A polished and, to me, convincing summary of our predicament. Big hat tip to Joe Romm for passing this on.
So do you agree? On the relationship of the debt bubble to the argument that growth has essentially been a charade for decades? On the idea that public debt is a claim on resources?
See, what this does if it holds is kill Keynesianism altogether, from a sustainability viewpoint. It's important because it reveals a contradiction in progressive thought.
I have been saying it is full employment vs sustainability. This video makes a comparable claim that it is debt vs sustainability. It's very compatible; clearly companies take on debt to expand their employment in the hope of expanding future profit. And their way of putting it is a bit less disturbing than mine; we have been taught that employment is an unalloyed good, while we are conflicted about debt.
Both views go against the conventional economic wisdom of liberal economists, Krugmanites. I like these people, and in some ways I like the way they think, but they are so happy with their abilities to manage the infinitesimal that they seem to have lost track of the finite.
Remember that the people most upset about the recent resolution of the Tea Party blackmail are those who believe we should take on more debt, and aim for full high-pay low-skill employment as if this were the heyday of General Motors. But that day is over.
The video doesn't take the necessary step though. An end to growth is an end to full employment.
What we need is to bring back the welfare state, because there are not enough useful jobs for everybody, but everybody deserves dignity. We need to replace wealth with efficiency. Stuff with information. More parks, less yards. More theater, less theaters. More community, less corporation.
Oh, and one last point in closing, the last bloody thing we need in America is to "revitalize the construction industry". Have you counted vacant buildings in your vicinity lately? Anyone who can say this with a straight face (most economists, investors and business reporters) deserves to be slapped in the face with a less-than-fresh fish. That's just stupid.
"Our greatest responsibility is to be good ancestors."
-Jonas Salk
Wednesday, August 3, 2011
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42 comments:
Sorry to sound pedantic but what does "the argument that growth has essentially being for decades" (in para 1) mean? Looks like a typo to me.
Thanks. Fixed, along with some other minor tweaks to the text.
I have been saying it is full employment vs sustainability. This video makes a comparable claim that it is debt vs sustainability. It's very compatible.
My interpretation of the video is that there simply isn't enough energy anymore to drive exponential economic growth. But as the machine/economic system can do nothing other than grow...
The whole debt thing was just to cover up that we have been hitting limits for quite a while now.
So what should we do? Why, ditch the economic concept of infinite growth, of course.
If this isn't the first step to a more sustainable system, then I don't know what is.
It's great that Joe Romm posts this video, but every post he writes should repeat that unless we ditch the current dominant economic theory, nothing will be better.
It's not enough calling it a Ponzi scheme, as if everything would be OK if we just remove the Ponzi aspect from the system. The system itself is Ponzi.
So, when do we take this debate to the media and more importantly, to economy faculties all over the world?
Neven, yes of course. Growth hits limits. This means problems for any system built around growth. The presumption of full employment, and the crucial function of debt (i.e., the whole banking system) are called into question.
There is no sudden shortage of materials, but the system by which materials are allocated abruptly fails to make sense at multiple levels.
It is no wonder economists are ducking the question. I doubt it is that they have never heard it.
The video conflates a long-term unavoidable physical crisis with a short-term invented sociopolitical one. Keynesianism doesn't necessesarily mean manufacturing cars and pushing them off a cliff. Krugman himself, as far as I recall, has pushed for spending on things like rail and unemployment benefits, and that only because of high unemployment. With FDR it included art and energy infrastructure. This is what is under attack, and that to keep whole people who take their commute in helicopters.
This week was a victory for the world you imagine in much the same sense a deadly pandemic would be.
It is no wonder economists are ducking the question. I doubt it is that they have never heard it.
Again, when do we take this debate to the media and more importantly, to economy faculties all over the world?
I still believe this is a key issue that almost no one talks about. Everyone is talking about the details, the symptoms.
If anyone who is serious about anything serious (AGW, financial crisis, diabetes, top soil loss, etc, etc, etc) doesn't make a lot of room in his story for the elephant in the room, a dominant economic concept that violates the laws of physics but is at the root of all the actions causing the anything serious', he will not get anything done. Nothing.
Everyone is always moaning how tactics are not being effective, how deniers get to frame the debate. That's because you're focusing on issues of secondary importance.
If you really want to shake things up, if you want to act and not re-act, the debate has to be taken to the football field of economics. Fast.
But it's not happening. Despite Heinberg's great little movies. Why don't we take care of first things first?
Growth. Perhaps needs to be defined more. It has occured to me, reading this, that there's several possible ways of defining it.
1) as an increase in money tokens. numbers etc, as a result of increased borrowing and therefore debt. This results in more money in circulation, price increases, and increased numbers in all the right places. (Until the debt becomes too large or physical resource constraints get in the way)
2) An increase in energy used.
3) an increase in work done per unit energy, i.e. efficiency growth.
4) An increase in resources used.
Possibly 2 and 4 are the same, or intimately related.
So in China we have no.s 2,3,4.
In the USA and much of Europe, we've had lots of 1 and some 3.
Hence when we have a financial crisis from a system based on growth type 1, it's rather hard to deal with.
And growth types 1 and 3 are to a large extent the way ahead, but aren't as easy to do or fund apparently.
guthrie, your #1 is called "money supply"; economists think it is important, but it is not the quantity that they care about in the growth calculations. That is GDP, which is the number of times the tokens change owners over the course of a year.
Go figure. But a great deal is based on that, including the Keynesian / Krugmanite idea that we collectively can borrow from future earnings. Without long term growth in GDP, that fails, and a tighter control on budget balance is necessary.
Which is my new opinion of the day. It's only partially baked so far, but I await advice from people who know better.
Now it is an interesting question what GDP corresponds to in the real world. Some of it is wealth creation, some of it wealth destruction, some of it mere indulgence. The size of the destructive component is not an interest of mainstream economists.
If it is progressively easier to expand the destructive than the constructive component, and the whole system is hell-bent on growth, it will eventually resort to eating itself.
Andrew Simms, policy director for nef (the new economics foundation) writes good pieces for the Guardian. Here is his latest one: Happiness: the price of economic growth
Perhaps we should vitalize "deconstruction industry", not just destruction, but to wisely reuse the used land and materials.
This seems wrong to me in many ways, and it's important to get to the bottom of them to clarify what it gets right. I'm not sure where to start, other that to say, "what Andy said." But moving on from there...
Let's start with debt. Many things are physically constrained. Debt is not one of them. It is bound only by the amount of savings in the world, and given the low interest rates we aren't up against that limit. Debt is not something that ever has to be brought to zero unless we expect savings will go to zero.
I don't see any reason to believe the assertion that debt is a cover for constraints on our resources. It has been a cover for the stagnant wages of the middle class; rapid rises in wealth at the top created large amounts of savings, which has made it easier than ever to get loans, which allowed the middle class to continue to drive the economy by going into debt, but that has stopped working now. I suppose if you think resource constraints are behind stagnant wages, then you could say it's behind debt, but the video doesn't make that argument, and if we were really resource constrained then it shouldn't have been possible to use debt to raise our standard of living.
I also detest the idea of subtracting new federal debt from economic growth to get the "real" growth. This is entirely opposite the way I look at the macro economy, which is that I see the goods and services we trade as the real economy, not the pieces of paper and numbers on balance sheets. There is also the issue that debtors rely on savers -- you borrow from someone else saving today, you do not borrow from the future. You could, as a result of borrowing today, end up holding back tomorrow to, but what you hold back tomorrow goes to someone else tomorrow, not to you today.
On to the issue of Keynsianism...
There are many ways you might try to provide a Keynsian stimulus. One way is to use debt to lower taxes, thereby encouraging consumers to consume new stuff and get the economy going again. Bush sold his tax cuts using Keysian arguments. Obama has added a payroll tax holiday on top of that as a stimulus measure. This type of stimulus has held the day, at least for now. But private consumption is not the only potential source of new demand, and indeed it has been quite slow to create new demand.
Now here is a place where I'm not sure I'm entirely with Krugman. Let's consider two more options for creating jobs:
1) Sell bonds to people who have extra money and no better place to invest them, use the money to hire people to repair infrastructure.
2) Raise taxes on those not so constrained in their budgets, use the money to hire people to repair infrastructure.
Krugman does seem to equate Keynesianism with debt; he seems to be advocating #1. But #1 and #2 don't seem particularly different to me, both reduce the ability of the rich to invest by the same amount while creating jobs; the difference is #1 will end abruptly if the economy gets going again and the rich see other opportunities to invest, and #1 creates interest payments to help the rich get richer. #2 seems more likely to work to me.
Now here's where I differ with you over the recent budget deal...
You state that more jobs may not be coming. But it wasn't that long ago that economists were worried that over the next few decades we would have a shortage of workers... why? because the baby boomers will retire; a third of the country will be retired and also need lots of caretakers. So wait a decade or so and more jobs may not be necessary. But one of the outcomes that is almost certain to come out of the debt committee is a rise in the retirement age. Why do this if the private sector has no need for more workers? Because we have shrunk taxes to 15% of GDP, lowest in nearly a century, and are nonetheless treating them as a hard constraint we must work within, to leave the private sector and private consumption some room to create jobs. Jobs that haven't come. And meanwhile we have shrunk a lot of the non-elderly-support functions of government rather dramatically. Meanwhile you noted quite recently the need for non-carbon infrastructure, but we're not creating the jobs to create it. Meanwhile, our schools are no longer the best, our teacher/student ratios too small, and what are we doing? Laying off teachers! Because it's too costly to employ them, and since the private sector has no need for more workers, we'll pay them unemployment benefits instead. Wouldn't it be better to pay them to work?
I'll concede the possibility we could reach a point where there is no more work to be done and we face the dilemma you present, but there's no good reason not to be creating the obviously necessary jobs now. As for welfare as an eventual substitute for jobs, I'm not so sure. Jobs provide more than just money, they provide a sense that you've contributed something meaningful and a sense that you are in charge of your life; that you are the one providing for your well-being. It provides power. The last few decades have seen the disappearance of a once popular kind of liberalism that focused on raising people's wages (e.g. through unionization) and the rise of neoliberalism, focused on things like free trade that depress wages while increasing profits, on the theory that economic efficiency would bring more wealth, and would make possible more welfare to alleviate the inequality brought by this kind of economics. Some call it pity-charity liberalism. But I don't think we can go any further down that road. It has been a disaster for the middle class, it has not brought any more growth, and by concentrating wealth it has also concentrated political power in precisely the way that makes doing anything at all for the middle class -- whether in the form of jobs or welfare -- next to impossible.
Debt is not something that ever has to be brought to zero unless we expect savings will go to zero.
That's great. This means we don't need fractional reserve banking!
I don't see any reason to believe the assertion that debt is a cover for constraints on our resources.
It's a cover for constraints on economic growth. It started out as a neat way to make rich people even richer. Now it has to keep the whole carnival believing the illusion.
and if we were really resource constrained then it shouldn't have been possible to use debt to raise our standard of living.
Of course it was possible. It allowed us to buy more stuff faster, if that's what you mean by standard of living. But that was when resources, such as fossil fuels, were cheap.
you borrow from someone else saving today, you do not borrow from the future.
What you borrow from someone is work in the future. For this work resources/energy will be needed in most cases. Those resources are getting more and more expensive to dig out, also because demand (=the need for exponential economic growth) rises faster than supply.
Because of things like fractional reserve banking we collectively borrowed from the future. How are we ever going to pay off all that debt? Through work. Work costs resources. These are invariably getting more and more expensive.
The debt can never be paid back. We will die trying. Better to change the system.
Only slightly better than your average tea party. First, the major trend in energy use is that per $gdp we use a lot less energy. That means that efficiency and substitution, which by no means have been maximized, give us plenty of room to grow. That fact blows this video nonsense right out of the water.
Equally, we need to limit emissions of greenhouse gases lest we run into the real physical limits of the earth system.
Finally, it is a well known fact that increasing prosperity limits birth rates, and birth rates around the world are falling.
The good news is that there are resources and knowledge available to us today which were simply not there twenty, thirty, forty and more years ago. Eli's grandfathers were born before flush toilets.
So there are things we need to do in no particular order, or better, all at once. We need to limit emissions, we need to moderate our greed and numbers and we need to share our prosperity with all of the people in the world.
Full (or at least higher) employment can be achieved without further growth by cutting productivity per worker. This could be achieved through deliberate sabotage of efficiency (which would be silly) or the far more reasonable option of cutting hours, not just taking gains in efficiency as reduction in hours, but making deliberate productivity cuts through reduction in hours. With more holidays, more free time and less money, then the need for the redevelopment of community is put front and centre.
Just a very naïve thought from a non-economist.
@ Eli "the major trend in energy use is that per $gdp we use a lot less energy. That means that efficiency and substitution, which by no means have been maximized, give us plenty of room to grow."
Thank you.I have been making that point for a while now (few people have noticed though).
I suppose there are limits to efficiency, so in effect there is a limit to growth but I don't see us being close to that point yet.
What clearly exists are limits to growth rates. If we assume that we are at or near the carrying capacity of the planet then our growth rate should be equal to the increase in efficiency. Acctually less than that if we wish to allow the thrird world to develop whith out pushing the planet past its carrying capacity.
@Eli: First, the major trend in energy use is that per $gdp we use a lot less energy. That means that efficiency and substitution, which by no means have been maximized, give us plenty of room to grow.
Only if the trend is falling very rapidly, otherwise, it gives a small amount of room to keep growing, if we were not already past a few key planetary boundaries and approaching others. We don't just need to pause growth, but to reduce our overall impact by something like 33-50%. Further, there are limits to improvements in efficiency, or rather, declining marginal returns on investments in efficiency. Taking just CO2, when we look at the numbers, then in order to decarbonise fast enough to reach reasonable emissions targets while continuing economic growth, we would need to surpass all previous decarbonisation by long way. Tim Jackson argues we would need a 130-fold improvement by 2050, which is further and faster than anything we've come close to achieving. See 2:20 and following of this talk.
I seem to have forgotten to post part 3 of my rant:
Now here's where I differ with you over the recent budget deal...
You state that more jobs may not be coming. But it wasn't that long ago that economists were worried that over the next few decades we would have a shortage of workers... why? because the baby boomers will retire; a third of the country will be retired and also need lots of caretakers. So wait a decade or so and more jobs may not be necessary. But one of the outcomes that is almost certain to come out of the debt committee is a rise in the retirement age. Why do this if the private sector has no need for more workers? Because we have shrunk taxes to 15% of GDP, lowest in nearly a century, and are nonetheless treating them as a hard constraint we must work within, to leave the private sector and private consumption some room to create jobs. Jobs that haven't come. And meanwhile we have shrunk a lot of the non-elderly-support functions of government rather dramatically. Meanwhile you noted quite recently the need for non-carbon infrastructure, but we're not creating the jobs to create it. Meanwhile, our schools are no longer the best, our teacher/student ratios too small, and what are we doing? Laying off teachers! Because it's too costly to employ them, and since the private sector has no need for more workers, we'll pay them unemployment benefits instead. Wouldn't it be better to pay them to work?
I'll concede the possibility we could reach a point where there is no more work to be done and we face the dilemma you present, but there's no good reason not to be creating the obviously necessary jobs now. As for welfare as an eventual substitute for jobs, I'm not so sure. Jobs provide more than just money, they provide a sense that you've contributed something meaningful and a sense that you are in charge of your life; that you are the one providing for your well-being. It provides power. The last few decades have seen the disappearance of a once popular kind of liberalism that focused on raising people's wages (e.g. through unionization) and the rise of neoliberalism, focused on things like free trade that depress wages while increasing profits, on the theory that economic efficiency would bring more wealth, and would make possible more welfare to alleviate the inequality brought by this kind of economics. Some call it pity-charity liberalism. But I don't think we can go any further down that road. It has been a disaster for the middle class, it has not brought any more growth, and by concentrating wealth it has also concentrated political power in precisely the way that makes doing anything at all for the middle class -- whether in the form of jobs or welfare -- next to impossible.
FWIW, 40% in 20 years without trying ain't bad
Mind you we gotta work on the emissions thingee
The bunny gets it. The argument reminds me of lefties stumping for Ron Paul. It's a result of staring too long into the maelstrom.
The video's thesis is that financial debt reflects overdrawing natural resources. Thesis defense time: why should anybody believe this? Because it appeals to a hairshirt streak and turns our situation into a morality play? Did the tulip bubble falter for lack of tulips?
To address the long range problem,
I'm not aware of any principle that economic growth means using anything up. Maybe, perhaps around time we have to cook out our carbonates to make up for a quiescent lithosphere, we achieve 100% unemployment while slowly amusing ourselves to death, that becomes a limit. But at this point that seems like taking whoever's word that easing off on resources equals economic stasis (to call it something value-freeish), and concluding that what we want is economic stasis. False, self-serving assertions viewed through a mirror.
Neven,
That's great. This means we don't need fractional reserve banking!
Without savings and debt, no need for banks. It seems to me that in the wake of a collapse of the financial system, a lot of people discovered the way banking has always worked for as long as it has played any significant role in the world economy and concluded it was all a sham and it blew up because it was inevitable that it would. Some people, on the other hand, discovered all the new ways banking was finding to work, the growth of CDOs and CDSs and other financial instruments. These are not fractional reserve banking. I certainly think the financial sector has grown to an unhealthy size, but the ability to save and borrow is a normal part of a healthy economy.
"Of course it was possible. It allowed us to buy more stuff faster, if that's what you mean by standard of living."
You're missing my point here. Imagine we are in an alternate reality where total growth from 1980-2007 was the same but it was distributed much more equitably, so that middle class wages actually rose. There would have been less money at the top, which means there would have been less saving and also less debt, and less need for debt. But middle class consumption through the past three decades would have been the same without the debt, the only difference would be that it wouldn't have ended with a financial panic, just an oil shock. The debt did not cover up that we were nearing peak oil; the low oil prices did.
"What you borrow from someone is work in the future. [...] Because of things like fractional reserve banking we collectively borrowed from the future."
If I loan you money today, then I can't use that income to purchase the results of someone else's work today, and you can. Tomorrow, when you pay me back, I will be able to use that money to purchase the results of someone else's work and you won't. You didn't borrow from the future; you borrowed from me.
Pretty much all economic goods and services involve labor. There is no way to borrow labor from the future, nor can it be saved up for the future. Unused labor, like that of all the unemployed, is gone forever. And no one can work tomorrow to make me a hamburger today, no matter how much debt I go into.
Finite resources are in some sense always borrowed from the future, but this doesn't mean any debt is required to purchase them. And we don't need some specific amount of them to be available to pay off debts in the future -- money works in funny ways, the less oil there is the more it is worth in dollars and the pricier anything we do with it is in dollars. Debt is measured in dollars, not gallons of oil, and those don't become any more scarce just because some resources do.
Eli, I didn't know you were a technofix bunny. ;-)
---
Thanks for linking to Tim Jackson, byron smith. I remember him writing about efficiency in Prosperity Without Growth, exactly the thing you link to.
We can get a bit more efficient, and of course use (a lot) less, but is this good for economic growth, I ask you? No, things start to fall apart once you get serious about consumption. First you need to change the system so things don't come crashing down when you produce and consume a little less.
---
Erik L, I didn't express myself adequately. With 'work' I don't mean labor, but useful work that takes energy, such as producing goods. To pay all that debt back in the future, a lot of energy will be needed. On top of that energy is getting more expensive due to falling EROEI.
If I loan you money today, then I can't use that income to purchase the results of someone else's work today, and you can. Tomorrow, when you pay me back, I will be able to use that money to purchase the results of someone else's work and you won't. You didn't borrow from the future; you borrowed from me.
And if you are a bank, you can lend the amount that I pay back tenfold to other people. In that way you create money out of nothing, which is great if you want that machine of infinite economic growth to keep running at increasing speeds.
I really believe the video is getting it right. It's all about energy, whereas people think economics has a big say in things. I have some shocking news: economists don't control reality. The dominant economic theory of infinite growth has had its time. It has become a hoax, a Ponzi scheme.
To quote from a piece MT linked to in his shared items list, an interview with Nate Hagen:
We need energy to create our physical realities and create our economic growth and trade for transport, everything. If the energy sector requires a greater and greater chunk of that energy, we have less available for the rest of discretionary society. And once that constraint exists and even accelerates, you need to respond to that. And the way we responded to that was increasing our debt, which, of course, as you know, is pretty much created by a pen stroke. So that can temporarily offset energy shortages at a cost of a steeper decline, because debt actually functions as a spatial and temporal reallocater of resources, away from the periphery towards the center and away from the future towards the present. So there’s a very subtle but important relationship between debt and energy. And the problem is, is that most of, as you term, economic priests and priestesses, don’t have training in the biophysical economic world, and they treat everything in monetary terms. And we just throw more money at the problem, and it’ll go away. Well, our energy, and especially our net energy story, is getting worse. So we’re increasing our money supply while our energy supply is declining, and, yeah, that’s not a good situation.
Neven and Michael,
Let us say that I accept your arguments.
Both of you know how much resistance there has been in getting things done re the climate.
I would suggest that getting something done about the problem that you presented is more than one order of magnitude harder. So, how would you propose going about getting something done here?
Neven talks about getting it into economics faculties. How, exactly? And how long after getting it into economics faculties should we expect it to start to end up in the policy arguments in government? 30 years? 50?
Like I keep saying, it is more important to figure out what is going on first, and figure out what to do about it conditioned on that.
I appreciate the counterarguments, though I have to admit I am struggling to understand them and what Neven says rings true to me.
I think it's time more academic economists started thinking about negative growth. On this I agree with Neven. But I am very far from knowing what the most reasonable thing to do about it is.
What's occurred to me this week is that I've been giving Krugman a little too much rope. There is certainly an argument that in a growth context, debt is safer. So to say in a stasis or decline context, debt is less safe makes sense. Investing to "restart" the economy, to get it out of a "recession", does make sense.
Investing to reheat the embers of the great burnout does not.
The Party's Over
- Eliza Gilkyson
(Album: Beautiful World)
the party’s over, we had us a time
everybody got loaded, everybody looked fine
we emptied the coffers of water and wine
the party’s over
we had a good time
we danced on the tables midnight til dawn
til all the time was up and the good stuff gone
the house is a shambles, broken glass in the streets
guttering candles, blood on the sheets
we burned all the kindling, passed the bottle around
watched the last coals dwindling
and the ice melting down
we danced on the tables…
the party’s over, we had a blast
brought in the lawyers to cover our ass
left a note for the children to clean up the mess
the party’s over
it was a big success!
The party is over, we are at the top, and the only way is down. Everything else is just obfuscation...
Michael writes:
"There is no sudden shortage of materials, but the system by which materials are allocated abruptly fails to make sense at multiple levels."
analogy: There is enough iron ore, but there is no (cheap enough) energy to build a bridge.
Wuala, collapse...
"First, the major trend in energy use is that per $gdp we use a lot less energy. That means that efficiency and substitution, which by no means have been maximized, give us plenty of room to grow. That fact blows this video nonsense right out of the water."
Two factors reduce energy intensity of GDP: improved efficiency of the process of actually making stuff; letting someone else make stuff for you and then trading it for low energy-use GDP-makers like services (or borrowing: cf. US debt held by China.)
So, yes, energy efficiency has improved, but you'd need to quantify the outsourcing of energy-intensive production (what with China now being the world's factory) to fully describe what's happened to energy intensity. cf. carbon outsourcing; got the link via serendipity.
I don't mean to dismiss the long-term economic question of no-growth, I just think curious that the arguments seem to derive from those of people who claim we can't "afford" sustainability.
But this notion that there's a necessary physical tie-in with the current mess is very strange. Like people can't decide if it's really true, since econ is all unreal anyway and how about the fractional reserve. Ok, so debt is bits on a computer. Iceland with a flick of the ballot erased theirs. What did that have to do with physical resources? You're going to say geothermal, but what's the connection?
And Michael, you seem to want economic stasis *right now*, when almost all of the US population is stuck with infrastructure dependent on fossil fuels. I don't understand how you even got there.
You have to define growth first.
We have a lot of things now that are lower cost then they were in the past, but that shrinks the GDP while it increases prosperity. That is very hard to quantitate.
As to exporting carbon, eli would point out that there is a similar, although somewhat lower decline world wide, driven basically by the fact that the energy infrastructure in China and India had and have a lot of room to increase efficiency.
Oh yes, Eli Rabett's simple plan to save the world
You have to define growth first.
Exactly! And the way economic growth is defined right now (because it is defined, it is not a physical law or a law handed to us by God) is nuts. The other thing that is nuts, is that it has to grow always.
Nothing grows forever.
If we want more goods in the future, then we must invest. Saving is the other side of investment and saving makes investing possible. Debt allows the savings of many to be applied to a single project. Debt is necessary for large projects. To say that one is against “debt”, is to say that one is against the large scale infrastructure projects that a large society needs.
To say that such large projects should be “privatized” is to say that the interest from such capital projects should accrue to a small group of “owners” rather than to society as a whole. In such an economic philosophy, the owners will grow richer, and society as a whole will grow poorer.
That “debt” is used for consumption rather than investment is “bad” is a value in one's personal economic philosophy. Some considered WPA works during the Depression to be "consumption". However some of these have been tourist attractions that have returned significant streams of revenue over extended periods of time. What some saw as “make work spending” turned out to be a good, long term investment.
Part of our “savings” is natural resources including fossil fuel. If these are invested to produce goods of a greater (full life-cycle ) value, then that is a good use of the resources. If these resources are consumed without regard to the full life-cycle cost of the resources then economic philosophy says that the resources are “wasted”.
Our entire industrial system is subsidized by the use of fossil fuels without consideration of the long term environment costs of the use of these fuels. It is not “debt”, it is a failure to account for costs.
In the near future, we will be force to account for the environmental costs of fossil fuel use, and one result will be the abrupt and dramatic curtailing of the use of coal and oil. This will affect food and textile production. System control theory says the effects will be abrupt. I do not see any planing for major changes in food and textile production. I do not even see people recognizing the risks.
We talk about climate change and peak oil, but we have a societal bias against actually acknowledging the real problem of how to grow food for billions of people without using a lot of oil. We do not acknowledge the problem of how to cloth billions of people without using a lot of oil. We do not acknowledge the problem of what happens when the price of food goes up, and poorly paid city dwellers return to the country side leaving their city jobs untended. City jobs such as making computer chips.
"What we need is to bring back the welfare state, because there are not enough useful jobs for everybody, but everybody deserves dignity. We need to replace wealth with efficiency. Stuff with information. More parks, less yards. More theater, less theaters. More community, less corporation."
There's much I agree with there but I think we're a long way away from any significant number of people being able to feel they have dignity while unemployed and living entirely off the welfare state. I also think there may not be enough useful job for everybody but there's no end of socially useful tasks we could pay people to do. If the alternative is to support people the economy, as currently constituted, doesn't find useful via the welfare state, then I suspect it will be more politically acceptable to bring some of the currently neglected socially useful tasks within the cash economy than to simply expand the welfare state and leave it entirely up to the welfare recipients what to do with their leisure. Not extremely acceptable, since I think a lot of the neglected socially useful tasks are similar to working in low status occupations and, from the other viewpoint, would be susceptible to being regarded as make work, but more acceptable than the alternative.
Some not too clear thoughts:
One is that "debt", "savings" (and GDP etc) are categories that do not translate directly into resource usage. They involve money, which is a representation of real things (and often a representation of a representation), not a real thing itself. We all create money all the time, and destroy it, often without much affecting the world of real things (eg I pay with my credit card for real things, so creating money - which I than pay back). Investment involves taking real resources from consumption and putting then into capital goods. But from a resource usage point of view, neither category matters - both use stuff up.
I have great trouble translating between these two spheres, and I think others do too.
On another point, some people have pointed that physical limits mean we can improve efficiency by at most a factor of two - and are rapidly doing so. So not as much room as often supposed there.
I suppose we can have growth if that means we exchange ever larger tokens for things we do anyway (first I tel you a million-dollar story, and then you tell me a two-million dollar one), but that does not seem to be what most people mean when they talk about growth.
I have to agree with everything Eli Rabbett has written here.
Eli, I stipulate you have to understand what is growing. In fact, what people want to grow is the velocity of money exchanges. This is primarily because that is where all three good things, public revenue, profit and employment, come from.
We have paid very little attention to encouraging that such exchanges actually tend to have a net positive value.
Consequently, many of the transactions are destructive, but there is enormous pressure to continue. A clear example is the pressure to revive the construction industry despite the oversupply of perfectly sound buildings, in "bad" neighborhoods, which are defined as neighborhoods in which not all the buildings are in effective use. In other words, the construction industry, the "engine of the economy", is in the business of building bad neighborhoods by replacing them unnecessarily.
Now presume that nobody will ever volunteer for substantial decline, and at least the losers will not put up with a system where their prospects are systematically disadvantaged.
Accordingly, a given level of prosperity in the richest large country (the US at present) constitutes an implicit promise that the rest of the world will catch up to that level.
If the world population saturated at 10G, and America goes through two more doublings of something we call "wealth", there is an implicit promise that the world can sustain about fifty times its current wealth and its current production.
If we assume that we are now at the limits of sustainability, the footprint of a given unit of wealth therefore needs to drop fifty-fold. Otherwise American growth becomes inequitable in the foreseeable future. (We are clearly vastly beyond the limits on carbon emissions, which further complicates matters.)
Something which has only 2% of the physical impact of what we call "wealth" today may or may not be a useful way to organize society, but it will have little resemblance to what we call wealth today.
This much I had already worked out on this blog, though I am afraid I wasn't very articulate about it.
Regardless of equity, if we are approaching physical limits anything resembling "growth" will be difficult to achieve. This is argued in many places.
What's new for me is my recognition that Keynesianism is "growth"-based. Here we mean specifically the aggregate value of all currency transactions per unit time that must grow in a "healthy" economy forever. If one no longer has confidence in this kind of "growth", the logic of Keynes stops making sense. Or so I now am inclined to believe.
Kindle replaces books at lower capital cost. The paper industry loses jobs. The economy shrinks. The environment benefits. We are better off if we aren't in the paper or ink business. It counts as negative growth.
Craig's list replaces a key profit center of newspapers. Reporters lose jobs, but the rest of us find buyers and sellers of used furniture. New furniture manufacturers face a shrinking market. Negative growth for newspapers, for furniture, for hardwood, for softwood. Consumers are better off for it. It counts as negative growth.
State and federal taxes are cut, reducing police services in a neighborhood. The neighborhood declines. People who can afford to do so move out at the cost of expense and disruption. Buildings are abandoned and fall into ruin, while new buildings are constructed in the new neighborhood. This is growth.
This is what politicians are selling you. When this happens you are likely to get a job.
Great discussion you've got going on here. As a fully convinced post-growther already the bit that caught my eye in your post is the comment that all the 'alternatives' to the current ethos are Keynesian, and that's just as defunct a philosophy.
There is an urgent need for fresh thinking in our economics, as it is currently divided between two equally powerless factions. As is our politics, in fact, stuck with an outdated spectrum of left and right.
@MT: Your back of the envelope calculation of a fiftyfold reduction required for current assumptions to continue is helpful. Tim Jackson (in the talk I linked to above, which is a summary of his book Prosperity without growth) tries to make a similar calculation with a little more detail included and reaches a figure of a required 130-fold improvement (just looking at carbon, ignoring all other constraints) within the next four decades. Eli points to a 40% improvement over two decades (though this is a somewhat optimistic rounding of the graph he refers to, which also seems to show deceleration in this declining footprint). While good, this is nowhere close to what is required. Whether much, much faster rates of decoupling are possible is a very interesting and complex discussion, but you've got to have an awful lot of faith in our ability (including sustained political will) to decouple to be able to defend continued growth.
Is there anybody here who is not clear that certain factors like the export land model and the rising energy use of India and China are already choking down the per-capita energy use of first world citizens.
Even with the addition of thousands of wind turbines and millions of solar panels your personal share of the energy pie has shrunk already. Yes, a good portion of this shrinkage has been offset by added efficiency but not all of it. Not even close.
The greatest factor in maintaining standards of living for some while the shares of energy fall has been simply to throw consumers off the energy user bus. Unemployment, reduced work hours, business closings and homelessness drastically reduce the energy footprint of the formerly employed.
Note that oil prices have dropped not due to increased supply but to lack of demand.
At this point we can't "grow" economically because any definition of growth that isn't fatuous electron-trading immediately results in increased energy demand. Energy demand prompts price increases in oil, coal and natural gas which choke down the economy again.
If that wasn't enough the ability of the biosphere to meet environmental demand is shrinking rapidly. Water, soil, timber, fisheries and wildlife depletions have led to permanently (in human timescales) reduced inputs from environmental resources.
Economic growth is dead.
There seems to be some confusion in the above comments about the term "growth".
The post growth movement would, simplifying, define "economic growth" as that type of economic activity that requires an ever increasing amount of energy and raw materials use to fuel it, with ever increasing amounts of products used and discarded. We are now at the point where further growth of this type could more realistically be defined as "uneconomic growth".
That type of economic activity is clearly unsustainable, despite all the rhetoric and wishful thinking about infinite substitutability.
This concept - nay article of faith - from conventional economics states that as one source of material/energy/resources etc dries up, there will always be another one waiting in the wings to substitute for it. Clearly, barking mad.
Post-growthers do not discount (indeed, rely) on the possibility of continuing economic development which is quite distinct from growth. It is possible to increase human well being, indeed, even the number of gadgets, while still reducing the overall amount of materials and energy used. It just takes a bit more thought.
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