A given economic growth rate can be sustainable only if the average impact per unit wealth declines at an equal or greater rate.
I argue that this is certainly true if one grants that a sustainable behavior must be sustainable indefinitely.
Shortly after coming to this pretty firm conclusion and wondering how smug to feel about it, I realized that it’s just a consequence of the old I = PAT tautology, due to Ehrlich and Holdren (yes that Holdren). Tidal pointed out the same before I got round to making the connection.
I’ll continue to argue, though, that it’s both a striking consequence and a useful one. Anyone talking about both returning growth to the economy and about sustainability needs to take this constraint into account. This includes President Obama. If you think about returning to sustained 3 % annual growth rates you are talking about some very massive changes in the consituents of the economy.
Pointing to the constraint does not guarantee that there is a way to achieve it. There are many reasons to expect negative growth in the largest economies in the future after all. We don’t even know if unsustainable growth can really be reconstituted. If we have really begun the long decline, it is probably a bit sooner than might have been necessary were it not for the great outburst of irresponsibility in the financial sector of late.
What the constraint does guarantee is that we will not be able to revive growth at full steam without a very substantial virtual tax implied by accounting for what has until now been treated as external, and shunted to later generations. We are no longer in a position to shunt things to later generations. We are the later generation that those awful people who were right about the environment warned our parents about.
I’m not claiming some secret key to answer all our problems. I’m suggesting only that those desperate to avoid challenging the growth paradigm have a very steep and narrow path ahead. I’m noticing that this includes our otherwise enormously admirable leader. I hope President Obama or someone around him has some secret recipe to make these ingredients work together, but I think instead that nobody has faced up to the constraints properly.
So I’m proposing we be as optimistic as possible, and also be sort of mathematically oriented. Proving that growing impact is unsustainable is easy. Detaching our institutions and traditions from growing wealth appears very difficult. But is it impossible? We can take the mathematician’s approach and assume a solution exists, and try to examine the properties that follow from the constraints we have set in search of a final contradiction.
So consider some of the responses to my previous article in this vein.
Let’s first tip our hats in the direction of the stuff that John Mashey wants us to take into account: the fact that whatever we do, energy is going to get more expensive. This surely makes many things more difficult, but I don’t see that it makes a sort of numerical growth in wealth more difficult. On the contrary, it would appear in some odd paradoxical way to help! We want more wealth per unit of energy and we will automatically get less energy per unit of wealth. Isn’t that the same thing, really? Well, no, not exactly, because it means all else equal that real wealth tends to decline, but suppose all esle is not equal. If there’s some other sort of low-impact wealth that compensates, the combination actually pulls in the right direction. I am scratching my head about this one, too, but not everything works the way intuition says it does.
The question, though, is what that other source of wealth might be.
Another interesting comment comes from Dave Gardner of Growthbusters :
I like your notion that perhaps we can all be delusionally happy if we are simply given more Monopoly play money and it has no connection to more resource depletion or environmental degradation! You may be onto something.
I think this takes it just a hair too far. I don’t think the currency can be entirely delusional, although one might argue that it is already play money in some circles.
(For the love of God, why doesn’t Microsoft just take its money home and shut down its production of worthless garbage so everyone can migrate to a sensible platform? What drives their intense drive to prevent us from having useful tools? It’s not because they are literally hungry, is it?)
No, the currency has to convey real advantages. Maybe very few people will fly, but the people with more of it will still be able to take luxury liners to fine hotels, eat the little bit of sushi that is left, and so on. The real question remains what is it that has been growing all along? The concept of aggregate wealth seems to me to evaporate the closer one looks at it. It does seem that the changes in the rules of the game might not have to be all that large.
Bart Verheggen offers a challenge from a different direction.
But in the current financial crisis, didn’t the fact that money is already to a great extent decoupled from material items contribute to the problem? Didn’t the (risky) dealing with money as hot air, without a link to a real product or service, play a role in the current financial crisis?
This came at me rather unexpectedly, but I have to admit there is a point. The fact is that our system failed because of its abstraction from real processes. This perhaps ties in with the Monopoly Money issue that Dave raised. But I am not arguing for devaluing real processes. I am arguing for increasing their valuation. Food and energy in particular will become relatively more expensive in proportion to finished products; indeed this is what is likely to happen anyway.
Another problem is raised by my intervening posting about the vast wealth of the internet and the complete lack of sensible models to pay for it. “Too cheap to meter” turns out to be a problem. We used to believe that our material pursuits would be replaced by artistic and intellectual ones. In a sense that is entirely true for me. I hardly care at all where or how I live as long as I have a decent internet connection and a few good friends. (I’m an extreme case being childless, but the principle holds to a lesser extent for families too.) But as a producer as well as a consumer of exactly the sort of intellectual and artistic content that was supposed to be the salvation of the future dematerialized civilization, I find myself in a strange economy, one where the currency of attention can’t easily be exchanged for, say, shoes. Admittedly I could get into endless pissing matches with famous denialists, but after all, I do have some standards. I’d rather just work at Wal-Mart.
Maybe I can follow in The New Yorker’s footprints and sell Tobis’s Tautology T-shirts. (I have seen someone selling T-shirts with the slogan “There is No Planet B” which I wish I had thought of.)
Maybe this is teh whole story, though: we will just need to adjust to a radical rearrangement of pricing structures. But this brings me back to my basic confusion about economics. As the “basket” of goods we choose changes, the “value” of the “currency” in which we measure our “wealth” becomes less determinate. So what, exactly, is it that is supposed to be growing? Can we keep that something growing while decreasing absolute impact?
But what is the something? Bart ponders along these lines:
Could a redefinition of the growth parameter (GDP) help? More car accidents raises GDP, but decreases the average wellbeing. If impacts, also those that are distant in time or place, are included within the growth parameter, then the picture of growth would quickly look very different. The genuine progress indicator (GPI) and other initiatives along similar lines could perhaps serve as an example.
To which the Texas answer is a squint and a “y’all aren’t from ’round these parts, are ya?” Around here we spend money, not GDP.
I think it’s the individual and institutional incentives that matter, not the collective metrics. But we do have to play around with them and stop letting them have their way with us.
It’s interesting. So far my answer to the question framed by the tautology is “maybe”. I haven’t convinced myself that we absolutely need to let go of something very much like growth. I freely admit to being uncomfortable with macroeconomics. Unfortunately, it’s not just my own grasp of the subject that I find wanting, though. I doubt everyone else’s as well. That said, I think the present company will be able to recognize cogent analysis and we will all appreciate any further consideration of these ideas.
Image from the T-Shirt sales at the New Yorker. Please do buy something from them and keep their lawyers at bay so I can keep the cartoon up.