Monday, July 12, 2010

McKibbon and the No-Growth Economy

The Atlantic interviews Bill McKibbon about his book "Eaarth", which blames "the growth economy" for climate change, and advocates a radical reordering of human society. "Radical reordering" is always a dicey prospect, but I think whether McKibbon is right or wrong, he raises some interesting points here.

First, I think any responsible economist should recognize that market activity does introduce serious environmental risks precisely because optimization decisions in the market are agent-based. Yes, it's the externalities point again. But externalities run through everything in economics because of property rights. Sometimes they are negligible, and sometimes they are enormous. Rarely can we put a firm estimate on it either way. But they are necessarily part of the discussion. If a decision is made on the basis of its costs and benefits to party A and party B, any costs or benefits accruing to party C, D, E, F, G, etc. are not going to be optimized by a market that all agree is driven by the weighing of individual costs and benefits. We thus expect individual utility to be maximized by market behavior and efficiently allocated, but we don't expect the utility of society in general (as it is affected by some decision made by person A and B individually) to be optimized by market activity. Society benefits from markets insofar as lots of individuals are having their utility maximized. Society suffers from markets insofar as individual maximizing behavior imposes social costs. Which is greater is an empirical question. So the claim that "the growth economy is hurting society" in and of itself is not a crazy claim, but we should also not accepted it uncritically or unqualified.

McKibben makes a few interesting points that I think are worth highlighting:

1. Why growth? Assuming continued population growth, we have to have output growth to maintain a certain standard of living, but why do we feel we need consistent output per capita growth? What is wrong with stagnation? Well, the obvious answer is that a no-growth economy means that the quality of our lives isn't steadily improving - and what is there to praise in that? But if McKibbon is right that there are social, cultural, spiritual, etc. costs to improvements in material wellbeing, the growth calculus would be much different. I don't think McKibbon decisively makes his case, but it is legitimate to raise the question. We often come at economic questions assuming growth is good. Is this necessarily justified? A no-growth economy would obviously be impoverishing in many ways, but it could be beneficial in others.

2. Whether it's good or bad, no-growth and sustainable energy go hand in hand. McKibbon makes this point, but I'm not sure if it's really correct. I suppose it could be. The thorny issue is, it's precisely the growth economy that has opened us up to energy sources beyond muscle power and wood. If it were possible to have growth and sustainable energy, it's a fairly good bet that the growth economy will get us there. Perhaps... most energy-related discoveries have been driven by the profit-motive and the imperatives of the growth economy. But there is reason to question whether the sorts of energy McKibbon seeks would be, and it all gets back to the externalities question. Private companies have made major advances in chemistry, but not in astronomy. They've made major advances in genetics but not paleontology. It doesn't take A.C. Pigou to figure out why. It's very likely to be absurd to think that the market economy will develop the socially beneficial energy sources that McKibbon is talking about here. Just ask Nikola Tesla*. This isn't to say markets are bad, of course. An analogy I always like to make is something my dad taught me (and I'm sure many dads taught others through the years) when I was very young about tools. You use the right tool for the right job. The market is a tool of sorts. To me, some free-market cheerleaders can (at times) look like small children banging on screws with a hammer, and then telling me "you don't really appreciate hammers because you don't bang on screws with hammers".

3. Concentrated finance isn't going to be as necessary for unconcentrated economic activity. A lot of people are lobbing critiques at Wall Street these days, and a lot of it is just populism. This, I thought, was actually an interesting point by McKibbon. Modern finance developed to support huge, centralized, industrial projects. Modern finance probably isn't as necessary for the decentralized economic activity that McKibbon is proposing. And this is something that a lot of people could potentially appreciate the indirect benefits of - less concentrated finance probably means less opportunity for crony capitalism. Here, he also mentions the return on investment that people demand from Wall Street. I'll also emphasize that this is a private return on investment, which is necessarily going to be limited. Some people get incredulous about fiscal multiplier estimats of 1.5. That's a 50 percent return on investment. That's insane, they say. But they often forget - that's a 50 percent social return, not a fifty percent private return. They're confusing what's being measured when fiscal multipliers are estimated.

4. Distance matters and social cohesion works. A lot of environmentalists leave themselves open to easy critiques by economists when they advocate some sort of utopian vision that eschews high rises and pavement. McKibbon is careful not to do this. He makes the point that what he's talking about is actually easier, not harder, in crowded cities precisely because costs are incurred in rural areas where scale economies aren't possible, where division of labor is weaker, and where opportunities for exchange and interaction are less abundant.

*Nikola Tesla is an interesting guy that I'd love to learn more about. I'm not making any claim here about his discoveries with respect to energy because I can't verify that, obviously. But simply as symbols, the Tesla/Edison contrast lays out internalized/externalized benefits and costs issue quite nicely.

5 comments:

  1. "First, I think any responsible economist should recognize that market activity does introduce serious environmental risks precisely because optimization decisions in the market are agent-based."

    And yet the richer a polity or even person the more they are able to treat "environmental goods" as normal goods.

    "A no-growth economy would obviously be impoverishing in many ways, but it could be beneficial in others."

    I haven't read the article, but this is my reaction based on what you have written:

    Needless to say there would also be all manner of effects associated with the punishing of uppity "growthers." It is sheer fantasy to assume that you can somehow make people "no growthers" without all manner of rather ugly social controls in order to do so.

    "Private companies have made major advances in chemistry, but not in astronomy."

    Astronomy exists today as a result of the sort of slack that a successful market economy allows. Or, as the Haitian wife of a friend mine told him once (and here I paraphrase), "Your country is rich enough that you have the money to spend your time studying history?" So yes, major advances in astronomy, history, sociology, etc. are based on the wealth that a market economy creates. Without that wealth, well, these disciplines might exist, but they would be pursued by a very select few and their fruits would be known to few outside that group.

    "And this is something that a lot of people could potentially appreciate the indirect benefits of - less concentrated finance probably means less opportunity for crony capitalism."

    No, (1) it means more localized crony capitalism and (2) localism merely means that it means that is far harder to escape the moronic prejudices of the group.

    Anyway, I had to suffer through one of McKibben's works as a undergrad back in 1989 (the "End of Nature" was its name as I recall) ... I am well aware of his arguments.

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  2. Anyway, the award winning science writer Ronald Bailey has a review of McKibben's new book here:

    http://reason.com/archives/2010/04/13/on-being-a-21st-century-peasan

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  3. Ya - I hope I don't have to belabor the point that I'm not advocating McKibbon's position. I'm just highlighting some interesting points in an interesting interview.

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  4. The guy's name is McKibben, BTW.

    Actually, it is hard to tell what you are advocating here exactly.

    Also, the free market is far more than just a "tool." "Tool" connotes mere instrumentalism; a sort of value free device used to perform a task. But the free market is hardly value free.

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  5. "Actually, it is hard to tell what you are advocating here exactly."

    Nothing, really. Often I'm not advocating anything in my posts. The role of "advocate" doesn't come naturally to me, but when I do advocate something I'm usually pretty explicit about it.

    "Also, the free market is far more than just a "tool." "Tool" connotes mere instrumentalism; a sort of value free device used to perform a task. But the free market is hardly value free."

    Certainly. There is still a lot of hammer-on-screw talk going on, which I don't think appreciates markets any more than hammer-on-screw appreciate the hammer.

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