On Growth, Wealth, Sustainability and the Rebound Effect

It seems to me obvious that the utilitarian policy is the one that prolongs human life (as a species, not necessarily as individuals) on earth for the longest possible time.

It seems obvious to a lot of other people that the utilitarian policy maximizes the rate of growth of gross economic production, i.e., the total net dollar value of all money transactions (the “value added”).

But growth is not wealth, for numerous reasons. It is true that in the short run “recessions” are bad times, but that is because we have a system planned and designed for growth. Wealth, in addition to social connection, is access to resources. And yet, when we destroy a resource and replace it with one of greater valuation, however transitory that valuation, it counts toward progress. This is how cultures eat themselves.

There is no clearer example on earth today than that of China, which after a half century of communist madness seems to be entering a period of pseudo-capitalist madness, where destroying things and putting up other things to replace them occurs at a frantic pace, regardless of demand at all. At least we in the west force ourselves to drum up some sort of demand for our excesses.

David Roberts concludes, in an excellent essay that Keith Kloor feels compelled to call “a long, wonky post” that limits to carbon emissions amount to limits to economic growth. I think this is correct.

But I don’t see him challenging the implication that this amounts to limits to well-being. I don’t see that it does.

What I think kicked David R’s ruminations off is that David Owen, a fine nonfiction writer, has written a book on the “rebound effect”. Bryan Walsh in turn has written a brief summary at Time. In short, the claim is that reducing costs simply increases demand, an idea which goes back to the 19th century and has long been called Jevons’ Paradox.

This paradox is what prevents the free market from adjusting to the availability of “green” alternatives in a way that reduces impacts. I think this case is strong.

But an early respondent to that article snarkily replies:

This article is idiotic. And it sounds like the book by David Owen is as well. The average European uses HALF the electricity of the average American, and emits HALF the carbon of an American, even though they enjoy a standard of living that in many ways is *higher* than Americans’. How have they done that? By implementing conservation practices and technologies in every corner of their societies — businesses, homes and in public. The average US car uses 40% more fuel than the average car in Europe (or Japan). They have low wattage light bulbs and motion sensors in their buildings to turn off lights when no one is in the room. In the city where I live, most of the buildings downtown have their lights on in the middle of the night, even though no one is in the building. Americans are simply under-achievers, looking for any excuse to either deny global warming is real or to shrug their shoulders and do nothing about it. This Time article and Owen’s book are good examples of the latter. Yet another area where America has ceded its global leadership.

and therein lies an answer to our quandary. What we have here is not a paradox of the marketplace, but rather an ordinary, nonparadoxical tragedy of the commons. The workable solution is to apply our collective good will. Sometimes this is called “mutual coercion mutually agreed upon”, but I would simply call it governance.

Comments:

  1. Yes, capital needs to find ways to make the overall 3% compound growth, otherwise it goes into crisis. It's almost miraculous that it finds ways to do this as it reaches physical limits, such as labor pools, living standard increases, credit crunches, and land availability. So what you see in times like these is a lot of central bank activity in keeping banks liquid. This also means lots of inefficient uses of surplus capital. This becomes very scary when money begins to interfere with the food commodities. This has happened twice in the last three years. Once immediately following the Lehman and bank closures, where people had no safe place to put money, so it went into speculation on wheat, driving prices high, reducing the amount of the poor who could afford it. Then it happened again after the Russian wildfires. There is a disconnect between what growth works for people, and what works for capital.

  2. "What we have here is not a paradox of the marketplace, but rather an ordinary, nonparadoxical tragedy of the commons."

    It's both, isn't it? Any Ostrom-like governance structure will still require us to understand and integrate the market. This nice OPEC graph shows how much tax on fuel differs between the US and Europe - it's not surprising the long-term elastic response in Europe has been a shift to vehicle efficiency. Incidentally, that graph hints at the actual impact a carbon tax might have on transport, as well as the fiendishness of actually trying to construct a level playing field for carbon cost across countries. (Fancy any US candidates' chances of raising gas tax to European levels?)

    Also, I saw that graph in an issue of the Oxford Review of Economic Policy looking at 'oil and international energy markets'. There's some fantastic stuff there: the article I just mentioned covers the collosal complications in trying to work out governance and policy solutions, as well as giving a thorough overview of the oil market and pointing out that peak oil is completely trumped by climate change. A fact which, if we forget, might mean any attempts to decarbonise the energy system will be fatally undermined when carbon-based fuels drop back in price (plenty of coal and gas...) and you end up in a subsidy spiral.

    Allsopp, Christopher, and Bassam Fattouh. ‘Oil and International Energy’. Oxford Review of Economic Policy 27, no. 1 (March 20, 2011): 1 -32.

  3. The issue here is more about credibility of the greens. They have been selling a green jobs program that would not involve economic sacrifice. Carbon taxes are a net benefit to the economy!

    Nobody believes that. It is simply not credible. No sale.

    The alternative is to ask for sacrifice from the public for potential future problems that are in dispute. This looks a loser as well.

    Between a rock and a hard place.

    • Nobody believes that. It is simply not credible. No sale.

      But didn't you say "a man's reach should exceed his grasp"? Why aren't you willing to try something that you don't already "believe", and then you can see how it works out?

      -- frank

  4. MT, why do you give the name "tragedy of the commons" to what clearly is just good old human stupidity and stubbornness?

    As the respondent points out, there are many situations where saving energy leads to immediate benefits and no ill effects, and yet nobody wants to take that logical step. Why? There's no "tragedy of the commons" here. It's just human silliness.

    -- frank

    • I think there are few steps of that sort at the individual or institutional level. Sometimes the payoff is too long to afford, or even to pass the usual "discount rate" test, but is sensible for the society collectively.

      Europeans are not especially morally superior to Americans. (Trust me on that one.) They do have a longer and broader view, though. That's historically understandable. But that's the bulk of the difference.

      Also there's not treating "socialism" as if the very idea were subversive (except when it isn't called socialism, like the Veteran's Administration or Medicare)...

  5. "limits to carbon emissions amount to limits to economic growth. I think this is correct."
    I'm almost certainly being terminally naive here, but I wonder if this is the case. Can we have continued economic growth, at least for the next few decades, which is based on an increase in quality rather than quantity?

    If, for example, I buy a high quality piece of kitchen equipment it may cost me four times as much as a cheap model but it will last indefinitely. Emissions will be significantly reduced given that I won't be repeatedly buying tat that isn't worth repairing. Over all I'm contributing as much to the economy, first through the initial purchase but then through the employment from maintenance.

    Would policies that actively challenged the prevalence of built-in obsolescence be able to make a significant dent in emissions resulting from continued economic growth? Can we transition to a system that values quality and craftmanship over quantity? In my view anyone who insists on the need for continued economic growth needs to show that we can achieve something like this.


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