Why Do We Need A Steady State Economy?

by Joshua on November 2, 2010 · 1 comment

Once upon a time, in the not-to-distant past, our economy was small compared to the Earth. Growth meant more than just increased material wealth, it improved our standard of living by giving more people access to better health care, food, housing, and leisure time. As our economy grew we were able to improve our productivity – do more with less. At this critical point we faced two options: turn that improved productivity into less work (do more in less time) and enjoy more free time; or we could turn that improvement into more growth (produce more in the same time).

We chose to continue economic growth, partially under the guise that continuing growth would raise more people out of poverty and continue to increase our standard of living (happiness) all around. However, more economic growth in the developed nations hasn’t really done either. In fact, economic growth might even be linked to a decrease in happiness – we’re working longer than ever, producing more and more, yet gaining less and less.

Today’s economy is now very large compared to the Earth. As we continue to follow growth for the sake of growth we are pushing the physical limits of the planet: peak oil, peak water, peak food – peak everything. Climate destabilization has already begun and could easily be pushed into overdrive if we don’t stop emitting greenhouse gases. Of course, this requires us to give up our pursuit of growth. What would that mean?

An economy focused on betternot biggerqualitative growth instead of quantitative growth – is thesustainable future we must envision beyond growth. This type of economy is classified by ecological economists as a “steady state economy.” This is not to imply that it would be stagnant – far from it. A more technical definition is “dynamic equilibrium of the macro-economy at a sustainable scale.” Just as a forest does not need to get exponentially bigger, our economy would function within the biophysical limits of the ecosystem. The forest is alive, always changing, always developing – but it’s overall dimensions do not change.

The Steady State Economy

A Steady-State Economy is a sustainable, non-growth-centered economy. It is not communism or even the end of capitalism. It is simply a change of our focus: from bigger to better, quantitative expansion to qualitative development.

Ask yourself, “Should we rely on a system that requires more and more if my needs only truly require a certain level?” Do you really need to buy more apples this week than last week, a new car every year, or move every year into a bigger house? What is wrong with eating the same amount of apples, using your car long enough to pay it off (or better yet, buying it with cash saved up, or even better, riding a bike)? Why not keep your house and enjoy your home?

Current economic theory (neoclassical economics) states that perpetual  growth is the one and only factor that determines a thriving society. This is always measured in terms of Gross Domestic Product (GDP), which accounts only for the amount of economic transactions (both profits and losses) – it is quantitative measurement. However, GDP has come to be thought of by most of us, as well as our trusted economists, as both a quantitative and qualitative measurement.

The two do not always align. In fact, research has clearly shown that the quality of your life is only improved by increasing income until a certain point. After this point, more money does not bring more happiness – it can actually decrease happiness. America has gone past this point already.

GDP vs GPI
GDP vs GPI

The Genuine Progress Index (GPI) is a measurement of a multitude of things that takes into account costs and profits in a realistic way (profits minus costs); as well as including such factors as crime, pollution, resource depletion, wealth allocation, financial debts and deficits, changes in leisure time (happiness), average lifespans, et cetera, et cetera. There are many different renditions of this index, some being instituted by countries and even a few US states (Maryland recently).

As shown by Redefining Process, the GPI has steadily decreased since the 1980s, even as GDP as increased. If the system no longer provides us when happiness and increased well-being, shouldn’t we reevaluate the system? Many scientists (and some enlightened economists) have already concluded that our current economic growth is using our future generation’s resources and costing us more than it benefits us. Our growth is now uneconomic.

The solution? A Steady State Economy. We have enjoyed growth as long as we can, but we live in a finite world, with finite resources and we have reached our carrying capacity. We must turn our focus away from growth before we go too far beyond this limit and bust. We must focus on sustaining what we have now. And in doing so we will focus on the quality of our lives, redistribute wealth fairly, and sustain our environment for our children’s future.

Take a Hint from History

As Bill McKibben points out in his book, Deep Economy, for most of human history we have essentially been in a steady state economy. Bill opens by quoting one of the fathers of neoclassical economic theory: [emphasis & reference links added]

“For almost all of human history, said the great economist John Maynard Keynes, from ‘say, two thousand years before Christ down to the beginning of the eighteenth century, there was really no great change in the standard of living of the average man in the civilized centers of the earth. Ups and downs, certainly visitations of plague, famine and war, golden intervals, but no progressive violent change.’ At the utmost, Keynes calculated, the started of living had increased 100 percent over those four thousand years. The reason was, basically, that we didn’t learn how to do anything new. Before history began we’d learned about fire, language, cattle, the wheel, the plow, the sail, the pot. We had banks and governments and mathematics and religion.

“And then, in 1712, something new finally happened. A British inventor named Thomas Newcomen developed the first practical steam engine. He burned coal, and used the steam pressure built up in his broiler to drive a pump… allowing them to operate far more cheaply and efficiently… His engine replaced a team of five hundred horses walking in a circle. And from there – well, things accelerated… Suddenly, instead of turning handles and cranks with their own muscles or with the muscles of their animals… men and women could exploit the earth’s storehouse of fossilized energy to do the turning for them…allowed for everything we consider normal and obvious about the modern world, from making fertilizer to making steel to making electricity.

“The invention of the idea of economic growth was almost as significant as the invention of fossil fuel power. Adam Smith noted in The Wealth of Nations that “it is not the actual greatness of national wealth, but its continued increase” which raises wages….as economist Benjamin Friedman points out in The Moral Consequences of Economic Growth… it’s ‘unclear whether the thinkers of the mid-18th century even understood the concept of economic growth in the modern sense of sustained increase over time,’ or whether they thought the transition to modern commerce was a one-time event – that they’d soon hit a new plateau.”

We cannot deny that, for those of us in the developed world, the quality of our lives has significantly increased from the days before the steam engine and fossil fuels. However, while this increase in living standards was related to our economic growth in the past, it is not solely dependent on continued economic growth in the future. It is time we, as Bill states it so plainly, “hit a new plateau.”

A Steady State Economy changes the focus from economic growth to societal development (e.g. democracy, community, equal rights, fair wages, et cetera); from acquiring so much wealth we don’t know what to do with it all to ensuring everyone has enough money to live a comfortable life; from working 40-plus hours a week to pay down debt to working 20-30 hours a week to live well (because people keep out of debt).

cartoon_economic_growth1

Read more about the Steady State Economy by reading my posts, going to the Center for the Advancement of the Steady State Economy, checking out the resource section or reading some books. Let’s band together and Start a Steady State Revolution!