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Tuesday, October 29, 2013

Ecological Economics: Limits to Growth?

A few weeks back I posted a brief economic history of the US in the post-war period in order to set up how the ecological economics movement took root in the mid-1990s. Ecological economics is a critique of classical and neoclassical economics that seeks to create a steady state economy that is focused on full employment and natural sustainability rather than economic growth. The critique is detailed and multi-faceted, but it focuses primarily on two aspects of modern economics: growth and accounting. Today I'm going to take a look at the first of those.

In his book Supply Shock: Economic Growth at the Crossroads and the Steady State Solution, Ecologist Brian Czech provides an excellent history of how growth came to be the dominant goal of all world economies, but the tale is too detailed for me to dive into here. Regardless of the history, the end result is the same: the mainstream view of all economies is that growth should be the primary economic goal. The belief in growth has been so dominant for so long that questioning it is tantamount to heresy.

But that is exactly what ecological economics has in mind.



In order to field their critique of growth, ecological economists reach back to an unlikely place: classical economics. One of the chief things that distinguishes classical economics from neoclassical economics, is that fellas like Adam Smith understood implicitly that all human economy comes from surpluses created through manipulation of the natural world. Essentially, without agriculture, mining, logging, etc. there could be no secondary human economy. Thus, the classical economic inputs were: labor, capital, and land (natural capital). This stuck for almost two hundred years until, believing that natural capital was effectively unlimited, neoclassical economists decided to focus almost exclusively on the other two inputs: labor and capital. This oversight has continued to the present day, with nearly every economic model, and even the very accounting standards that rule the global economy, ignoring natural capital or taking it as a constant.

The problem is that in the last hundred years it has become increasingly apparent that natural capital is far from unlimited, but our economic models and accounting standards have not adapted to the new information. Or rather, they've adapted with a band-aid of sorts, by asserting that technology will be able to make use of natural resources so efficiently that it will be as if natural capital is unlimited. This is, of course, possible, but in the thirty years since that theory was put forward, technological efficiency hasn't come close to outstripping our use of natural resources.

So what does this have to do with growth? Well, classical and ecological economists both understand that, if all human economy derives from a surplus of natural capital, then human economy can not continue without natural capital, thus growth in the human economy must necessarily use more natural capital.

To understand the predicament we're in, I like to use Brian Czech's analogy of the gorilla in a cage. The cage is the earth, constant, limited, protective; and the human economy is the gorilla, dynamic, struggling against his bounds, and eager to grow. As you can see from this analogy, the gorilla has only two sane choices: stay the same size, or shrink. Growing bigger will only kill the gorilla. Thus it is with the human economy; unlimited growth in a limited world will ultimately create a disastrous situation for our grandchildren and great-grandchildren because any use of natural resources beyond what is necessary to provide a comfortable living for the world's people is effectively stealing from the stores our grandchildren and great-grandchildren will have to draw from for their economy.

And yet, economists and politicians the world over continue to use growth as the chief measuring stick for the health of the world's economy. This has grown partially from a misguided belief that a rising tide raises all boats. This was true to a certain degree while resources were plentiful and cheap, but in era of dwindling resources we should see exactly what we are already seeing to a certain degree: more and more resources diverting to the upper echelons, while the lower two-thirds of society struggle to get by. This is because as resources become more expensive those at the top can absorb this increase, while those in the middle and bottom will either eschew common resource consumption patterns, or spend themselves poor trying to keep up.

Continued reliance on growth not only is incapable of providing the most economic bang for your buck, so to speak, but it could lead to a wholesale economic collapse of the human economy if the natural capital we rely on most becomes too scarce. It is well documented that complex systems tend to collapse terrifyingly fast, after seemingly absorbing blows for decades. And most models of resource scarcity show a curve that bumps along at the top for quite awhile before the bottom drops out and the curve careens exponentially down to zero. After all, resource scarcity is not really a matter of supply dropping off, so much as demand outstripping supply so that prices rise so high that demand collapses. Growth practically guarantees that collapse in demand, which is what Czech means by a supply shock: after repeated price shocks due to demand outstripping supply, demand finally collapses. After all, look at how dramatically the oil shocks of the 1970s altered the automotive and oil and gas industries. Now imagine the shocks become permanent. Already, we are facing a drawn-out sluggish "recovery" partially due to stubbornly high resource prices.

What the ecological economists offer as a balm for the overheated ecstasy of growth obsession is something called a steady state economy, which focuses instead on full employment and sustainable use of natural capital so that future generations might have the same, if not more, natural capital than we have today.

That's enough for today, but next week we'll discuss the reality of a full employment, steady state economy, w/r/t population and efficiency.

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