Steady State Economics.

                                                           Comments due by April 23, 2019

(The following are the major arguments against economic growth as presented by Herman Daly, arguably one of the most influential Ecological Economics and the popularizer of Steady State Economics)

Pascal's Wager Revisited

The growthmania position rests on the hypothesis that technological change can become entirely problem solving and not at all problem creating and can continually perform successively more impressive encores as resources are depleted. There is sufficient evidence to make reasonable people quite doubtful about this hypothesis. Yet it cannot be definitely disproved. There is a certain amount of faith involved, and faith is risky. Let us then take a completely agnostic position and apply the logic of Pascal's wager and statistical decision theory. We can err in two ways: we can accept the omnipotent technology hypothesis and then discover that it is false, or we can reject it and later discover that it is true. Which error do we most wish to avoid? If we accept the false hypothesis, the result will be catastrophic. If we reject the true hypothesis, we will forgo marginal satisfactions and will have to learn to share, which, though difficult, might well be good for us. If we later discover that the hypothesis is true we could always resume growth. Thus even in the agnostic case, it would seem prudent to reject the omnipotent technology hypothesis, along with its corollary that reproducible capital is a near-perfect substitute for resources.

The Fallacy of Exponentially Increasing Natural Resource Productivity

The orthodox position argues that exponential technological progress, as measured in two-factor production functions is usually accompanied by exponential increases in resource throughput (depletion and pollution). It is of little comfort to contemplate increasing productivity of labor and capital if it is at the continuing expense of resource productivity and if resources are the ultimately scarce factor. Robert Solow has defended growth by directly appealing to increasing resource productivity. Solow concludes that "there is really no reason why we should not think of the productivity of natural resources as increasing more or less exponentially over time" (1973, p. 51). This remarkable conclusion, if true, would be a boon to those who advocate limiting the throughput of resources, because it would mean that such a limit is totally consistent with continued exponential growth in GNP and is therefore not such a radical proposal. The resource flow could be stabilized and GNP could continue to grow exponentially as a resource productivity (i.e., GNP/resource flow) increased exponentially. Why, then, does limiting the resource flow provoke such strong opposition from growth economists?

In his Richard T. Ely Lecture to the American Economic Association, Solow went as far as to proclaim not only the conditional possibility, but the empirical likelihood that "the world can, in effect, get along without natural resources" (1974, p. 11). Solow elaborates that this is so if we have a "backstop technology," such as breeder reactors, which will mean that "at some finite cost, production can be freed of dependence on exhaustible resources altogether" (1974, p. 11). Apparently, the world cannot get along without all natural resources as he first suggested, but only without exhaustible ones. Just how to build and maintain a backstop technology of breeder reactors (the only example offered) without exhaustible resources such as copper, zirconium, tungsten, and iron, not to mention initial stocks of enriched uranium or permanent depositories for radioactive wastes, is not explained by Solow.
The Ever Expanding Service Sector and "Angelized GNP"

Advocates of growth frequently appeal to the increasing importance of services, which, it is assumed, can continue to grow indefinitely, since such activities are presumable nonpolluting and nondepleting. Thus while agriculture and industry will be limited by their necessary pollution and depletion flows, services are allegedly not so limited and will continue to grow. Therefore, an ever larger fraction of total GNP will originate in the service sector, and consequently the pollution and depletion flows per average dollar of GNP will fall continuously. Presumably, we will approach a nonphysical "angelized GNP."

The flaw in this view is that there are limits to how high the proportion of services to goods can rise in the product mix without provoking a shift in the terms of trade in favor of goods and against services to such an extent that goods production would again expand and service production contract. Historically, employment in the service sector has grown relative to total employment, because productivity and total output of industry and agriculture have increased vastly. Once total output of physical goods is restricted, service sector growth will be increasingly restrained by a progressive deterioration in its terms of trade vis-a-vis physical goods.

Misleading Views on Misallocation and Growth

Many growth economists (Beckerman, 1974, p. 20) have argued that in order to prove that the growth rate is excessive it is necessary to show that the resource misallocation at any point of time takes the form of excessive investment. This reflects a commonly held position among economists that the market will automatically limit growth at some optimal rate. But we must first ask just what "misallocation," or more specifically "excess investment," means in the context of the statement. It means that more is being invested and less consumed out of current production than would be the case under freely competitive markets and consumer sovereignty. Misallocation is defined with respect to the competitive market equilibrium of the plans of savers with the plans of investors, not with respect to physical relations of the economy with the ecosystem. Excessive "disinvestment" of geological capital (depletion), excessive pollution and destruction of ecosystems, and excessively onerous technologies are all consistent with the condition that savers in the aggregate are planning to see just what investors in the aggregate are planning to invest. The market seeks its behavioral equilibrium without regard for any ecological limits that are necessary to preserve bio1 physical equilibrium. There is no reason to expect that a short-run behavioral equilibrium will coincide with a long-run (or even a short-run) biophysical equilibrium. In fact, it is clear that under present institutions the two will not coincide. The behavioral equilibrium between planned saving and planned investment nearly always occurs at positive levels of net saving and investment. Positive net investment means growth, which means an increasing throughput and increasing biophysical disequilibrium.

Orthodox growth economists are likely to reply that if only we could internalize all true ecological costs into money prices, then market equilibrium would coincide with ecological equilibrium. This is a bit like Archimedes saying that if only he had a fulcrum and a long enough lever he could move the world.

What Second Law?
In an article defending growth, Harvard economist Richard Zeckhauser tells us that "Recycling is not the solution for oil, because the alternate technology of nuclear power generation is cheaper" (1973, p. 117, n. 11). The clear meaning of the sentence is that recycling oil as an energy source is possible but just happens to be uneconomical, because nuclear energy is cheaper. The real reason that energy from oil, or any other source, is not recycled is of course the entropy law, not the relative price of nuclear power. This nonsensical statement is not just a minor slip-up that we can correct and forget; it indicates a fundamental lack of appreciation of the physical facts of life. No wonder Zeckhauser is unconvinced by limits to growth arguments; if he is unaware of the entropy law he could not possibly feel the weight of the arguments against which he is reacting in his article.

An article entitled "The Environment in Economics: A Survey" Begins with the words: "Man has probably always worried about his environment because he was once totally dependent on it" (Fisher and Peterson, 1976, p. 1). The implication is that man is no longer totally dependent on his environment, or at least that he has become less dependent. Presumably, technology has made man increasingly independent of his environment. But, in fact, technology has merely substituted nonrenewable resources for renewables, which is more an increase than a decrease in dependence. How could man possibly become more independent of his environment without shutting off exchanges with the environment or reducing depletion and pollution, rather than increasing them? For man to exist as a closed system, engaging in no exchanges with the environment, would require suspension of the second law. Man is an open system. What was man three months ago is now environment; what was environment yesterday is man today. Man and environment are so totally interdependent it is hard to say where one begins and the other ends. This total interdependence has not diminished and will not in the future, regardless of technology.

Zero Growth and the Great Depression

 A condition of nongrowth can come about in two ways: as the failure of a growth economy, or as the success of a steady-state economy. The two cases are as different as night and day. No one denies that the failure of a growth economy to grow brings unemployment and suffering. It is precisely to avoid the suffering of a failed growth economy (we know growth cannot continue) that we advocate a SSE. The fact that an airplane falls to the ground if it tries to remain stationary in the air simply reflects the fact that airplanes are designed for forward motion. It certainly does not imply that a helicopter cannot remain stationary.

Conclusions from the Growth Debate

To a large degree, the growth debate involves a paradigm shift of a gestalt switch--a change in the preanalytic vision we bring to the problem. Conversion cannot be logically forced by airtight analytical demonstrations by either side, although dialectical arguments can sharpen the basic issues. But as the growing weight of anomaly complicates thinking within the growth paradigm to an intolerable degree, the steady state view will become more and more appealing in its basic simplicity. In any case, orthodox economics will not easily recover from the weaknesses that some of its leading practitioners have revealed in their efforts at self-defense. It is, to say the least, doubtful that "the world can, in effect get along without natural resources." But it is certain that the world could do very well indeed without "the orthodox economists whose common sense has been insufficient to check their faulty logic."

Forests are growing in Developed countries

                                                 Comment due by April 14, 2019 

Colm Stenson drives around County Leitrim, pointing out new tree plantations. In this corner of Ireland, close to the border with Northern Ireland, conifers seem to be springing up all around. The encroachment is not just visual. Mr Stenson, who is a police officer as well as a cattle farmer, recently received a bill from his feed supplier. It came with a brochure advertising easy returns from converting farmland into woods. Forestry companies tout for business in the local livestock market. The forest is “closing in”, he says. In the 1920s, when Ireland became independent, it was thought to have just 220,000 acres (90,000 hectares) of woods, covering about 1% of the land. Once-extensive forests had been shrinking for centuries. Farmers had cut trees for redwood and to clear space for animals and crops since at least the fourth millennium BC; some tree species were wiped out by disease. Beginning in the 17th century, most of the trees that remained were felled to build ships or fed into charcoal kilns to re the Industrial Revolution. Today, though, almost 11% of Ireland is covered with forest, and an unknown additional amount by small woods and scattered trees. The government’s target is to cover 18% of the land area with forests by 2046. Ireland is behind schedule. Still, about 6,000 hectares of new forest ought to be planted this year, while almost none will be lost. It is part of a broad trend: the foresting of the West.

 Trees are spreading in almost every European country . Because many of these forests are young, the quantity of wood in them is growing faster than their extent. Europe’s planted forests put on a little more than 1.1m cubic meters of wood per day. For comparison, the iron in the Eiffel Tower is about 930 cubic meters. Russia’s forests spread more slowly in percentage terms between 2005 and 2015, but, because Russia is so big, more than in the entire European Union in absolute terms. Forests now occupy a third of America’s land, having grown by 2% in the past decade. They are even expanding in Australia, following a long decline. Trunk routes Deforestation in South America and Africa rightly gets most of conservationists’ attention. That loss is huge—equivalent to about 4.8m hectares a year, which far outweighs gains elsewhere. Yet the foresting of rich countries is still one of the world’s great land-use changes. It seems just as unstoppable as the deforestation of poorer places. It has plenty of critics, too. The growth of forests is partly a result of changes to food markets. As the best farming areas have become more productive, and as rich countries have imported more of their food, marginal land has become unusable for ordinary agriculture. Some of the most dramatic forest growth in Europe has been in high, dry places where farmers once scratched a living from goats, sheep or olives. Forests now cover two-thirds of Catalonia, in Spain, up enormously from a century ago. In America, the fastest expansion over the past ten years has been in states such as Oklahoma and Texas, which have indifferent soils. “Good cropland is always going to be good cropland,” says Thomas Straka, who follows American forestry at Clemson University. But “a lot of land should never have been planted.” Forests are also growing because governments have favoured them through laws and subsidies. Forest-boosting has a long history, beginning with a French forest ordinance in 1669. In Europe, war drove policy: countries needed wood for warships and then, after the first and second world wars, sought to become self-sufficient in a bulky commodity. In America, a ready supply of cheap home-grown wood was seen as essential for the creation of a suburban, home-owning democracy.  Since the 1990s environmental considerations have weighed more heavily. Forests are increasingly valued as sponges for heavy rain, as wildlife habitats and as carbon sinks. Governments point out that their countries used to be thickly forested— even if the large forests disappeared many centuries ago, as is the case in a country such as Iceland. Some feel inadequate: European countries with scant forest cover sometimes lament how far behind the EU average they have fallen. Whatever their reasons, governments have treated forests generously. In Britain, forests are not liable for capital-gains tax (though the land under them might be). If a forest is bought with the proceeds of a business sale, the tax that would be payable is deferred. Timber sales incur neither corporation tax nor income tax. Forests can be transferred to heirs free from inheritance tax. And, whereas many farm payments in the EU have been decoupled from production, forest subsidies reward planting. The rate in England is £1.28 ($1.72) per tree, plus grants for fences and gates. Money does not grow on trees, goes one quip—trees grow on money. Planted forests are far from universally popular, though. Between June and October this year, forest res in Spain and Portugal killed more than 100 people and darkened Europe’s skies. The res were partly blamed on the spread of non-native trees, especially eucalyptus. That Australian import, which was planted with support from the World Bank, among others, grows so quickly that trees can be harvested for pulp when less than ten years old. It also burns readily, scattering embers far affield. Portugal’s government has begun to restrict planting, in an effort to prevent the country from turning into what one green group calls “Eucalyptugal”. The eucalyptus tree is a scapegoat for a bigger problem, argues Marc Castellnou, a re analyst in Spain. The real trouble is that forests in Portugal and Spain have expanded quickly, with little thought for the consequences. Well-managed eucalyptus plantations are not the biggest danger—much worse are ill-managed ones with lots of underbrush and fallen wood, and the impromptu forests that grow on abandoned farms. The res that get going in such forests jump to the treetops and burn so energetically that they cannot be stopped. In Ireland, the criticisms are different. The country’s default tree is the sitka spruce, a fast-growing, damp-tolerant conifer from America’s Pacic Northwest. Spruce plantations are said to be devoid of life—vertical deserts of dark green. They are accused of wrecking rural communities and driving farmers off the land. And they are said to be out of place in a mostly pastoral setting. Gerry McGovern, another farmer in County Leitrim, puts it bluntly: conifer forests are “not landscape”. The first charge is false. Mark Wilson of the British Trust for Ornithology says that conifer plantations support more bird life per hectare than farmland, largely because they harbour more insects. Inevitably, some birds benefit more than others. The march of conifers across Britain and Ireland has increased the numbers of pine-loving birds such as siskins and crossbills. Conifers are also loved by crows—which is less obviously good, because crows raid the nests of rare birds such as curlews. The second accusation, that trees push out other kinds of agriculture, is only partly true. Forestry subsidies and regulations have indeed distorted Ireland’s land market. Farmers who plant trees get generous payments for 15 years, while continuing to receive ordinary farming subsidies. At that point, with perhaps 20 years to go before conifers are harvested, they often sell to pension funds and other investors. Forested land in Ireland hardly ever returns to farming. To help speed national forestation, the government requires that land cleared of trees must be planted with new trees (which are not subsidised). Ireland also bars commercial planting on the poorest soils, where young trees would struggle. Partly as a result, forests have spread from the hills to the lowlands, says Steven Meyen of Teagasc, Ireland’s agriculture authority. Macra na Feirme, which lobbies for young Irish farmers, argues that forest payments are now preventing good land from coming onto the market. That said, trees are sprouting in rural Ireland because farmers want them to. Many own at least one indifferent, boggy corner of land where animals get stuck and only rushes grow well. Stephen Strong, a farmer in County Meath, has planted 80 acres of his 500-acre farm with sitka spruce, Norway spruce, oak and ash. The trees require much less attention than the sheep that grazed there before—“where you have sheep, you have trouble,” he says. Forestry appeals especially to ageing farmers who are looking for a gentle exit. In 2015, 45% of newly planted land in Ireland was owned by people aged 60 or older. The final accusation, that forests are drastically changing the appearance of the countryside, is spot-on. Advocates may point to a forested past. But rural people have become used to the landscape as it is, and often do not want it to change. What worries Mr Stenson, in County Leitrim, is not just that the ever-spreading trees will displace farmers and make it hard for him to acquire more land, but also that they will prevent him from seeing his neighbours’ lights at night. In America and Germany, people have been conditioned to see forested landscapes as sublime by painters like Caspar David Friedrich and Albert Bierstadt. Irish painting and poetry, by contrast, usually celebrates hills, bogs and farms. In “The Deserted Village”, published in 1770 and probably inspired by scenes from his birthplace in Ireland, Oliver Goldsmith lamented the transformation of a lively landscape, studded with cultivated farms and busy mills, into a silent one dominated by “glades forlorn” and “tangling walks”.

 Safe arbours

Ireland and other countries will nonetheless have to get used to the green invaders. The EU’s Common Agricultural Policy is set to change in 2020. Nobody yet knows how, but it is a safe bet that subsidies will tilt towards greenhouse-gas mitigation, which will probably mean more money for carbon-absorbing forests and less for methane-belching livestock. John O’Reilly, the boss of Green Belt, a forest-management company, worries that Ireland’s afforestation rate might dip below 6,000 hectares a year in the next few years—a level that he views as necessary for sustaining business. He also worries about Brexit, because Britain is a crucial market for Irish timber. He is not at all worried about the long-term future of his industry. (The Economist)