Is it wise to perpetuate an addiction?

All of the current talk about stimulus packages for our ailing economy have me thinking about how this is a perfect example of how the general population lack sufficient sapience. In spite of considerable cleverness and lots of history to learn from, the conventional wisdom remains that a growing economy is a healthy one and therefore if our economy is stagnating or, horror of horrors, contracting, then we need to do something to get it moving in the right direction.

There is so much here it is hard to know where to start. The conventional wisdom says that growth is good. But why? And for that matter, what is growing that makes it so good? Economists will point to a number called the Gross Domestic Product (GDP) which is claimed to be a measure of economic activity in constant dollars (to account for inflation). The period-to-period (e.g. quarter to quarter) change in GDP is a measure of growth expressed as a percentage rate. A 3% to 5% average annual rate is generally considered good. But the GDP as a measure of anything has serious flaws (acknowledged by economists as it turns out) that bring into question its usefulness in this context. No one considers there to be a causal relationship between rate of change of GDP and economic health (whatever that is).

What economists do claim is that when GDP growth has been in this range people are generally better off. Unemployment tends to be down (< 5%). Wage growth appears to be positive so as long as inflation isn't a problem people are better off income-wise. And so on. They can make this claim because they have correlational data going back quite a ways (the GDP replaced the Gross National Product some years ago, but the conceptual measurement is the same, so with adjustments one can track back to when such statistics were first recorded).

So a growing economy is a healthy economy. Healthy, that is, in the sense that we're all better off. Some may be 'more' better off than others, but since the pie is growing in absolute size so must each piece of the pie grow. Sounds about right, doesn't it.

The problem with the standard view of the economy is that it doesn't take into account exactly what is growing and at what cost. We now realize, too late, that for the human-built world to grow in a finite world, the natural world must shrink. The economy is a vast engine for using energy to convert material from some ecological form into human desired assets, including human bodies. In addition, every conversion process creates waste products that have to go back into the ecos. As long as the human population was relatively small these waste products might have been absorbed by the ecos. And the removal of material from the ecos would not have been detrimental. But as human populations increase and technology makes it feasible to extract and waste at higher rates, the ecos can no longer handle the rate of flows without something detrimental happening.

Well here we are today. We've been growing steadily for the past several hundred years and our technologies have increased the per capita consumption rate exponentially. And we're all really really happy, right?

One of the more insidious aspects of this devotion to growth of the economy has been the fact that to really keep things moving (money churning) you need to have consumers spending more money and buying more stuff. It really doesn't matter what the stuff is as long as consumers keep buying it. The more stuff is thrown away the more churn there is and this is essentially what GDP measures. Ergo, to get a healthy economy, by the above description, you need people constantly buying more stuff from period to period. In order to do that they need to essentially throw away the old stuff to make room for the new. Or they have to acquire more space to hold more stuff. It really doesn't matter as long as we're all wildly happy because the GDP is increasing. We create jobs for people to make the stuff that others buy, then they can use their wages to buy stuff that someone else made. It is a self-perpetuating circle.

And just buying stuff based on wages earned currently, it turns out, isn't enough. To really make this all seem to continue to work it is necessary to borrow against the future. If we believe that this cycle will just keep going and GDP will keep growing, then it is reasonable (even clever) to think that we could use some of the wages we make tomorrow to acquire stuff to enjoy today. Why not? Buying even more stuff today than we could have using just our current income means that the GDP looks better still. It makes for an even more healthy economy.

And some people honestly believe this can go on forever.

Amazingly in this most depressing political season all of the politicians agree - we need to stimulate the economy to get it growing again. We need to cut taxes, put cash in people's hands, and so on, to get them out into the malls again because our economy is based on spending and consuming. It is NOT based on producing value and saving (another blog post I think).

Can somebody explain to me how this is wisdom? I know that based on our long history of building up this house of cards that if we do go into a recession or especially if we go into a depression, many people — maybe even me — will be hurt. I know that it would mean much pain and agony for most people. But how is that different than withdrawal symptoms for drug addicts? Who here would not think that such symptoms for an addict might be horrible in the short run but good for the person in the long run? If you see that, then why isn't the same logic applied to our economic situation? We are addicted to consumption and growth as a society. I don't see this as a good thing in recognizing that eventually (and probably pretty soon by the looks of things) we are going to hit the wall on this. Sudden and total removal of the drug generates the worst kind of withdrawal reaction in the addict. There are treatment programs that attempt to bring the addict down with medical support to lessen the pain. If I'm right on this analogy, then which would you prefer, a controlled withdrawal (weaning from growth) or slamming into the wall?

Comments

[Trinifar]

George,

The model for treating addiction that I'm familiar with is to get the addict to substitute some behavior for the one being given up. In the case of the economy, we could build wind and solar generators instead of importing oil, light electric rail instead of gas power cars, etc. -- these kinds of changes might have the knock-on effect of putting more people into productive work.

[George Mobus]

Well I agree in principle. And we should certainly do all that we can to minimize our use of fossil fuels. But I have serious doubts about the ability for alternative energy sources to supply a serious fraction of our current energy needs let alone fuel growth of the economy.

The addiction I refer to is more to the growth of consumption of unnecessary stuff. Our economy is now based on consumption, money churn, and debt. It is the economy that is addicted. People are the pushers who think they benefit from the addiction. And they, of course, are addicted to the appearance of wealth accumulation.

Who are the medical interventionists? Who will provide those alternatives to bring the patient down? That is what I would like to know.

George

[Toby Kelsey]

You probably know this, but Herman Daly has developed the theoretical basis for a more rational economics. Google "uneconomic growth" and "steady state economy" to learn more.

[George Mobus]

Toby,

Yes, I am aware of Daly. He and Robert Costanza, Nicholas Georgescu-Roegen, Kenneth Boulding, and H.T. Odum are among my intellectual heros!
Wikipedia has a page on cological economics (at: http://en.wikipedia.org/wiki/Ecological_economics ) that gives a good background on the subject.

Thanks.

George