Steady State Economics: The Answer To The World’s Problems

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Steady state economics may be on the periphery of academic thought, but its practitioners claim it is the only solution to the world’s ecological crisis and its time will come soon.

The US steady state economist Brian Czech admits his theories reside in the margins of modern economic thought. The endless growth paradigm of neoclassical economics dominates everyone’s thinking despite the mounting evidence of its inadequacy provided by the 2008 financial meltdown, relentless depletion of natural resources and rising inequality. But Czech does not despair at his peripheral views. He is convinced that a steady state economic system is the only logical answer to the world’s problems and remains optimistic that it will take centre stage before long.

Czech, a wildlife biologist and economist, runs the Center for the Advancement of the Steady State Economy (CASSE), the sole organisation promoting a non-growth economy. “The fact we’re so marginalised shows the dominance of the neoclassical position which has so much money behind it,” he said. “The most fallacious notions about perpetual growth attract Wall Street and the big money sectors that want the economy growing fast in the short term.”

CASSE will never attract big money, but Czech says it has two things on its side. “One is common sense. It’s clear we cannot keep growing forever without exhausting the world’s natural resources,” he said. “The second thing is sound science. We feel that a dollop of public education from us can overcome a million dollars of propaganda from big money.” For these reasons, he expects the steady state position to become prevalent in the next decades. “In the end it will come down to a choice between wars over resources, or reducing the size of the economy in the name of peace,” he added.

The ‘sound’ ecological science forecasts a range of worsening crises in the economy of natural capital that underlies all other economies. These well-documented crises include energy scarcity, freshwater depletion and climate change. Czech predicts a bleak global future of resource shortages, economic collapse, unemployment and the attendant suffering of the masses. Research from the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (LSE) supports his viewpoint. This year’s climate summit in Paris will establish global pledges to cut carbon emissions, but the LSE research calculates that the cuts will leave the world emitting 10 billion tonnes of carbon a year in excess of levels needed to prevent global warming exceeding its 2°C warming target for 2050.

Crisis, What Crisis?

Ultimately, Czech says, an ecological crisis will precipitate a change in the economic paradigm. Though Czech doesn’t have much time for the theories of neoclassical economist Milton Friedman – a favourite of Ronald Regan and Margaret Thatcher – he agrees with Friedman’s contention that, “only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around”.

Czech is not yet certain what the crisis will be that produces the tipping point. It may be a gradual dawning brought on by multiple ecological crises.

“The ozone layer was an early warning sign that still sits at the back of people’s minds. Now there’s an awareness of climate change and its connection to political events. When we get better analysis of the Middle East, we’ll find it’s centred on the scarcity of water regionally and the scarcity of oil globally. The same is true of Russia’s actions in the Ukraine. These conflicts are all about the struggle for resources. It’s just a matter of connecting the dots so people recognise that the long list of daunting problems is caused by economic growth.”

Rob Dietz, a steady state economist who used to work for CASSE and co-authored Enough Is Enough: Building a Sustainable Economy in a World of Finite Resources, feels the time is not yet right for the paradigm shift. For now, he says, humanity still naively believes technology will pull us out of the mire. “To some degree it’s true that human ingenuity can help, but we cannot sweep away any notion of limits to the physical reality. That’s a faith-based approach to technology,” he said.

While humanity is waiting for the emerging crisis to shift the rules of the game, it’s essential to build an alternative model, Dietz says. He agrees with the American inventor and visionary, Buckminster Fuller, who said: “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”

The steady state economy is that alternative economic reality. Unlike growth models, its size is stable. It undergoes neither growth nor recession and has steady numbers of jobs and stocks of capital. It also has a constant rate of “throughput”, which refers to the energy and materials used to produce goods and services. Technological progress may improve throughput, but there are always limits to productive efficiency imposed by the laws of thermodynamics, or entropy.

The relevance of the law of entropy is perhaps the key idea to grasp in steady state thinking. The economist Herman Daly, the father of the discipline, used entropy as his conceptual framework. In its strict scientific sense, entropy refers to the waste heat produced any time energy flows. When applied to economics, the law of entropy says there are limits to how much an economy can produce and grow.

Brian Czech sums up the significance of entropy in his new book Supply Shock. He writes: “Energy inevitably, invariably dissipates. Things that are hotter than their environment cool off. Of the billions of cups of coffee poured in the broad sweep of history, not one has warmed up of its own accord, not for an instant.” Despite this immutable law, we assume the economy can heat itself up on command forever.

“The rationale for a steady state economy is that it, and its wildlife populations, would be sustainable for a long time,” said Czech. “In contrast, neither a growing economy nor a shrinking economy is sustainable in the long run. Because sustainability is the raison d’être for a steady state economy, at least one more criterion must be introduced. Namely, in a steady state economy pollutants are generated at a rate that does not exceed the assimilative capacity of the environment.”

Political Fears

There are several misconceptions about steady state economics, Czech says. As a result, there is political fear that it would bring about a collapse in national finances. But nothing about a steady state economy precludes economic development. There may be changes in what is in demand. For example, organic farms may supplant factory farms and the proportion of bicycles to cars might increase. But as long as the physical size of the economy remains constant, a developing economy is a steady state economy.

Though there is a constant rate of employment, it doesn’t mean jobs exist in perpetuity. Economic development continues so that in the extractive sector, oilfield workers may decrease in number while wind power facility attendants may increase. “There is an optimum size of the economy for society as a whole and an optimal size from the perspective of the wildlife profession,” said Czech. “But when an economy grows, natural capital is liquidated, wildlife habitats are lost, and wildlife becomes scarce.”

Another fear is that the stock market will crash if the economy stops growing, but Czech says this is not the case. In a steady state economy, firms still need to invest in capital. Publicly-traded stocks provide the social benefit of liquidity to investors and offer an efficient mechanism for the acquisition of investment capital. But Czech says a steady state stock market would actually be more stable. As in a growth economy, there would be winners and losers, but the stock market would be much less of a casino. “Economic growth on the other hand is bound to cause an extensive and extended stock market crash because demands for capital eventually will exceed the productive capacity of the earth,” he said. “Advocating a steady state economy is appropriate not only for purposes of wildlife conservation but also because it would reduce the volatility of the stock market.”

The problem remains of how to bring about a steady state economy politically. Czech argues it is a more appropriate immediate goal for powerful, rich nations, such as the US and the UK, than poorer or smaller nations. Only large countries have the self-sufficiency and defensive capabilities to maintain a steady state economy in the face of global economic forces and international political pressure. “Large, wealthy steady state economies may eventually assist other nations in their own steady state transitions,” he added.

There are small signs that factions in the US Government are already questioning the model of endless growth. “Believe it or not, in the Pentagon you have top brass who recognise war is becoming all about the struggle for natural resources and the social responses to things like climate change, and that’s a first step because the federal leadership is going to start weighing in at some point.

“They’ll say, ‘Look Mr President and Cabinet and Congress, you keep pushing for economic growth, which is fine, but please realise we will have war over here and another conflict over there and at some time it may not behove us in terms of national security to be in favour of more growth. So it’s not beyond the pale that a wealthy country would start recognising the need for a steady state economy out of its own interests. There’s nothing sacred about a growth economy and a government can call it into question at any time.”

Rob Dietz says wealthier countries should let poorer ones catch up with their development. The Global Footprint Network provides data which divides countries into ecological debtors and creditors. Creditors are nations with a surplus of biological capacity compared to what they are using. They are likely to be poorer countries. Conversely, debtors are likely to be richer nations. In Supply Shock, Czech develops the concept of “steady statesmanship” to negotiate awkward matters of diplomacy arising from the new system.

Czech proposes various methods to move closer to a steady state economy. One of the principal ones is quite simple: The US Government needs to enforce the Endangered Species Act more stringently. Economic growth is largely to blame for species endangerment so enforcing the statutes prevents it.

Local solutions

Rob Dietz has a different perspective on how to bring about a steady state economy. Whilst he recognises the importance of macro-economic policies, he believes most of the change has to take place at a local level. “I was growing weary of talking about the problems and I wanted to find practical solutions so I took a job with Farmland LP. We buy conventional farmland and convert it to organic and manage it for long-term ecological health. I decided I wanted to take positive action in one sector of the economy,” he said.

Dietz lives in the progressive CoHo Ecovillage in Corvallis, Oregon. It is a benefit corporation that aspires to develop a sustainable local economy. A sustainability coalition works with local government to nurture solutions. One eco-brewery, for example, produces its own beer and sells it in a bar-restaurant locally but has no aspirations to expand. Dietz compares CoHo to the UK’s transition town movement, which upholds local solutions to global problems.

“A lot of us have a ‘holy shit’ moment when we say ‘wow, there are seven billion people on the planet and we’re heading down the wrong path. What can I do?’ Some people get in a bunker and put survival gear on, which is a sane response but not helpful,” said Dietz. “A better response is to get involved locally. Most consumption is local, but production is all over the world, so we can find ways to redress that balance and not take more resources than are available. I see the revolution happening at a local level.”

Both Dietz and Czech see education as the key to changing minds. Czech argues in Supply Shock that business and economics students need to be taught that the Earth’s ecology is the larger system within which the money in an economy flows, and that economies ultimately owe all their wealth to the natural world.

Dietz takes heart from the dissent prevalent among the next generation of students. The Post-Autistic Economics (PAE) Movement is one example. In 2000, a letter from French economics students to their professors declared: “We no longer want to have this autistic science imposed on us.” The letter ignited the PAE intellectual uprising in various countries. Similarly, at Harvard University, 70 students walked out of a class being taught by Gregory Mankiw, the author of a standard economics textbook. An open letter from the students stated: “We are walking out of your class to express our discontent with the bias inherent in the course.”

The students in France and the US were reacting against the inequalities and resource depletion created by neoclassical economics. “There is growing outrage and as it grows there are more and more people looking for alternatives to the growth model,” said Dietz. “The first step is admitting we have a problem. The second step is putting lots of minds to work on how to stabilise at a sustainable scale where people have every opportunity to live happy lives. That’s really the place where we sit now. Maybe it’s too late, but we’ve got to remain hopeful and try for it.”

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Photo Credit: Justin Kern from Flickr

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