The visible hand in economics

A world without growth?

Posted on: December 5, 2008

My favourite article of NewScientist’s series is Herman Daly’s. The father of modern ecological economics lashes out at the way economists ignore the source of inputs to production and the capacity of the waste sinks that we have. As he puts it, we should imagine the economy as a system within the world’s ecosystem. It takes inputs from the ecosystem and returns both useful goods and waste products back to the ecosystem. Since the ecosystem has only limited capacity for providing the inputs and processing the outputs, we should ensure that the economy does not outstrip those limits.

Thus, Daly proposes that the economy should be in a steady state of sorts. The inputs that the economy uses, and the waste outputs created, must not increase past the sustainable limits of the ecosystem. Of course, the production within the economy can still increase without limit. The only constraint upon production within the economy is our rate of technological progress. For, in Daly’s vision of the economy, production increases ony as we learn to utilise our limited resources more efficiently.

His vision certainly appears more holistic than the prevailing disregard among economists for natural ecosystems. Sure, we talk about emissions and externalities, but it is rare to hear economists really discuss ecosystems outside the economy we are used to dealing with. However, it is hard to see how we might get there. Where is the incentive to utilise the environment sustainably and cap our rate of growth? Why might we individually, or even as nations, attempt to make the transition to the steady state economy. Sadly, Daly’s vision of a world where our descendants enjoy a planet as rich and diverse as we live in today seems as far-fetched as any other utopian ideal.

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6 Responses to "A world without growth?"

The incentive to operate within an ecosystem is price; or rather, knowledge that precedes price.

The more we know about the finite amount of natural resources, the more we price those resources for long term, because with knowledge come long term outlook.

The better question is who is going to own the resources that they can be priced? Either one works, government enterprises or private enterprises, as long as they see value in what resources they own.

“Where is the incentive to utilise the environment sustainably and cap our rate of growth? Why might we individually, or even as nations, attempt to make the transition to the steady state economy. Sadly, Daly’s vision of a world where our descendants enjoy a planet as rich and diverse as we live in today seems as far-fetched as any other utopian ideal.”

I think the incentive is something we have to learn. We need to understand evolutionary psychology to see what makes us happy and fulfilled and look at industrial society and recognise the true costs of the divisions of labour (not knowing your nieghbours etc) and aim for a better mix of objectives.

http://www.geocities.com/Athens/Stage/8922/

I like Georgism :
[“Henry George proposed that the rent of land should be paid to the community. This payment would satisfy the equal rights of all other members of the community — without disturbing individual title to land, fixity of tenure and undisturbed possession. This method of making land “common property” may also be called “conditional private property in land” (payment of rent to the community) as opposed to “absolute private property in land” (private collection of rent). “]

“Where is the incentive to utilise the environment sustainably and cap our rate of growth?”

I’m fascinated by this mix of short-termism and arrogance, which seems to be intrinsic to the modern economist’s world view (at least to this non-economist).
1) Perhaps the consequences of our current behaviours have effects at timescales that we do not include in our calculation of incentives. AKA maybe we’re screwing the planet for our kids, but we’re all right, Jack?
2) Perhaps there are consequences of our actions that we don’t fully understand. Cough, climate.

I’d also add a touch of 3): “Perhaps our actions have a negative impact on other people far away that we don’t see or think about, so therefore almost don’t exist in our mental models.”

My battle with idealism is hoping we are better animals than that. So far so disappointed.

“Sadly, Daly’s vision of a world where our descendants enjoy a planet as rich and diverse as we live in today seems as far-fetched as any other utopian ideal.”

So, in the words of Jim Kunstler: we’ll keep on doing what we can, until we can’t, and then we won’t?

It’s called the price mechanism – as something becomes more scarce the price goes up and it will be used more efficiently or a subsitute will be found.

It’s government interference in the market that usually causes problems.

rainman:

Economists try to use models that are descriptive rather than normative. It’s not that we want people to act selfishly, it’s that observations suggest they do. As you say, there’s no evidence that people are ‘better than that’.

Mark and MattYoung:

It would be great if there were a price mechanism that would solve all our problems. However, for a price mechanism to work, the cost of individual actions needs to be borne individually. In the case of climate change, the costs of individuals’ pollution is borne collectively. The difference that a single person’s action makes to the cost of climate change is negligible. As a result, nobody has an individual incentive to reduce their contribution to climate change.

People faced with costs that they can’t affect won’t take them into account when they make their decision. The smart thing for individuals to do is to make hay while the sun shines and get the most that they can out of the environment while it’s still good.

Government intervention is intended to force individuals to bear the environmental cost of their actions individually. Only then will there be a price mechanism that will solve the difficulties associated with managing common property resources such as ecosystems.

The alternative – private ownership of the resource – may work in some situations. The problem is that sometimes it is more profitable to exhaust the resource immediately than it is to preserve it in a sustainable fashion. Consequently there are some resources which are suitable for privatisation and some that are not.

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