– E F Schumacher
In a previous post I discussed the scale of our economy. Economists have quite a bit to say about scale in microeconomics, or economics at the level of the household and the firm. They report the existence of a “when to stop rule.” This rule states that an activity should cease just as the costs begin to outweigh the benefits. An example might be deciding when to stop drinking bottles of beer. After about the third or fourth bottle, the costs begin to outweigh the benefits.
We could say that three bottles represent the “optimal scale” of beer consumption for an individual. Even though mainstream economists (dubbed neoclassical economists) readily apply this concept to the small-scale, micro-economy, they refuse to apply it to the big-picture, macro-economy. On the large scale, according to neoclassical theory, our economy as a whole has no optimal scale – just growth. And that’s an implausible conclusion, given that the macro-economy is simply a summation of all the micro-economies.
Ecological economics argues that everything has an optimal scale including big-picture activities and systems. It is hard to conceive of a more pressing place to apply the “when to stop rule” than the whole economy, because if we overreach our limits here, the entire ship goes down. A steady state economy strives to stop growth at the optimal point, maintaining a sustainable scale for the entire human enterprise.
The Policies for a Sustainable Economy
The Center for the Advancement of the Steady State Economy has an outline of some basic policies we need to enact in order to create a sustainable scale for our economy. What follows is some of my ideas about each of the policies. I should forewarn you this is a lengthy post.
Monetary policies that tighten the money supply.
An inherit part of our monetary system today is inflation. In order to keep up with constantly inflating prices we must make the system larger to lessen the effects of inflation. It is a built-in structural requirement for growth largely created by banks and our monetary policies.
The first step would be to remove the ability for private banks to create money out of nothing (by loaning it into existence). After the money creation has been put back in the hands of the people, through democratically controlled and accountable institutions, we can move onto tightening our money supply. If we remove the inherent inflation of the system and maintain a set amount of money on the market, we will create a more secure, stable monetary system.
Maintaining a stable amount of currency on the market will require we leave behind the policies that encourage large deficit and debt spending – on both national and personal levels – as the cushioning affect of inflation would be removed and large debts are unsustainable. This means a renewed interest in saving, fiscal discipline, and efficiency allocation of our resources.
Further policies with our monetary system would include improving the distribution of our funds to help eliminate the wealth gap. Fair distribution of wealth is one of the three cornerstones of ecological economics and, I believe, a requirement of any ethical economy. Allowing for un-godly sums of money to accrue in a small number of hands while the majority suffers is a clear sign of social and economic principles without ethics. Maximum wages (or a high pay comission) should be part of our monetary policies.
Tax reforms that tax “bads” (e.g., pollution) rather than “goods” (e.g., value added by labor and capital).Taxes that provide incentives to limit throughput (e.g., carbon taxes).
The economic collapse of the credit market and Wall Street was rewarded by our government (both Bush and Obama administrations) with taxpayer-funded corporate bailouts. Our tax money goes regularly to subsidizing the oil and coal industries, helping to ease the extraction of dwindling resources and emission of harmful pollutants. Since when in our society do we reward bad behavior?
Ecological economists propose that we change our policies to match our beliefs: punishing bad behavior and rewarding good behavior (in short, providing the right incentives). To start we would reverse our subsidies, taxing at the point of resource extraction and at the point of pollution. This will encourage businesses and individuals to decrease their bad behavior.
We would also reward those who exhibit good behavior. With the income from the taxes collected from the bad behavior, we can subsidize desirable behavior – renewable energy, intercity and metro transit, local and organic farming, et cetera. Seems like a simple enough concept, right?
Policies that favor energy conservation (e.g., vehicle mileage and exhaust standards).
We do have emissions standards for cars and a standard for minimum average fleet miles-per-gallon. The latter has been increased to 35 mpg by the Obama administration. If we truly want to advocate higher fuel efficiency standards, the fleet average should be higher, and should increase incrementally over the next decade or two until reaching a very high number, like 150 to 200 mpg. Such a policy would provide incentives to phase out fossil fuel vehicles in favor of alternatives like electric vehicles.
We have the technology and the ability to produce more fuel efficient cars, but without economic incentives or dramatic social pressures, we will not see the 100-150 mpg plug-in electric vehicles for a long time. Very few changes of this sort are done in the speed with which we require them without economic incentives.
More often than not economic incentives spur competition in the market, generating profits for those that participate – not harming the economy as others might have you believe. The U.S. automotive industry is full of proponents of stricter emissions and fuel efficiency standards (so they say).
Japan has instituted policies allowing the most efficient product to set the bar for the rest, requiring all the other competitors to beef-up efficiency in order to meet the new legal requirements. This has push the energy efficiency of appliances in Japan up from 1980 to 2005 by anywhere from 12% to 80%.
Architects in Germany have created the term “Passivhaus,” referring to a home design that uses next-to-no energy for heating and cooling. These houses are not convoluted, ugly, or unlivable; in fact, they are the opposite: beautiful, modern, and comfortable. Using passive solar design, heat exchangers, super insulation, air-tightness, and advanced window design (to name a few techniques) these homes are a marvel of energy efficiency and comfort.
Energy efficiency can be greatly improved and requires policies that encourage and support higher standards. Without increase efficiency standards, technological advancements will be wasted – along with our planet.
Zoning policies that limit sprawl and promote energy conservation.
Sprawl is a blight on our landscape. Every home in low density development (sprawl) uses up 40 times the land, 5 times the utility pipe, 5 times the heating fuel and contain occupants that drive 4 times as much as those living in traditional dense urban areas. These figures are astonishing when you consider that transportation consumes 60% of our nations oil and contributes to nearly 20% of GHG emissions, and heating fuel is largely inefficient in single-family homes and uses mostly fossil fuels to run (either directly as heating oil and natural gas or indirectly in generating the electricity).
New York City uses half the US average energy consumption per capita. Europeans and Japanese in their dense urban areas use 1/4th to 1/6th the amount of the gasoline per captia as we do in the US. A large difference in the energy and fossil fuel use is transportation: sprawl relies heavily on cars to get anywhere; urban areas usually have mass transit.
Sustainable scale policies should include funding of mass transit, both intercity and intra-city. High speed rail between cities is just as important to our sustainable scale as light rail to downtown. If the mass transit trains are powered by a renewable energy grid than we’re really on our way to a sustainable answer to the infrastructure problem.
Policies should also include requirements for greenspace, density, and limits to sprawl. These could include minimum and maximum heights, square footage and occupancy levels of all residential buildings in a greater metro area. Basically, building up not out. Transitioning to a denser, fossil-fuel-free city is the best for not only our environment but our security and economy.
Here are some great resources on the subject of sprawl:
Tradable permits with quotas for limiting pollution.
Different from the cap-and-trade policies being instituted in Europe and proposed in the US, a rationing system is a fair and functional way of limiting pollution. We know the total amount of greenhouse gases we can have in our atmosphere before serious ramifications are incurred. This number varies depending on the source, but 350 ppm is a good upper limit.
A rationing system would allot a set amount of emissions to the world. This would be divided amongst all countries based upon population – everyone is entitled to a certain amount of emissions. We would all receive credits, probably something similar to a credit card. When we make purchases for electricity, fuel and energy we pay also for the emissions. This “carbon currency” can be traded on a market and create a more realistic value of the polluting energy and electricity we purchase. (Heat, Monbiot)
Each year the amount we can emit will decrease and each year we will be constrained to move away from nasty fuels and pollution. The rationing system will create an economic incentive making environmentally positive choices more economical and force the negatives to be more costly.
Individual transferable quotas for extraction of natural resources.
Enacting a policy that requires identification of extraction limits for natural resources is the first step. Tailoring the amount of extraction based on those scientifically determined limits is the next step. From there, we will need to create a resource “currency” that allows market participants to extract the resources sustainably.
Once the yearly allotment has been sized, it should be fairly distributed in the form of quotas or resource currency. Each citizen is entitled to an equal share of the world’s resources. This currency can be traded, bought or sold on a market, thus creating a more realistic value of our resources and maintaining them for future generations.
The extraction of natural resources must be limited in order to sustain a supply in the future. Successful measures in Marine Preserves and maximum fish harvests have made some fisheries more sustainable, often increasing the yield in the process. While the area available to fish decreases, fishing yields actually increased due to the reserves success.
The Forest Stewardship Council‘s (FSC) sustainable practices strive to make logging an industry that does not harm the environment and maintains our forest resources into the future. Right now the FSC practices are not a mandated requirement for the industry. Some incentives to use FSC certified timber exist, such as for builders trying to attain LEED certification on projects and for retailers trying to market their green tendencies.
Additional Policies: Population Stability
Although CASSE doesn’t have stabilization of population on their short list it is not because they do not support such policies. Ecological Economists would prefer a method that is strict on a macro-level (governmental scale) with a minimum sacrifice of micro-level (personal scale) freedom and variability.
In order to achieve a sustainable scale to our economy we must include policies and incentives for stabilizing population. I have discussed at length the reasons for and types of policies we can enact to reach a stable population in a previous post.
Sustainable Scale Takes Action
Every resource on Earth is constrained. As we continue to grow, those resources become more constrained and eventually our growth becomes uneconomic: the costs of growth outweigh the benefits. We need to find the optimal scale for our economy.
A steady state economy is founded on the concept of a sustainable economy with a scale that does not breach our carrying capacity, leaves resources for future generations, and takes into account the beneficial ecological processes that make our world clean, safe, and livable. Instituting policies that create a sustainable scale for our civilization is crucial to our long-term survival as a society.