Some environmental scientists argue that these environmental impacts mean that economic growth is now destroying society. Economists tend to counter that the only way to keep society stable is to keep the economy growing.
Trained as a scientist myself, it is perhaps not surprising that I doubt the possibility of infinite growth on a finite planet. I am puzzled as to why economists find the standard economic arguments put forward for growth attractive, while dismissing concerns about physical limits to growth as, well, a bit silly.
However, a few weeks ago I came across the first convincing explanation of why the economists’ view is so compelling. It came in a lecture given by the famous Cambridge University economist Partha Dasgupta. He makes the point that it is difficult to appreciate the deep appeal of these ideas for economists who do not understand the historical context of their appearance – the post-war era in which technological innovations in areas such as medicine , agriculture and chemistry have done a lot to create global prosperity.
However, growth theory itself, Dasgupta argues, contains serious flaws that drive modern economics in important ways, with the result that our continued pursuit of growth is now actively reducing overall wealth. on the planet. The key question that Dasgupta raises – and then answers – is this: How did economic theory get itself into a situation where it does not consider the natural world as an integral part of our economic wealth? ?
An early growth theory, proposed by economist Robert Solow in 1948, states that long-term growth depends on fundamental factors including population growth, saving and investment, and the rate of -technological advances. Later theories of development actually follow this plan, emphasizing technological innovation — our ability to continually find new ways to use things more productively — as the real engine. of economic growth.
Dasgupta points to this deep belief in innovation – economists point to what they saw happening in the post-war era – as the reason why economists in the 1970s rejected the proposals of natural scientists that ‘ g have natural limits to growth. These scientists suggest that human expansion in economic activity will eventually grow too large for the planet to safely contain; that our activities undermine much of the value produced in the natural world. Economists dismiss these concerns, believing that innovation will always allow people to find a way to solve such problems.
The early growth theorists – not by intention, but by some subtle assumptions they made – effectively stipulated that nature had no important role to play in supporting economic growth. In the standard theory, human innovation enters the growth formula as a pure human construct, not relying on the many valuable things that the environment provides for us, such as clean air and water, a stable climate and large reservoirs of complex biomatter. As a result, innovation, and progress, is always possible, even when the natural world is severely degraded.
This seems like a huge oversight today, when the science of ecology is well developed and we have decades of evidence showing the natural costs of human activities. But we didn’t have these things when growth theory was originally developed. The ecological field is almost non-existent. “At this early stage,” he told me in an interview, “I don’t think it’s a terrible idea to keep nature out of the economic model.”
But, he argues, it is surely unfortunate to continue this way now, and he takes important steps in showing how economists can incorporate innovation into growth theories in a way that recognizes its deep dependence. in the natural environment. The main problem is that today’s economists, when they talk about growth, almost always mean GDP growth, without recording the decrease in natural capital that occurs during the production of goods and services. What Dasgupta tried to do in his work was to include the nature of accounting in economics.
At this point, his lecture went into the detailed mathematics of growth theory, which I will not delve into here. In short, he shows how little change in mathematics explains that our human ability to change is always dependent on a stock of goods and services provided by the environment. Consequently, the depletion of this stock also depletes our ability to continue doing new things.(1)
“If a household consumes more than its income,” as Dasgupta puts it, “it can spend the excess by depleting household wealth — selling stocks, drawing down savings accounts in the bank, and so on. But it can’t go bankrupt forever. That is the problem facing humanity today, and why we need to shift the discussion to the inclusive wealth of nations and the global economy, not GDP.
Dasgupta has taken a big step forward in showing precisely, within economic orthodoxy, where growth theorists can take the objections of environmental scientists seriously, and construct a more realistic and useful theory as a result. . The revised theory still holds economic growth to be very positive, but sees growth not as GDP growth, but as more inclusive growth, which must preserve the value of natural world to sustain prosperity.
The successful theories of one era are often so entrenched that they inhibit later scientists’ ability to think clearly. But today, there is every reason to take the limits of growth concerns seriously: A United Nations study from 2018 found that the world’s natural capital decreased by almost 40% between 1992 and 2014. Mopatim -we are consuming the stock of natural wealth on which we ultimately depend.
I heard Dasgupta’s lecture at the International Center for Theoretical Physics in Trieste, at a meeting convened by the US State Department. It is unique because it brings together economists, physicists, ecologists, demographers and business leaders to break down some of the intellectual barriers to real sustainable development. More events like this are desperately needed.
Because technological innovation may not be enough to get us out of this mess. For that, we will also need innovation in our economic thinking.
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(1) Readers interested in the mathematical details should refer to the highlighted chapters, especially chapter 4, in an important report produced by Dasgupta in 2019 for the UK Treasury: The Economics of Biodiversity: The Dasgupta Review.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mark Buchanan, a physicist and science writer, is the author of the book “Forecast: What Physics, Meteorology and the Natural Sciences Can Teach Us About Economics.”
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