“Anyone who thinks that economic growth can continue for ever on a finite planet is either a madman or an economist.” Kenneth Boulding
The Limits to Growth Study of 1972
In 1972 economists became embroiled in a controversy with a group of systems scientists from the Massachusetts Institute of Technology and declared themselves the winners. It became the conventional wisdom that the economists won the argument. This complacent judgement now turns out to be premature.
The systems scientists had been commissioned by a group called the Club of Rome to research the impact of economic growth on the ecological system. Their book, published in 1972, was titled “The Limits to Economic Growth”. It argued that two things would set a constraint on the economic growth process – an accumulation of pollution and wastes and the depletion of resources. The damage from pollution – for example from greenhouse gases – would require the diversion of increasing amounts of resources to mitigate and adapt to increasing difficulties. At the same time depletion – eg of fossil fuels, oil, gas, minerals and biological resources – would mean that harder and costlier to access resources would have to be accessed as time went by and that would raise costs and choke off growth too. (1)
Crucially the LtG authors did not say that the Limits to Growth (LtG) constraints would be immediate – their modelling, done with early computer technology, dated the end of growth, followed by a period of involuntary contraction, in and after the first two decades of the 21st century. Quelle surprise – in recent years mainstream economists have been puzzling over what they call “secular stagnation”. This “secular stagnation” is bad news for the financial system because, if growth falters and goes into reverse, how are debts to be serviced? Of course it all depends on whether the problem is temporary or permanent. Most economists imagine that the problems of growth are merely temporary and so do many individuals and companies. They have resorted to borrowing even more to solve their problems on the assumption that the good times would come back and the debts could be repaid. In the meantime interest rates have been driven downwards and even into negative territory – promoting an “everything bubble”. If money cannot be made in production, the reasoning goes, then it can still be made by speculating on continually rising asset values. We are now awaiting the crash….
Why have economists not related the secular stagnation back to the Limits to Growth? Because they are using the wrong model. They imagine that the economy is essentially a money system and model money values. This misses that the economy is embodied and embedded in the material world and that it is also an energy system. For example climate change is having and will have real world physical impacts like droughts and flooding which brings down crop yields. At the same time the depletion of fossil fuels and the resort to renewables is actually leading to increasing energy and material input costs – in the 1960s the global energy cost of energy was less than 2%. By the end of the century it was 3.5% and now it is about 8%. This has real world effects. (2) Then there are escalating costs of maintaining a large legacy energy infrastructure near the end of its life. (3)
Instead of conceptualising the economy as labour and capital, economists need to adjust their thinking a little and think of a modern economy as consisting mostly of human guided machines, equipment, vehicles, appliances, structures and infrastructures – nearly all of which are powered and/or require energy to construct and maintain them. The productive power of a modern economy is because of the energy that flows through this system. Work has a meaning in physics as well as in economics, and the work that an averagely fit person can do with their muscles is about 3kWh a day – but the energy flowing through the machines of the European economy is over 100 times this per capita and over 200 times this per capita in the USA. However some of the energy must be devoted to the extraction, refining, delivery and the conversions of the energy system itself. When this proportion goes up from less than 2% to 8% then the energy delivered to the rest of the economy falls from 98% to 92%…..and counting.
Of course at this point economists resort to their shibboleth – the price system will sort it out. Indeed, confronted by rising costs the energy sector would like to put up prices, but when they do that diverts purchasing power in the rest of the economy to paying rising energy bills and away from other expenditure – and that brings on a crash anyway. Think retail apocalyse!
Ecological footprint analysis
That’s not all. While most economists have been complacently ignoring their critics some real scientists have been doing real world measurements about the state of the biosphere. One such is ecological footprint analysis, a methodology devised by Matthias Wakernagel. This is the amount of biologically active land and sea needed to provide the resources and absorb the wastes and pollution of our lifestyles. Using this measure we know that the global economic system is using land and sea as if we had 1.7 planets. Of course we have only 1 and the 0.7 planet is a measure of overshoot. It’s a measure of the amount we are overusing the biosphere and degrading it – producing climate change and species extinction. An analogy from economics would be consuming more than income by running down savings, running up debts and not maintaining the windows and roof that are about to fall in. (4)
So the global economy is TOO BIG. While departments of economics preach yet further economic growth as a central tenet of faith, the urgent task is to manage a process of contraction that is beginning to happen anyway. Economists are involved in a futile game of trying to stop a process that must be embraced, but as far as possible managed, so that less people get hurt. This is the process of degrowth.
One point is very important here – another subject little studied by economists – inequality. The top 10% of global income earners have lifestyles that give rise to 50% of global emissions while the bottom 50% of global income earners generate 10%. The global cancer of economic growth cannot be resolved by squeezing the poor. The problem is caused by the consumption of the global rich but these include most people, and certainly most middle class people, in so called “developed” societies. It is their consumption and those of the mega rich that will have to fall. There is a need for an infrastructure and institutions to support people to adjust on the way down – public transport to replace private, re-localised community agriculture, repair workshops and goods built to last, arrangements for sharing in co-housing and the like.
The problems are not mainly going to be solved by super scientific techno-fixes as many mainstream economists seem to believe because most of these fixes are unaffordable – diverting purchasing power to pay for them would deflate and collapse other parts of the economy and leave insufficient for debt service. In any case a recent literature review of 99 peer reviewed studies shows that attempts to decouple growth from resource use and pollution has failed and will continue to do so. Renewables and the arrangements to buffer the intermittency of renewable energy are expensive. Paradoxically current visions of an electrified economy would require lots more fossil fuels and energy minerals that are in severely short supply. A renewables based economy is only viable if the economy is a lot smaller. We will need to manage degrowth to the extent possible and economists must help this process or accept that they are not involved in science but members of, and advocates for, a suicide cult. (5) (6)
In conclusion – the Economics Department as unwitting suicide academy?
In conclusion – in the early 1990s when communism collapsed many academics through Eastern Europe lost their jobs. They were teachers of Marxism-Leninism which was no longer considered as a valid academic subject. This is analogous to what should be the fate of economics departments if the stuff currently taught by mainstream economists is not radically revised with a methodology from social ecological economics to adequately address the global crisis. I have spent some time looking at the research interests of senior economists at Nottingham University and with only one possible exception it appears to me that the University of Nottingham Department of Economists is at best largely irrelevant to current problems. At worse, if wedded to further growth, it is an unwitting suicide academy unknowingly dedicated to destroying life on the planet through the futile pursuit of further economic growth.
(6) https://www.feasta.org/2018/01/28/the-real-lesson-of-the-energiewende-is-that-the-german-economy-uses- too-much-energy-to-be-sustainable-and-needs-to-degrow/
Featured image: Beachy Head England – suicide capital of Europe. Source