Economics in a Full World

The global economy is now so large that society can no longer safely pretend it operates within a limitless ecosystem. Developing an economy that can be sustained within the finite biosphere requires new ways of thinking.

by Herman E Daly

Scientific American (September 2005)

Growth is widely thought to be the panacea for all the major economic ills of the modern world. Poverty? Just grow the economy (that is, increase the production of goods and services and spur consumer spending) and watch wealth trickle down. Don't try to redistribute wealth from rich to poor, because that slows growth. Unemployment? Increase demand for goods and services by lowering interest rates on loans and stimulating investment, which leads to more jobs as well as growth. Overpopulation? Just push economic growth and rely on the resulting demographic transition to reduce birth rates, as it did in the industrial nations during the 20th century. Environmental degradation? Trust in the environmental Kuznets curve, an empirical relation purporting to show that with ongoing growth in gross domestic product (GDP), pollution at first increases but then reaches a maximum and declines.

Relying on growth in this way might be fine if the global economy existed in a void, but it does not. Rather the economy is a subsystem of the finite biosphere that supports it. When the economy's expansion encroaches too much on its surrounding ecosystem, we will begin to sacrifice natural capital (such as fish, minerals and fossil fuels) that is worth more than the man-made capital (such as roads, factories and appliances) added by the growth. We will then have what I call un-economic growth, producing "bads" faster than goods - making us poorer, not richer [see box "When Growth is Bad" below]. Once we pass the optimal scale, growth becomes stupid in the short run and impossible to maintain in the long run. Evidence suggests that the US may already have entered the uneconomic growth phase [see box "Measuring Well-Being" below].

Recognizing and avoiding uneconomic growth are not easy. One problem is that some people benefit from uneconomic growth and thus have no incentive for change. In addition, our national accounts do not register the costs of growth for
all to see.

Humankind must make the transition to a sustainable economy - one that takes heed of the inherent biophysical limits of the global ecosystem so that it can continue to operate long into the future. If we do not make that transition, we may be cursed not just with uneconomic growth but with an ecological catastrophe that would sharply lower living standards.