The “steady state” economy does not imply zero economic growth

February 28, 2011

Rob Dietz’s article in Energy Bulletin, "Economics for the Story of Stuff" (May 10, 2010) contains unwarranted attacks on the economics profession. This is caused by a fundamental misunderstanding and misrepresentation of the desirability of economic growth. Economic growth does not imply "more stuff" but rather "more valuable output."

Furthermore, the notion that the system is "linear" is also fallacious as it would imply the same thing: more stuff. Yet, we can have a steady rising standard of living and output without putting more strain on nature’s resources. The key is technological change.

Already we see this happening.

Look at book publishing, for example. Suppose that I told you that we could have an entire library for every man, woman, and child on this planet and that this library could be used simultaneously by all. From the 14th to the 20th century, the implication would be that this library would be paper-based and that would imply a large amount of resources would be consumed. Today, however, the e-book is becoming a new standard for information dissemination. On my hard drive, I have more "stuff" than I once had in an entire room in my house, yet it takes up less than one-quarter of my 1TB hard drive.

This is just one example of getting more with less. If other objects that were once physical become virtual, I can indeed have a lot more consumption without increasing the burdens on the planet at all!

For example, imagine going on a vacation in a 3-D surround sound room complete with scents similar to what we see in Star Trek’s holodeck. Sounds farfetched? So too did it seem to many when Jules Verne wrote From the Earth to the Moon, yet not even a century later, we had achieved just that and more.

No, the "steady state" economy does not imply zero economic growth. It implies zero additional economic footprint and it is what you end up with if we privatize the commons. The problem is that when no one owns the commons, no one takes care of it, so you have overuse of it.

Indeed, your implication that economics do not understand or care about the limitations on the environment demonstrate a disregard for everything that economists practice. We understand and consider the effect of pricing on decision-making.

We will NEVER run out of non-renewable resources simply because the price will rise to make extraction cost-prohibitive. At that point, we will have to switch to renewables simply because of the cost. Furthermore, because of those price signals, entrepreneurs will come up with new ways to reduce the use of fossil fuels and other non-renewables. As for renewables, price signals will signal that we need to put more into planting forests and harvesting from fish farms where we can control the rate of extraction in order to balance it with the rate of natural increase.

Indeed, all of your "four rules" can be broken down into one rule: the rule of market prices. Provided we STOP subsidizing carbon and non-renewable energy, we really don’t have to subsidize renewables. The adjustment of relative prices will cause us to act in the proper manner. If we start to overpollute and if we have a pricing mechanism on pollution, the rising cost of pollution will cause us to cut back. What this requires is to privatize the national parks, privatize the oceans, privatize EVERYTHING because only when someone owns it will someone care. The answer is less government and more market, not the other way around, which is probably the exact opposite of what the politicians want.

Zagros Madjd-Sadjadi, Ph.D.
Associate Professor of Economics & Chair, Department of Economics and
Winston-Salem State University

Tags: Globalisation, Resource Depletion