True Cost Economics

August 18, 2004 2:02 PM

truecosteconomics.org: “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” – Kenneth Boulding. Adbusters latest campaign is against (surprise?) neoclassic economics. A tad less controversial than their last endeavor.
posted by Quartermass (22 comments total)

You'd think by now somebody would have figured out that using a "manifesto" in your argument looks like complete fuckasshattery to most people.
posted by Stan Chin at 2:22 PM on August 18, 2004

Ned: Science is like a blabber mouth who ruins a movie by
telling you how it ends. Well I say that there are some thing
we don't wanna know. Important things!

Agnes: Enough talk, it's smashing time!
posted by leotrotsky at 2:33 PM on August 18, 2004

This is a good message, but it ignores economic growth not predicated on increased material resource consumption.

Here's the nugget : why does economic "product" have to equal material stuff ? In the period from roughly 1979 through 1987, US oil consumption increased scarcely at all, but the US economy grew at a steady rate.

Increases in efficiency of energy and materials use and - just as crucially - closed loop manufacturing - can address most of Boulding's objections by decoupling economic growth from the need for increased inputs.

If our consumer goods come to be made from recycled material in a mostly closed-loop system, can't exponential growth simply be accommodated by faster cycling of products, from store shelves, to the consumer good wear/fashion/technological change cycle, and then back into their constituent parts/materials and thence back into consumer goods ?

This was Julian Simon's deep point - one he never really brought to complete fruition (#2 is my addition) : 1) human imagination IS fantastically powerful and can accommodate material depletion through the invention of (almost inevitably) superior substitute materials and processes, and 2) resource and biospheric constraints, as long as they are recognized as such before crucial thresholds are exceeded, needn't limit economic growth as long as that growth is predicated on the consumption of closed-loop manufacturing cycle consumer goods, and also sustainably produced elements (such as wood, for example).

In reality, there are "irreplaceables" - ocean fisheries, for example, that are quickly being fished out of existence.

But, Simon's overall point would still stand as long as human imagination could compel a solution - in the form of binding national agreements on fish catch quotas, or whatever it would take. Then free market demand for fish would drive the growth of fish-farming (sustainable fish farming, that is).

Another even more crucial element of such a "win-win" strategy would be the promotion - through heavy economic incentives and financing (perhaps via a "Tobin Tax") - of best available methods and technologies in the developing world economies.

That would be a sine qua non.

That, in short, is the synthesis of the best ideas of both in a practical solution and reconciliation to the Erlich-Simon debate. Capitalism and environmentalism are not at odds at all.
posted by troutfishing at 2:33 PM on August 18, 2004

I agree with the "manifesto" comment. As far as the economic arguments goes, if it's such a brilliant idea then how come nobody already uses it? Greed is one of the most staggeringly strong of the human motivators, and you would think by now somebody out there would have come up with this guy's better idea.
Otherwise, it's just another "follow me because I think I am right" wastes of time.
posted by kablam at 2:35 PM on August 18, 2004

Why is this logic any more valid now than it was in 1800? 1900?
posted by ParisParamus at 2:47 PM on August 18, 2004

Simple answer - It's not any more valid except insofar as the rough limits of many of the Earth's resources have been mapped. So : the general size of fish stocks (rapidly shrinking), the extent of old growth and rain forests (fast dwindling), and so on - all the biological systems humanity is mining (and turning into "product") to fuel economic growth - have been roughly mapped, and they are basically all in decline. .

To put it differently, in 1800, the fact that the Earth was spherical was generally accepted but for a few cranks, and yet the reality of that fact is just now - barely - starting to set in.

A spherical Earth is not infinite, nor are it's biological systems which support all human life - and so Neoclassical economics, insofar as it does not address this fact, is actually assuming that the Earth is infinite.

A.A. Bartlett calls this approach "The New Flat Earth Society" :

"There was a time, long ago, when people thought that the Earth was flat, but now for several centuries people have believed that the Earth is round . . . like a sphere. But there are problems with a spherical earth, and a now a new paradigm is emerging which seems to be a return to the wisdom of the ancients.

A sphere is bounded and hence is finite, which implies that there are limits, and in particular, there are limits to growth of things that consume the Earth and that live on it......

.....But limits are awkward, because limits conflict with the concept of perpetual growth, so there is a growing move to do away with the concept of limits........A spherical earth is finite. The pro-growth people say that perpetual growth on this earth is possible. If the pro-growth people are correct, what kind of an earth are we living on?

THE SOLUTION

A spherical earth is finite and hence is forever unappealing to the devotees of perpetual growth. In contrast, a flat earth can accomodate growth forever, because a flat earth can be infinite in the two horizontal dimensions and also in the vertical downward direction. The infinite horizontal dimensions forever remove any fear of crowding as population grows, and the infinite downward dimension assures humans of an unlimited supply of all of the mineral raw materials that will be needed by a human population that continues to grow forever. The flat earth removes all the need for worry about limits. "
posted by troutfishing at 3:47 PM on August 18, 2004

> “Anyone who believes exponential growth can go on forever in a finite world
> is either a madman or an economist.”

No one--no one--believes exponential growth can go on yadda yadda, when you put it just that way. Not even mad economists.

Everyone whose game depends on growth believes growth can go on just long enough for him to win and cash out. And another such person gets born every minute. (These days, several per minute.)
posted by jfuller at 5:23 PM on August 18, 2004

To put it differently, in 1800, the fact that the Earth was spherical was generally accepted but for a few cranks, and yet the reality of that fact is just now - barely - starting to set in.

Um, well, no.

But thanks for the amusing straw man argument.
posted by Ayn Marx at 7:30 PM on August 18, 2004

Yes, as troutfishing says. This argument completely (it seems) misunderstands or ignores comparative advantage. The whole principle here is that you don't need to consume resources in order to increase productivity (wealth).

Here's a clue: the raw resource and labor consumption of all human beings in history is only a small portion of the total amount of weath created by human beings. Most wealth creation results from comparative advantage, and comparative advantage is only limited by utility—which is subjective and is unlimited.
posted by Ethereal Bligh at 3:13 AM on August 19, 2004

Ayn Marx - Since you've defined the style of discourse,

Um, well....yes!

EB - Or to put it differently, wealth is an imaginary abstract of human thought. But, as I said, the limitations of the Earth's biological systems are not. So humans, right now, need to learn to square or reconcile those constraints - unyielding unless we learn to somehow replace the natural biological services we get from "Biosphere One" (as they one by one collapse) - with the political imperative of endless economic expansion.

As a thought experiment, I'm imagining a half dozen of the world's most prominent Neoclassical economists shrunk down to shrimp size and placed in one of those Self contained Eco Spheres on my desk : I'm imagining that one out of the six is advocating using the plants inside the "Eco-Sphere"(which produced the Oxygen they were breathing) as raw economic inputs to grow their little "economy" : that this genius wanted to turn all those plants into comfy bedding.

How long before the other five turned on the one ideologically-blinded asshole of the lot and ate him for dinner?
posted by troutfishing at 8:44 AM on August 19, 2004

Yes, you've pretty much got to use raw materials as a base. And as long as wealth is connected to tangible things, and forever as it requires energy consumption, then you need to be consuming some resources. But wealth creation is only partly about resource "consumption".

And the degree to which it is, there's a great deal of debate as to how large a supply of many—perhaps most—of these resources there is.

Anyway, I can't imagine any neoclassical economist being completely complacent about the consumption of non-renewable resources. So I think this is a strawman. I think these folks imagine that there's some (quickly approaching) uppper-bound on economic expansion as a result of limited tangible resources. That's not correct.
posted by Ethereal Bligh at 9:09 AM on August 19, 2004

There was a great deal of debate about how long the supply of Atlantic Cod would last, in the north-west part of that ocean. "Can we keep fishing at this rate forever, or maybe we should slow down a little?" was the debate. And now it's "Hey, where'd all the fish go? And why aren't they coming back now that we stopped fishing them?"

Not exactly an encouraging precedent for how well humanity uses its limited resources.

Of course there is an upper limit on economic expansion, based on finite tangible resources. I agree that we aren't near reaching it, but it's out there somewhere. Subjective and hard to place though it may be, there's a limit to how much bullshit people will swallow.

Anyway, knowing there's a limit won't change anything, only hitting it will.
posted by sfenders at 9:54 AM on August 19, 2004

I think these folks imagine that there's some (quickly approaching) uppper-bound on economic expansion as a result of limited tangible resources. That's not correct.

please explain further. oil? coal? fertilizer? all these things are running out or peaking, and the population is still exploding.

and even if we aren't "quickly approaching" a resource ceiling based on your own personal time scale, shouldn't we start planning a better economic system now, before it's too late?
posted by mrgrimm at 12:22 PM on August 19, 2004

sfenders and mrgrimm: economic expansion, wealth creation, is not dependent upon the consumption of material resources. How much is a new car worth? How much is that same car, wrecked? But it's the same materials. Not only can wealth be created simply through the direct conversion of human labor into value (without consuming a resource as part of manufacture); but, more importantly, wealth is mostly created by comparative advantage. As I wrote above, this is not dependent upon the consumption of a material resource.

What is the value of the formula for immortality? The cure for cancer? For the power to destroy the universe? Creation of any of these things is a creation of wealth—the last essentially infinite. None of these consume any more resources than are required to sustain the people and systems that make these discoveries possible. This is why in a theoretical sense, economic expansion is unbounded because perceived value is, as I said above, subjective and unbounded.

The US (or anyone) could very certainly consume less materials, less energy, and the people work less hours, all in an expanding economy. In fact, that's not too far off from a description of the current econmic recovery in the US. Productivity has increased and the economy has expanded.

Economic activity is not essentially about "making (tangible) things". It most often is "making things", and it initially is almost exclusively "making things", but "making (tangible) things" is not the essence of economic activity. Yes, that's the intuitive comprehension. But the intuitive comprehension is wrong.
posted by Ethereal Bligh at 12:56 PM on August 19, 2004

How much is a new car worth? How much is that same car, wrecked?

Transforming a wrecked car into a non-wrecked anything requires energy input. That's thermodynamics for you, which points to one hard limit. (Unless you want to posit expansion beyond the earth, which is possible I guess, but not likely to happen in an economically significant way before enough time has gone by that the economic structure will be not much like that of today.)

We will run out of some major physical resources long before this becomes anything but a remote theoretical concern, but...

Sure the intangible, immaterial parts of the economy can expand by more than the value of the physical resources consumed by such expansion, as indeed they are. But I think the economic expansion of the US is based more fundamentally on its great wealth of capital than its ability to generate information. Besides that, I'm not convinced that this model can work for the world as a whole. I am convinced that it can't expand faster than the physical resource-based foundation forever.

In its present form, economic expansion based on the immaterial seems to mean lots of "intellectual property" and such, which isn't of much practical use except in keeping the economy going. For every penny added by miraculous cures for notorious diseases, there are millions generated by pointless copyright lawsuits which contribute nothing to any net human benefit. There is a limit to how much entertainment we can endure. There is a limit to how much advertising is worth paying for. So I think there is a limit on the demand for most of this kind of information-based stuff.

There is also a limit on its supply. There is a limit to how quickly we can come up with scientific advances. Just because the pace of technological improvement has been accelerating rapidly for the past few centuries does not mean it will continue to do so forever. I think it will not. There is a limit to how much human energy is available to spend on research. Every information worker still consumes physical resources while he works, and even if everyone on earth is working to generate intangible information-based products, there will be a finite limit to the economic value of our collective creativity. Only so much novelty can be valued, and only so much produced. I think all this economic expansion based on perceived value of data is pointing to some kind of end state, even though it's so far off that we'll certainly never reach it.

So, that's my intuitive comprehension. Maybe still wrong, but less obviously wrong than you implied.
posted by sfenders at 3:05 PM on August 19, 2004

I repeat: comparative advantage.
posted by Ethereal Bligh at 3:16 PM on August 19, 2004

So, every last resource ideally deployed to maximize its comparative advantage is the theoretical ideal to which we aspire. That doesn't add up to infinite value, just very large.
posted by sfenders at 3:41 PM on August 19, 2004

Yes, limited by energy input. Which isn't the consumption in contention—that's material resources. Limited material resources do not by themselves create an upper bound for economic expansion because economic activity is not dependent upon the consumption of material goods. Excepting that required to physically sustain human life, of course. But that amount can, and likely will, become constant long, long before economic expansion (in an ideal economy) slows. This just isn't an issue in the theoretical sense, which is what's being argued. And it's much less true in the practical sense than is often assumed. Economists aren't idiots.

So what point is being made? That consumption of non-renewable natural resources can be and often is a serious problem, that overconsumption of such can ultimately wrech an economy, that we should be careful and think about these issues? Okay, if that's the point, I agree with it. Or is the point that the neoclassical economists are intellectually bankrupt if they believe that economic expansion can continue at present rates in a world of limited resources? Well, no, that's not true and I won't agree with it. In fact, it's a very ignorant claim to make. Again, though, I'll agree that it's intuitive. That doesn't make it true.
posted by Ethereal Bligh at 4:06 PM on August 19, 2004

Anyway, knowing there's a limit won't change anything, only hitting it will.

Problem in sum, I think. Here in Utah we've just spent years in drought conditions, serious bone-dry wonder-if-the-reservoirs-will-hold-out kind of stuff. Some officials were saying two more years of what we'd had and several reservoirs which municipalities depend on would go dry. This year was fairly wet. We're lucky.

But I saw no one change their water consumption habits. It doesn't make sense. It doesn't seem real. We've never run out of water, right? How could it happen?
posted by weston at 5:20 PM on August 19, 2004

Yes, limited by energy input. Which isn't the consumption in contention

Well, I thought it was. In the form of oil, gas, coal, fixed nitrogen, clean water, arable land, etc: all those things that make usable energy available to the system. Regardless of what is theoretically possible, running out of those things will certainly tend to slow down economic growth, to say the least.

In theory, the economic value of the artificial scarcity of information (for example) can continue to expand all it wants to, sure. I was mainly just arguing that expanding the economy doesn't neccessarily improve our real situation, and if our situation in the world of tangible goods that get used to keep things moving gets bad enough, the value of Disney's latest movie will surely suffer. Having the resources to sustain human life is not a given, just yet. The global population is still increasing, and the physical resources available still decreasing. If they do reach a sustainable balance, like you assume, then yes, I'll agree that indefinite economic expansion is possible, though maybe not desirable in the really long run. But that's a pretty big assumption.
posted by sfenders at 5:22 PM on August 19, 2004

What is the value of the formula for immortality? The cure for cancer? For the power to destroy the universe? Creation of any of these things is a creation of wealth—the last essentially infinite.

You're a loony.
posted by inpHilltr8r at 9:00 PM on August 19, 2004

Someday soon at a K-Mart near you, the power to destroy the Universe will be yours for a modest price of $9.97.

It'll be made out of crappy multicycled plastic, and the one control on the square black device - a red button - will snap off as you depress it during the first and only time that you use the damn thing.

But that will be just fine. You won't even notice.
posted by troutfishing at 2:08 PM on August 21, 2004