Steady State Economy - Why is Economic Growth a Threat?

[rman]

Economic growth is an increase in the production and consumption of goods and services. It entails increasing population, per capita consumption, or both.
Economic growth leaves a larger ecological fooprint, causing civil strife and bringing nations into conflict.

Can technological progress alleviate the threat of economic growth? Technological progress requires research and development,a major expenditure that entails economic growth at current levels of technology. In theory, technological progress could reduce the ecological footprint, but not when it is simply used for more economic growth.

Laws of physics, principles of ecology, and our own common sense tell us that nothing grows forever. Economic sustainability, national security, and international stability require the establishment of a steady state economy with stabilized population and per capita consumption. In a steady state economy, society focuses on goals more noble than economic growth.

www.steadystate.org

[BlueEyedSon]

1. Unfortunately, what we really need to do is SHRINK it

it's already unsustainable

[enigma000]

2. you mean a Depression?

If Bush can arrange one of those (which he might be doing) would you be happy?

[BlueEyedSon]

4. Nah, destroying the earth at the current rate is a good idea. My bad!

[eallen]

3. Economic value is measured in dollars, not tons or joules

The basic fallacy in your thinking is the mistaken assumption that "increase production and consumption of goods and services" has a strict physical correlate, such as tons of mass or joules of energy. Economic increase is measured in dollars, and an increase in dollar value might correspond to a decrease in physical quantity. If you doubt that, weigh a laptop produced in 2006, and a portable computer sold in 1990. For that matter, look at how price and weight of laptops and cellphones vary today.

This isn't the case with everything, of course. Houses have grown in physical size. But many other goods and services have shrunk in their physical footprint, at the same time they have grown more valuable. Would you rather have open heart surgery from 1970, or a stent implaced in 2006? The latter takes less time, requires fewer medical personel, involves much less equipment and material. And has better results. That is real economic progress.

And how much ecological footprint does software consume?

You will not understand economics, so long as you think economic growth is measured in tons. It isn't.

[depakid]

20. That's the basic neoclassical fallacy

The circular flow of the economy is generated out of thin air!

It's not- and saying that it doesn't have direct physical correlates is like making a claim to a perpetual motion machine.

EVERYTHING in the economy ultimately relies on energy (and material) inputs through the system on one side- and outflow (entropy) into sinks on the other.

To understand steady state economics (which actually goes back to Mill) first you have change your vision of the system from this:



To this:



And think in terms of throughput- and get away from the cult of limitless growth and making money out of debt, because as we're going to soon find out- that was all a myth.

[Sammy Pepys]

5. I'm not sure I agree with that definition of growth....

Sounds a bit loaded to me.

[OneBlueSky]

6. infinite growth in a finite world is impossible . . .

we will either realize this and do something about it, or let our growth overwhelm us and have to react to it . . . either way, our behaviors WILL change . . .

[dcfirefighter]

7. The pie and sustainable economics

Supply and Demand:
Demand is infinite - people will always want more.
Supply - the world is finite, therefore wealth is finite, right?

Where do we get wealth?
From the factors of production: Land, Labor, Capital. (Land is not Capital, and Entrepreneurship is just Labor)
Labor works Land to make Capital.
Labor uses Capital and Land to make more Capital, and Wealth.

The supply of Labor isn't infinite, but it's certainly not the limiting factor. We have more labor available than we can currently use - we call this unemployment. The world's population is currently growing. But even when the world's population stabilizes, the supply of Labor can grow, by becoming more efficient (better educated, skilled, etc.), or by spending less time in leisure, if the price is right, or the alternatives bad enough.

The supply of Capital, being made from the combination of Labor and Land, is very nearly infinite, and is certainly not the limiting factor. Even if Land is scarce, more Labor inputs can be used to create capital. Consider a brick vs. a microchip. One uses not much Labor but 5 lbs of Clay and a good bit of heat energy; the other uses a few grams of silicon, some energy, and a whole lot of technical knowhow.

The supply of Land is absolutely finite. Furthermore, a large proportion of valuable land is held speculatively, out of production. A classic example is gold, which is usually held speculatively, rather than used in industry. But this also applies to real land - look downtown. I'll bet there are a few strip malls in the highrise district, and a few empty lots elsewhere. These are owned by someone waiting for a better price. The stripmall might be 'using' it's land, but not up to its' full potential.
Land is our limiting factor for producing wealth. We need to put it to use such that we employ all of our Labor and Capital. We do this by placing a high carrying cost on land, a tax. Such a tax doesn't increase the price of such land - supply being fixed, the price remains fixed, and the tax merely diverts money from the 'owner' to the public. Land, not being produced, and who's supply is fixed, does not suffer the same consequences as Capital would if we tried the same thing.

What about Money? Money is a marker, a chit, scrip, a measure. Money is how we record the transactions required to induce the owners of the Factors of Production to produce. We can make more money, it just requires enough ink to add zeros. For our money to be useful, we need it to have a stable positive value. For it to have a positive value, there must be a demand for it. I suggest that requiring money be used to pay taxes is sufficient to give it a positive value. For it's value to be stable, the supply of it must remain stable in relation to the demand for it. The demand for it constantly grows, and therefore, the supply of money must constantly grow. Unfortunately we allow private banks to lend it into circulation, rather than publicly spending it into circulation on public projects, but that's a topic for another day.

What about Pollution and Overdevelopment? Pollution is just allowng people to use land without paying for it. Once paying for it costs more than is gained by polluting, pollution will stop. I suggest that taxing pollution makes a hell of alot more sense than taxing wages. Overdevelopment: 1) someone else's vacant lot doesn't quite qualify as public greenspace, but real public greenspace drives the value of private land up, and therefore drives the taxable value of such land up. Consider Manhattan - is real estate fronting Central Park more or less valuable than real estate 6 blocks back? Putting land to use as parks and greenspace would then benefit the public purse directly. 2) putting land to highest and best use then places Labor and/or Capital as the limiting factor. At no point would building a high-rise condo in the middle of a nebraska cornfield make any sense - it'd never fill. Furthermore, putting land to highest and best use means that many, many more housing units become available in urbanized places - reducing the need for development in rural places.

Whats the upshot? Don't tax Labor, Capital, or Commerce. Tax Land, Privelege, and Pollution (in all their forms). Land will then be put to highest and best use throughout the taxed area. There will be no disincentive to produce capital. Labor will be fully employed. Stop letting banks create money to loan without creating the money to pay the interest. We get a closed-loop economic system, where the rich stop getting richer, and the poor (Labor Class) start enjoying full employment.

[rman]

8. "demand" isn't necessarily what people "want"

People can be starving to death ("wanting" food) - but if they have no money they won't go to the stores to buy food, so that economically speaking there's no demand for food.

That reality is reflected in the economic concept of "demand destruction" - ie rising price of gas reduces demand for gas, simply because some people can't afford it any more. Likewise many people can't afford healthcare, so there's less demand for health care, but not because people don't "want" it.

[dcfirefighter]

9. Money isn't EXACTLY necessary

it just makes the transactions more convenient. You are correct, though, Demand requires Want and Means.

Starving people WANT food, but don't have anything to trade for it. This would be unrealized demand. However, everyone has SOMETHING to trade, if only their own labor. Unfortunately, due to the economic effects of protecting ownership of property, particularly ownership of land & natural resources, the value of this labor is suppressed.

"Whenever there are in any country uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right." - Thomas Jefferson to James Madison, 1785

Even without an employer, such a person would likely work to cultivate his own food, sans money exchanging hands. He would literally eat his wages - the fruits of his labor, if he only had access to Land (1/4 acre & 1/2 acre feet of water & sunshine & seeds).

Interestingly, refined gas is Capital, crude oil in the ground is Land. It is the nature of Land that it's owners get what the market will bear for it - whether it's a 1/8th acre lot in Washington, DC or 10MBD Light Sweet Crude in Saudi Arabia. There's really no way around this. If the government sets a lower price, and enforces it, the Land wont change hands. Converselyh, if the government charges a hefty value-based tax on it, the owner cannot pass this tax on - he is already getting what the market will bear, and raising a tax on it doesn't increase what the market will bear.

Conversely taxing Capital, say gasoline, can be passed on, as gasoline is somewhat competitively priced (ignore any collusion on the part of refiners, for the sake of argument). Theoretically, at least, someone could build a new refinery and offer the refined gas at a lower price than its competitors (or rather the mark up for refining would be lower than the competitors).

[Sammy Pepys]

10. Supply and Demand

Simply put, supply and demand are really two sides of the same coin.

Let's say you own a business selling cookies....that is, you supply cookies to the marketplace. Why do you do this? Well, you might like baking cookies and selling cookies and all that good stuff, but one critical reason is so that you can afford shelter, food, clothing and perhaps a few luxury items. You are providing a supply to fulfill your own demands.

When I started thinking about supply and demand like that, I kind of had a lightbulb moment.

One comment on land: While physical land is absolutely finite, it's supply is not necessarily so. Land obviously can change hands many times over.

[dcfirefighter]

11. but it can only be used by one person at a time

and cannot be reproduced.

Where one cookie can be substituted for another, a 1/4 acre in Manhattan, KS does not substitute for a 1/4 acre in Manhattan, NYC.

[Sammy Pepys]

14. This is true...

Land certainly can't be reproduced, and an acre of land in area A ain't the same as an acre of land in area B....but then again I think you have to consider that a farmer's demand for city property is going to be much less than that of a factory owner.

I still think there is something to it though...that the supply of land is not necessarily finite (I say "necessarily" because I don't think it's finite in the same way the quantity of actual, physical land is).

[dcfirefighter]

15. Consider this

While land may exchange hands many times, the economics of it are backwards:

As land prices rise, existing owners have an incentive to hold out in hopes of greater prices. Land prices follow the collectables model. If prices are rising, an owner will ask for a higher price than a recently sold comparable property. If prices are falling, he'll likely hold is property vacant or unused rather than sell low. There is no competitive pricing.

Outside of residential land, there is little incentive to sell, as long as the owner can make the tax payments. Most commercial & industrial tenants lease their sites from passive owners.

[Sammy Pepys]

16. But the incentives to sell...

..are not tied solely to price.

My point is that if you are looking to buy land, you can probably find some for sale....and you can probably find some that fits whatever particular need you have for buying it realtively well. There's always another acre out there.

[dcfirefighter]

17. But there's not....

There are only 64 sq miles in the district of columbia. Every one is owned by someone. To use an acre, I'd have to pay the current owner, either for sale or lease. Surely, for the right price, I could induce one of them to allow me to use that acre. But they get to set the price. If I want a particularly valueable acre, say on K st., I'd have to pay a lot. If K st. properties suddenly became even more valuable - say because of even more government favors available to lobbyists, the price would go up, but no more K st. real estate would become available. In fact, less real estate would be available as speculators bid on properties.

Land doesn't follow the same rules as goods and services, such as cookies. If cookies became more valuable, say because chocolate chips were found to cure cancer, after a short time, more cookies would become available, and the price of cookies would not increase that much.

The important point to note regarding those K St. lots is that the value is created extrinsically to the owner. The owner did not improve the value, external sources - the government, society, the addition of another metro station, a decrease in crime, etc. improved the values, yet the owner gets to reap the financial benefits. It seems fairly just to assess a tax against this value. It's also efficient, there's no deadweight loss. The absolute supply of land, being fixed, will not change. The available supply of land will increase, as speculators find less value in holding land. Conversely, taxing cookies, or labor, or other goods and services will decrease the supply and raise the price thereof.

It's important to notice the different rules that land (and other natural resources) abide by, and the concurrent effects these rules have on the rest of the economy.

[Sammy Pepys]

18. Exactly...

..but just because there is a supply doesn't mean you have easy, unfettered access to it. Back we go to supply/demand being two sides of the same coin. I'm not talking about the ease of acquiring land, just the opportunity to do so. There will probably never be a point in history where there is not an opportunity to acquire land.

[dcfirefighter]

19. The opportunity?

Like the opportunity to work for whatever wages are offered?

The opportunity to acquire land, as you put it, also implies the opportunity for landowners to collect all of the socially created value when you pay to aquire it.

Because we allow this, 1) we must raise public money through other sources, such as sales & income taxes, which discourage commerce and employment and 2) land has 'extra' value as a speculative investment, raising demand and prices - which make it more difficult and expensive for productive enterprise (such as housing) to acquire land.

[Odin2005]

12. Economic growth = natural resourse exploitation is outdated...

Industrial Age thinking, it's the Information Age now, not everything in our economy is physical in nature.

[rman]

13. Non-physical economic activities do depend on physical resources.

Also the fact that it's the Information Age now does not mean that infinite economic growth is not still the prevailing paradigm of 'capitalism', nor does it mean that the economy can grow infinitely.