Do we dare to question economic growth?
First published at theguardian.com, Monday 13 October 2014 13.14 AEST
The endless pursuit of economic growth is making us unhappy and risks destroying the Earth’s capacity to sustain us. The good news is that taking steps to make our lives more sustainable will also make us happier and healthier. Would you like a four day weekend – every week?
I’ve been to two conferences over the last year with similar basic premises. The first was at the Australian National University on ecological economics and the second, just last week, was on steady state economics at the University of New South Wales. The premise sitting behind both of these conferences is simple and undeniably true yet undermines so much that is fundamental to our current way of life:
We live on a finite planet.
That’s it. How, you might wonder, can such a simple statement of obvious fact undermine the tenets of modern society?
The earth is a giant rock, hurtling through inhospitable space surrounded by a very thin film of life sustaining atmosphere. Earth’s life support systems are self-sustaining and self-regulating. However, we humans are slowly and steadily pulling this life support system to pieces. Our planet is very large and can absorb a lot of tinkering with its systems, but there are now over 7 billion of us and the amount of energy and resources we are each using is growing fast. That’s a lot of tinkering.
There’s plenty of evidence that we are pushing up against and exceeding several critical boundaries of global sustainability: by which I don’t mean some tree hugging idea of sustainability, I mean we are taking actions that cannot be supported by the earth’s systems in the long term. We’re already exceeding the earth’s adaptive capacity with respect to greenhouse gas emissions, biodiversity loss and the nitrogen cycle and we’re approaching critical limits in both the phosphorous cycle and ocean acidification. Our use of fresh water is also approaching or exceeding sustainable limits in many parts of the world and we’re systematically destroying our arable land. These are critical life sustaining global processes that cannot be ignored without severe consequences.
Economists, like the nobel prize winning Paul Krugman, will counter this line of thought by pointing out that, theoretically, we can have endless economic growth because of continuous efficiency increases. If you believe human creativity is endless then you can argue that economic growth can be endless. However, in this case, like in so many, reality clashes violently with economic theory. We are showing no signs of decoupling economic growth from physical resource use. Unless that decoupling starts now and happens in a hurry, continued economic growth will push the planet beyond its capacity to sustain us – on several fronts.
You may be surprised to hear that there’s really good news in all this. None of the stuff we’re doing that’s destroying the biosphere is making us happy. By contrast, changing to a more sustainable way of living will also bring us greater happiness and general wellbeing. Seem too good to be true? That’s because we’ve all been so effectively sold the line that endless growth is essential to maintain and improve our quality of life. This couldn’t be further from the truth. Material prosperity has diminishing returns when it comes to happiness and wellbeing. Once we have good access to food, shelter, healthcare and other basic material things, the nature of the community in which you live and the quality of your relationships is the best predictor of wellbeing. More stuff only makes a very marginal difference.
So, the good news is that the public policy settings for saving the planet align very well with the policy settings for saving your marriage and your relationship with your children, friends and neighbours and therefore with serving your happiness and wellbeing.
First we have to do something about the price of housing. People cannot be freed from the earth destroying and soul destroying rat race when simply securing a place to live means a lifetime of debt peonage to the banks (or paying absurd rents to somebody else so that they can give it to the banks).
Once this is done, we need to understand and promote the value of leisure and the lack of benefit we get from material consumption. Retail therapy only ever works in the very short term. Real friendships work for life.
How about a three day work week with a four day weekend? It can be done. Productivity improvements can be directed into allowing people to work less for the same pay instead of into corporate profits and expansion. It’s not written in stone that you always have to work as hard as you can for as long as you can so that some senior executive can get his million dollar bonus. Instead, work for or set up a not-for-profit cooperative where the workers own the business and can spread the benefits any way they see fit. It’s true that if we work less and buy less the economy may shrink but we’ll all be happier and healthier. Here’s something you won’t hear from many politicians or economists: the economy should serve us, not the other way around.
Think about that three day work week. It is possible and the only reason we don’t do it is because it doesn’t suit the ambitions of the empire builders, the 1% who control so much of the wealth and the political power. Their system requires our consent and participation. They can be beaten if we simply stop believing their bullshit and prioritise our own wellbeing and that of the planet. It’s both that simple and that difficult.
Reconstructing Economics 
Nice, Warwick. We’re on the same wavelength.Here’s my response posted at EconoSpeak. It seems to me that Weitzman’s “fat tail” analysis of climate catastrophe has shaken up the environmental economics establishment (i.e., Nordhaus, et al.) but they — and Weitzman — haven’t yet realized what the implication is of abandoning the conventional discounting in cost benefit analysis.
“Weitzman’s Burden: do we dare to question economic growth?”
http://econospeak.blogspot.com/2014/10/weitzmans-burden-do-we-dare-to-question.html
Do we dare to question economic growth? asks Warwick Smith in a Comment is Free op-ed at the Guardian:
“We live on a finite planet.
“That’s it. How, you might wonder, can such a simple statement of obvious fact undermine the tenets of modern society?”
According to Paul Krugman, though, “there’s a lot of room to reduce emissions without killing economic growth. If you think you’ve found a deep argument showing that this isn’t possible, all you’ve done is get confused by your own word games.”
O.K., let’s play some serious “word games,” then, and try not to get confused.
Actually, these are word games about pictures. One of them is Wittgenstein’s discussion of the duck-rabbit picture. The other is Keynes’s discussion of the newspaper beauty contest in which contestants are asked to guess which pictures the most contestants think are prettiest.
But let’s start with another quote from Paul Krugman, “So what I end up with is basically Martin Weitzman’s argument: it’s the nonnegligible probability of utter disaster…” What the probability of utter disaster does in Weitzman’s argument is render the standard cost-benefit analysis, based on a market-based discount rate, inoperative. What’s a discount rate? It’s an interest rate, or more specifically, according to Investopedia,
“The discount rate also refers to the interest rate used in discounted cash flow analysis to determine the present value of future cash flows. The discount rate in discounted cash flow analysis takes into account not just the time value of money, but also the risk or uncertainty of future cash flows; the greater the uncertainty of future cash flows, the higher the discount rate.”
So a discount rate is an interest rate. What is an interest rate? In the retrospective, “From Usury to Interest,” Joseph Persky explained,
“Our modern word ‘interest’ derives from the Medieval Latin interesse. The Oxford English Dictionary explains that interesse originally meant a penalty for the default on or late payment of an otherwise legitimate, nonusurious loan. As more sophisticated commercial and financial practices spread through Europe, fictitious late payments became an accepted if disingenuous way of circumventing usury laws. Over time, ‘interest’ became the generic term for all legitimate and accepted payments on loans.”
A discount rate is an interest rate is a (formerly) usurious charge on a loan. Now, if I were to say next that “economic growth is another aspect of compound interest” or that “usury is what propels growth and what makes it imperative” an economist would insist that I am some kind of a crank. I won’t say that.
I won’t say it because what we’re dealing with here are not economic growth and interest rates but accounts of economic growth and interest. These accounts are like pictures and here is where Wittgenstein can be of help. Paul Krugman, and EconoSpeak’s own Peter Dorman, are fond of reminding us that critics of growth “mistakenly” identify GDP with “stuff.” They point out that it is value, not stuff, that gets added up in the national income accounts. This is a bit like saying the duck-rabbit picture is a picture of a rabbit, not of a duck.
GDP certainly is not stuff. It is an account of something. And it is most definitely an account of something that many — possibly most — people perceive of as stuff. The question then arises whether the “value” that economists attribute to GDP would continue to carry the same weight if the people who formerly perceived of GDP as accounting for stuff stopped having that perception. This is another way to pose the question, “what is liquidity?”
What is liquidity? Clearly Keynes thought that liquidity-preference resulted from uncertainty and that changes in liquidity-preference are implicated in slumps to the extent that the rate of interest required to induce people to not hoard liquid assets exceeds the expected rate of return on productive investments. In other words, while GDP is indeed not stuff, whether it is perceived to be an account of stuff may well have a bearing on private investment decisions.
Furthermore, whether an individual investor does or does not believe that GDP is an account of stuff doesn’t matter as much as what that investor believes is the average perception of investors. Keynes illustrated this condition with his beauty contest story.
In conclusion, Weitzman presented a compelling case for the inappropriateness of using market interest rates as a discount rate for cost-benefit analysis of policies for abatement of GHG emissions. There are no grounds for assuming that capital markets would react benignly to such policies, however prudent and appropriate they may be.
Is there “a lot of room to reduce emissions without killing economic growth?” as Paul Krugman asserts or “do we dare to question economic growth?” as Warwick Smith wants to know.
Hello Warwick, I really liked your piece. I would love to be able to advocate your stance myself, but there is one thing I need clearing up. How are individual or groups of countries supposed to adopt your policy stance when capital is global? Surely money would just fly out of the economy into remaining profit-making capitalist economies? We would do worse than to eradicate the unessential surpluses in our lives. I would have thought that we would put at risk even that production which is necessary to our sustainable and happy lives once national finances would go into meltdown. Can you see how we can get round this problem? – a problem that is fundamentally grounded in the international nature of competition.