Friday, June 8, 2012

Economic growth


Classical economics presumes that unlimited economic growth is possible and good. Both assessments are wrong.

Economic growth requires resource utilization. Humans have access to limited quantities of all resources. With respect to some resources, the quantities are in desperately short supply. For example, the earth has insufficient carbon based fuels to permit all humans to consume those fuels at the per capita rate enjoyed by people in North America and Europe. Furthermore, consumption of carbon based fuels directly contributes to global warming.

Beef consumption is another example of the problem of presuming the possibility of unlimited economic growth. Raising cattle is perhaps the largest source of carbon dioxide emissions. Raising cattle for food requires more land and resources than does a vegetarian diet. Humans do not have to forego eating meat to achieve ecological health. However, moderating meet consumption is one-step toward ecological health.

As the examples of both carbon based fuels and beef consumption illustrate, unlimited economic growth is neither possible nor good. Furthermore, human flourishing, at some level of consumption, shows diminishing returns from additional consumption. Unlimited economic growth is not synonymous with human flourishing.

If economic growth is not the panacea for economic problems that candidates of both political parties presume, what is the answer?

First, economic health requires an intact social fabric; unfortunately, in Europe and the U.S. the social fabric is increasingly frayed as access to opportunity shifts toward the elite and away from the least advantaged. This growing disparity between the wealthy elite and an impoverished underclass augers poorly for the future, raising the possibility of social disintegration. As the world increasingly becomes a global community, global social disparities will loom as large as, if not larger than, national discrepancies.

Second, economic health requires long-term sustainability. In the past, human utilization of resources did not exceed the earth’s capacity for self-renewal so grievously. When that did happen (e.g., in newly industrialized, coal-burning London), time brought improvements and the global effect was minimal. Today, the consequences of excessive resource utilization or using resources in a way that notably pollutes or harms the environment is more of a problem because of the greater scale, e.g., the concurrent industrialization of India and China even while the West continues at unsustainably high levels of consumption and pollution.

Third, economic health requires shifting the emphasis from material consumption to genuinely improving the quality of life. For example, producing art arguably enriches the world more than does producing more cars and trucks (or electronic gadgets, clothes, etc.). Similarly, improving health through better diets, exercise, adequate sleep, and the practice of preventive medicine is less resource intensive, less polluting, and has the potential to improve human flourishing more than traditional economic growth can. Encouraging people to consume education (take courses, earn degrees, read, write, listen) in lieu of conspicuous material consumption can also improve quality of life while expending few non-renewable resources.

Fourth, economic health requires that inflows balance outflows. The discrepancy between traditional notions of economic growth and ecological sustainability occurs in part because economics, finance, and accounting have ignored many production costs, e.g., the cost of pollution. Likewise, both personal and national economic health requires that inflows balance outflows. Politicians across the board have unrealistic proposals for achieving this balance. Some politicians advocate austerity, dramatically reducing outflows (government spending). Some even advocate more dramatic cuts in outflows by concurrently reducing inflows (tax revenues) in spite of U.S. history over the last thirty years demonstrating that tax cuts cause insufficient growth in economic activity to offset the reduction in government income. Other politicians advocate raising taxes to increase inflows, intending to balance outflows. Dependence on debt is a reprise of the causes of today’s ecological crisis: pushing the cost of current consumption onto future generations.

This vision of dynamic, sustainable economic health is consonant with an ethic that values all people equally and that values all of creation. Different cultures and different sectors of the economy will rightly opt for various economic models (capitalism, socialism, etc.) to achieve economic health. Communist efforts to collectivize farming consistently resulted in diminished agricultural output. Thus, capitalism is the preferable economic model for farming and much production.

Alternatively, capitalism relies upon informed consumers choosing between multiple vendors to balance supply and demand at the lowest price. Healthcare has few knowledgeable consumers (perhaps mostly patients who are themselves healthcare professionals) and few vendors competing on price (scarcely any patient inquires about the cost of care ahead of time). Relying on the capitalist model for healthcare is a misfit, which the high cost of care and poor outcomes in the U.S. reflect.

3 comments:

Chuck Till said...

Some resources are limited, at least given our current technology. But I'd argue that one of the most important resources, now and going forward, is technology itself. The supply of technology appears to be limitless. That's not to say that technology can rewrite the laws of physics, although quantum technology will be able to do things that few can presently imagine.

Seems to me that the question is not whether to grow but how to grow. I agree that western society is increasingly polarized. I would argue, though, that new media give western society a much better view of the problems in less wealthy areas of the world. It's difficult to know whether the third world is better or worse off, on average, than 50 years ago. From what I can tell about India and China, it's better. The challenge is how to sustain these improvements without using more fossil fuels (or, in the minds of some, without developing nuclear energy as an alternative).

I wonder if universities will begin to see the over-30 age group as a primary market for educational services, instead of focusing on the under-30 age group as a target market.

The capitalist model has its place in healthcare; it has either directly paid for underlying science in technology such as MRI machines and drugs or brought to market the technologies developed in a non-profit setting. Again, I think the question is how to apply (and limit) the capitalist model to healthcare most effectively and use other approaches too.

George Clifford said...

A reader emailed me this comment:

Yes, oh yes!

Economic health requires shifting the emphasis from material consumption to genuinely improving the quality of life. For example, producing art arguably enriches the world more than does producing more cars and trucks (or electronic gadgets, clothes, etc.). Similarly, improving health through better diets, exercise, adequate sleep, and the practice of preventive medicine is less resource intensive, less polluting, and has the potential to improve human flourishing more than traditional economic growth can. Encouraging people to consume education (take courses, earn degrees, read, write, listen) in lieu of conspicuous material consumption can also improve quality of life while expending few non-renewable resources.

George Clifford said...

Technology is a subset of knowledge. Building tech devices requires limited resources and so we have a limited capacity to do that. Miniaturization will obviously shift those limits in a positive direction, allowing humans to achieve more using fewer limited resources such as energy and rare metals.