Money Outgrown Pt.1

This is a blog post about something I understood little about until recently, and about which I still have an enormous amount to learn. This, however, I take to be a more advantageous starting point than that which you might call ‘expert’, given the willful ignorance of ecological limits to economic growth still so often persevered by those bearing that epithet. Nevertheless be patient – or better, constructively critical.

This is a blog post (eventually) about money: it’s design, how it works in our modern day society, and how this relates to our fate. Originally I intended to write a review of Tim Jackson’s Prosperity Without Growth, perhaps the best known attempt of late by a professional economist to confront the (ever growing) elephant in the (very much finite) room: the limits of continual and accelerating economic growth on a finite planet. However, unsatisfied by the proposals the book offers, I ventured further down the rabbit hole. In part two of this blog, I’ll explore what I found. Jackson’s book, for all it’s limitations, is a great read and one I strongly recommend. It is his analysis of our predicament that makes it so, which I’ll try to summarise here.

Tim Jackson

Prosperity Without Growth starts with the observation that the current idea of prosperity is bound up with that of economic growth. This is for two main reasons. First, in situations where economic growth is not present there is usually unemployment, growing government deficits, wage freezes, and the like. This, clearly, is not a vision of prosperity. Second, economic growth in Western economies is driven by consumer demand. Thus, when growth is good, it is driven by people spending money on things. The thinking goes that people only spend money on things that they derive utility or value from: if they are spending money on things, then they are deriving utility or value from them, and this is what we call being prosperous. So, depending on where you stand, you could claim that economic growth is either necessary for prosperity, or synonymous with it. Both of these claims are highly controversial (the second is particularly porous), but we’ll put them to one side here. What seems clear is that in almost any mainstream political or economic conversation, growth is the unquestioned goal.

Jackson’s second move is to point out that economic growth (which is exponential: 2.5 % growth today is, in fact, four times as much as 2.5% growth during the 1950s) is, at least ostensibly, incompatible with ecological limits. The first, and most famous of those ecological limits is of course climate change. With emissions continuing to rise, and with almost nothing to suggest they are going to peak and decline any time soon, this represents a very serious problem. The consequences of unmitigated climate change will be unpredictable and terrifying. I think it is safe to say they might impact a little on economic growth. A second, far less widely understood, limit relates to peak oil. Basically put, peak oil is the point at which the global rate of extraction of oil reaches its maximum extent, before beginning to decline. Peak oil is not, therefore, the end of oil – more the beginning of the end. But this beginning has very serious consequences for consumer economies that run on (and are almost literally made out of) oil, as prices increase in line with increasing scarcity. And of course the fact that we can continue to burn oil after the peak – while preventing instantaneous economic collapse – has very serious environmental consequences. First by increasing the likelihood of catastrophic climate change and, second, resulting from the ever more insane techniques used to extract ever more awkward and low quality crude, such as the notorious Alberta tar sands .

The Alberta tar sands, Canada, the third largest proven crude reserve in the world, according to the Canadian Government.

These are just two of the ecological limits we face. There are countless others – land use and soil depletion, drinking water scarcity, precious metals depletion and collapsing biodiversity to name a few. Furthermore, each is entwined with the other, with positive feedback effects and common causes abounding. What is absolutely basic to the analysis is the fact that each of these limits is being reached because of continuing and increasing human (economic) activity, and the form it currently takes.

So – perhaps if we change the form of economic growth, to render it environmentally compatible with the planet on which it is hosted, we might have a solution to our current quandary. This, I think it is safe to say, is the prevailing plan (if there is one) at governmental levels. The faltering climate talks say nothing of economic growth specifically, instead expecting governments to de-carbonise their economies in the presence of legally binding emissions limits. According to Jackson, this approach is sustained by the ‘myth of decoupling’ – the idea that the inherent tendency of capitalism to increase efficiency will progressively produce a lower carbon cost per unit GDP, or ‘carbon intensity’.

Putting to one side the other implications of this tendency to efficiency (for example, the effects on labour), there is no evidence to suggest that this efficiency mechanism has any hope of preventing the worst excesses of climate change. If economic productivity can be made more efficient, it is made more profitable (it is, after all, the profit motive which drives this efficiency). Yet greater profits means greater capital, and so greater capacity to invest and grow in the future. In this case, relative decoupling (the decrease in carbon intensity) occurs, but because further economic growth outstrips this decrease, emissions still rise and we do not obtain what we actually require: absolute decoupling. Based on current economic, population and carbon emission growth rates, Jackson calculates that to meet IPCC carbon reduction targets in anything approaching an equitable world, decoupling would have to occur at an 11% reduction per year (well over ten times the current rate), leaving us in 2050 with a carbon intensity 130 times lower than we have today. After 2050, to continue growing, we would need to achieve near zero carbon intensity, and by 2100 we would need to be removing carbon from the atmosphere. Exponential economic growth consistently trumps any relative decoupling achieved, preventing absolute decoupling. Without absolute decoupling economic growth can never co-exist with ecological limits. Growth remains the problem.

From Prosperity Without Growth

This, and much else relevant to our current economic paradigm (his chapters on the psychology of consumerism and the centrality of ‘positional goods‘ are fascinating), Jackson displays masterfully. Yet his solutions remain unsatisfactory. His most significant proposal is that we abandon our contemporary economic obsession with labour productivity, which drives the mechanisation of industrial processes and the production of cheap, consumer goods. A sustainable economy will need to value services which require far lower material throughput, which in turn tend to be those involving more human contact and work, such as social work, music lessons or hair-dressing. Nevertheless, an ecologically sound economy would, according to Jackson, have to accept less employment (as continuing manufacturing processes reduced labour input, without economic growth creating further jobs), and this employment would have to be shared around equitably (creating more leisure time). Despite these, and other, interesting policy suggestions, Jackson never really develops a fuller vision for a truly sustainable prosperity. In fairness, the book’s final stages demand from others in economics greater attention be paid to the development of an ecological macroeconomics that could internalise the environmental externalities of contemporary capitalism. After all, it’s a tall order for one guy.

But there is another, deeper, element lacking from Jackson’s analysis and proposals: money. In fact, it could be the very design of money that necessitates economic growth (and, by extension, ecological collapse). If this is so, we need to rethink what money is, what it could be, and what it must be if we wish to achieve sustainable prosperity. In part two of this blog post I will explore where our money comes from, and a radical monetary theory, a century old, that might be a solution to the terrible trap of economic growth.