Author's Response to GTI Roundtable "Full-World Economics"
An exchange on the essay Economics for a Full World

Herman Daly

I would like to begin by noting that, despite our differences, there was a significant foundation of agreement. Consider, for instance, the following seven specific criticisms of growthism that we all appear to share:

(1) that throughput growth (and even GDP growth) can be uneconomic in theory, and in some countries has become uneconomic in practice;

(2) that the limiting factor has changed from manmade capital to natural capital;

(3) that the metabolic resource throughput of the economy is entropic and necessarily entails costs of depletion, pollution, and ecosystem disruption;

(4) that commonly used multiplicative production functions are analytical misrepresentations of the process of production, enshrining factor substitutability while ruling out complementarity and therefore the possibility of a limiting factor;

(5) that right prices, while important for efficient allocation, do not solve the problem of optimal scale of the economy;

(6) that pursuit of growth has functioned both as a stimulus to increasing inequality, as well as an excuse for ignoring it (until such time as growth has presumably made everyone rich); and

(7) that capital immobility between nations is a logical premise of the Ricardian comparative advantage argument for free trade—i.e., free capital mobility is incompatible with the theory of comparative advantage traditionally used to defend free trade, including recently the TPP.

Now, let me move on to some specific replies.

Thanks to Stephen Purdey for his cogent remarks. I certainly agree that “the growth paradigm is most vulnerable, and therefore most susceptible to change, along its moral dimension.” I would only add the thought that growthism is by no means as safe along the economic dimension as it usually appears. Arguments for growth presuppose that it is making us collectively richer, when that is increasingly false. Every day, it becomes clearer that growth is increasing costs faster than benefits, and by any reasonable accounting of the negative value of illth (jointly produced with wealth), growth in throughput is making us poorer, at the margin in already wealthy countries. Recognition of this is obscured by the fact that though we are collectively made poorer by growth, the elite still gets richer thanks to increasing inequality. Perhaps the elite could be made to feel the uneconomic nature of growth, either by their own moral and intellectual conversion or by rebellion of the majority that comes to realize that they are getting most of the illth and little of the wealth. Growthism will be a hard sell if we ever realize that, collectively, growth has become uneconomic in the basic sense of costing us more than it is worth and therefore making us poorer. This realization would be hastened by a more inclusive understanding of “us.” The biggest obstacle to this hope, in my opinion, is the regression of economics from its origin in moral philosophy to its present “value-free” pandering for growthism, as discussed in Eric Zencey’s comment, and the acceleration of this retrogression since the 1970s noted by Giorgos Kallis.

Robert Paehlke sensibly asks, “Are we certain that we cannot decouple economic growth and throughput growth?” He is more optimistic about decoupling than I am, although of course there is uncertainty. But from a policy perspective, it does not matter. This is because we agree that throughput must be limited. If we keep throughput limited, we can gladly encourage value and welfare to grow. If technological optimists really think we can increase resource productivity without limit, then they should not object to limiting resource throughput. Technology can still work its miracles on a constant resource throughput. Indeed, it will have a stronger incentive to do so in the face of more expensive resources.

I think legitimate confusion arises from the fact that we have no good measure of aggregate resource throughput. We therefore often resort to the proxy of real GDP—a price-weighted index of final production, and therefore indirectly of physical throughput. Paradoxically, GDP is more tightly correlated with throughput (cost) than with either measured welfare or self-evaluated happiness (benefit). We could use energy content or mass as direct physical measures, and that has been done.1 Once again, the important thing is to limit resource throughput and consequent environmental cost. I am all in favor of doing more with less, and it does not matter if I underestimate technological optimists’ ability to do so—I am eager to be wrong on this question, and applaud technology when it gives us more welfare without more throughput. But nuclear power, fracking, big dams, industrial agriculture, mountain top removal, deep sea drilling, etc., are technologies designed to increase throughput, and they are inefficient by any inclusive counting of costs and benefits. I hope the soft path technical efficiency optimists, like Amory Lovins, are right. Let’s give them some help by making the alternative brute technologies more expensive!

Alan Willis’s comments from an accountant’s perspective are very welcome. Indeed, the whole problem of unsustainability might be viewed as a national accounting error—counting capital consumption as if it were income. Income is the maximum that a community can consume in a time period without reducing its capacity to produce and consume the same amount in the next period—that is, without reducing future capacity to produce, or “capital” in the broad sense. This definition comes from standard economics (Sir John Hicks, Nobel Laureate). Historically, the whole reason for income accounting was to avoid impoverishment by inadvertently consuming our capital. Although we mainly neglect natural capital consumption, we also consume manmade capital beyond realistic depreciation set-asides. Another accounting error is to count defensive expenditures (e.g., pollution clean-up) as income, with no corresponding deduction for the cost of the pollution that made the clean-up necessary—“asymmetric accounting,” as Dutch economist Roefie Hueting called it.

I am especially grateful for Giorgos Kallis’s comments which are both supportive and challenging. I would like to offer a few words on each challenging comment.

Regarding terminology (“growth” versus “development” versus “flourishing”), the dictionary recognizes the qualitative dimension of “development” that I want to distinguish from quantitative “growth,” as well as noting the overlap in common usage. So I think my distinction is good English, even if many people loosely use development synonymously with growth. I was interested to learn that Greek uses the same word for both. But the important distinction is “quantitative increase” versus “qualitative improvement,” and I believe that is a distinction recognized in all languages, even if not in single words. Perhaps “better, not bigger” captures the distinction in fewer words. I have no objection to “flourishing” instead of “developing,” but doubt that the World Bank would change its name to “the International Bank for Reconstruction and Flourishing.” They would think it too “flowery.” And even if they did change, they would soon be using flourishing to mean growth, just as they already redefined “sustainable development” to mean growth. Now they speak of “sustainable growth” without embarrassment. Historically, one is stuck with confused language.   

Kallis asserts that the political path to a steady-state economy appears unlikely. I would agree, and I addressed this point in the last section on the Ultimate End. I know I gave no real answer, but I think that searching for a secular, value-neutral, political answer outside the context of philosophical and religious renewal will be fruitless. I know that in academia such appeals to higher things are considered unscientific and therefore “cheating.” So be it—it still may be necessary (even if it remains unlikely) given the backward movement since the 1970s for which Kallis seeks an explanation.

Kallis also points out a tension among three limits-to growth-positions:

(1)   GDP growth is coming to an end (if so, then why and where is the evidence for it).

(2)   Genuinely economic growth has come to an end, but nominal GDP may keep increasing (then the question becomes who has a benefit to keep uneconomic growth going).

(3)   Growth continues, and we should therefore cap it, before it destroys the planet.

My position is closest to number 2, that genuinely economic growth has come to an end (at least in the US), but GDP keeps on increasing. But then Kallis reasonably asks, who benefits from keeping uneconomic growth going? I am afraid that is the top 1% , who have almost exclusively benefitted from growth in the past few decades in the US. How have they done that? By massively externalizing real costs of production to the public, the future, and other species; by keeping wages down through automation, off-shoring, deregulated trade, and cheap-labor immigration policies; by financial fraud, quantitative easing resulting in zero interest rates for savers and big borrowers, with usurious rates for credit card debt; and by government subsidies and tax loopholes favoring the rich. And all of these measures have been supported in the name of growth and trickle-down economics. Even the Left has bought into the “bigger-pie theory” as the best hope for the working class, and is confused by growthism.

Richard Norgaard’s coevolutionary framework (“whereby society and ecosystems coevolve, one constantly transforming the other, society adapting, for better or for worse, to its transformations”), to which Kallis refers, seems to me completely consistent with steady-state economics. Evolution and coevolution are the way the natural world works, and the economy, as a subsystem, must coevolve as the world evolves. But our old coevolutionary strategy of growth into an empty world has become maladaptive in the full world that continues to evolve, but not to grow. A steady-state economy looks like a more promising coevolutionary strategy.

Nancy Folbre invites us to “[c]onsider the potential to completely destroy our ecosystem [even in the empty world] with nuclear war or genetic engineering gone awry.” Yes, the world does not have to be full before bad things can happen, and that is worth remembering. In Figure 3, the catastrophe limit could occur anywhere along the horizontal axis. Also thanks for noting my cost advantage of taking up less space than a million neoclassical economists. However, that reminds me of once riding in a tiny elevator with two rather small Japanese economists. I was taking up over half the space. One Japanese colleague drily said to the other, “Professor Daly big resource waste.”

Tim Jackson has been busy reforming economics rather than trashing it, and I wholeheartedly agree with that approach, as do many other ecological economists. I confess to getting impatient with some economists and their either obtuse or cynical defense of growthism.

Jackson raised three challenging and important points.

First, Politicians are right to seek some form of convincing that a steady-state economy or a degrowth economy will not lead to collapse. Yes indeed, soft landing strategies, safety nets, and an equitable sharing of burdens need more attention. Of course, politicians should not be allowed to pretend that growth is not the fastest road to collapse.

Second, ease up on labor productivity, in addition to advocating more leisure. Some services cannot be mechanized without qualitative degradation, but there is a tendency to do so anyway because of competition from sectors with increasing productivity will raise wages in those sectors and drain labor from the service sector. The service sector adapts to fewer workers by striving to increase labor productivity in services, which is perverse in the arts and personal services. Limiting resource throughput will reduce labor productivity in physical goods and put less competitive pressure on labor productivity in services. And there are many other reasons to reduce resource throughput. This is a connection I have not thought of before.

Third, the days of insisting on the predominance of a single numerical indicator should be definitively over. I take the point, and yet I made a stab at offering a better single numerical indicator. The technical language of “maximizing cumulative number of lives ever to be lived over time, subject to the constraint of a per capita wealth sufficient for a good life” is admittedly a too-exacting analytical statement of John Ruskin’s dialectical dictum that “there is no wealth but life.” It also probably gives too much weight to the uncertain future. Even so, I think it improves upon the current logically and ecologically impossible triple maximization of “ever more things, for ever more people, forever.” Admittedly, that is a low bar from which to measure improvement in our approximation of the Ultimate End. I continue to think of the Ultimate End as necessarily singular, in the sense of the Aristotelian-Thomist “summum bonum,” with intermediate ends as plural, to be ranked with reference to the Ultimate End. I expect plural views on the nature of the singular Ultimate End will give rise to plural penultimate operational ethical rules. The default penultimate rule of “ever more things, for ever more people, forever” is the very definition of growthism, and it urgently needs to be replaced by something better, even if only by a less bad single numerical indicator.

As for Eric Zencey’s lucid historical analysis, I think it is right on target. Bad timing, willful ignorance, and the oil bonanza explain a lot about how we arrived where we are. His comment is a valuable essay on its own.

Thanks to John Barry for his thoughtful clarifications and extensions on a number of points. I will quote only one: “…undifferentiated economic growth as a permanent feature of the economy is an ideology which serves elite interests in both disciplining populations and especially in removing the issue of socio-economic redistribution and inequality from the political agenda.”

1. Christina Layke, et al., Weight of Nations: Material Outflows from Industrial Economies (Washington, DC: World Resources Institute, 2000); Marina Fischer-Kowalski, Mark Swilling, et al., Decoupling Natural Resource Use and Environmental Impacts from Economic Growth (Geneva: United Nations Environment Programme, 2011).

Herman Daly
Herman Daly was Emeritus Professor at the University of Maryland, a former Senior Economist in the Environment Department of the World Bank, and co-founder of the journal Ecological Economics.

Cite as Herman Daly, author's response to GTI Roundtable "Full-World Economics," Great Transition Initiative (June 2015),

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