she should read Hermann Daly. I think using the current mess is a bit out of order here. But as Soddy pointed out - basing a financial system on compound interest is asking for trouble as all capital actually starts depreciating as soon as you create it. It may be that technology progress can cover this problem for a while, but you can't count on it.

reason said...

"Furthermore, basic macroeconomics states that you must have growth from period to period for precisely that reason. In the simple models they say that economic growth must be proportional to population increases, but in more complex models, they take into account market transactions, such as interest."

What is with all this "must" business. I dispute that (and in that I have a long standing disagreement with Robert D. Feinman). The must have nothing to do with capitalism as such, but everything to do with a debt based growth model. It is perfectly possible to have spontaneous investment which pays off (e.g. Solar systems, insulation) which reduces exchange activity.

I think before we start taking about "capitalism" or "the economic system" we should define exactly what we mean by the terms.