Steady states ignore real life

Shoveling Fuel for a Runaway Train
June 22, 2001

Brian Czech is a wildlife biologist. His book is about economics or, more correctly, what he thinks economics is about. The central theme is a familiar one. Economic growth is a good thing, up to a point. It raises people's standard of living - but beyond some point, economic growth is a bad thing. It requires materials and energy to support it, and resources are depleted at rates that threaten near-term expiry of non-renewable resources and extinction of renewable ones. Economic growth pollutes, and the earth's ability to manage the pollution is limited.

At least some of the responsibility for the potential problems rests with economists - more specifically, "neoclassical" ones. Luckily, there is a new breed of economist who will save the world: ecological economists who believe in "steady states" characterised by a constant population and wealth stock, and minimal resource flows to support these.

According to Czech, the point at which economic growth ceases to be good is not clear. For renewable resources such as fisheries and forests, it is comparatively easy to define: when rates of consumption outstrip regeneration, they lead to depletion. As non-renewable resources do not regenerate, the issue is again one of deciding how much of a resource to use. This issue is addressed extensively by neoclassical economists. Czech avoids defining precisely what constitutes a steady state and omits to tell us the ecological economists' answer to the problem.

To non-economists, Czech's book will be a readable critique of economics. To economists, it will be irritating in its presumably accidental, but occasionally cynical misrepresentation of what neoclassical economics says and does. The book reads as if ecological economists have discovered the interaction between ecology and economics. This is a travesty of the truth. Neoclassical environmental economics has been around for 50 years. A glance at so-called ecological economics texts reveals the proposition that we have either to change our way of life to reduce economic growth and save the planet, or change the relationship between ecological inputs and economic outputs so that the ratio declines, and declines faster than growth occurs. The latter proposition is entirely consistent with the neoclassical view that stresses resource productivity and technological change. Moreover, just like ecological economists, few neoclassical economists believe in unconstrained population growth.

Czech appears to be in the camp that calls for lifestyle change. There are many observations one can make about this clarion call. First, the mechanisms for bringing about the steady state require either moral revolution or some form of world government that dictates what we can have. Many people might see the latter as being unlikely (to say the least) and not worth trading for the survival of humankind (if that is what is at stake).

Second, there is a fundamental distinction between economic growth - the systematic increase in real gross national product over time - and the materials and energy inputs that sustain that growth. The former can increase while the latter can decrease. That is a policy issue. Environmental taxes, for example, are a very good way of decoupling growth and environmental impact. As an American, Czech may not be very familiar with environmental taxes (they are scarcely mentioned), but a more international focus would have shown him the European experience or even the advances of the developing world. Technology similarly reduces environmental input-economic output ratios, and technological advance is something that can be induced with policy measures (taxes, capital allowances and so on). Why embark on a dubious moral call to change lifestyles as an alternative to achieving the same end with incentive schemes?

Third, economic growth is, according to modern neoclassical theory, due to technological change in human and social knowledge. If growth is to cease, it looks perilously as if it can cease only by reducing technological change and knowledge.

Czech's problem is that, despite a valiant effort, he simply has little grasp of his subject. He makes no mention of the literature on the (neoclassical) economics of sustainable development, yet it has helped to transform notions of capital stocks to include human and environmental assets and their links to economic change. And there are some unforgivable and silly assertions. There are also few references to the enduring hardship of most of the world's population, a misery that can be alleviated only with economic growth. Try selling steady states to Mozambique or the Sudan. As a critique of economics, of whatever variety, this book does not make the grade.

David Pearce is professor of environmental economics, University College London.

Shoveling Fuel for a Runaway Train: Errant Economists, Shameful Spenders, and a Plan to Stop Them All

Author - Brian Czech
ISBN - 0 520 22508 2
Publisher - University of California Press
Price - £14.50
Pages - 210

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