Something to Chew On - Part 1

I'm poring over papers and studies dealing with the thorny issue of growth in an already overgrown world.

A few days ago I did a post about a recent study by a KPMG type that tested the relevance of a half-century old paper out of MIT about the end of growth, when it would occur and the possible aftermath.

The KPMG paper would delight the statistician. It's a bit of a grind for people like me. That said the paper found the MIT prognosis is born out by modern data. To be blunt it concluded that the 'age of growth' as we've known it throughout the postwar era will falter around 2030 and, unless we become very wise very soon, could lead to a civilizational collapse by 2040. Thus the impetus for me to start poring over the academic literature on this worrisome issue.

There is hope. If we can recognize our condition and the perils we're facing we can change our economy without killing it off. It's increasingly obvious that, if we don't change, we will be consigning what we understand as our economy to the dustbin. One way or the other the growth economy will end. 

I want to begin by whetting your appetite with a few observations by leading experts who've been churning this over for several decades. Let's begin with Herman Daily, professor of the School of Public Policy, University of Maryland.

The fundamental axiom of growth, rigorously stated by Kenneth Boulding, is that ‘When something grows, it gets bigger!’ When the economy grows it too gets bigger. So, dear economist, when the economy grows, (a) exactly what is it that is getting bigger? (b) How big is it now? (c) How big could it possibly get? (d) How big should it be? Given that economic growth is the top priority for all nations, one would expect that these questions would get major attention in all economics textbooks. In fact (b), (c) and (d) are not raised at all, and (a) is answered unsatisfactorily. "Prosperity Without Growth" makes a large contribution to filling this void. Given academic economists’ long track record of mind-numbing irrelevance it should perhaps not be so surprising that this report originated in the government.

Exactly what is growing? One thing is GDP, the annual marketed flow of final goods and services. But there is also the throughput – the metabolic flow of useful matter and energy from environmental sources, through the economic subsystem (production and consumption), and back to environmental sinks as waste. Economists have focused on GDP and, until recently, neglected throughput. But throughput is the relevant magnitude for answering the question about how big the economy is – namely how big is the economy’s metabolic flow relative to the natural cycles that regenerate the economy’s resource depletion and absorb its waste emissions, as well as providing countless other natural services? The answer is that the economic subsystem is now very large relative to the ecosystem that sustains it. How big can the economy possibly be before it overwhelms and destroys the ecosystem in the short run? We have decided apparently to do an experiment to answer that question empirically! How big should the economy be, what is its optimum scale relative to the ecosystem? If we were true economists we would stop throughput growth before the extra environmental and social costs that it causes exceed the extra production benefits that it produces. GDP does not help us discover this point since it is based on conflating costs and benefits into ‘economic activity’ rather than comparing them at the margin. There is much evidence that some countries have passed this optimal scale, and entered an era of uneconomic growth that accumulates illth faster than it adds to wealth. Once growth becomes uneconomic at the margin it begins to make us poorer, not richer. Therefore it can no longer be appealed to as necessary to fight poverty. It makes it harder to fight poverty!