Monday, October 20, 2014

My challenge to those who believe in (s)low economic growth

"A more sustainable economy" has long been a theme of Rudy Baum's C&EN editorials -- the latest column in this week's C&EN is a rerun of a column from 2004*:
I will review “Red Sky at Morning” in an upcoming issue of C&EN. Here, I want to take up one issue that Speth returns to repeatedly in his book: For our global economy to become a sustainable economy will require a fundamental shift in the economic paradigm that governs human activity today. Specifically, Speth argues, sustainability requires that we abandon the notion of endless economic expansion as the sine qua non of a successful society. 
In the final chapter of “Red Sky at Morning,” Speth writes: “Imagine a group of countries where citizens rank at the top among today’s countries in terms of purchasing power, health, longevity, and educational attainment; where income inequality between the top and the bottom of society is low and poverty virtually eliminated; and where fertility rates are at replacement levels or below, and the challenge is not unemployment but deploying innovative technologies to remain competitive and increase the productivity of a shrinking labor force. Should these countries not declare victory on the economic growth front and concentrate on protecting current standards of living ... and on enjoying the nonmaterial things that peace, economic security, freedom, and environmental quality make possible? Can a country make a decision that enough is enough?”
I'm no economist, but it seems to me that we've just lived through a period of non-"endless economic expansion" and it wasn't very pleasant at all, especially for most non-wealthy folks. If there is a society (Japan?) that has experienced flat growth for many decades, I assert that they are different enough from America (from top to bottom) that a viable comparison is more-or-less meaningless.

Readers, what do you think? Is there a better measurement of "how things are going" than GDP growth?

*Seems to me that maybe there are voices in the ACS that could have competed for this space, but hey, I'm talking about the subject, so maybe not. 

18 comments:

  1. I think this (note the lyrics):

    http://www.youtube.com/watch?v=ZCM4_5uB1ww

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  2. Seems like Alice in Wonderland. You have to run faster and faster to stay in place. Here there needs to be constant growth to avoid unrest. The better question is how do you get that growth without population growth?

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    1. That's the thing, stabilize population growth and it's easy to stabilize economic growth. But for some reason people think they have a god given right to have as many children as they'd like...

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    2. I think this tends to go in reverse. Kids are parents' property in places with not much else - labor for farms or other things and someone to take care of them when they're old. When people are educated (particularly women, since they can learn to assert control over childmaking), and have the chance to make money in other ways, they have fewer kids, because kids cost lots to raise and have less economic worth than the other things they can do with their time and money. Some people will have lots of kids because of their own needs and others because they can't be bothered to think ahead, but at that point, they tend to be fewer.

      Also, I assume looking at Japan would not help. They have run up lots of debt which will be harder to pay off in the future because of deflation. Their kids will have less money to pay it off because of lower wages and a longer time to get a job, the cost of living (lower costs) doesn't help enough to cover their decreased wages and crappy jobs, and they will bear a larger share of the costs of taking care of Mom and Dad. They don't need shades for their future, low population growth and all.]

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  3. The problems are two-fold: 1) When have people ever come to the conclusion as a society (or even a relatively large subgroup) that "enough is enough"? I'd be glad to hear other answers, but my first answer is "never", which would present a problem. When a method of organizing people and their efforts requires people to be, mostly, what they aren't (even if it's what they would like to be), it seems doomed to failure, and probably expensive, bloody failure. 2) If economic growth is zero-sum, then any gains (someone comes up with a better widget) require someone to lose. This might be OK if there were ways to make the transition less painful, and to allow people to do something else useful woth their skills when their jobs disappear, but for the most part, we have tended to treat people as expendable, and useful work as their only purpose, and when it's done, so are they. (We don't want to train them, because they're expendable - there will always be more cannon fodder.) In that case, when people lose they lose big. If losing is the end of everything for people then they are likely to do a lot to avoid it - unless people believe in the economic system strongly, or the groups are small enough to minimize the possibility of violent organization, that sounds like a recipe for endless violence.

    Perhaps if we weren't expendable to one another, we would have a better shot of making this (or lots of other reasonable alternatives work). But I don't know how to do that for me, let alone anyone else (and see point 1, above).

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  4. Bhutan uses GNH, Gross National Happiness, as a measure of "how things are going". http://www.theguardian.com/world/2012/dec/01/bhutan-wealth-happiness-counts

    I'm not certain how it's measured or how much it's changed over the past few years, but I doubt it's any worse a measure than GDP or PPI.

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    1. Yes, Pig Farmer wrote in as well to note that Bhutan uses this measurement, referencing their Wikipedia entry: http://en.wikipedia.org/wiki/Gross_national_happiness

      He also says: "Not sure I’d really want to live in Bhutan.

      I tend to agree with you. Our standard of living depends on continued economic growth. Whether that has to mean accelerated consumption of physical resources, I’m not so sure. We’ve managed to fend off Malthus so far…."

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    2. I don't think Malthus was wrong in principle. He just got the timing a little off. But then again, maybe we'll be alright, because… 3D printers.
      Think about how much our technical innovations have saved energy on an individual level. Now think of how much more energy we continued to use anyway: After we discovered coal, we burned more wood than ever before. After we discovered oil, we burned more coal than ever before. After we discovered nuclear, we burned oil faster than we ever had before. This time, with renewables it will be different? This is called Jevon's Paradox, and it reminds us that no matter how efficient we become or what technical innovations we make, we'll just burn through more energy because of it. Unless we change human nature and decide, as a planet, to leave energy - the means to improve one's standard of living - in the ground, we will continue living in a pyramid scheme of global proportions.

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    3. The GNH principles take into account the well-being of people, as opposed to how much money the richest are bringing in. Hence, according to Bhutan priorities, the US is a failed state.

      I also steal the quote from the Wikipedia article on GNH:
      "At present, we are stealing the future, selling it in the present, and calling it GDP"

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  5. Growth without population growth is easy with technology and automation.

    "Is there a better measurement of "how things are going" than GDP growth?"

    Yes, in fact they're listed in the quote you gave: purchasing power, health, longevity, educational attainment, income inequality.

    Japan and Germany have had near-zero population growth, have 2 of the largest GDPs in the world, the ratios of average income of the richest 20% to the poorest 20% (R/P 20%) are 3.4 and 4.3 (US is 8.4), life expectancies of 84.6 and 81 (US is 79.8), and are ranked #35 and #33 for educational attainment (US is #21).

    Many of these factors are also included in the Human Development Index, which is an arguably better measure of overall quality of life than GDP growth.

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    1. The problem with zero growth is ensuring that there's enough wealth to transfer. How many current workers does it take to support one person on social security?

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    2. That also depends on how much you pay into the retirement system.

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  6. Just a thought, but think about how difficult it is to buy a gift for an older parent or grandparent. After a while, lots of people are content with the stuff that they have and really don't want anymore. Sure, stuff needs replacing as it wears out and breaks down, but few people in their 70's, 80,s and beyond are buying their next big house, etc. Additionally, since retirees are no longer adding to the GDP, they aren't creating growth to support others.

    Being that this is just a limited demographic slice rather than the entire population of a country, I'm somewhat sidestepping the question. But would it be possible for an entire country to somehow get to this state? What if people obtained a certain amount of assets and then just coasted until death? If the birth rate and death rate match, it might not be a zero-growth scenario, but it would be pretty close.

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  7. I don't understand why chemists, people who should ostensibly understand thermodynamics can consider economic models that do not include resource limits.
    http://www.bloombergview.com/articles/2014-10-05/economists-are-blind-to-the-limits-of-growth

    Here is a short animation that really ties everything together and shows in a delightful and humorous way how screwed we truly are if we continue to follow the exponential growth paradigm.
    http://youtu.be/VOMWzjrRiBg

    Also check out http://physics.ucsd.edu/do-the-math/

    These are disturbing things to think about, but scientists, please don't succumb to the magical thinking that it will all just work itself out somehow. The most disturbing truth is that there might not be much we can actually do anyway. Eat, drink, and be merry, for tomorrow we grow… or die.

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  8. Japan's productivity growth over the last 25 years hasn't been all that different from that in the US. It's lagging growth is due to a decline in the number of people of working age. The US, in contrast, has working-age population growth of about 1% per year, which puts a similar floor under medium-term economic growth.

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  9. I can't really argue the economics (though I have my own leanings, some well-founded, others not so much...) but I would suggest looking at the Great Recession and the current state of the economy as having to do with a question values. Under the current capitalistic regime, we've focused on production while simultaneously externalizing a lot of the costs, i.e. environmental impacts, etc. We're moving more towards a service-based economy but we've undervalued labor. Hell, you can look at TARP and the other actions in the wake of the collapse as prioritizing the financial sector over actual people. What has occurred was a consequence of choices that were made, not some deterministic law of the world.

    Buckminster Fuller has some of my favorite quotes on this matter. One of them being: "The true business of people should be to go back to school and think about whatever it was they were thinking about before somebody came along and told them they had to earn a living." We should be striving to set up a society that does exactly that.

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  10. We have been in HUGE economic expansion - in the form of printing fiat currency. This growth is unnatural, leads to income inequality, and will destroy the developed world as we know it. The world needs to stop printing money, encouraging easy credit, and stop call for citizens to be patriot 'consumers.' They should promote saving and sound investment.

    The CPI is a joke. This is what the federal reserve uses to show they are not doing inflationary damage by printing. Funny thing is it excludes food and gas... Ask anyone struggling to pay their bills if the prices of FOOD and GAS are important and they will expose CPI for what it is - propaganda to support destruction of the dollar.

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    1. Japan has high saving rates, I don't think that's helped them much. Putting assets into savings doesn't do much good.

      As for inflation fuel is too volatile to be a useful measure of anything and food prices depend heavily on fuel prices.

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