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May 16, 2021

How big should the future economy be?

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Jason van Tol

Anyone who has never studied economics would be excused for the common-sense belief that the economy cannot grow forever, but those who have been indoctrinated with an economics education know otherwise.

The standard model of economic growth that they learn is independent of resources, so, they believe, there is no limit to an economy’s size. Sound strange?

The key point to toppling this dogma is knowing that the economy is a real thing, requiring real resources to increase the amount of real products and services. Those real resources exist as either matter or energy, and they come from the environment, which can only supply a limited amount for the simple reason that the Earth is finite.

So, despite what economists and the politicians they influence tell us, there is a limit to how much the economy can produce in a given amount of time.

So how big should the economy be? While there is no simple answer, as a sub-system of an ecosystem, the economy must at least remain within the biophysical limits of its parent ecosystem. Otherwise, just as a parasite kills its host by extracting too many resources, so too will an economy collapse when it draws out too many resources from its host ecosystem, killing both in the process.

To highlight the ecological consequences of a growing economy, consider the above diagram.

World ecosystem

As shown, the economy grows into ecosystems, degrading their services as it does so.

Ecosystem services are broadly defined as things that ecosystems do which benefit humans. For example, providing an ozone layer and stable climate, recycling nutrients and breaking down wastes, among many others. They are the fundamental object of sustainability; because if they cease functioning, no society, much less any economy, will survive.

We are now living in what Daly calls a ‘full world’; that is, one full of people and all of our stuff.

What do climate change, biodiversity loss, plastics in the ocean, the hole in the ozone layer, and a slew of other ecological aberrations have in common? They are all a result of our growing economy.

Ecological decline

The series of reports Australia: State of the Environment, published every five years, and arguably the most comprehensive account of the state of the Australian environment, identify growth of the human population and the economy (which are closely related) as the prime cause of our ecological decline.

Locally, the Byron Bay bypass is just one example of the conflict between economic growth and ecological sustainability.

Anyone who has spent at least a couple of years in Byron Shire can see that it is growing; both in terms of the number of people living here, and those visiting, as well as the economic activity conducted here. This growth is endorsed by the NSW state government in its North Coast Regional Plan 2036, and its Growing Local Economies fund has provided close to half the money for the bypass. Of course, the bypass runs through wetlands where a number of threatened species live, including the Mitchell’s Rainforest Snail, the Common Planigale, and Black Bittern. This thereby reduces the ecosystem service of providing a habitat for these and other species, since they will not live on or near the bypass, which is probably true for most humans too.

While proving that economic growth will cause catastrophic dysfunction of ecosystem services is probably impossible for one specific case, the precautionary principle suggests that limiting growth for the economy as a whole would be wise.

This is the conclusion of the IPBES (the biodiversity and ecosystem services analogue of the IPCC). In their recent Global Assessment report, they note that about 1 million species are threatened with extinction, many within decades, and suggest ‘steering away from the current limited paradigm of economic growth’.

Yet in Australia, as with all other countries in the world, economic growth is set firmly at the centre of solutions to issues as diverse as poverty, unemployment, and even environmental degradation.

A prudent response to these issues would include a re-evaluation of the growth economy, and replacing it with its counterpart, the steady-state economy.

The steady-state economy is one with a constant, or mildly fluctuating, human population and stock of human-made things. In addition, the levels at which these two quantities are held steady are sufficient for a good life that is sustainable into the future, and the rate of matter and energy flows maintaining them are kept as low as possible.

There is no question that the growth economy must end, it is only a question of how. Those reasonable and caring would like the transition to be smooth, rather than abrupt.

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  1. I think you will find, Jason, that the definitive work on the trajectory for population dynamics has been settled by a fellow by the name of Thomas Malthus In his 1798 book An Essay on the Principle of Population, In which he proved that population increases in number and wellbeing until the tipping point,where resources are all consumed and the population dies.
    Sad that we’ll probably take out the vast majority of living beings on the planet, Oh well, I suppose that is what they call collateral damage !
    Anyhow , not to worry. G”)

  2. “New” products are being invented all the time.
    Until crazy frogs came along, who’d have thunk that they could sell us vapour.
    The major household expenses we have these days are just that. Paying rent for something we will never own, paying for water we already own, paying politicians… just to name a few.

  3. I don’t think steady state is the answer.
    We’re in the middle of a transition towards a sustainable future. Of course we may or may not make it but, if we do, it will have to be with a healthy environment and a healthy society. They are both living things and when living things are nurtured they respond by thriving and prospering. An unsustainable economy is, by definition, terminal. A sustainable economy would be thriving and prospering. We could see steady growth far beyond what we’ve seen so far in our cobbled together boom and bust economy.
    The steady state concept seems to be predicated a little on sacrifice, doing without, but I think a sustainable future will be one of abundance and plenty.

  4. The human greed factor cannot be controlled in a Democratic society. Our choice is reduced to accepting a modicum of freedom for everyone, incuding the greedy bastards, or a ( hopefully) benevolent dictatorship. Aka China. After decades of missed opportunities I’m afraid for our own survival we have only one option left.

  5. Yes and all who support moving toward the steady state economy may join the 15,000 signatories who support exactly that, by signing the position at http://www.steadystate.org/act/sign-the-position/read-the-position-statement/ .

    And for a deeper look at steady state economics and “steady statesmanship” in international diplomacy, read Supply Shock: Economic Growth at the Crossroads and the Steady State Solution.

    Or for a primer get a copy of Best of The Daly News: Selected Essays from the Leading Blog in Steady State Economics, 2010-2018 .


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