Common Tragedies

Thoughts on Environmental Economics

Can’t we all just get along?

Posted by Rich Sweeney on December 11, 2007

Over on Gristmill Michael Tobis wonders, “should economists rule?”. While that’s clearly a loaded question, his real argument, that we should stop pursuing economic growth, is much more interesting. I’m going to post my response to this on Gristmill as well as below. Looking at the comments on there so far, I realize that this post could provoke a fair amount of rage and anger from those, like Tobis, who are disturbed by a perceived monopolization over public debate by economists of late. Though it probably won’t matter, I’d like to point out that I certainly don’t believe that we should be categorically opposed to non-economic arguments. In fact interdisciplinary dialogue is imperative for solving most policy questions, including those related to the environment. At the end of the day, what matters is how good our answers are, not how we got there. Hopefully we can use this space to narrow some of the economist/ non-economist divide. With that being said, here we go.

To start by answering the initial rhetorical question, no, economists aren’t always right. But then again what group of people are? In fact “economists” are a pretty diverse lot these days (Just a few weeks ago I turned down an invitation from Daniel to attend a Cato event on the grounds that I didn’t think I could behave myself amongst that crowd). And asking that question doesn’t make you a Marxist, although, for the record, Marx himself was an economist.

With that being said, I’m not really sure what the problem with growth is. Or with a cost/benefit approach to decision-making. It’s human nature for people to try to maximize their own welfare. Now you can certainly haggle over the metrics we use to define welfare. Some economists, such as Richard Layard, have been advocating that we monitor/maximize “happiness” instead of economic activity. Or you might contend that economists ignore or poorly measure certain costs which cause them to overstate well-being. But if this is the case, it seems to me that the rational solution is to try to better incorporate these factors into our decision making process, not to simply abandon rationality and planning altogether.

Perhaps Michael is instead more focussed on this idea of physical limitations? The question was posed, “Is infinite growth of some meaningful quantity possible in a finite space?” I’ll try to take that question as as literally/ seriously as possible, and leave all the entropy stuff to the likes of Sagan and Hawking. Economic growth can occur two ways. We can either use more stuff or we can use the stuff we have more efficiently. Now, in some limit, the former is bound by the physical constraint you posited. Yet it is in precisely these instances that the tools of economics are most useful. By pricing finite goods, people are forced to internalize the value of their scarcity, which prevents undesirable resource depletion. In fact, that’s the lesson my blog, Common Tragedies, is named after. Without markets, the only possible long run outcomes for finite, rival resources are exhaustion or abstinence, both of which provide zero utility. The latter form of growth, which you might think of as a metric of evolution, is however theoretically infinite. The combination of natural selection and human learning allows people to get better at performing life’s tasks over time. Assuming, as I said above, that you’ve got the proper metric, it’s the promise of growth, the belief that each generation will be better off than the next, that defines both individual and societal action.

If he’s not addressing one of these issues, I’d have to say the Gristmill piece would amount to some combination of nihilism, pessimism and laziness. The point is that people are going to act in their own self interest (in the loosest possible sense of the term). Now you may point out that they’re doing a poor job of that, but simply telling them to act a certain way, without providing any evidence that this is true or means by which they could do demonstrably better, is not a viable approach to public policy. The Stern Report measures costs of climate change against growth because real people, not just bankers, care about growth and see it as a proxy for their welfare. Again, GDP might be an imperfect proxy, and some important costs might be ignored, but the solution is to better define our aims, not to simply stand still.

Finally, I’m going to assume that these comments were in only in reference to the developed world. I think most of us would find it pretty hard to tell the third-world that this is it. No more growth. We’re coming in for a soft landing.

And in re: Perhaps there is some level of economic activity beyond which life gets worse?

Perhaps, but I think only in the context of my comments above, whereby people aren’t properly internalizing costs (ie there are negative externalities or intertemporal disconnects). Or in the context of forced labor. These things aside, in a free county, if we observe a growth in economic activity it’s because people think it will improve their lives. Other than that, why would people continue to work/produce?

In sum, I think there’s a lot of room to address the types of concerns Tobis and others have within the framework of economics. Though the tools of economists may be imperfect, I don’t think we should abandon rational decision making and the pursuit of progress, however imperfectly defined, just yet.

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One Response to “Can’t we all just get along?”

  1. [...] is both not always good and the cause of global warming.  On this question, Rich Sweeney has the best retort: Economic growth can occur two ways. We can either use more stuff or we can use the stuff we have [...]

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