Let's talk about the Steady State Economy

Triple sustainability- economic, environmental, and social- is the goal; we know that. The real question and quest then, is the means. The idea of a "steady state" economy, "popularized" (because, let's be honest, revolutionary ideas that challenge the status quo and corresponding vested interests are rarely ever popular, and this one is no exception) by economist Herman Daly, succinctly summarizes the necessary ideas and policies behind these elusive means in a way that presents a rather utopic image of what a truly sustainable paradigm would look like.
A brief literature review that hits on some of the key points follows.

From A Survey of Ecological Economics, “Introduction of the Steady-State Economy”

Physiocrats- saw land as the basis of the economy

We see in the Keynesian-neoclassical synthesis focuses on “full-employment and optimal microeconomic allocation of resources as measured by GNP. Growth in GNP is seen as necessary to maintain full-employment…Continuous growth in stocks of income is central to this paradigm, which assumes aggregate wants are infinite and should be served by making aggregate production infinite.” (117)

-Ends and means, intermediate and ultimate:

“Humanity’s ultimate economic concern is to use ultimate means in the service of ultimate ends. The ultimate end is that which is intrinsically good while the ultimate means is all of the ‘useful stuff’ in the world, i.e. low-entropy matter-energy.”

Intermediate categories are ends with respect to lower categories and means w.r. to higher categories

intermediate ends- education, health care

intermediate means- physical stocks (as opposed to ultimate means of throughput)

Problem

“the discipline of political economy corresponds [currently] to the progression from intermediate means to intermediate ends, while ethics and religion are concerned with achieving ultimate ends. Thus far economics has not dealt sufficiently with either ultimate means or ultimate means.” (117-8)

“Economic growth implies the ‘creation of ever more intermediate means (stocks) for the purpose of satisfying ever more intermediate ends.”

-Assumes technology can be continuously substitute new resources for old ones, and improve the ability of transforming ultimate means to intermediate means; and intermediate ends are increasing ad infinitum, “unconstrained by ultimate ends.”

Solution economics “needs to consider the intermediate in the context of the ultimate.

Finiteness of ultimate meansà limit possibility of growth

+ Competition among endsàlimit the desirability of growth

Economic limit to growth

“A new economics should ask how to use ultimate means to best serve the ultimate end, while viewing the ultimate means in the context of the entropy la and ecology, and the ultimate ends with ‘concern for future generations and subhuman life and inequities in current wealth distribution.’”

Limits to growth: Rich countries versus poor countries-

1. law of decreasing marginal utility

2. law of increasing marginal costs

Applied to GNP, “at some point an extra unit of GNP will cost more than it is worth”

May already be happening in the US, but not in poor countries: pursue policies that limit growth in rich nations, but not in poor nations; but discourage population growth in both regions

Enter…The Steady State

John Stewart Mill, classical economist: “ at the end of what they term the progressive state lies the stationary state, that all progress in wealth is but a postponement of this, and each step in advance is an approach to it”

Classicalists-- depletion limits would lead to stationary state, but pollution limits “seem to be more important” (Sink capacity limits versus extraction capacity limits)

Depletion costs-private

Pollution costs-public

Thus, depletion receives more attention

In sum, economics should return to the classical emphasis of the a fundemental dependency on the earth

Steady-State traits

1. constant stock of physical wealth (capital)

2. constant population

3. Low throughput rates (within the respective carrying capacities of each resource’s extraction and sink levels, as well as within the overall carrying capacity of the ecosystem as a whole, taking into account the interrelated nature of resources, feedback loops, thresholds)

This means:

1. “lowering production and consumption for stocks of wealth” (119)

2. “lowering birthrates and death rates for population stock

3. Lowering throughputs – necessary to focus on both the size and durability of stocks

Durability- how long it can/will last, and how well recycled

Steady State versus Neoclassical: Economic and Social Implications

Physical flows of production and consumption must be minimized, not maximized subject to some desirable population and standard of living

-Central concept: the stock of wealth, kept constant, instead on flow of production, consumption

-If these flows are kept low: the focus of economics will be on the distribution of the stock of wealth, not the flows of income

Example: young ecosystems versus mature ones

SO “growth must be in non physical goods: service and leisure” (120)

-the price of material-intensive goods and activities should increase relative to time-intensive g and a

-technology should be used to increase leisure, not the production of goods

Economic Growth Justified:

-maintain full-employment to facilitate ‘income-through-jobs-ethic of distribution’

-‘takes the edge off distributional conflicts’- rising tide lifts all boats

But: if constant physical stocks, technology for leisure, existing mechanisms cannot work for distribution services

Instead: try to identify and create institutions that will be able to facilite keeping stocks of wealth and people constant, while infringing as little as possible on individual freedom.” (120)

The assumption of infinite wants (intermediate ends)

Keynes- growth: “satisfaction of even more trivial wants while simultaneously creating even more powerful externalities which destroy even more important environmental amenities”

Wants should be separated into: absolute needs (finite in nature), and needs that make us feel superior to other humans (perhaps infinite)

“Steady-state economy focuses on the satisfaction of these absolute needs” (121)

Article- “Allocation, Distribution, and Scale: Towards Economics That is Efficient, Just, and Sustainable” (122)

Three basic goals of an economic system must be:

-efficient allocation

-equitable distribution

- sustainable scale: measured in physical volume of throughput, in absolute physical units, but significant relative to the natural carrying capacity,

-usually measured in a monetary sense, but there is a shift towards embodied energy valuations

-Sustainable if it is not eroding the carrying capacity of the ecosystem

-generally, optimal scale as the sustainable scale at which the combined services of both human-made and natural capital are as great as possible

Need separate policy instrument to deal with scale:

The first two goals have long been incorporated in economic theory and policy, but scale has not been explicitly. Sometimes it’s been subsumed under allocation, by getting the prices right

Actually, Nature removed from commodity prices, and any attempts to internalize “externalities” along those lines are inherently impossible due to the “discontinuities, thresholds, complex webs of interdependence,

Thus, allocation is the only goal that can be dealt with with prices: Both scale and distribution are social, and need to take into account ethical judgements irrespective of “efficiency”