Monday, August 31, 2009

Steady-state Economics and the Coming Good Boom (Posted to

I have a lot of respect for Herman Daly’s steady-state economics. Only in the past decade or so have economists begun to recognize that the global economic system is in fact a component part of the global ecosystem and that the former can’t expand forever relative to the later. Herman talked about this problem beginning some 40 years ago, but the economics profession pretty much ignored his wisdom until recently. Economists are still prone to give the economy primary billing and argue that economic growth is essential to cure environmental ills. For a long time in my own work I argued that this logic should be reversed and that we ought to follow Daly’s prescription to limit the growth of the global economic system relative to the global ecosystem. While I still basically subscribe to this view, I now believe that if we actually place caps on our use of environmental resources, we will cause the economy to turn around and we will spark what I call “the coming good boom.” Instead economic growth being driven by consumption, the engine of economic advance will be public and private investment. Let me explain by way of an example.

Congress is currently considering an energy bill (H.R. 2454) that if passed and implemented will bring to an end the fossil fuel era. The bill establishes declining caps on greenhouse gas emissions in the U.S. that will cause an 83 percent reduction of such emissions by 2050. If a similar strategy is followed globally, greenhouse warming should come to a screeching halt. To make a long story short, conventional economics predicts that fossil fuel prices will rise dramatically as a consequence of caps on carbon emissions giving a competitive advantage to clean energy sources, such as solar and wind, and giving a special boost to the cleanest source of all—energy conservation. Instead of a large percentage of our energy being imported, we will likely end up with a fairly labor-intensive energy sector based on entirely new technologies—wind generation, thin-cell solar panels, solar-produced hydrogen, fuel cells, hybrids, and much else we can’t predict. Put engineers in charge of solving specific technical problems and its amazing what they will come up with. Substituting domestic for imported energy and creating whole new industries will set off a boom in both employment and income. On top of this, rising fuel prices will give public transit and advantage and push us to live more compactly. The suburban and exurban spread of population will diminish and investment in high density living that is already evident in many central cities will accelerate. As the cost of moving from point A to point B goes up, we will invest in living more compactly to the benefit of our cities and their residents—our cities will end up with a more European look in terms of how we use space. Energy conservation, a relatively labor-intensive activity, will become a passion that will serve not only to improve the environment but also to create many jobs for the inner-city unemployed.

In short, if we adopt H.R. 2454, we will in effect be substituting what Daly refers to as qualitative growth for quantitative. We will be using our intelligence to adopt an ecological approach to economic development. In my view, doing so has the potential to set off an unprecedented global wave of creative-destruction, destroying the old “dirty” industries and creating new, resource conserving, clean, labor using, smart industries that will be boons to both the economy and the environment. Throughput in Daly’s sense will shrink but human economic opportunity will expand by doing more with less. We will have a good boom that will have the special ability of solving some of our most intractable environmental and social problems.

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