Losses Outweighing Gains

I just finished reading Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country by William Greider. It’s not an awesome book, but it’s well above average. Greider is a liberal who seeks reform rather than to revolutionize the entire system. He is only radical in his optimism about democracy.

What I liked about the book is that the author wasn’t afraid to dig down into the foundation of our collective problems. One particular passage demonstrates this which can be found below. In that passage, he talks about the economy and the environment. His focus is on externalized costs, moral hazard and free riders.

If you’re an informed person, most of this won’t be new to you. But it is always nice when you find a clear-eyed accounting of the problems we face. I did learn one new thing from this passage. He discusses the work done by Herman E. Daly and John B. Cobb Jr as presented in their book, For The Common Good: Redirecting the Economy toward Community, the Environment, and a Sustainable Future. Basically, if all the costs are accounted for and measured, the US economy is a net loss. This isn’t just unsustainable but self-destructive.

There was a good review (by David E. Rockett) about Daly and Cobb’s book:

“Agrarian Localist that I am, with roots in the cultural and political Right — Daly was refreshing and often challenging from the ‘New and Improved Left. He brilliantly and repeatedly shows the ‘fallacy of misplaced concreteness’– that is the dubious use of logical abstractions which supposedly lead to good conclusions. NOT! In logic, it is similar to ‘the undistributed middle’– or in laymen’s terms — there is yet far too much we simply don’t know to conclude ‘this’. Those pegging him a traditional UN Internationalists look like blind Libertarians who are simply dead wrong, and didn’t read carefully. Daly is a modest Decentralists/Federalists’ in calling for a ‘return to the Local’. His call is for a federalism with far more attention to Local and Regional markets and development than we’ve had in this country since Lincoln. Yet Daly still uncomfortablly allows for some heiarchialism at national and international levels. Suprisingly, he uncritically buys all the status-quo environmental hysteria as ‘Fact’, indeed ‘wild facts’ he calls them. Thus, you have a mixd book — full of brilliant and insightful critique — and sullied by a good bit of carried-over authoritarian leftism.”

I just wanted to share that to show that this isn’t a right vs left issue. Even for someone like this who doesn’t appreciate the actual data about environmental damage can still understand the basic problems for human society.

This reviewer gets at an important point with his mention of the ‘fallacy of misplaced concreteness’. This is essentially Burkean conservatism being used to criticize laissez-faire capitalism as an ideology lost in abstractions and ungrounded in reality as it is. It’s interesting how closely aligned Burkean conservatism is to the precautionary principle that so many liberals obsess about.

Now for the passage from Greider’s Come Home, America.

* * * *

(Kindle Locations 2636-2707)

It is not people who have failed. It is the system that has failed people. The awkward secret about the American growth engine is that it thrives by wantonly wasting the noneconomic “assets” of people’s lives, the lost potential of their time on earth. These are “priceless” because they cannot be bought or sold. Their true value is unknowable, even to the individual. The growth engine wastes the future-the full range of possible experiences that ought to be commonly available in this very wealthy nation. When people look around, they see that vital elements of their surroundings have also disappeared or crumbled, and these things are not just the roads and bridges, but also essential public assets like the grace notes of community life and common verities trashed by the manic competition for growth and profit. Why must we live like this if we are so rich?

Ecologists look at the natural world and ask essentially the same question. The most dramatic and threatening price paid for economic growth, they argue, is the systematic destruction of nature. The finite capacity of the natural world to sustain life-human and otherwise-is endangered by the relentless encroachment of the industrial system. This threat means that there are indeed limits to growth, at least to growth as it is presently practiced. To put the point crudely, you can only pave over so much of the earth before nature begins to lose its life-supporting capabilities. Most mainstream economists dismissed this idea originally, but now they are more respectful, since global warming has provided frightening evidence of the collision between nature and the industrial system.

Images of the Arctic ice cap receding and polar bears stranded on floes have been seared onto our consciousness. Oceans and mountains, topsoil and rain forests, water, land, air, and the natural diversity of living things have all been laid waste. These are the things that sustain existence for all species, including ours. There are limits to growth and the world is bumping up against them, especially now that industrialization has spread to some very poor societies. Like wasted human lives, the losses to nature are not factored into the economic accounting, nor are they redeemable.

It may seem odd to accuse US business and finance of wastefulness since they are obsessed with efficiency. But the intense competition for returns among companies and investors focuses their managements on reducing their own companies’ costs, not the costs to society or nature. The gross domestic product is essentially the total of all of a country’s economic activities-the money transactions of producers and consumers and the performance and profits of enterprises and investors. Everything else is left out-human lives, society’s needs and values, the well-being of nature. In this system, even obviously negative events-a train wreck or an earthquake-are treated as positive since they will stimulate more economic activity.

Worse than that, the growth engine actively damages anything it does not itself value. Companies know how to enhance their own growth and profit by dumping their production costs onto innocent others, such as the workers stripped of their pensions and the rivers destroyed by pollution. Then the government must clean up the human injuries and environmental wreckage left behind. Some of the collateral damage businesses cause is no doubt accidental, but most of it is deliberate. In numerous ways, companies develop careful strategies for extracting profit from the assets of others. Someone does pay eventually for this antisocial wastefulness, but usually it is not the perpetrators who gained wealth from their irresponsibility.

This is more than an accounting problem. It is a deep disorder in the values that govern our country. The economy keeps output-production and consumption-expanding as measured in dollars. But the process of growth simultaneously creates a political illusion by concealing the net negative loss to society. Politicians do not have to face this contradiction since the government conveniently does not look at growth in these terms.

Herman E. Daly, a rare economist who endeavors to see the world whole, set out to unmask the illusion. He calculated the full consequences of growth by combining various indicators of social and ecological gains and losses with the standard economic measures of output and wealth creation. Daly and his collaborator, John B. Cobb Jr., called it the Index of Sustainable Economic Welfare, and its stunning results were a rebuke to narrow-minded economics.

In For the Common Good, Daly and Cobb explained that for many years, although US growth had been officially reported as positive, it was actually negative for the overall society when these other factors were included. Economists quarreled with Daly’s method of calculation, but other researchers have since confirmed his point by using different ways of weighing the losses and gains.5

[5. Among the controversial assumptions Daly made in constructing the Index of Sustainable Economic Welfare was that a measure of income inequality should be included. The premise was that society’s well-being degrades as inequality increases, a point that only hard-right conservatives would dispute today. The book was revised and the index refined in a second edition published in 1994.]

The great American economic icon-gross domestic product-is in trouble, especially as more Americans discover the truths that ecologists have been explaining for years. The familiar measure for defining progress no longer makes much sense, not for people or for society. Progress as it has been traditionally defined feels dizzying instead, like running in place, faster and faster, without getting anywhere, and even sliding backward without realizing it. Americans need to rethink the meaning of progress in broader, more realistic terms that are more consistent with the human condition. Demanding an honest accounting of reality represents a major step toward straightening out our future.

[ . . . . ]

In Steady-State Economics, Herman Daly invoked a similar analogy. To grow, he pointed out, is defined as “to spring up and develop to maturity.” People do not grow physically bigger and bigger throughout the life span (they would look like freaks if they did). At a certain point, they level off in physical size, but continue to develop the skills and qualities they need to sustain and enrich their lives. At a certain point, he suggested, wise and wealthy nations must do the same.7

The steady-state economy described by Daly and elaborated by others is radical and uncompromising. It rejects growth as we know it as a fixation on expansive accumulation that does not discriminate between good and ill consequences. This does not mean an end to “progress,” however. In terms people can recognize, the steady-state society continues to improve itself, developing and redeveloping internally, perfecting the social conditions that promote the public welfare and more fulfilling lives. The United States has the wherewithal to achieve this if it has the nerve to try.

Daly’s “steady state” is an economy in dynamic equilibrium that fulfills human needs without destroying the planet. It is an economy fully reconciled with nature’s limits and in harmony with the country’s abiding values of equality, freedom, democracy, and “life, liberty, and the pursuit of happiness.” Daly’s pioneering insights have gained a lot of ground among economic and social theorists in the intervening years, despite the hostility of orthodox doctrine. His perspective has been popularized as a foundation for sustainable development (though the meaning of sustainability is often corrupted in practice).

A concrete expression of Daly’s thinking is popularly known as the ecological footprint-a measure of how much humanity and industrialization have encroached upon and diminished nature’s capacity to replenish life. Even some leading corporations now promise to reduce their corporate “footprint.” The footprint of human activity-including the spoiling of natural resources like air, land, and water-is already overshooting nature’s carrying capacity by an estimated 25 percent, according to the Global Footprint Network. Biologists have called our era the Sixth Great Extinction, with thousands of species doomed by the shrinking habitats and failed ecosystems.

“Humanity is living off its ecological credit card,” said Mathis Wackernagel, the group’s executive director.”While this can be done for a short while, overshoot ultimately leads to liquidation of the planet’s ecological assets.”8

[8. Wackernagel said in announcing the release of the Living Planet Report 2006: “Humanity is living off its ecological credit card. While this can be done for a short while, overshoot ultimately leads to liquidation of the planet’s ecological assets, and the depletion of resources, such as the forests, oceans and agricultural land upon which our economy depends.” See Chris Hails, Jonathan Loh, and Steven Goldfinger, editors, The Living Planet Report 2006, WWF International, Institute of Zoology, and Global Footprint Network, October 24, 2006, http://www.footprintnetwork.org/newsletters/ gfn_blast_0610.html.]

These are social and ecological wounds whose existence can no longer be evaded. They are defining realities that Americans must face and accept if they are to think clearly and honestly about transforming how we live and are organized as a society-the dream I describe as America the Possible. Reconstructing a promising society from the wreckage of the past is possible, though every aspect is difficult and lies beyond the usual expectations of what seems possible in politics. Failure is also possible. I won’t dwell on the consequences of failure because it means genuine decline-we would become a country that was past its best days and resigned to a dispiriting future. That is not where we are, nor where we want to go.

* * * *

For more information and discussion, see the following:

Index of Sustainable Economic Welfare

Genuine progress indicator

Ecological footprint

Green gross domestic product

Green national product

Environmental full cost accounting

Happy Planet Index

Human Development Index

Index of Sustainable Economic Welfare

Living Planet Index

Beyond GDP: Measuring and Achieving Global Genuine Progress

The Triple Bottom Line: What Is It and How Does It Work?

Herman Daly’s Ecological Economics – An Introductory Note

When Higher GDP can lead to Lower Welfare
The use of ISEW: the index of sustainable economic welfare

What is economic growth and are there limits to it?

The virtues of ignoring GDP
Dropping a bad habit

Someday Environment Costs will be factored into the GDP

Economic Growth: A Social Pathology

VALUING THE EARTH: Economics, Ecology, Ethics

This is the copy of an email sent to Mr. Herman Day in 1996

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