Monthly Archives: May 2014

Top 10 Policies for a Steady-State Economy by Herman Daly

Well before reaching that radical biophysical limit, we are encountering the classical economic limit in which extra costs of growth become greater than the extra benefits, ushering in the era of uneconomic growth, whose very possibility is denied by the growthists.

Well before reaching that radical biophysical limit, we are encountering the classical economic limit in which extra costs of growth become greater than the extra benefits, ushering in the era of uneconomic growth, whose very possibility is denied by the growthists.

Let’s get specific. Here are ten policies for ending un-economic growth and moving to a steady-state economy. A steady-state economy is one that develops qualitatively (by improvement in science, technology, and ethics) without growing quantitatively in physical dimensions; it lives on a diet – a constant metabolic flow of resources from depletion to pollution (the entropic throughput) maintained at a level that is both sufficient for a good life and within the assimilative and regenerative capacities of the containing ecosystem.

Ten is an arbitrary number – just a way to get specific and challenge others to suggest improvements. Although the whole package here discussed fits together in the sense that some policies supplement and balance others, most of them could be adopted singly and gradually.

1. Cap-auction-trade systems for basic resources. Caps limit biophysical scale by quotas on depletion or pollution, whichever is more limiting. Auctioning the quotas captures scarcity rents for equitable redistribution. Trade allows efficient allocation to highest uses. This policy has the advantage of transparency. There is a limit to the amount and rate of depletion and pollution that the economy can be allowed to impose on the ecosystem. Caps are physical quotas, limits to the throughput of basic resources, especially fossil fuels. The quota usually should be applied at the input end because depletion is more spatially concentrated than pollution and hence easier to monitor. Also the higher price of basic resources will induce their more economical use at each upstream stage of production, as well as at the final stages of consumption and recycling. Ownership of the quotas is initially public – the government periodically auctions them to individuals and firms. There should be no “grandfathering” of quota rights to previous users, nor “offshoring” of quotas for new fossil fuel power plants in one by place by credits from planting trees somewhere else. Reforestation is a good policy on its own. It is too late for self-canceling half measures – increased carbon sequestration and decreased emissions are both needed. The auction revenues go to the treasury and are used to replace regressive taxes, such as the payroll tax, and to reduce income tax on the lowest incomes. Once purchased at auction the quotas can be freely bought and sold by third parties, just as can the resources whose rate of depletion they limit. The cap serves the goal of sustainable scale; the auction serves the goal of fair distribution; and trading allows efficient allocation – three goals, three policy instruments. Although mainly applied to nonrenewable resources, the same logic works for limiting the off-take from renewable resources, such as fisheries and forests, with the quota level set to approximate a sustainable yield.

2. Ecological tax reform. Shift the tax base from value added (labor and capital) to “that to which value is added,” namely the entropic throughput of resources extracted from nature (depletion), and returned to nature (pollution). Such a tax shift prices the scarce but previously un-priced contribution of nature. Value added to natural resources by labor and capital is something we want to encourage, so stop taxing it. Depletion and pollution are things we want to discourage, so tax them. Payment above necessary supply price is rent, unearned income, and most economists have long advocated taxing it, both for efficiency and equity reasons. Ecological tax reform can be an alternative or a supplement to cap-auction-trade systems.

3. Limit the range of inequality in income distribution with a minimum income and a maximum income. Without aggregate growth poverty reduction requires redistribution. Unlimited inequality is unfair; complete equality is also unfair. Seek fair limits to the range of inequality. The civil service, the military, and the university manage with a range of inequality of a factor of 15 or 20. Corporate America has a range of 500 or more. Many industrial nations are below 25. Could we not limit the range to, say, 100, and see how it works? This might mean a minimum of 20 thousand dollars and a maximum of two million. Is that not more than enough to give incentive for hard work and compensate real differences? People who have reached the limit could either work for nothing at the margin if they enjoy their work, or devote their extra time to hobbies or public service. The demand left unmet by those at the top will be filled by those who are below the maximum. A sense of community, necessary for democracy, is hard to maintain across the vast income differences current in the United States. Rich and poor separated by a factor of 500 have few experiences or interests in common, and are increasingly likely to engage in violent conflict.

4. Free up the length of the working day, week, and year – allow greater option for part-time or personal work. Full-time external employment for all is hard to provide without growth. Other industrial countries have much longer vacations and maternity leaves than the United States. For the classical economists the length of the working day was a key variable by which the worker (self-employed yeoman or artisan) balanced the marginal disutility of labor with the marginal utility of income and of leisure so as to maximize enjoyment of life. Under industrialism the length of the working day became a parameter rather than a variable (and for Karl Marx was the key determinant of the rate of exploitation). We need to make it more of a variable subject to choice by the worker. Milton Friedman wanted “freedom to choose” – OK, here is an important choice most of us are not allowed to make! And we should stop biasing the labor-leisure choice by advertising to stimulate more consumption and more labor to pay for it. At a minimum advertising should no longer be treated as a tax-deductible expense of production.

5. Re-regulate international commerce – move away from free trade, free capital mobility, and globalization. Cap-auction-trade, ecological tax reform, and other national measures that internalize environmental costs will raise prices and put us at a competitive disadvantage in international trade with countries that do not internalize costs. We should adopt compensating tariffs to protect, not inefficient firms, but efficient national policies of cost internalization from standards-lowering competition with foreign firms that are not required to pay the social and environmental costs they inflict. This “new protectionism” is very different from the “old protectionism” that was designed to protect a truly inefficient domestic firm from a more efficient foreign firm. The first rule of efficiency is “count all the costs” – not “free trade,” which coupled with free capital mobility leads to a standards-lowering competition to count as few costs as possible. Tariffs are also a good source of public revenue. This will run afoul of the World Trade Organization/World Bank/International Monetary Fund, so….

6. Downgrade the WTO/WB/IMF. Reform these organizations based on something like Keynes’s original plan for a multilateral payments clearing union, charging penalty rates on surplus as well as deficit balances with the union – seek balance on current account, and thereby avoid large foreign debts and capital account transfers. For example, under Keynes’s plan the U.S. would pay a penalty charge to the clearing union for its large deficit with the rest of the world, and China would also pay a similar penalty for its surplus. Both sides of the imbalance would be pressured to balance their current accounts by financial penalties, and if need be by exchange rate adjustments relative to the clearing account unit, called the “bancor” by Keynes. The bancor would also serve as the world reserve currency, a privilege that should not be enjoyed by any national currency, including the U.S. dollar. Reserve currency status for the dollar is a benefit to the U.S. – rather like a truckload of free heroin is a benefit to an addict. The bancor would be like gold under the gold standard, only you would not have to tear up the earth to dig it out. Alternatively a regime of freely fluctuating exchange rates is a viable possibility requiring less international cooperation.

7. Move away from fractional reserve banking toward a system of 100% reserve requirements. This would put control of the money supply and seigniorage (profit made by the issuer of fiat money) in the hands of the government rather than private banks, which would no longer be able to live the alchemist’s dream by creating money out of nothing and lending it at interest. All quasi-bank financial institutions should be brought under this rule, regulated as commercial banks subject to 100% reserve requirements. Banks would earn their profit by financial intermediation only, lending savers’ money for them (charging a loan rate higher than the rate paid to savings or “time-account” depositors) and charging for checking, safekeeping, and other services. With 100% reserves every dollar loaned to a borrower would be a dollar previously saved by a depositor (and not available to him during the period of the loan), thereby re-establishing the classical balance between abstinence and investment. With credit limited by prior saving (abstinence from consumption) there will be less lending and borrowing and it will be done more carefully – no more easy credit to finance the massive purchase of “assets” that are nothing but bets on dodgy debts. To make up for the decline in bank-created, interest-bearing money the government can pay some of its expenses by issuing more non-interest-bearing fiat money. However, it can only do this up to a strict limit imposed by inflation. If the government issues more money than the public voluntarily wants to hold, the public will trade it for goods, driving the price level up. As soon as the price index begins to rise the government must print less and tax more. Thus a policy of maintaining a constant price index would govern the internal value of the dollar. The Treasury would replace the Fed, and the target policy variables would be the money supply and the price index, not the interest rate. The external value of the dollar could be left to freely fluctuating exchange rates (or preferably to the rate against the bancor in Keynes’s clearing union).

8. Stop treating the scarce as if it were free, and the free as if it were scarce. Enclose the remaining open-access commons of rival natural capital (e.g., the atmosphere, the electromagnetic spectrum, and public lands) in public trusts, and price them by cap-auction-trade systems, or by taxes. At the same time, free from private enclosure and prices the non-rival commonwealth of knowledge and information. Knowledge, unlike the resource throughput, is not divided in the sharing, but multiplied. Once knowledge exists, the opportunity cost of sharing it is zero, and its allocative price should be zero. International development aid should more and more take the form of freely and actively shared knowledge, along with small grants, and less and less the form of large interest-bearing loans. Sharing knowledge costs little, does not create un-repayable debts, and increases the productivity of the truly rival and scarce factors of production. Patent monopolies (aka “intellectual property rights”) should be given for fewer “inventions,” and for fewer years. Costs of production of new knowledge should, more and more, be publicly financed and then the knowledge freely shared. Knowledge is a cumulative social product, and we have the discovery of the laws of thermodynamics, the double helix, polio vaccine, etc. without patent monopolies and royalties.

9. Stabilize population. Work toward a balance in which births plus in-migrants equals deaths plus out-migrants. This is controversial and difficult, but as a start contraception should be made available for voluntary use everywhere. And while each nation can debate whether it should accept many or few immigrants, and who should get priority, such a debate is rendered moot if immigration laws are not enforced. We should support voluntary family planning and enforcement of reasonable immigration laws, democratically enacted.

10. Reform national accounts – separate GDP into a cost account and a benefits account. Natural capital consumption and “regrettably necessary defensive expenditures” belong in the cost account. Compare costs and benefits of a growing throughput at the margin, and stop throughput growth when marginal costs equal marginal benefits. In addition to this objective approach, recognize the importance of the subjective studies that show that, beyond a threshold, further GDP growth does not increase self-evaluated happiness. Beyond a level already reached in many countries, GDP growth delivers no more happiness, but continues to generate depletion and pollution. At a minimum we must not just assume that GDP growth is economic growth, but prove that it is not uneconomic growth.

Currently these policies are beyond the pale politically. To the reader who has persevered this far, I thank you for your willing suspension of political disbelief. Only after a significant crash, a painful empirical demonstration of the failure of the growth economy, would this ten-fold program, or anything like it, stand a chance of being enacted.

To be sure, the conceptual change in vision from the norm of a growth economy to that of a steady-state economy is radical. Some of these proposals are rather technical and require more explanation and study. There is no escape from studying economics, even if, as Joan Robinson said, the main reason for it is to avoid being deceived by economists. Nevertheless, the policies required are far from revolutionary, and are subject to gradual application. For example, 100% reserve banking was advocated in the 1930s by the conservative Chicago School and can be approached gradually, the range of distributive inequality can be restricted gradually, caps can be adjusted gradually, etc. More importantly, these measures are based on the impeccably conservative institutions of private property and decentralized market allocation. The policies here advocated simply reaffirm forgotten pillars of those institutions, namely that: (1) private property loses its legitimacy if too unequally distributed; (2) markets lose their legitimacy if prices do not tell the truth about opportunity costs; and as we have more recently learned (3) the macro-economy becomes an absurdity if its scale is required to grow beyond the biophysical limits of the Earth.

Well before reaching that radical biophysical limit, we are encountering the classical economic limit in which extra costs of growth become greater than the extra benefits, ushering in the era of uneconomic growth, whose very possibility is denied by the growthists. The inequality of wealth distribution has canceled out the traditional virtues of private property by bestowing nearly all benefits of growth to the top 1%, while generously sharing the costs of growth with the poor. Gross inequality, plus monopolies, subsidies, tax loopholes, false accounting, cost-externalizing globalization, and financial fraud have made market prices nearly meaningless as measures of opportunity cost. For example, a policy of near zero interest rates (quantitative easing) to push growth and bail out big banks has eliminated the interest rate as a measure of the opportunity cost of capital, thereby crippling the efficiency of investment. Trying to maintain the present growth-based Ponzi system is far more unrealistic than moving to a steady-state economy by something like the policies here outlined. It is probably too late to avoid unrealism’s inevitable consequences. But while we are hunkered down and unemployed, enduring the crash, we might think about the principles that should guide reconstruction.

See: http://steadystate.org/top-10-policies-for-a-steady-state-economy/

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Climate Change: The Least We Can Do by Robert Walker, Population Institute

People trying to get out of war-torn Syria, the first country to officially slide into civil war due to climate disaster-caused severe drought and overpopulation.

People trying to get out of war-torn Syria, the first country to officially slide into civil war due to climate disaster-caused severe drought and overpopulation.

As the IPCC’s (intergovernmental Panel on Climate Change) Fifth Assessment Report makes clear, we are long past the point of avoiding climate change. The best we can do now is to avoid the worst effects. The situation is more dire than previously projected and the consequences of inaction more starkly drawn than ever before:

Warming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia. The atmosphere and ocean have warmed, the amounts of snow and ice have diminished, sea level has risen, and the concentrations of greenhouse gases have increased…. Over the last two decades, the Greenland and Antarctic ice sheets have been losing mass, glaciers have continued to shrink almost worldwide, and Arctic sea ice and Northern Hemisphere spring snow cover have continued to decrease in extent (high confidence)…. Continued emissions of greenhouse gases will cause further warming and changes in all components of the climate system. Limiting climate change will require substantial and sustained reductions of greenhouse gas emissions.

In a perfect world, the IPCC’s report would summon forth our best efforts at mitigating climate change and its effects. We would be doing whatever is necessary and prudent to avoid a human and environmental catastrophe. By now, however, it is evident that governments—and the people they represent—are shrinking from the challenge. Hope for concerted global action on any kind of meaningful scale has largely evaporated.

Instead of asking what is the most that can be done to mitigate climate change and alleviate its consequences, perhaps we should be asking, “What is the least that can be done?”

The “least” we can do is to mitigate the scale of human suffering and displacement, and the single most cost-effective means of doing so is to prevent unplanned pregnancies. Nearly 40 percent of all pregnancies in the world are unwanted or unintended, and preventing them would make a valuable contribution to climate change mitigation and adaptation.

Giving every woman the power to avoid unwanted pregnancies would dramatically lower projected population growth rates. According to the latest UN population projections, world population, currently 7.2 billion, is likely to reach 9.6 billion by mid-century and continue rising, but if the total fertility rate (i.e. the average number of children per woman) were to fall by just half a child, world population would rise to only 8.3 billion and gradually decline during the second half of the 21st century.

It’s particularly important to prevent unplanned pregnancies in the United States, where our carbon footprints are, on average, nearly twice as high as they are in many European countries and twenty or more times higher than many developing countries. A study released five years ago found that the average “carbon legacy” of a child born in the U.S. would produce about 20 times more greenhouse gases than the mother or father would save by adopting a lower carbon lifestyle (i.e. driving a highly fuel efficient vehicle, using energy efficient appliances, etc.).

But even where carbon footprints are relatively small, no one should discount the contribution that birth control could make to lowering projected greenhouse gas emissions. A 2010 study of energy use and demographics by Brian C. O’Neill concluded that slowing global population growth “could provide 16-29% of the emissions reductions suggested to be necessary by 2050 to avoid dangerous climate change.” That is not insignificant.

Even if preventing unplanned pregnancies in developing countries contributed absolutely nothing to reducing future greenhouse gas emissions, there is a compelling moral case to be made for expanding international family planning services and information. That’s because women and children in countries like Mali, Niger, Somalia, Uganda, Bangladesh, and Ethiopia find themselves on the front lines of climate change. Subsistence farmers, in particular, are vulnerable to the crop damage that will be inflicted by heat, drought, flooding, and rising seas. Some of the most vulnerable and food insecure countries in the world—countries that are already in a struggle for survival—could likely see their populations double or even triple in the next half century. Denying women in these countries the ability to space and limit their pregnancies will compound the suffering that is likely to be caused by climate change. Large families in environmentally-stressed communities will be less resilient and inevitably suffer more from disease, food insecurity, and water scarcity.

Access to reproductive health services is recognized by the United Nations as a universal right, but in many parts of the developing world it is far from being a reality. Making that right a reality for women everywhere may not save the world from climate change, but it would go a substantial way toward alleviating the human suffering that will accompany it. The costs of empowering women and providing family planning services are trivial compared to the benefits that would result from giving women reproductive choice. It really is the least we can do—for climate change—and for the women and their families who will endure some of its worst effects.

 

Robert Walker is the President of the Population Institute in Washington, DC. 

Prior to joining the Population Institute, Mr. Walker was President of the Population Resource Center. He formerly was the Executive Director of the Common Cause Education Fund, a nonpartisan, nonprofit organization working to promote open, honest and accountable government.

He also served for three years as President of Handgun Control, Inc. and the Center to Prevent Handgun Violence.

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The Downfall of the Plastic Bag by Janet Larsen and Savina Venkova 

plastics

Cattle dine in an illegal dump site.

Worldwide, a trillion single-use plastic bags are used each year, nearly 2 million each minute. Usage varies widely among countries, from over 400 a year for many East Europeans, to just four a year for people in Denmark and Finland. Plastic bags, made of depletable natural gas or petroleum resources, are often used only for a matter of minutes. Yet they last in the environment for hundreds of years, shredding into ever-smaller pieces but never fully breaking down.

Over the last century, plastic has taken over the planet. On the one hand, plastic seems a miracle material, with beneficial uses ranging from medical devices to making vehicles lighter and more fuel-efficient. On the other hand, it is a curse, allowing for the seemingly cheap mass production of disposable materials that fill up landfills, cloud the oceans, choke wildlife, and sully vistas. Filled with additives that lack a safety record, plastics have been linked with a slew of health concerns, including certain types of cancer and infertility. While plastics can be used and recycled wisely, the majority of those produced are neither. Perhaps no other item symbolizes the problems of our throwaway culture more than the single-use plastic bag.

Given the multitude of problems associated with plastic bags, many communities around the world have attempted to free themselves from their addictions by implementing bag bans or fees. The oldest existing bag tax is in Denmark. Passed in 1993, this regulation affected plastic bag makers who paid a tax based on the bag’s weight. Stores were allowed to pass the cost on to consumers either in bag charges or absorbed into the prices of other items. The initial effect of this system was an impressive 60 percent drop in plastic bag use.

One of the most well-known bag measures is Ireland’s national bag tax, adopted in 2002. It was the first to charge consumers directly, starting at a rate of 15 euro cents (20ȼ) per bag. Within five months of the measure’s introduction, bag usage fell by over 90 percent. Litter was greatly reduced as well. Over the years, bag use started to creep up, however, so in 2007 the charge was increased to 22 euro cents, and in 2011 the law was amended with the aim of keeping annual bag use at or below 21 bags per person. Frank Convery of University College Dublin calls Ireland’s plastic bag levy “the most popular tax in Europe” and believes that it would be politically damaging to remove it.

Indeed, many communities looking at plastic bag reduction measures hope to emulate the Irish success. Other European countries where consumers pay for plastic shopping bags—either through law or voluntary initiatives—include Belgium, Bulgaria, France, Germany, Latvia, and the Netherlands. Throughout the European Union, member states will soon be required to take measures to reduce plastic bag use 80 percent by 2019.

Reducing the amount of plastics in the marine environment has been a major driver of bag regulations in Europe and elsewhere. In a memo on its bag reduction proposal, the European Commission notes that “in the North Sea, the stomachs of 94 percent of all birds contain plastic. Plastic bags have been found in stomachs of endangered marine species: green turtles, loggerhead turtles, leatherback turtles, black footed albatrosses, and harbour porpoises.” In sum, “at least 267 different species are known to have suffered from entanglement or ingestion of marine litter.” The desire to protect the whales that migrate off the coast of Tasmania led to Australia’s first local plastic bag ban in 2003. Now half of Australian states and territories ban plastic bags.

Beyond the seas, the reasons for taking action against plastic bags vary from malaria outbreaks associated with bags collecting water in Kenya to sewers clogged with plastic bags exacerbating flooding in Bangladesh, Cameroon, and the Philippines. Cattle choking on plastic bags gave impetus for bag regulations in Texas ranch country and in Indian communities concerned about the sacred cow. In the capital of Mauritania, an estimated 70 percent of cattle and sheep deaths are from plastic bag ingestion; in the United Arab Emirates, the concern is for camels. (Additional details on anti-plastic bag initiatives around the world are at http://www.earth-policy.org.)

In South Africa, where plastic bags caught in bushes and trees had become so common that they were called the national flower, a ban on the very thin non-biodegradable bags that tear readily and easily blow away went into effect in 2003. Thicker bags are taxed. Botswana’s plastic bag fee, which began in 2007, is credited with cutting bag use in half at major retailers. All told, at least 16 African countries have announced bans on certain types of plastic bags, to varying levels of effectiveness.

In China, where plastic bag pollution was widespread, a few cities and provinces tried to introduce policies to limit bag use in the 1990s, but poor enforcement led to limited success. Before Beijing hosted the 2008 Olympic Games, a national law went into effect banning extra thin bags and requiring stores to charge a fee for thicker bags. The Chinese government reported that bag use has dropped by more than two thirds, although compliance appears to be spotty. A number of cities in Southeast Asia, the source of many of the world’s plastic bag exports, have come up with legislation to reduce bag use.

In the United States, 133 city- or county-wide anti-plastic bag regulations have been passed. Bag bans cover one of every three Californians and virtually all Hawaiians. Chicago’s city council voted for a bag ban in April 2014. Dallas and Washington, D.C., are among the handful of jurisdictions that charge 5-10ȼ for each plastic or paper bag; in both cities, charges were instituted to reduce the number of bags in local rivers. In Canada, much of the anti-bag action is voluntary, with a number of retailers participating. The provinces of Ontario and Quebec have each halved their plastic bag use through a variety of measures, including store incentives for using reusable bags and retailer-imposed fees. Liquor stores in Manitoba, Quebec, and Nova Scotia have tossed out the plastic bag for good.

Latin America also hosts a number of initiatives to reduce plastic bag litter and waste, including bans in the Chilean cities of Pucón and Punta Arenas and in the states of Buenos Aires and Mendoza in Argentina, to name a few. Carryout bags in a couple of Brazilian states are required to be biodegradable. São Paulo state banned free single-use plastic bags starting in January 2012, allowing heavy reusable or biodegradable bags to be sold for 10ȼ, but the measure was removed by an industry-supported court injunction, despite the backing of the supermarket trade association. Similarly, Mexico City banned plastic shopping bags in 2009, but, under pressure from plastics manufacturers, the measure was replaced before enforcement began with a recycling initiative—a common tactic used by industry groups around the world against stricter bans or fees.

Plastic bags clearly have a cost to society, one that is not yet fully paid. Reducing disposable bag use is one small part of the move from a throwaway economy to one based on the prudent use of resources, where materials are reused rather than designed for rapid obsolescence.

From our friends at Earth Policy Institute. Additional information, including a timeline of the plastic bag and a collection of international plastic bag initiatives is available at www.earth-policy.org

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