Tuesday, July 8, 2014

Climate Misconception #12: Economic growth is the underlying problem behind climate change

Two things stand out about this misconception.  First, it is widespread and growing in popularity.  A large swath of climate activists swear by it.  Second, it is completely, indefensibly and obviously wrong.  A little thought blows it away.  How can you put these two facts together?  Is it that relatively affluent environmentalists want to feel guilty?  I don’t know, but let’s take a moment to see how deeply misguided this view actually is.

1. Start with this simple point: if economic growth is bad, recessions are good.  The Great Recession that came down on us in 2008-2009 should have been a cause for celebration.  Maybe we need to get slammed even more next time.  Does this make sense to you?

2. The anti-growth crusade smacks of rich-country myopia.  The majority of the world’s population has immense unmet needs.  They desperately need an inclusive form of economic growth that allows for rising living standards and a margin of security.  If the global economy does not grow over the next few decades, it will be a disaster.

3. Hostility to economic growth seems to be based on a fundamental misunderstanding of what the term means.  GDP is the product of final demand, goods and services directly consumed by households or capital goods purchased by firms, and the prices they command in the market.  (Government production of goods and services is valued at cost.)  It’s by no means a perfect gage of anything, but there it is.  One way GDP can grow is if an economy produces more “stuff”—more cars, buildings, electronic gadgets and so on.  Another way is by producing more services—more education, more live music, more health care.  A third way is by producing better, higher-valued goods and services—skilled craftsmanship, elegant design, innovative technologies.  Only the first of these is tied to an environmental burden; the second two are largely burden-less and may even reduce the footprint our economy leaves on the natural world.  This should be obvious.

In case it isn’t, let me show you two chairs.  On the left is one you can by for $60 at a big box store.  It is cheaply made, with lots of plastic and shoddy adhesives, and it will be junk within a few years.  On the right is a beautiful, hand-produced chair made of sustainably harvested wood with a stunning design—built to last a lifetime.  Of course, it costs $600.  For the price of the chair on the right you can have ten of the ones on the left.  If society used to produce five of the cheap chairs and now produces one of the expensive ones instead, that’s economic growth.  In fact, as basic needs are met, there is a tendency in modern economies to shift toward higher quality rather than more stuff.  We could have policies that encourage this shift to happen even faster.

4. Suppose, in spite of everything, you still want to end economic growth—how will you prevent it?  Will you prevent people from starting businesses?  Or buying what they want to buy?  What exactly is the plan that’s going to prevent economic growth from occurring?

5. Ah, but now I hear that the anti-growth people aren’t really anti-all-growth, only anti the growth of bad, unnecessary things.  That sounds more reasonable, but who gets to decide which items are “good” or “bad”?  And how will you prevent people from making or buying the “bad” stuff?  If we’re talking about climate change, “bad” ought to mean “uses fossilized carbon”, putting us back in the world of ordinary policy, like carbon taxes and caps.  But that isn’t anti-growth, just anti-carbon.  And it doesn’t impose anyone’s judgment of what items are “unnecessary” on anyone else.

6. Did I mention that, outside a small echo chamber of environmental enthusiasts, ideological hostility toward economic growth is political suicide?  What coalition can you put together on this platform?  The carbon budget timetable is very tight, and it would help to have a viable political strategy.

7. Finally, suppose it really is all about economic growth, and there’s no other way to stop the carbon juggernaut—by how much does the world’s economy have to shrink to do the job?  Remember, we are talking about reducing total carbon consumption by about 2.5% per year, more in the rich countries, less in the poor ones.  By mid-century we have to be at near-zero use.  Seriously, how much impact will a few percentage points more or less of global GDP have on this immense change in fossil fuel consumption?  Isn’t it obvious that the struggle is over what and how we produce, not whether the aggregate economic value is going up or down?

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21 comments:

Michael A. Lewis said...

It's not a matter of whether economic growth is good or bad. Continued economic growth in a world of finite resources is impossible!

Nor does it matter the kind of economic growth, whether it be production of goods from natural resources, or the production of services. All production has impacts on resources that are increasingly scarce. No services are free of consumption in an economy based on consumerism.

It is not that anyone wants to end economic growth. The simple reality is that economic growth cannot continue.

Ultimately, humans must craft a steady state economy that uses resources no faster than they are naturally replenished, and produces wastes no faster than they are naturally assimilated.

This is the only type of economy that is sustainable in perpetuity.

john c. halasz said...

The relation between climate change policy and economic growth is indeterminate: it depends... So you're only half right here. Of course, recessions (or worse) aren't to be welcomed, simply because they temporarily reduce fuel consumption. To the contrary, the slow down the rate of replacement investment leaves older, less efficient and dirtier investments in place, and reduces the available economic resources for building out "green" alternatives. What's more, the eventual rising costs of climate change and conventional energy and resource depletion themselves threaten a depressive collapse of the economy, whereas, in a rational world, what better time to begin to build out alternative infrastructure and capital stocks than during a recession, when the cost of capital is itself dirt cheap, due to fallen investment demand?

However, economic growth, as measured by GDP is not an end-in-itself and the quality and purposes of growth need to be drawn into question. To economize means to produce more with less, to use fewer economic "resources" per unit of output. But just what resources do you want to economize on? In conventional neoclassical economics, the assumption is the capital is the "scarce" resource and that growth is required to maintain profits and investment, to continue the social construction of private profit, based on what is basically economic inertia. IOW over-consumption for the sake of over-production.

Peter Dorman said...

Michael, I addressed your argument in my post. Specifically, it is entirely possible to have continued economic growth in a world of finite resources. If you think your position is self-evident, you're not thinking.

John, the entire point of climate policy is to change the content of the economy so that whatever growth we have, big or small, is compatible with carbon constraints. I agree that economic growth in the abstract is not necessarily good -- it all depends. But it's not necessarily bad either, which is the first point. The second is that "good" economic growth is necessarily for a lot of people on this planet. The third is that being generically anti-growth is a political dead end that we can't afford.

Michael A. Lewis said...

Hello Peter:

Respectfully, you did not address the fact that we live in a world of finite resources and therefore, continued economic growth is impossible.

You did talk about reducing human impact on resources through efficiency and selective exploitation of "lower impact" resources. But this just extends the time a bit until economic growth is no longer possible.

Efficiency and innovation do not trump resource availability. Particularly with regard to energy sources, they only go so far, then inevitably consumption overshoots resource availability in a continuously growing economy.

Peter Dorman said...

I hate to do this, but I'm going to stop replying. Growth in value is not the same as growth in resource inputs. Period. Not in one year, not in a million. If you can't understand this I can't help it. Sorry.

john c. halasz said...

(Continuation)- (I hadn't finished, but I recalled that there are letter-count constraints on comments here).

(Sorry for your hissy-fit, but you might want to continue rational discussion).

So, whether or not "climate change policy" contributes to conventional "economic growth" is a secondary issue. It may or may not, through various phases. Of course, climate change is not the only environmental/natural resource crisis we face. It is not the "Aufhebung" or supercession of all such crises. It is "merely" the intensification and generalization of such crises. Apparently though, that is what is required for economists to pay attention, given their disciplinary commitments and corresponding level, kind and degree of abstraction.

So let's look at some particular systems, eh? The U.S. produces some 16 million automobiles per annum, with a total stock of some 200,000,000. The average automobile is driven 75 minutes per day. The transport sector operates at an energy efficiency of barely above 25% with fossil fuels. Of course, if electrified trains and mass transit systems were to replace our current "fleet", the energy requirements would be drastically reduced, by, say, 70%, for transport "work" alone. But it requires 270 bn joules of energy just to produce an average auto. So, by reducing auto production by 12 million per year, 3 quadrillion BTUs would be eliminated from the "system", (not to mention other resource extractions). And since the average car cost $30,000 new and $8000 annually to maintain on the life-cycle, wouldn't a mass transport system not only be vastly more energy and resource efficient, (since, with today's computer technologies, a highly personalized and optimized urban mass transit system could be evolved), but also wouldn't it reduce by 50% or more the unit cost of transport for the average person?

So isn't that "economical"? But how would it be reflected in "growth" statistics?

Peter Dorman said...

As you can probably guess, I'm entirely in favor of shifting from a mostly car to mostly mass transit transportation system. I personally prefer riding on a train where I can read or relax to fighting traffic on a freeway. I also wish there were a bike path leading from where I live to where I work. I don't know what this means about the brainwashing I may have received along the way to becoming an economist.

Now about cars and GDP. I have no idea whether a zero-carbon transportation system would, in itself, command higher inflation-adjusted prices than what we have today, lower prices or about the same, and how this transition would therefore affect GDP. In a sense, that's already my point. The issue is not growth but what we produce and what impact it has. The economic policies we need will not target "growth" in an abstract sense but environmental and resource impacts we want to diminish.

Meanwhile, on a different front, my college is facing a budget crunch and has had to institute a hiring freeze on faculty. What I'd like to see is more state support for higher education, more students, more classes and more professors. (This doesn't affect me personally -- I've got a job.) I think it's crazy to have capable PhD's working Starbucks when the growth of education in America has come to a standstill. And it's not just about degrees: we could be teaching for lifelong learning, enrichment, midlife curiosity, and all the rest.

Well, this is economic growth too. It's more spending, more employment, more output. What's the matter with that?

john c. halasz said...

(Continuation).

(Though, in response, it's little likely that increased energy and resource efficiency in the transport sector would result in higher unit consumer prices for the relevant unit, per weight per distance).

Another example might be the agricultural sector, which in its current highly corporatized and industrialized form is unsustainable. It not only is highly energy and capital intensive, but is a major source of GHG emissions. (Though it's frustrating that most easily accessible sectoral charts don't break it out separately from industrial or commercial sectors). It is not only highly reliant on fossil fuels and chemical fertilizers, (thus nitrous oxides), but a major source of other environmental pollutants and difficulties. And yet very little labor is directed there nowadays, less than 2% of the work force, (and often in abusive conditions). So given high levels of unemployment, why "economize" with capital intensive methods, when more labor intensive methods are clearly sounder and more environmentally sustainable? (Crop and animal rotations, diversifications, soil conservation methods, etc.) Inflated land prices and oligopolistic coercions generally prevent any "return to the land".

This, of course, also links to your point 2). Years ago, Amartya Sen uncovered the fact that small farms are actually more productive per hectare than large commercial farms, a result that has been repeatedly confirmed with only conditional qualifications. So does this conform to your notion that capitalist growth, based on consumption demand, benefits the "developing" (formerly Third) world?

More generally, with respect to 2), it little avails, if "economic growth" means exporting our wasteful and environmentally damaging production methods to the 3rd world, least of all if we are just exporting our pollution for them to cater to our consumption demand and not their own needs, for the sake of "growth".

john c. halasz said...

(Continuation)

O.K. So let's look at energy consumption per $ of GDP. It has come down in the U.S. and other advanced economies. In the U.S. it stands at 7500 BTUs per $1 and in some advanced EU countries it's less than 5000. In Red China, it's over 25000. If we want to reduce global emissions, then we have to address the far lower efficiencies of poorer countries. One might suggest subsidized technology transfers or the like. Still more, one might suggest developing appropriate technologies for their conditions rather than ours. But global "growth" as currently configured isn't an answer.

For the 1st world, though energy consumption as been partially decoupled from recorded GDP growth, as Tom Walker never tires of reiterating, it still correlates strongly with employment growth. So maybe redistribution of "wealth" and de-commodification of labor, such that notional increases in productive efficiency are "harvested" in reduced work times and "things" like education, social care and cultivating one's own garden are no longer strictly monetized in GDP figures might be in order. The quantitative "standard-of-living" by no means translates into social welfare or the quality-of-life. Optimizing "full employment" in terms of GDP figures is by no means authoritative, as economists tend to presume. Rather, it is question-begging, no matter how righteously one side of the discipline argues with the other, without any adequate "grounding".

But then what authorizes the assumption in 3) that "economic growth" under current arrangements would result in qualitative improvements? Surely you've heard of "planned obsolescence"? (Check out the documentary "The Light Bulb Conspiracy" on YouTube, for example, as to how "things" really "work" and play out).

And likewise, with respect to 4) and 5), systemically constrained choice is always the case. (If choices weren't constrained, how would they be possible?) But why assume that regulation or transformation of systems under which such choices occur is somehow impossible or undesirable, since the imposition of "impossibilities" and "undesirabilities" is already how the currently dominant system operates?

john c. halasz said...

(Contiuation)

I can appreciate the frustrations of trying to forge a "Red-Green" coalition, when, in fact, neither side holds much power. The economic left needs to have a much greater appreciation of environmental issues and the environmentalists need to much better understand the economic pressures and constraints that they operate under, rather than taking moralistic stances, (despite the fact that nature neither knows, nor cares for morality), and appealing to empty idealism.

Still, just to address the U.S./Canada side, since first of all, put your own house in order, a carbon tax-and-rebate scheme, such as in B.C. is just a first necessary step, though not nearly sufficient. (Though it would have the effect of drawing the broader population into the issue, as well as an information-gathering function). But the much bigger issue is that a vast amount of invested capital must be devalued, written down to zero, even as a large amount of new investment must be raised and effectively deployed into a fully renewable, sustainable system over time. I don't see how that would be possible under business-as-usual and capitalism-as-we-know-it. It would require a large amount of public investment and indicative public industrial planning. Better to start thinking about those requirements and the building of political coalitions to effectuate them, than to engage in"disciplinary" bickerings.

Michael A. Lewis said...

Well, it's just as well, Peter. I don't enjoy pounding on closed and locked doors, especially when they open into empty rooms.

Sandwichman said...

"Start with this simple point: if economic growth is bad, recessions are good."

Starting with that "simple point" I have to end up with the conclusion that it wouldn't be of any value to try to engage you in this discussion. Your "simple point" is a "when did you stop beating your wife?" leading question (without the question mark). That's the spirit, Peter. The critique of the growth paradigm boils down to simple-minded economic illiteracy on the part of those making the critique. So why should I waste my time trying to explain to you the non-simple-minded critique contained in such sources as Georgescu-Roegen and K. W. Kapp, to cite a few examples.

Forget "growth". I teach a course in Labour and the Environment. The central question for me, in that course is not whether we can theoretically have growth while reducing carbon emissions but whether there is ANY empirical evidence for the expectation that we can "decouple" emissions from job creation.

Short answer: there is none. NONE. Whatsoever.

If you want to tell me that "in theory" it is possible, then you just go right ahead and show me the theory and give me an explanation of how we get to a process of implementation. This isn't a matter of conjuring up Maxwell's demons, Peter. It's an engineering problem combined with a socio-political challenge.

Peter Dorman said...

S-man, I agree entirely with the spirit of what you're saying: it's all about the practicality of decoupling growth from particular environmental impacts, especially GHG accumulation. The past is not informative, however, since we haven't had any serious policies about carbon in the past.

Note that I'm worried that, at least in the transition, growth really will be reversed; that's the point of my "policy is not costless" post, with the comparison to E. Europe. Where I differ from the anti-growth crowd is (1) I think this is a problem we should anticipate and try to meliorate as best we can, and (2) I think it's unwarranted (and politically suicidal) to denounce economic growth in general for the depredations of specific industries and production methods.

As an aside, as you remember, our views aren't very far apart on labor time: the growth I really care about is value added per unit time, and I'd like to see *much* more freedom, individually and collectively, around how much time to spend working. I think most people in wealthier countries would benefit from rebalancing, but I don't make this assumption about poor countries.

mhgraham said...

You're absolutely right that what we produce and how we produce it is the root issue. GDP, as a measure of aggregate production and consumption, is quite closely linked to natural resource consumption and waste generation. It's true that in some instances, like your example of a higher-quality chair, that a higher valued item could be better for the environment. But it's wrong to suggest that the service sector is not materially intensive. When growth in value is successfully decoupled from growth in resource impact--in aggregate, global terms--come back to me.

The real way that our obsession with GDP and growth is a problem, is that it obscures the questions you want us to focus on--about what we're producing and how. If a policy increases GDP, it is considered good, regardless of what is produced or how. Our thirst for growth encourages us to increase production and consumption of all types of goods and services, regardless of their environmental impact. The drive for more, more, more is what makes our economy have a bigger and bigger impact on the environment. If wellbeing were the primary goal instead of GDP growth, that wouldn't be the case. You're right that GDP as a measure is only a proxy for the problem, but that doesn't mean that our obsession with increasing it isn't a huge underlying cause of environmental destruction.

Sandwichman said...

I would argue that the past IS informative precisely because we haven't had any serious policies. Rio was 1991. That's 23 years down the drain.

Today, the only proposals on the table that address the relationship between emissions and employment -- whether those proposals are adequate or feasible or not -- are "degrowth" scenarios (i.e. Peter Victor and Tim Jackson). And, by the way, Peter and Tim don't claim that absolute decoupling of economic growth from carbon emissions is impossible -- only that it is unlikely given past performance and the unprecedented pace of technological improvement that would be required.

By my reckoning, economic growth would be a likely (or perhaps necessary) medium-term outcome of a serious transition program. I'm talking here about phasing out, rather than abruptly terminating, some wasteful activities while increasing infrastructure investment. That seems to be the reverse of what you worry about.

When characterizing the "anti-growth crowd", you need to distinguish between denouncing economic growth per se and denouncing the economic growth at all costs mantra that now dominates economic decision making. Sure, there are always some people whose thinking doesn't go deeper than the slogans on their bumper stickers (if they have bumpers) but that's not a representative sample.

Michael A. Lewis said...

“In my experience, this meme shows up primarily among people who have studied biology, and who mistake human beings for Drosophila.”

This is a good observation that points out the fact that most economists are unaware of natural laws that come from the real physical world outside the realm of computers, economics textbooks and spreadsheets. Homo sapiens is one among many biological species that lives in a world of finite resources. We can, just as any other species, overshoot our resources, as we are doing right now.

“But this has little to do with climate change.”

It has everything to do with climate change. Anthropogenic CO2 production is the result of per capita CO2 production times population. To lower anthropogenic atmospheric CO2, we either reduce per capita production or reduce population, or both.

“Isn’t is obvious from simple arithmetic that the key variable has to be carbon consumption per capita and not the number of capita’s?”

No, it is not. Population is a key variable as well. We cannot and will not reduce CO2 production to zero in the next 36 years, if ever. Therefore we must allow production to reduce to a sustainable level through a combination of reduction in per capita CO2 production and population reduction.

Either we make a rational decision to encourage a decrease in global population growth, plus a decrease in global economic growth (aka CO2 production), or natural cycles of resource availability will do it for us. Despite what many economists believes, this is a finite world. There is only so much oil, so much natural gas, so much coal, and there is only so much capacity on the earth to absorb human waste products. These are hard physical realities that cannot be “externalized” economically. The buzzards have come to roost and they are patient, inevitable and inescapable.

Rentz Hilyer said...

Numerous indicators are showing that the earth is suffering the effects of over-use by too many people. We are experiencing an extinction crisis and natural resource shortages; and we are polluting our water, air, and soils beyond their ability to regenerate.

It is impossible to fully understand all of the infinitely complex cause-and-effect interactions involved in these crises. We can address each of these problems separately, but the process is laborious, expensive, fraught with uncertainty, and often results in additional unforeseen consequences. The combination of increasing population and per capita consumption are the root causes of all of these major environmental and social problems. Transitioning from economic growth to an economy that is more in balance with the natural systems on which it depends would be the most direct way to resolve these issues.

Brenton White said...
This comment has been removed by the author.
Brenton White said...

Peter, this article of yours is difficult to read. Regardless of whether I am a climate change activist or not, your reasoning makes your arguments tenuously credible, at best. A couple thoughts below.

First, your very first misconception shows how logically illegible your article is. If one does agree that economic growth is bad it does not necessitate that their opinion will be that a recession is good. I will go no further with this one because you argument doesn't deserve it.

The third misconception, have you heard of the economic concept of "sunken costs" before? If a firm decides to produce beyond what consumers are willing to or can purchase they will need to eat those costs. Without wealth no consumer can demand anything.

Also, GDP shouldn't be attacked, you're right, it's just a measurement. But you're sneaky insertion of neo-classical economics into this paragraph is beyond the scope of this. A cohesive argument is difficult to form, I know.

Good luck convincing people. Just keep writing, more words will win the day for you.

KB said...

4 - "What exactly is the plan that’s going to prevent economic growth from occurring?" .....SOCIALISM!!! Or maybe something else. But had this seriously not even occurred to you? How sad is it that we have so many "experts" in economics who were only taught about one system and honestly believe that only one system can possibly exist. This is a failure of our education system on display.

5 - Again, you are missing the political side of this. It's called democracy. We can create a better one in which decisions like these can be made. We can make whatever rules we want if we can just muster the political will and actually become more engaged.

6 - "It's political suicide" is not really a concern when we are dealing with our very urgent environmental problems. And it's a lazy argument. We need to address our behavior now. If you don't like examining potentially transformative ideas simply because they're not politically popular, then you aren't taking this seriously enough. The issue isn't what pseudo solution can we easily get votes on but what is the RIGHT solution. The people who recognize the limits to growth are scientists, not politicians. We're not talking about some political fringe group here, we're talking about ecologists, geologists, physicists, and other people who are well qualified on the subject of our environment and its limits. Dismissing the idea of degrowth because it is political suicide is no different than those who dismiss climate change.

7. You are ignoring resource limits. Growth in GDP can't be completely divorced from growth in consumption.

KB said...

1 - That is a false equivalency. You are assuming here that capitalism is our only option. The people who recognize limits to growth aren't saying that we need to be in a capitalist recession. They are saying we need an economic system in which non-growth doesn't hurt people. They are advocates for alternatives to capitalism.


2 - Again, you misunderstand things. Requiring economic growth to improve living standards is not some unchangeable natural law. It is a feature of capitalism. But capitalism is not the only way. The idea of using economic growth as an engine to improve living standards is that the rising tide lifts all boats. That said, the only way to lift some of the boats is to lift all of the boats. But doing that is wasteful because the people at the top don't need any more. We could, however, simply change our policies and choose to lift some of those boats. without making the rich unnecessarily richer too? Besides, something like 90% of economic gains are going to those at the top. That's CLEARLY not an efficient system for helping those at the bottom.

3 - " A third way is by producing better, higher-valued goods and services—skilled craftsmanship, elegant design, innovative technologies." What are some specific examples and how can they grow infinitely? Because that is the issue here. Infinite growth vs. the completely sane idea that there must eventually be a limit. The only thing that grows forever within a constrained system is cancer, and eventually it kills its host. That doesn't mean that some sectors can't grow, though for some finite period of time. For example, we could have massive growth in green energy without aggregate growth if we compensate by shutting down enough high-polluting, unnecessary crap (like the defense industry). A steady-state (non growing) economy is still active, it's just not increasing output. That means to give to those in need, we probably have to start taking from those who have way, way too much.

"In fact, as basic needs are met, there is a tendency in modern economies to shift toward higher quality rather than more stuff. "

Is there proof of this? Because that doesn't sound like a "fact" at all. Are you seriously suggesting that the more prosperous people become, the less stuff they consume? Have you met Americans? That's insane! Sure, let's just consume our way out of an overconsumption problem. Let me get this straight - as long as we buy "the right" stuff, it doesn't count toward resource depletion? That hand crafted furniture - what is it made of? Wood does not come from magical, inexhaustible forests. Metals exist in fixed supply. The list goes on....