In Theory, in Fact, and Some Consequences
Herman E. Daly
University of Maryland
President Lettieri called the 2074th meeting to order at 8:15 p.m. on April 18, 1997. The Recording Secretary read the minutes of the 2073rd meeting and they were approved.
The speaker for the 2074th meeting was Herman E. Daly of the University of Maryland School of Public Affairs. The title of his talk was, “Uneconomic Growth: In Theory, In Fact, and Some Consequences.”
Mr. Daly stated that a growth mandate is a national policy. However, as a result of such a policy, we have come to recognize the concept of uneconomic growth. To do this, we need a vision of a macroeconomy to serve as a starting point for our new roles as “ecological economists.” Here, our growing manmade economy is a subset of a larger, fixed, natural ecosystem set that is not growing. Solar energy enters our larger natural ecosystem set and heat escapes to the cosmos. Matter within the natural ecosystem enters and leaves the smaller manmade economy subset. Matter is always recycled in the manmade economy subset. For example, a green tree from the natural ecosystem set is suddenly transformed by diligent carpenters and cycled into the manmade economy subset as a beautiful rocking chair. This increases the size of the manmade economy subset within the fixed natural ecosystem set. After a few years of economic service at the tender mercies of a family of five and a couple of moving vans, the once beautiful rocking chair is recycled. It now becomes part of a landfill for a housing development or part of a newspaper for our family of five. In the beginning of this view of things, manmade capital such as rocking chairs is relatively scarce and natural capital such as trees is abundant. However, the manmade economy subset is growing inside the fixed natural ecosystem set and will ultimately be constrained by it, which is where the U.S. and others are at now.
A contrasting view also exists. It has the natural ecosystem as a subset of a larger manmade economy set. Here, the bigger manmade economy set surrounds the smaller ecosystem subset and is not restrained in any way by the latter. Further, there are no “built in” scarcities in the natural ecosystem subset — such as trees, and no limits to growth of the manmade economy set. Mr. Daly tactfully pointed out that one cannot argue with people having this view. None the less, the latter model is inadequate. There are limits. The fishing limit is the fish in the sea, not the number of fishing boats. The oil limit is the oil in the ground, not the number of pumps. The oil-burning limit is the capacity of the air to hold smoke, not the number of burners. Consequently, our economy is a real subset and is being limited by a fixed ecosystem, and is not limited by manmade capital such as the number of boats, pumps or burners.
Uneconomic growth occurs when a thing costs more than it is worth. For, example, the gross national product is really a measure of economic activity — and not a measure of “economic welfare” — which includes our health, happiness and general well being. The GNP provides no correction for the loss or depletion of ecosystem capital, or the disproportionate distribution of capital to rich people in lieu of to poor people. Consequently, GNP may be rising while our real economic welfare — (our prosperity) is in fact falling! Significantly, the cold war and modern elections are based on growth — not on our economic welfare!
This growth mandate did not come from economic theory. Historically, it came from attempts to correct 3 major problems. Malthus focused on the expanding population problem by promoting more “things” and fewer babies; Marx focused on the redistribution of wealth problem by promoting “the rising tide of growth lifting all boats;” and finally, John Maynard Keanes focused on the problem of unemployment by promoting growth in manmade things. Significantly, this model works fine when the manmade economy subset is a relatively small part of a much larger and “empty” world of the natural ecosystem set.
We now look at marginal utility and marginal sacrifice to complete our model. Marginal utility comes about from producing goods and services that satisfy our most pressing needs first and gradually decline as our needs become less pressing. At the same time, marginal sacrifice which starts small, gradually becomes greater in the form of disutility of labor, sacrifice of leisure, depletion of natural of resources, increased pollution, environmental destruction and increased congestion.
The discussed economic system model ultimately has GNP moving opposite to “our economic welfare” or our prosperity. This model now covers only the U.S., England, Chile and Australia. Significantly, in poorer countries, GNP and economic welfare still continue to track closely.
Mr. Daly then closed his presentation and kindly responded to questions from the audience.
President Lettieri thanked Mr. Daly for the society and announced the next meeting. He then made the usual parking announcement and adjourned the 2074th meeting to the Social Hour at 9:35 p.m.