Krugman on Degrowthies

Dan Olner

I’m always interested when a mainstream economist pipes up about growth vs degrowth. As the wikipedia page says, degrowth is a `political, economic, and social movement based on ecological economics and anti-consumerist and anti-capitalist ideas’. The CASSE book Enough is Enough reflects this – not least because it emerged from a conference-wide braindump. It’s a recognisable web of `ideas that tend to go together’; I’m unsure they’re consistent. (I like standing on the sidelines and sniping too.)

So, Krugman just stuck his oar in, albeit only for about three sentences. It’s obviously not possible to judge based solely on that, but it seems weirdly simplistic. In particular:

It’s worth pointing out that they [the degrowthies] have a much too narrow notion of what it means to have a growing economy. It doesn’t necessarily mean more stuff! It could be better stuff, or more services — and there are also choices to be made in how we produce and distribute stuff. There is absolutely no reason to believe in a one-for-one link between real GDP and greenhouse gases.

Well, no, there’s not a one-to-one link. Really, no-one ever said there was. Let me have a go at stating my own position. Growth of material extraction can’t go on forever. Economic growth can’t be completely decoupled from physical output and that will eventually hit limits (is perhaps already). But that eventuality is some way off yet – any transition to a post-carbon economy requires growth for a few decades yet – a point that first hit home hearing Ruth Wood explain the economy’s reaction to an increase in output of green tech using input-output models. But it’s good to be arguing about this stuff right now. That web of ideas needs unpicking and re-assembling, and it’s not a bad time to be doing that while economics as a whole is going through a serious navel-gazing period.

I also still have this vague sense that the concept of growth itself is being misapplied. As I’ve heard several people say who’ve been studying it in-depth, no-one really knows what the source of growth is. Jane Jacobs’ ideas are enough part of my DNA for me to wonder if development wouldn’t show up as growth in the kinds of indicators we use – which is what Krugman’s implying, I think. A rainforest might be `steady-state’ but it’s ever-evolving. And actually, human development – while sharing some characteristics of evolving systems – has its own dynamic that’s more a mash-up of attentive artistry and evolution. Which leads me to worry about building an entire political theory around an abstract target of zero-growth. I think other goals make more sense and would achieve genuine sustainability far more effectively than attempting some global-scale bound.

But Krugman is way more dismissive than I think the issue deserves. Jorg Friedrichs’ back of the envelope numbers did more to convince me of that than anything else recently. Assuming 3% per annum growth, he points out, would require the resource intensity of the economy by 2100 to be reduced by 95% if resource levels were to be kept steady. And that’s not even stopping their through-put – it’s just keeping them as they are now. Any model of McDonough-style cradle to cradle metabolism using the same material set is going to be harder still (but, ultimately, necessary).

Another aspect that worries me: krugman Many people are vulnerable to exploitation, even to simply being killed for others to get access to the resources (though nice to see, googling for that, turns out someone actually got prosecuted for murder).

I’m still generally much more sympathetic to Krugman’s economics than ideas put forward under the steady-state banner, but I’ve also been to a few evenings put on by CASSE here at Leeds – they’ve bought many thought-provoking speakers in and (notwithstanding the obligatory Trot taking questions as an opportunity to proselytise) the conversations have been great brainfood. There’s especially still a huge gulf between the understanding of the money system – and claims about what should be done – between degrowthies and orthodox economics. Degrowthies seem way too sure of their ideas on this – again, I’m only sniping from the sidelines, and it’s great that the arguments are happening.

But yes – prompted to write because I would have liked a more in-depth look at Krugman’s thoughts on this stuff. Instead, all we get is: `such people have no power, and therefore don’t do any real harm.’ Nice!

Comments:

  1. I don't see how high-energy physicists can have an Earth-girdling accelerator collider ring in Clarke orbit without a very substantial increase in resource use, not just by them but by all of society, since the physicists' share will remain small.

  2. no one to one relationship, yes, but taking into account the warm water upwellings in the ocean, the primary productivity values, possibly the wildfire/man made fires to clear arable land and the deforestation, the relationship could possibly be found to be somewhere around one to one, but not to the GDP, since immaterialistic values may add to it.

  3. Krugman doubles down.

    People on both the left and the right often fail to understand this point. (I hate it when pundits try to make every issue into a case of “both sides are wrong,” but, in this case, it happens to be true.) On the left, you sometimes find environmentalists asserting that to save the planet we must give up on the idea of an ever-growing economy;

    Krugman does not account for Tom Murphy's arguments which are crucial. They are not, however, tightly binding yet, and this is a good thing, as we still need some growth in 75% of the world. Can we do this without much retreat in the west? Maybe, if we are very clever. Can we continue "growing"? Not without some care as to what that means, no, probably not. It's the curse of the exponential.

    On the other hand Krugman goes on to say

    on the right, you often find assertions that any attempt to limit pollution will have devastating impacts on growth. But there’s no reason we can’t become richer while reducing our impact on the environment.

    Let me add that free-market advocates seem to experience a peculiar loss of faith whenever the subject of the environment comes up. They normally trumpet their belief that the magic of the market can surmount all obstacles — that the private sector’s flexibility and talent for innovation can easily cope with limiting factors like scarcity of land or minerals. But suggest the possibility of market-friendly environmental measures, like a carbon tax or a cap-and-trade system for carbon emissions, and they suddenly assert that the private sector would be unable to cope, that the costs would be immense. Funny how that works.

    which is right on the money, just where homo economicus likes to be.

  4. Thank you Dan for your thoughtful article. I'm still absorbing, and am also grateful to mt for the Tom Murphy link. On the whole, I think I am a bit of a degrowthie myself, but am open to correction. I don't believe in a technocratic solution and I do think we've gotten to big for our finite planet, and too unwieldy to act in concert to solve problems. Every time a new gadget or gizmo to make life more interesting or easy or fun, I wonder how much more plastic and the like will end up everywhere we look, how many more toxic chemicals we can add to the mix without asphyxiating or otherwise poisoning ourselves over time. I'm a big fan of mod cons, to be honest, but I don't see how my level of consumption, let alone the level of somebody a mite less interested in being mindful and more easily seduced by things, can be kept up with current energy sources.

    Rambling a bit, I would say why in tunket don't we have solar on every house that has a bit of sun, and other local sources? I know very well there is market resistance by powerful interests (some states are now taxing these "freeloaders"). I guess what I'm getting at is that while there are some energy solutions, as long as population stabilizes and those who don't have don't want to have as much as we do (can't blame 'em), they are not being deployed. It's wrong to assume that not being done is the same as can't be done, as the reasons, while nearly as intractable, are different.

    Anyway, I'm interested in the ideas and am also a Krugman fan (a beacon during the dark Bush years too) so will be gnawing away at this over the next little bit.

    Thanks again for the article.

  6. I was prompted to blog about this originally because of how much I respect Krugman's thinking, especially his lucid take on the nature of modelling in economics (e.g. here and here; the good stuff starting from `the evolution of ignorance', for me). Krugman being `less wrong than most economists most of the time' is MT's line, not mine - that's damning with faint praise if ever I heard it! It seemed noteworthy precisely because Krugman's usual blend of agile thinking and judicious use of data seemed so absent.

    Well, maybe that's the point about mainstream economics' blindspots - something Krugman often laments is caused by the limitations of particular modelling approaches. But perhaps the point I was trying to get at: degrowth theory as it currently exists is a cluster of highly political concepts underpinned by a rejection of mainstream economics' modelling ideas. I'm not an economist but I've been through the process of model-building and discovered through hard slog that some basic economic ideas are perfectly suited to social modelling, of a certain kind. (Ideas rejected as obviously unrealistic and stupid by those around me, not faced with having to actually make model-building choices!) Depends what you're modelling, of course: no objective criteria exist for rejecting any one modelling approach.

    That's led me to get a bit cross when anyone just dismisses economics out of hand. Even agent modellers often do it: think of themselves as living in year-zero, rejecting a mass of thoughtful ideas about how you use models to think about the interaction of people and the world.

    So it looks a lot like both `sides' here are arguing with a caricature of the other. Shock. To me, Krugman's statement *seems* (that `seems' is very important!) to demonstrate he's missed some basic points about growth thinking. That makes me sad because I want to see some mainstream analyses, shorn of the political baggage that comes with most degrowth thinking. Not that I'm saying economics is politics-free - just that degrowthies assume their set of political ideas are somehow a natural weave, plain common-sense, and that it should be obvious to anyone with a brainstem that homo economicus is killing the planet.

    This is a bugger of a problem, actually. No social modelling can be free of political viewpoint, but it can at least try to be if people are self-aware enough. Again, Krugman's doing amazing work (as is Simon Wren-Lewis in the UK) consistently showing how politics is warping basic econ 101 ideas. But how do you have an intelligent conversation, informed by political ideas, little bits of number-crunching and model work, that can enter into civil discourse, that can lead to well-informed political action, able to steer us through the treacherous waters we're going through? Can you, in fact? Or is that always just going to be a butterfly blown on the gales of political power?

  7. I dunno. But let me quote Paul Baer from a recent email since he doesn't seem to be piping up:

    "The fact that it seems to be economically irrational to preserve a habitable planet is simple proof that the mainstream has it desperately wrong somehow."

    I think that provides an acid test for any economic theory. Is its advice to carry on depleting the world of biological wealth? Then it's solving the wrong problem.

    Is there an economics (I mean, a comparably rigorous economics to the sort Krugman practices) that actually solves something that can pass for the right problem? I don't know of any.

  8. This posting came just as I was starting to read Piketty's "Capital in the Twenty-First Century", which ended up taking over my holiday weekend. Since Krugman loves the book (e.g. http://vimeo.com/92308666 ), I was curious to see how it dealt with the growth-energy-resources-climate nexus.

    The book's preoccupation is with long-term trends in wealth and income inequality, and why the post-WWII era of middle class prosperity (until Thatcher/Reagan) was an historical anomaly. What intrigued this non-economist most was how Piketty sees a future of lower growth rates (both economic and demographic) playing out in wealth distribution. It's certainly not an attractive vision: more inequality, reinforced by a return to inherited dynastic wealth. By sheer weight of tables, graphs, and text, he shows how so many optimistic notions of mainstream economists were based on the exceptional conditions of the 1950-80 era.

    It is disappointing, but perhaps unsurprising, that Piketty says almost nothing about the other distinctive trend of that era: the relentlessly upward track of oil consumption. Finding other scenarios "too dark", he envisions a lower, but still significant future economic growth rate of 1.2% in wealthy countries. But he does concede that this "cannot be achieved, however, unless new sources of energy are developed to replace hydrocarbons, which are rapidly being depleted" (p. 95). Much later in the book (pp. 455-460), the only extended discussion of petroleum is with respect to sovereign wealth funds. The ultimate sizes of those funds depend on both prices and how much of this economic rent gets squirrelled away in this manner: "Everything depends on supply and demand, on whether or not new oil deposits and/or sources of energy are discovered, and on how rapidly people learn to live without petroleum" (p. 459).

    Climate change appears almost as an after-thought, ten pages before the end of the book, in a chapter on public debt where he recognizes that "deterioration of humanity's natural capital in the century ahead .... is clearly the world's principal long-term worry" (p. 567). After a couple of paragraphs showing how economists have haggled over appropriate discount rates for future environmental damage, he poses several open-ended questions about policy choices, ending with: "no one knows for now how these challenges will be met or what role governments will play in preventing the degradation of our natural capital in the years ahead" (p. 569).

    I realize that I'm focusing on aspects that are really peripheral to Piketty's main intent, which he has pursued with great bravado and captivating style. I could not have imagined that ~ 600 pages of data-rich economic history could be so compelling! My sense is that on matters of greater interest to readers of this blog, he's not merely "less wrong", but simply hasn't gotten around to giving them his full attention. But he's young and obviously very clever, so one can only hope that he engages with ecological economics, sooner rather than later!

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  10. I don't know either, but some quick thoughts. I don't think it is economically irrational to preserve a habitable planet. Any economist who claims it is (cf. those who think `the planet' is some sort of eco-conspiracy idea to take away our freems) has got it wrong. I don't believe there are many economists who'd argue that the economic costs of suffocation are outweighed by how rich we'll be as we asphyxiate.

    Some say `externalities': vitally important parts of society that are outside the price system, leaving many incentivised to treat them as freely available dumping sites. So then some talk about internalising those through tax structure etc - or, if you go the economics-nobel-prize-winning-Ostrom route, that we shouldn't get stuck thinking it's either `tragedy of commons' or `internalising through price system', but instead we should look to the wealth of real-world institutional examples where resources are managed collectively outside of the price system. (And she's still an economist!)

    However, that last example is not `rigorous' in the sense that Krugman would accept. I refer you back to Krugman's dishpan article. That's a story about the to and fro between deep empiricism of less mathematically `rigorous' economists and subsequent model-based thinking that, in the short run, narrowed the theoretical view. That article's well worth reading because it may well be that's exactly where economics and the biosphere are now. Apologies, going to quote some favourite bits at length:

    The problems of economics and of social science in general are part of a broader methodological problem that afflicts many fields: how to deal with complex systems.

    Everyone accepts that it was reasonable for Fultz to represent the Earth, at least for a first pass, with a flat dish, because that was what was practical. But what do you think about the decision of most economists between 1820 and 1970 to represent the economy as a set of perfectly competitive markets, because a model of perfect competition was what they knew how to build? It's essentially the same thing, but it raises howls of indignation. // Why is our attitude so different when we come to social science? There are some discreditable reasons: like Victorians offended by the suggestion that they were descended from apes, some humanists imagine that their dignity is threatened when human society is represented as the moral equivalent of a dish on a turntable. Also, the most vociferous critics of economic models are often politically motivated. They have very strong ideas about what they want to believe; their convictions are essentially driven by values rather than analysis, but when an analysis threatens those beliefs they prefer to attack its assumptions rather than examine the basis for their own beliefs.

    Still, there are highly intelligent and objective thinkers who are repelled by simplistic models for a much better reason: they are very aware that the act of building a model involves loss as well as gain. Africa isn't empty, but the act of making accurate maps can get you into the habit of imagining that it is. Model-building, especially in its early stages, involves the evolution of ignorance as well as knowledge; and someone with powerful intuition, with a deep sense of the complexities of reality, may well feel that from his point of view more is lost than is gained. It is in this honorable camp that I would put Albert Hirschman and his rejection of mainstream economics. // The cycle of knowledge lost before it can be regained seems to be an inevitable part of formal model-building.

    There's a lot to argue with there (economic models have a much more profound impact on the political overton window than physics, for instance - given that, they're not really `essentially the same thing'). But... first, if we are, in fact, in a period where `rigorous' modelling methods have blindspots so large that they put the biosphere in jeapardy, those models should be put in their right place when it comes to policy-making. (As they should anyway, which was the point of my last list of questions: models should be a tool for thinking about direction, not the engine doing the driving). But, second - and this is where ecological economics as I understand it thus far tends to bug me - that shouldn't mean dismissing the entire of economics.

    I think it should mean clipping its wings, though. Probably. The issue for me isn't economic method, it's economics-as-ideology, as a totalising worldview. The people usually pushing that tend to be libertarians - the ones claiming that the price system is the ultimate machinery of freedom. Eejuts.

    But too many steady-state ideas strike me as totalising in the same way. They've just had less chance to actually gain power (libertarian ideas align rather well with rich people staying rich; they both seem to have prospered together. Steady state economics just happens to say that more equality is scientifically proven to be better. Coincidence!) Krugman's point applies to them: values trump analysis. For instance, the CASSE book has Polyp cartoons between chapters: I love those cartoons as they happen to align with my own views on a lot of stuff, but it hardly singles the book out as an exemplar of separating analysis from values.

    Which all ends a bit bloody boringly doesn't it: we're into arguments about separating fact and value / positive / normative and all that. But this stuff is vital, I'd argue, precisely because if your values are implicitly directing your analysis, just as Krugman says, you often reject ideas solely because they don't fit your worldview.

    I'm borderline concern-trolling, though, since this is not based on my own modelling work. I don't think it would be that hard to build very useful ecological models using basic micro-economics but I haven't done it yet. If you're an eco-economist, though, more often than not you'll reject that framework out of hand as it's part of the global neoliberal system that's drugging us into a bovine state of passive consumerism. Wake up sheeple! Baaa.

    Also, that's not even true - I'm only picking on one aspect of ecological economics. To get past concern-trolliness, though, it would definitely be good to dig more into the nuts and bolts, find some concrete things to think about.

  11. Thanks for this, Paul - really useful that you've thoroughly gone through it and picked those bits out! I've been defaulting to reading other people's blog posts about the book; Diane Coyle's has some really thoughtful stuff, also noting what she sees as something Krugman misses.

    Piketty says almost nothing about the other distinctive trend of that era: the relentlessly upward track of oil consumption

    Apols if I go off on a tangent from your point here, but oil is an interesting example of the different foci of ecological vs neoclassical economists. The former, oil has an obvious, primary role in the shape of modern society. Economists kind-of know it too (urban economists more than others), but they tend to ignore it for the reasons I was just discussing: the impact of oil happens through its effect on distance and time, and those things are a massive bugger to model. So most economists don't.

    It's another massive blindspot - and one that, in theory, Krugman tried to address with his Nobel-prizing-winning work on his core-periphery model. Stick geography back into a general equilibrium model, show that geography matters. But that model, again, is highly restrictive in other ways, and is only really saying something about how differences in wealth between different places can emerge endogenously. There's still a no-man's-land of theory: the role of oil in how the modern spatial economy has developed.

    But that's also a good example of why Krugman-esque rigor is still important: there are bzillions of slogans about how to respond to fuel cost increases - "localise" being the most obvious. Questionable at best. We need to understand it better. Which is fine, because there's loads of time for sitting about and theorising...

  14. I thought Robert Costanza was the source of a quote I heard about 10 years ago:

    "All new wealth is created by the liquidation of natural capital."

    Iterative googling fails to confirm that, however.

    Regardless, it seems that Krugman's optimism about growth in a decarbonizing economy depends crucially on how he defines growth:

    [the degrowthies] have a much too narrow notion of what it means to have a growing economy. It doesn’t necessarily mean more stuff! It could be better stuff, or more services — and there are also choices to be made in how we produce and distribute stuff.

    In the developed world, a growing economy may not in fact mean more stuff. I can't see, however, how the lot of the world's poor can be improved without either re-distributing stuff from developed economies to developing ones, or creating new stuff.

    By "stuff", I mean food, clothing and shelter! Won't producing more of those things require, for example, converting new land to agriculture, or intensifying food and fiber production on existing land, or extracting more wood from forests? Can those things be done with no loss of ecosystem services (for one thing, where's the water going to come from)? It seems clear that the world's supply of stuff can grow without putting more GHGs into the atmosphere, but I'm skeptical that no other stocks of natural capital will need to be liquidated.

    That leaves aside the value of biodiversity independent its human utility. Even if growth means only better stuff and more services, are there any production and distribution choices that won't destroy or degrade habitat for any other species?

    I'm afraid I just don't see how, if one defines sustainability on a broad enough scope, any form of economic growth can be sustainable, but I'm willing to be convinced otherwise.

  15. I've mentioned before that the latest round of European funding includes some interesting pots of money for things like creating a circular economy. This just in: European Commissioner for the Environment, Dr Janez Potocnik, talking about:

    Human population growth and per-capita consumption rate underlie all of the other present drivers for global change. Our planet's population will rise to more than 9 billion by the middle of the century. This will put immense strain on resources like fresh water, oceans, land and soil, raw materials, energy, biodiversity and ecosystems. A resource-intensive growth model can't be extended to the global population. Industrialised nations must change their production and consumption habits.

    In Europe we are struggling to find the way out of economic crisis, to find ways of creating new jobs and injecting new growth into the economy. But that exit won't come unless we link it to the environment. Only by respecting the environment will we create the conditions for the European industrial sector to remain globally competitive.

    We need to get away from a linear model where we extract, produce, use and throw away, to a circular economy model. Business as usual, old ideas and old technologies won't do it. We need a whole system change, and we all need to take part.

  16. It’s worth pointing out that they [the growthies] have a much too narrow notion of what it means to have a viable economy. It doesn’t necessarily mean more growth! There are clearly choices to be made in how we produce and distribute stuff, what stuff we produce (whether we produce it at all) and how we grow our food and generate our energy. There is absolutely no reason to believe in a one-for-one link between real GDP and quality of life.

  17. Since we've strayed into the pros and cons of mainstream economics, this from Simon Wren-Lewis responding to the UK call for heterodox economics is great brainfood. I know pretty much nothing about how to work with Keynesian models (though the non-quant ideas are graspable enough) but I'd hope to see degrowthies and others make friends with micro-economics and utility. I should probably try and write down why at some point.

  23. Another little gem from Krugman on the theme of economics actually having some empirical and theoretical basis, on a massively important subject. You can't increase the money base because inflation? Abjectly wrong, in the situation we're currently in. Look at that graph! Worth highlighting, I think, that it's not just a matter of political opinion (though this question about inflation divides along political lines).

  24. On value, I've always wondered what happens to value when it disappears, say Sandy or Fukushima. The economy seems to absorb these disappearances without a hiccup, while individuals lose everything. When the power is out over a wide swathe of New York, Connecticut, and New Jersey for the better part of two weeks (and there are lots of other local but not trivial incidences, which are on the increase not only because of storms but imnhso because of fraying infrastructure, it's surprising that the market doesn't appear to notice.

    I'd count this, in my prejudiced and underinformed way, as more evidence that it is not a true market but a casino/boutique for wealth creation for insiders.

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