Sunday, February 19, 2017

Degrowth and Disinvestment: Yea or Nay?

Hey, degrowthers!  I know you’re out there.  I’d like to get your take on a post by Tim Taylor on investment.  Taylor points out that both gross and net investment as a share of GDP have been falling in the US, net faster than gross.  (Deduct investment that replaces depreciation from the gross figure and you have nothing but net.)  Here is his key diagram, culled from FRED.

There is a lot of cyclical variability, but peak to peak or trough to trough we’re definitely headed down.

So my question for the degrowth community is whether declining investment is an occasion for celebration?  Does this mean that economic policy is actually getting something right?

Here’s one answer I won’t accept: we don’t care about growth in general, just growth of bad stuff, like fossil fuels, accumulation of waste, destruction of coastlines, etc.  That isn’t a degrowth position.  Everyone wants more of the good and less of the bad, however they define it.  I’m in favor of only toothsome pizza crusts and I’m dead set against the soggy kind, but that’s not the same as being on a diet.

This is a practical, policy-relevant question.  There are many smart economists trying to understand the investment slump so they can devise policies to turn it around.  You’ll notice this concern is prominent in the writing on increasing industrial concentration, the shareholder value obsession, globalization and outsourcing, and other topics.  The goal of these researchers is to reform corporate and market structure in order to restore a higher rate of investment, among other things.  That of course would tend to accelerate economic growth.  So what’s the degrowth position on all this?  Should economists be looking for additional measures to discourage investment?

Again, please don’t tell me that it’s just investment in “bads” that needs to be discouraged.  That’s a given across the entire spectrum of economic rationality (which is admittedly somewhat narrower than the political spectrum).  In the aggregate, is it good that investment is trending down?

My own view, as readers of this blog will know (see here and here), is that degrowth is a suicide cult masquerading as a political position.  I’m pretty sure that radically transforming our economy to make it sustainable will involve a tremendous amount of investment and new production, and it seems clear to me that boosting living standards through more and better consumption is both politically and ethically essential.  But I could be wrong.  I would sincerely appreciate intelligent arguments from the degrowth side.


jed said...

Good questions. I just googled for degrowth information and found various studies of local examples (retrospective and prospective) but no overall models. Also I found reports making global claims about various dramatic changes, but again no overall models -- I'm not sure how these global claims are justified. The claims tend to be "can't"s like "We can't innovate our way out of carbon emissions" and "can"s like "We can transition to majority homesteading and that would solve the problems." Neither of these seem credible lacking some good models.

So, degrowthers, please point us to some models of why this is a good idea / how it would work.

jed said...

Also, I note that the list of research articles at ends in 2013. Maybe after all there is no need to ask these questions because there is no actual degrowth movement any more -- or at least not one that tries to answer rational questions.

Jerry Brown said...

Since you requested only intelligent arguments, I am not sure mine would qualify even if I agreed with degrowth arguments, which I don't.

From the limited number of arguments I have seen from degrowthers, I have got the feeling they are very pessimistic people, generally saying we are in a very bad situation as far as use of natural resources. And that soon we will deplete many of them anyways, so we should get used to that right away and try to make the best of that fact right now. I have never agreed with that and am far more optimistic in general.

I hope you do get some intelligent arguments on the subject. I'm just not sure they actually exist.

Sandwichman said...

"I would sincerely appreciate intelligent arguments from the degrowth side."

If that was true, you probably wouldn't characterize "the degrowth community" as an undifferentiated "suicide cult masquerading as a political position."

Your question is "whether declining investment is an occasion for celebration?"

The answer is "no." I could explain why but it would obviously be pointless. Your visceral hostility to a body of thought you apparently refuse to engage respectfully guarantees that anything I might say would be distorted and used against me.

If I have misread your intentions, Peter, you may demonstrate the sincerity of your appreciation for "intelligent arguments from the degrowth side" by explaining why we should interpret the "minimal bioeconomic program" outlined on pages 377-378 of Nicholas Georgescu-Roegen's 1975 article, "Energy and Economic Myths" as a manifesto for a "suicide cult."

Peter Dorman said...


I largely accept G-R's 1-4, certainly in principle if not in each detail. 5 and 6 I don't.

#5. While each of us should look critically at our own consumption patterns for tradeoffs between having and living, I don't think it's the role of public policy, i.e. the guvmint, to tell us where the line should be drawn. It will vary from one individual to another, and my aesthetic preferences about how life should be lived should not be imposed on you. I recognize there can be exceptions to this generality -- merit goods -- but I would keep them as exceptions, not elevate them to the role of a systematic attempt to distinguish "good" from "bad" consumption.

Pray tell, for instance, what is the cutoff between a virtuous and an extravagant bicycle? You can spend a few hundred on a bike and get around OK, and you can spend thousands for a high-end wonder. What would a public program to preclude the use of resources on high-end bikes look like, and what on earth does a hostility to super-fancy bikes have to do with ecological sustainability? (Paying tons of money for *design* in almost anything is arguably pro-environmental.)

#6. As with #5, being a slave to fashion is an impediment to a deeply lived life, if just about any philosopher is to be believed. But fashion is also an aspect of what it means to be human: all aspects of what we do send messages about our place in the social world. When I wore exclusively blue jeans and workshirts during my misspent youth, that was a fashion statement. Today I sometimes find myself paying extra for clothing *without* logos, which I do. And how do we ban fashion in music and art? Or is this just an Emersonian reminder to prize our independence?

#8. I'm not sure what G-R means by this. I think public policy should tilt in the direction of fewer and more flexible work hours, consistent with broad social support. The more civilized work schedules of countries like Germany and France are the result of policies I'd like to see in the US. The economy is a means, not an end. Is he saying anything more than this?

Now what does all this have to do with degrowth?

As for my intentions in the post, the key sentence is "But I could be wrong." I'm being honest. I have strong opinions but always a measure of self-doubt.

Sandwichman said...

"Now what does all this have to do with degrowth?"

This article is the original source for the mistranslated term, "degrowth." Georgescu-Roegen was critiquing Herman Daly's argument for a steady-state economy and suggested that, given John Stuart Mill's vision of people devoting more time to intellectual activities rather than "'trampling, crushing, elbowing, and treading on each other's heel'... the necessary conclusion of the arguments in favor of that vision is that the most desirable state is not a stationary, but a declining one." Declining was translated into French as décroissance which became a slogan that was subsequently re-translated back into English as degrowth.

These eight points -- within the broader context of G-R's analysis in "Energy and Economic Myths" and elsewhere -- were the original program of the degrowth movement. See my discussion from a year ago, "Degrowth," Economic Myths and a Minimal Bioeconomic Program.

In "Energy and Economic Myths" G-R specifically rebuts Robert Solow's refutation of the "Limits to Growth" study. If I may condense Solow's argument, what it comes down to is that the price system will "gradually and in advance" lead to substitution of "new" resources and capital for depleted resources.

The irony of Solow's rebuttal's dependence on the price system to solve resource exhaustion is that Solow was NOT so confident about the automatic working of the price system to ensure an adequate level of economic growth to maintain economic and political stability in the competition with the Soviet Union -- thus the urgent imperative of a coordinated OECD growth targeting strategy.

Piling irony on irony, it was a core of OECD officials that constituted what came to be known as the Club of Rome that commissioned the Limits to Growth study.

Peter Dorman said...

I have to admit I've never been much impressed with G-R. I read his entropy book long ago when I was first beginning to study economics and was quite unconvinced. And I don't see how his points relate to degrowth in any coherent way in this piece either. Yes, I see he wants to convey this but, no, I don't see his argument.

Sandwichman said...

I find G-R rambling and pedantic at times. But when he is good, he is very, very good.

Leaving Georgescu-Roegen aside, though. What is your opinion of the idea that the "built-in mechanism" of the price system will gradually and in advance bring about the substitution of capital and new resources for resources nearing exhaustion (including the waste absorptive capacity of the environment)?

Granting (for the sake of argument) the feasibility of perpetual growth, Peter, where do you place your bets for management of resource allocation -- the market or the regulatory state?

Peter Dorman said...

I have a lot of problems with the Hotelling model. (a) It relies on information people don't possess -- future technological possibilities, interest rates, etc. (b) It assumes resource owners are long run profit maximizers. (c) It assumes that the optimum entails complete exhaustion of the nonrenewable resource. (d) It assumes the whole big clump of assumptions connected with welfare economics and its interpretation of markets (market supply as indicative of marginal social cost, market demand of marginal social benefit). Putting it all together, I can't imagine why anyone would give it any credence.

Vanholio! said...

As a non-economist, I'm heartened to see this post and discussion. Philosophically, I'm attracted to degrowth economics. But as a person who tries to keep one foot on the ground, it's worried me that I haven't seen anything from that quarter but declamations, Utopian novels, and back-to-the-land social experiments. Like the old commercial, I'm left to ask, "Where's the beef?"

Myrtle Blackwood said...

According to recent research something like 40% of Americans could not come up with $400 for an emergency unless they sold something or borrowed the money.

Surely some form of 'degrowth' is going on already. A shrinking of the so-called 'middle class'.

My personal experience of living in the austerity of the 1950s and 1960s in rural Australia has informed me of the possibilities of living a happier life with much less income and fewer possessions. It is possible to get by and progressively 'get ahead' with the steady application of personal effort at home and locally.

Much of the modern economy emerges from the destruction of home and local production. for (a rough) clarification: if the town potter closes shop then the pots need to be called in from 'outside'. Once this happens roads need to be built to make their importation possible. Retail shops come in to existence to sell this alien pottery. Salespeople need to be employed. Accountants tally up the income, taxes and business costs....and so forth. Every home-produced good saves a lot of unnecessary work time and energy expenditure.

Sandwichman said...

Peter: "I have a lot of problems with the Hotelling model."

As does the evidence, apparently. So much for the built-in mechanism of the price system. That leaves it up to Scott Pruitt to save us.

Which leaves me with the question, Peter, if you view degrowth as "a suicide cult masquerading as a political position" what do you think of the actual -- y'know -- suicide cult that presides over the largest military-industrial complex in the world?

jed said...

Good to hear Peter Dorman reject the "built in mechanism of the price system". On the other side I still see no arguments or pointers to arguments. G-R's list is not an argument and some assertions in the list are clearly false or nearly irrelevant to Peter's point.

For me the growth argument is that innovation can reduce resource use, or shift it in ways that have environmental benefits and that this could be enough to make things work out well. Solar power capture is a good example. Electrical storage is another; so far we don't have an adequate rate of progress there but there are no miracles required. Moore's law is another, since it is giving us much lower cost / lower environmental impact ways of distributing information etc. than cutting down trees for paper, making plastic disks with grooves or pits on them, etc.

Nascent examples are vertical "farms" near cities, vat grown meat, etc. I have no idea how these will play out but *in principle* they could reduce the environmental impact of food production a lot.

Another example is simply increased housing density. This demonstrably reduces costs and environmental impact per capita.

Without a model I don't see how to justify a claim that all of these "growth" trends are outweighed by other bad "growth" trends.

Or maybe as Peter hints the degrowthers have some definition of "growth" that includes innovations that increase resource use & environmental damage but excludes the kind of innovations above that reduce "bad stuff". I note that G-R specifically calls out the potential of solar energy capture but doesn't believe it could displace fossil fuels quickly enough. This is an empirical questions and the facts have evolved since he wrote.

However looking at what people publish, cite, and seem to care about in the degrowth movement, I don't believe that the definition of growth is so nuanced. If it was, then ideas like homesteading would not be on the agenda at all, as I don't believe anyone could come up with a credible model where this kind of change is a feasible solution to any large scale environmental or economic problem.

So maybe to ask Peter's question more broadly: What is the motivation for the degrowth movement? If the members largely share an explicit or implicit model of how to make things better according to some objective, what is the objective and at least roughly how does the model work? If not, I don't think we should regard the movement as more than a form of performance art for and by its members -- which is fine, just a different sort of activity than it seems to claim.

Sandwichman said...


My own view is rather closer to G-R's original pessimism than to the "degrowth movement" a great deal of which amounts to pessimism + wishful thinking. That is to say, "anyone who believes that he can draw a blueprint for the ecological salvation of the human species does not understand the nature of evolution, or even of history..."

I would differentiate between policies aimed at improving sustainable sustenance that incidentally boost growth and policies aimed at boosting growth that are indifferent to the question of environmental sustainability and thus, on average, will accelerate environmental degradation. I am all in favor of the former and opposed to the latter. But having maintained this view for over two decades, I must confess that I have seen sustained and violent opposition to the kinds of policies I would support.

Is there a rationale for adamant opposition to policies that would only incidentally contribute to growth? Yes, there is: cost shifting. Investors can get a bigger payoff by doing "dirty" business and shifting the cost for clean up to a third party. This stands to reason. Because investors earn a return on a portion of the clean-up that their investment doesn't pay for. Capital does not want to give up the subsidy it receives for behaving badly.

Is there a solution to this? I don't think so. One reason I don't think so is that "optimists" refuse to acknowledge how difficult the problem is and how unlikely a solution is. That is to say, in principle there may be a solution but history gives little cause for optimism it will be accepted.

Peter Dorman said...

S-man: Is ignoring climate change suicidal? Yes. I make that argument to someone about once a day. Unfortunately it's not (yet) politically suicidal, which is how I regard degrowth. We'll see if events prove me wrong.

Sandwichman said...

If your point is that the slogan of degrowth is political suicide, I made the same point from the podium at a degrowth conference about five years ago. My impression is that the point was well received. There has actually been quite a bit of discussion about that among people who are sympathetic to many of the arguments that are core to degrowth. The term was supposed to be a "missile word" -- that is a provocation. But it is a missile word that backfired, as a recent Ecological Economics article by Stefan Drews and Miklós Antal, explained.

Degrowth: A “missile word” that backfires?


"Language use and cognition are generally underappreciated topics in ecological economics, even if effective communication is essential for social and political impact. To challenge the economic growth paradigm, the concept and term “degrowth” has recently been embraced by various activists and scholars. Drawing on a body of evidence from cognitive science, psychology, and related fields, we argue that using the word degrowth might be disadvantageous in public communications about alternatives to growth. We begin by reviewing arguments in favor of the term. Then we outline three main counterarguments: First, degrowth has a downward orientation which triggers negative initial feelings due to the basic conceptual metaphor “up is good—down is bad”. This puts advocates of an alternative to the growth paradigm in an unfavorable starting position, given that subsequent thought will be unconsciously biased by the initial feeling. Second, more conscious reactions are likely to be negative as well because people unfamiliar with the term will (mis)interpret it as a contraction of the economy, even though it is not always meant as such. Third, degrowth repeats and possibly strengthens the growth frame and may activate undesirable frames associated with economic recessions. To conclude, we briefly discuss alternative terms and summarize key aspects to be considered for more effective communication."

jed said...

This is an important point by the S-man:

Is there a rationale for adamant opposition to policies that would only incidentally contribute to growth? Yes, there is: cost shifting. Investors can get a bigger payoff by doing "dirty" business and shifting the cost for clean up to a third party. This stands to reason. Because investors earn a return on a portion of the clean-up that their investment doesn't pay for. Capital does not want to give up the subsidy it receives for behaving badly.
End quote

I think we have to focus a lot of effort on demonizing deliberate negative externalities, just like we have demonized pedophilia and racism. We need to make it the "self aggrandizing behavior that dare not say its name" (and not incidentally we need to find a better name for it).

These are effectively assault and/or theft, and people understand that at a gut level when they see the pattern. So I think this is a feasible project although a long term one.