Uneconomic Growth: When Illth Trumps Wealth

Herman Daly is a formidable mind. He has been writing for many years about the true effects of clinging to our perpetual growth paradigm. Daly concluded long ago that the solution to the plethora of problems this paradigm leads us to would be to move to a steady state economy. This conclusion is questioned by many, and perhaps not always for the wrong reasons.

There can not really be a question, though, about the data that bring him to his conclusions. From a purely economical point of view, we can see that the added value conveyed by every additional – borrowed – dollar has at the very least threatened to become negative.

That would of course mean the end of the game, even if those operating in the narrow confines of the financial world are loathe to even contemplate it. They see nothing narrow in their view of the world. For them, they are the world. They will simply refuse to entertain the idea that injecting more money/credit could start leading to less growth.

But the numbers don't lie; if there's any growth left, it's very marginal. And that's in a system where externalities, the costs of things like depletion of resources and pollution resulting from consuming resources, are simply not counted. We discount the future, by pretending we live only in the here and now (and damn our children). It's our reptillian or even amoeba brain speaking.

In short, we may have already reached the point where there no longer is any economic growth, there is only uneconomic growth. Or as Daly puts it: "illth increases faster than wealth".

This realization is a major threat to our economic system, and it will therefore continue to be completely ignored and discounted – until the system collapses -. Businessmen, bankers and politicians realize they owe their positions to the growth paradigm. No present-day banker or businessman will make a profit when the paradigm dissolves, nor will any incumbent politician be re-elected on a platform of "hold it right there".

From their point of view, this is a logical conclusion; for mankind as a whole, it's the stupidest idea ever, and a very destructive one. It's just that the destruction doesn't take place at this moment. It takes place at some point in the future. And so we ignore it; we discount the future, and we discount the lives and well-being of our children.

Here's Professor Daly's latest:

Uneconomic Growth Deepens Depression

The US and Western Europe are in a recession threatening to become a depression as bad as that of the 1930s. Therefore we look to Keynesian policies as the cure, namely stimulate consumption and investment—that is, stimulate growth of the economy. It seemed to work in the past, so why not now? Should not ecological economics and steady-state ideas give way to Keynesian growth economics in view of the present crisis?

Certainly not! Why? Because we no longer live in the empty world of the 1930s — we live in a full world. Furthermore, in the 1930s the goal was full employment and growth was the means to it. Nowadays growth itself has become the goal and the means to it are off-shoring of jobs, automation, mergers, union busting, importing cheap labor, and other employment-cutting policies. The former goal of full employment has been sacrificed to the modern ideology of “growth in share holder value.”

Growth has filled the world with us and our products. I was born in 1938, and in my lifetime world population has tripled. That is unprecedented. But even more unprecedented is the growth in populations of artifacts — “our stuff” — cars, houses, livestock, refrigerators, TVs, cell phones, ships, airplanes, etc. These populations of things have vastly more than tripled. The matter-energy embodied in these living and nonliving populations was extracted from the ecosystem.

The matter-energy required to maintain and replace these stocks also comes from the ecosystem. The populations or stocks of all these things have in common that they are what physicists call “dissipative structures” — i.e., their natural tendency, thanks to the entropy law, is to fall apart, to die, to dissipate. The dissipated matter-energy returns to the ecosystem as waste, to be reabsorbed by natural cycles or accumulated as pollution.

All these dissipative structures exist in the midst of an entropic throughput of matter-energy that both depletes and pollutes the finite ecosphere of which the economy is a wholly contained subsystem. When the subsystem outgrows the regenerative capacity of the parent system then further growth becomes biophysically impossible.

But long before growth becomes impossible it becomes uneconomic — it begins to cost more than it is worth at the margin. We refer to growth in the economy as “economic growth,” — even after such growth has become uneconomic in the more basic sense of increasing illth faster than wealth. That is where we are now, but we are unable to recognize it.

Why this inability? Partly because our national accounting system, GDP, only measures “economic activity,” not true income, much less welfare. Rather than separate costs from benefits and compare them at the margin we just add up all final goods and services, including anti-bads (without subtracting the bads that made the anti-bad necessary). Also depletion of natural capital and natural services are counted as income, as are financial transactions that are nothing but bets on debts, and then further bets on those bets.

Also since no one wants to buy illth, it has no market price and is often ignored. But illth is a joint product with wealth and is everywhere: nuclear wastes, the dead zone in the Gulf of Mexico, gyres of plastic trash in the oceans, the ozone hole, biodiversity loss, climate change from excess carbon in the atmosphere, depleted mines, eroded topsoil, dry wells, exhausting and dangerous labor, exploding debt, etc. Standard economists claim that the solution to poverty is more growth — without ever asking if growth still makes us richer, as it did back when the world was empty and the goal was full employment, rather than growth itself. Or has growth begun to make us poorer in a world that is now too full of us, and all our products, counted or not in GDP?

Does growth now increase illth faster than wealth? This is a threatening question, because if growth has become uneconomic then the solution to poverty becomes sharing now, not growth in the future. Sharing is frequently referred to as “class warfare.” But it is really the alternative to the class warfare that will result from the current uneconomic growth in which the dwindling benefits are privatized to the elite, while the exploding costs are socialized to the poor, the future, and to other species.

Finally, I eagerly submit that even if we limit quantitative physical throughput (growth) it should still be possible to experience qualitative improvement (development) thanks to technological advance and to ethical improvement of our priorities. I think therefore we should urge policies to limit the quantitative growth of throughput, thereby raising resource prices, in order to increase resource efficiency, to force the path of progress from growth to development, from bigger to better, and to stop the present folly of continuing uneconomic growth.

A policy of quantitative limits on throughput (cap-auction-trade) will also block the erosion of initial resource savings resulting from efficiency improvements (the rebound effect or Jevons paradox). In addition the auction will raise much revenue and make it possible to tax value added (labor and capital) less because in effect we will have shifted the tax base to resource throughput.

Value added is a good, so stop taxing it. Depletion and pollution, the two ends of the throughput, are bads, so tax them. If you are a technological optimist please have the courage of your convictions and join us in advocating policies that give incentive to the resource-saving technologies that you believe are within easy reach. You may be right — I hope you are. Let’s find out. If you turn out to be wrong, there is really no downside, because it was still necessary to limit throughput to avoid uneconomic growth.