Post-Growth, Credit, Interest and Money

As impressively (though unwittingly) shown by Francis Fukuyama, attempts to imagine the future of societies are likely to go wrong. Extrapolation of trends can well be a bad idea. On the other hand, some idea about what the future is to look like is needed when a major transformation of the society is to be attempted. The transformation towards a post-growth society is no exception here. It would be naive to expect an exacting outline of how a post-growth society is supposed to work, but it is important that those advocating it at least try to give answers to some inconvenient questions: what about productivity growth? Can universal basic income, supported by many in the degrowth movement, work? And what about the monetary and financial systems? The latter question has gained some attention recently, and some argue that monetary factors might be a main obstacle for a post-growth society. Their arguments should get proper consideration if we do not want to choose the wrong transition “trajectory”, given path dependencies so common in socio-economic systems.

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Stanley Jevons’s Prophecy

In his famous treatise The Coal Question: An Inquiry Concerning the Progress of the Nation, and the Probably Exhaustion of Our Coal-Mines, published almost 150 years ago, the British economist William Stanley Jevons described a phenomenon whose importance today might be even higher than back in 1865–the so-called rebound effect, also known under the names of second-order effect, Khazzoom-Brookes effect, backfire or Jevons’s paradox. Jevons argued that the increased efficiency of steam engines shall lead to increased use of them and thus, counter-intuitively, to an increase in coal consumption. His insights have surprising relevance for today’s debates on economic growth and climate change.

3 Reasons Why a Post-Growth Society Is Not Within Reach

For reasons explained elsewhere (see, e.g., this post and that one), I am among those dreaming of a post-growth society. Of course, it is not entirely clear what a post-growth society would look like, and even less is known about the road there. Still, many people around the world–for instance those coming to Leipzig in September for the 4th International Degrowth Conference–agree that one of the greatest problems of the current societal-economic model is that it is heavily dependent on economic growth. And that at least the first steps towards it should be done soon, for the longer we wait the more we put our civilisation at danger of collapse of one kind or another. Nevertheless, there are numerous obstacles that hinder the urgently needed transition. In what follows, I would like to present three reasons why a post-growth society is not within reach, which are related to three aspects of human psychology: laziness, narratives and conservative inertia.

“The world can, in effect, get along without natural resources”

As almost every societal movement, the sustainability movement has its personalized evils, its specific foes. One of them is Robert M. Solow, the famous creator of the growth model that supposedly is the source of all evils in this world. Moreover, a quote of his can often be encountered (including in the German Wikipedia article about him) that comes from a lecture he gave in 1974, where he said:

The world can, in effect, get along without natural resources, so exhaustion is just an event, not a catastrophe.

Progress as Changing Patterns of Dependence

Progress. Hardly any word describes better what is special about the last 200-250 years of human history. Up to then, technological, economic, social progress was scarce, the European Medieval was characterized rather by regress, for instance. But then, then came the Great Transformation, the Industrial Revolution, and changed everything. Today, it is clear to (almost) everyone that the pursuit of progress is what defines humanity, even though it is not the whole definition. Yes, we have difficulties when it comes to agreeing on what progress is. But we mostly identify progress, at least implicitly, with technological progress – all the nice innovations, not necessarily technical in a narrow sense, but also e.g. institutional, that make us less dependent on nature. This is, indeed, what defines social progress in the end – our ability to overcome scarcities and obstacles “created” by nature, be it with regard to natural resources for production, be it our psyche. When it comes to the former, however, it may be argued that we do not really become less dependent – we only change the source of dependence.

Historical Dynamics of Growth Critique

Since the beginning of modern economic theory’s history, which set off in the second half of the 18^th century, economic growth was one of the most central themes, creating controversies over and over again. The emergence of modern economics, identified oftentimes with the publication of An Inquiry Into the Nature and Causes of the Wealth of Nations by Adam Smith, coincided with the onset of an exceptional process in human history: until the late 18^th and early 19^th century, economic growth had been a temporary intermezzo at best, not a general pattern of socio-economic development of human societies. Then, around the time when Smith wrote his book, a new pattern gained momentum, economic growth becoming a matter of course. However, the perception of growth and its limits has evolved over time

Peak Everything, Backstop Technology and Economic Growth

And interesting, though also frightening characteristic of today’s world is that it seems to be peaking all the time. Peak Oil, Peak Metals, Peak Soil, Peak Uranium, Peak Rare Earths. Peak Everything, to put it bluntly. Some of these slogans may be exaggerated, at least if taken literally. On the other hand, given high and rising demand for oil, coal, uranium, rare earths, metals, agricultural land and other essential resources – demand that is going to be increasing for decades to come, as China, India and especially Africa will become both richer and more populous -, there is a strong case for taking seriously concerns regarding the diminishing resource base, even if there is still much left.

The Myth of Decoupling

It is something probably every junkie dreams of – to be able to keep taking drugs and feeling free, careless or just high, but without all the unpleasant side-effects like health issues, financial ruin, destroyed social networks etc. This, however, is illusion and no reasonable person would deny that it is. It is therefore astonishing how many otherwise reasonable persons fall prey to this illusion with regard to the great societal addiction – economic growth. They invoke the idea of decoupling GDP growth from resource use, environmental pollution and the like. But decoupling growth has nothing to do with reality, it is a myth.

Limits to Growth and Extrapolation of Trends

I already once wrote about what may be regarded the conventional economist’s obsession – virtually every time they wants to refute allegations that there may exist limits to economic growth, economists use the 1972 report to the Club of Rome, The Limits to Growth, as a virtual “opponent”. As if Donella Meadows and her co-authors were the only ones concerned about the infinite growth assumption in conventional economics, and as if their argument were the only one (or even: the most convincing one) speaking for the limits to growth hypothesis. But even when we focus on The Limits to Growth, there is a serious fallacy in the economists’ criticism.

The Need to Decouple from Growth

Not first since the recent Earth Summit in Rio de Janeiro there has been much talk about the need to make the world economy “green”. The problem with this mention, somewhat similar to “sustainability”, is that everyone has a different picture of what constitutes a “green” economy (thus the decision in Rio to leave the definition in the national domain…). Astonishingly many view the “green economy” as one that still relies on economic growth – but without all the negative side-effects, such as climate change and environmental degradation in general. This is the idea of “decoupling growth“. It is just as tempting as flawed.

Ideas Lost in Time

The process of societal change – in attitudes, institutions, values, relationship patterns etc. – is accelerating steadily in modern societies. Their members are losing their ability to accommodate to these changes. Furthermore, since our basic needs are fulfilled, we engage more and more in competition for goods that some can have – but not all at the same time, not without serious quality deterioration at least. Moreover, we are working much to be able to pay for consumer goods that we cannot really consume because our time budget does not allow for it any more. This does not stop us from desiring even more consumer foods and from uselessly working to earn the money we need to pay for them. At the same time, whereas GDP has been growing continuously (with only minor periods of regress) for years, the satisfaction we draw from our lives has been at best stable in that time, since our aspirations change as fast as the economy (and our incomes) grows. Last but not least, this growth in production and consumption, as well as population, has led to a terrible, unsustainable level of use of Nature’s resources and services, which can in effect lead to a break down of the world economy.

What do these insights have in common? They were all made some 40 years ago, and little seems to have changed to the better – rather the contrary.

Where Does the Compulsion to Grow Come from?

There has been much writing here, in this blog, about the limits to economic growth – both ecological and social. It is not yet consensus that growth is a “bad thing” but there are many proponents of this stance and the debate has been going for some 40 years already. However, capitalist economies have been growing all the time – and if they didn’t, in times of crisis, they struggled terribly. The consequence mostly was unemployment and other unpleasant effects. This leads to the speculation that the current economic system is dependent on growth. There are numerous sources for this dependency. In the following post I would like to present one simple but deeply compelling explanation for where the compulsion to grow comes from.

The “Limits to Growth” Obsession

When a typical conventional economist wants to show somebody (e.g., her students) that all the talk about the “alleged impossibility of infinite economic growth” is rubbish, it is very probable that she take the 1972 Club of Rome’s report “Limits to Growth” as her starting point. This modeling work about the limits population and resource scarcity pose to economic growth, done by a group of young PhD’s, made extrapolations of historical trends of population growth and natural resource extraction to conclude that “sustainable” economic growth is not possible and that it is likely to seize during the 21st century due to these constraints. So, the economist’s arguments goes, as you can see, population growth has slowed, we do not seem to run out of natural resources – and, if you look at the widespread Cobb-Douglas production function, you will see that this wouldn’t matter either. Ergo, infinite economic growth is possible, and Meadows et al. (the authors of “Limits to Growth”) are naive doomsayers. However, this line of argumentation is a) “too easy”, and b) wrong.

The World Bank from the SSE Point of View

Herman Daly, the most known advocate of the steady-state economy (a sustainable, quantitative-growth-less economy “as if people mattered”), once was employed at the World Bank. It is thus interesting to read about this powerful development institution from his, an insider’s, perspective.

The main goal of the WB is to make loans, to push the money out the door, to be a money pump. If financial capital were really the limiting factor countries would line up with good projects and the WB would ration capital among countries. But financial capital is superabundant and good projects are scarce, so the WB had to actively push the money. To speed up the pump they send country development teams out to invent projects; if the projects fail, then they invent structural adjustment loans to induce a more favorable macro environment; if structural adjustment loans are treated as bribes by corrupt borrowing governments, the WB does not complain too much for fear of slowing the money pump and incurring a “negative payments flow.” [more]

You Cannot Just Define Away the Impossibility of Infinite Growth

More and more people in the world are questioning the possibility of human economies to grow infinitely. The ongoing destruction of global as well as regional ecosystems and the overuse of Nature’s resources are signs that something is going wrong. Nevertheless, mainstream (or neo-classical) economists – especially macroeconomists – seem not to be bothered. They still are claiming that economic growth is not only possible, it even is necessary to improve our well-being (for a critique see here). In some cases this may be true – nobody sane would argue that, let’s say, Nigeria doesn’t need economic growth. But one cannot (and should not) generalize this. Confronted with such arguments, (macro)economists either ignore them, or they answer by showing that in their models infinite growth is possible. They are just defining away the contrary.

One More Time About Growth and Well-Being

One of the subjects I write on in this blog most frequently is my opposition to the idea that economic growth (i.e. growth in GNP or GDP) is contributing to an increase in well-being (see, e.g., here). There is a correlation between them in some times – but in others it is quite the opposite. Today I found an impressive example of the latter. Interestingly, I found it while listening to a lecture by a professor of mine – whom I already mentioned in this blog. It is one coming from the past of Germany, from the most horrible part of it – the Second World War.

I Am Not Alone

Sometimes it is a nice feeling to realize that one is not the only person in the world thinking the way one does. Especially when one’s “fellow thinker” is a distinguished expert in the field considered.

A few days ago I wrote a post about the over-developed world. There is one particular passage I would like to repeat:

Jeffrey Sachs About Greed

Jeffrey Sachs belongs to the economists who have influenced my thinking deeply. So I was very positively surprised when I read his new article, “Need Versus Greed”, yesterday.

Sachs is one of the most distinguished development economists, Director of the Earth Institute at Columbia University and Special Adviser to United Nations Secretary-General on the Millennium Development Goals. His last book, “Common Wealth”, is a highly interesting contribution to development economics. Nonetheless, I always thought of him as a good, but still “mainstream” economist who considers economic growth the solution of all problems (why I don’t share this opinion, you can read here). With the article named above he proved me wrong.

Our planet will not physically support this exponential economic growth if we let greed take the upper hand. Even today, the weight of the world economy is already crushing nature, rapidly depleting the supplies of fossil-fuel energy resources that nature created over millions of years, while the resulting climate change has led to massive instabilities in terms of rainfall, temperature, and extreme storms.

It sounds just like what I would expect from the economics of development. And the whole article is perhaps not a new “discovery of America”, but certainly a piece worth reading.

Why Climate Scientists and Economists Cannot Agree

Most climate scientists are calling for immediate and decisive action of the global community needed if we want to prevent global warming from devastating our world. Since they are people who have dealt with the subject professionally for years, there is no reason not to believe them. Nevertheless, distinguished economists who work on climate change (e.g. William Nordhaus or Richard Tol) are calling to slow down, claiming that immediate and decisive action not only is not necessary – it could be harmful to the world economy as well. Whom should one trust? And why the differences?