Wednesday, November 12, 2014

Planning, the Theory of Growth and the Myth of Decoupling

Guardian: Rich countries subsidising oil, gas and coal companies by $88bn a year

Put in perspective, eighty-eight billion dollars probably isn't all that much compared to Gross World Product of roughly 1000 times that amount. It's the principle of the thing. And as Kin Hubbard has taught us, "When a fellow says, 'It ain't the money but the principle of the thing,' it's the money."

It IS the money. Subsidizing expanded fossil fuel extraction is consistent with economic growth theory. The subsidies are rational, given the priorities of the rich countries' governments (say what you will about $20 bottles of Two Buck Chuck and the tribal moralism of preaching against big cars).

Faced with the dilemma of building socialism in a backward, peasant society, Soviet economists in the late 1920's hit on the idea of accelerating investment in the means of production, Marx's Department I. "But it would be absurd to say that economic growth is a new subject," Evsey Domar confessed long ago:
In economic literature, growth models, interpreted broadly, have appeared a number of times, at least as far back as Marx. Of the several schools of economics the Marxists have, I think, come closest to developing a substantial theory of economic growth, and they might have succeeded had they given less time and effort to defending their master's virtue. Some highly elaborate and interesting growth models did, however, appear in Soviet literature.
"These Soviet models are more fully developed than similar attempts made in the West..." Domar continued in a footnote, "See, for instance, G. A. Feldman [Fel'dman], "K Teorii Tempov Narodnogo Dokhoda," Planovoe Khoziaistvo, November, 1928, pp. 146-170, and December, 1928, pp. 151-178... They were evidently written in response to immediate practical problems of planning."
The present interest [May, 1952] in growth is not accidental; it comes on the one side from a belated awareness that in our economy full employment without growth is impossible and, on the other, from the present international conflict which makes growth a condition of survival.
Our problem can now be formulated as follows: assuming that output and capacity are in balance at the outset, under what conditions will this balance be preserved over time, or in other words, at what rate should they grow to avoid both inflation and unemployment.
Sounds like a plan! Now Sandwichman is not hostile to the idea of planning. After all, where would the Panama Canal be without a plan? Sandwichman just thinks that when you have a plan, you call it "The Plan," not "Growth." as if it is some spontaneous organic process that happens all by itself.

The problem with economics as a "positive science" is that it is no less prescriptive for all its disavowal. Economists lie. They wrap their ethical judgements in a patriotic flag of euphemism. Full employment is GOOD, right? Growth is GOOD, right? Therefore full employment is IMPOSSIBLE without growth! Growth is impossible without investment. Investment is impossible without profit. And profit is impossible without tax breaks to encourage fossil fuel discovery and development. What's normative about that? It is just the way it is.

In some Cloud Cuckoo Land it would be possible to decouple economic growth from greenhouse gas emissions. But in the planned economy we occupy, where full employment depends on growth, which depends on fossil fuel consumption, "decoupling" is a euphemism for "we have a secret plan to end the war."


Unknown said...

Economic growth has served humanity fairly well in the past, however our economy has now grown to the point that it is stressing the earth’s ecosystems that our economy depends on. Climate change, extinction rates, the biodiversity crisis, over-fished fisheries, “dead zones” in the oceans, and over-pumped aquifers are a few examples. What was created over geologic time has been depleted by humans over the course of a few centuries.

At some point after basic needs are met, GDP does not represent increased happiness, but is actually a very good indicator of impact on the environment.

There is a fundamental conflict between economic growth and environmental protection, as well as national security. Resources are being converted from the economy of nature into the human economy at an unsustainable rate. Wastes are emitted back to the earth faster than they can be assimilated.

See for more on why the costs of economic growth now outweigh the benefits.

Sandwichman said...

"Economic growth has served humanity fairly well in the past... There is a fundamental conflict between economic growth and environmental protection, as well as national security."

Rentz, I could agree with both of those statements because each time "economic growth" would have a different meaning. And that, in my opinion, is precisely the problem with "economic growth."

Economists define it one way to calculate it, another way to advocate it and a third way to dismiss critics. When a word means exactly what the economist wants it to mean, and then means something entirely different when the economist wants it to mean something different, it is a Humpty-Dumpty word. You have to pay it overtime.

Unknown said...

I'm referring to a basic definition of economic growth, "the increase in production and consumption of goods and services in the aggregate."