Thursday, October 3, 2019

Limits to economic growth?

Christopher F. Jones, The Delusion and Danger of Infinite Economic Growth, The New Republic, October 1, 2019.
The fairytale of infinite growth—which so many today accept as unquestioned fact—is relatively recent. Economists have only begun to model never-ending growth over the last 75 years. Before that, they had ignored the topic for a century. And before that, they had believed in limits. If more people saw the idea of infinite growth as a departure from the history of economics rather than a timeless law of nature, perhaps they’d be readier to reimagine the links between the environment and the economy.

In 1950, the economics profession had surprisingly little to say about growth. That year, the American Economic Association (AEA) asked Moses Abramovitz to write a state-of-the-field essay on economic growth. He quickly discovered a problem: There was no field to review.

Yes, John Maynard Keynes had offered a theory of stagnation, demonstrating the need for government spending to stimulate an economy mired in recession, and Austrian political economist Joseph Schumpeter had studied creative destruction, highlighting the importance of entrepreneurs and innovation. Wesley Mitchell, founder of the National Bureau of Economic Research, had looked at business cycles and others had analyzed monetary forces. But no one had put it all together in a theory of growth. Modern work was “fragmentary” and had “remained on the periphery of economics,” Abramovitz explained to AEA members. Development economist W. Arthur Lewis agreed, noting in 1955 that “no comprehensive treatment of [economic growth] has been published for about a century.”

It was an interesting turn for a field originally quite interested in growth, but convinced it was bounded. The founding fathers of economics—luminaries including Adam Smith, David Ricardo, and John Stuart Mill—shared a belief that growth was finite, and that the reason for limits lay in the natural world.
And then along came Robert Solow:
Solow launched modern growth theory with a pair of pioneering articles written in 1956 and 1957. Still alive today, he has done more to shape growth theory than any other thinker.

Like Abramovitz and Lewis, Solow turned his attention to growth in the 1950s because the topic was “in the air.” Calculations of Gross National Product (GNP) had been pioneered during World War II and were spreading across the globe. Fueled by international competition and the reality of robust economic expansion in many nations, growth had quickly become the catchword of the day in economics departments and government bureaucracies.

Solow advanced these discussions with a new model of growth, one that sought to analyze the relative contributions of capital, labor, and technical progress. Whereas Smith, Ricardo, and Mill had taken for granted that land was one of the three factors of production with labor and capital, Solow assumed that land did not matter. To the extent that land or natural resources merited mention (and they rarely did), they could be seen as a sub-category of capital, interchangeable with money or machines.

Ignoring land meant cutting the natural world out of modern growth theory at its inception. Solow wrote that this seemed the “natural assumption” to make in a theory of growth, though he did not specify why. And since in the 1950s, abundant land and resources appeared available, few would have disagreed. Moreover, Solow was a modeler, and the chief virtue of a good model is that it simplifies. A map of a city that included every detail would be as large as the city itself, of course, and of no real use. With bottomless pools of oil in the Middle East, extensive minerals from developing nations, and swaths of farmland available, why clutter a model by including them?
And then along came the environment movement of the 1960s and the 1972 report, The Limits to Growth, which Solow dismissed. But
...he was a left-of-center thinker committed to government intervention and planetary protection. He wrote about abating pollution and joined a Sierra Club board. And he scoffed at infinite models: The real world is so complex that to predict more than twenty years into the future is foolhardy, he once told a Congressional committee. [...]
The specific blind spot in his model was climate change. When thinking about economic growth, he and other economists focused exclusively on inputs to the production process. Would we have enough coal, oil, iron, and minerals to make new goods? With price signals, substitution, and technological change, Solow and his colleagues were convinced we would. But they did not consider outputs—waste and pollution—to be more than a nuisance. They did not imagine that greenhouse gas emissions could be so consequential as to threaten ecosystem integrity in ways that could affect growth.
Whoops!

No comments:

Post a Comment