Could Our Economy Survive in a Steady State?

US Gas Prices
Chart by Stuart at Random Useless Info.
For the previous 30 years, 1950-1979, price was steady at about $0.30 – 0.40/gallon before spiking near the end of the 1970s.

Last week I wrote about Herman Daly’s 10-step prescription for a steady-state economy. These 10 steps were policy actions to be taken by governments and regulators, and the article didn’t provoke much response.

But suppose we make this scenario personal. If these 10 steps were instituted, today, what would our world look like five years from now? Would limiting pollution and ‘taxing bads not goods’ change our lives as citizens, producers and customers significantly?

I believe the changes would be astonishing, and I’m not sure most of us would like them. Here’s what I think would happen:

  1. The stock market is based on continuous, double-digit growth in profits. A steady-state economy would not permit such growth. Stock prices would fall to reflect the risk-related yield, which, without growth, would be a fixed dividend. And they would stay there — at perhaps one quarter their current value. Without growth, stock equity would be largely indistinguishable from debt, except that it would be unsecured. 
  2. The loss of 3/4 of the value of stocks would wipe out millions of people’s equity, and make a lot of pension plans, dependent on the value of stocks increasing, next to worthless.
  3. Prices of goods dependent on non-renewable resources (‘bads’) would soar as new taxes were imposed on them. I think we could safely assume that the price of fuel, heat, air conditioning and transportation would at least quadruple, and that of food, clothing, health, furniture, home maintenance, cosmetics and household products (all dependent on oil and other non-renewable resources) would at least double. The revenues produced from these new taxes would subsidize renewable energy innovations, which are desperately needed but would not return much to the average citizen, at least not in our lifetimes. Some of these new revenues would go to provide Daly’s guaranteed minimum annual income. I suspect a large proportion of the population in countries like the US with great income inequity would end up dependent on this minimum annual income to pay for their basic necessities.
  4. A doubling of prices over five years would push the inflation rate (which is already arguably deliberately understated) to double digits, and borrowing rates would rise to keep pace, perhaps to 15% or more. At the same time, the loss of purchasing power would cause housing prices to plunge, perhaps by half. Take the average variable mortgage, refinance it at 15%, compute the mortgage payments on a house that may only be worth half the amount of the mortgage, and you have a recipe for disaster. Financial institutions would have to write off as much as half the value of their customers’ mortgages, since foreclosing would net them even less than that. Few banks would be able to survive the turmoil.
  5. Many large businesses with large debt loads would find themselves insolvent, and go out of business. This would throw millions out of work. Many others would face large cuts in salary.
  6. There is a positive side to this. We would, of necessity, consume a lot less unneeded junk. We would find workarounds to expensive ‘consumer products’ (by learning to entertain ourselves for example). We would buy more locally-made products. We would get around on our own power (walking and cycling) much more. We would learn to fix things instead of throwing them away, and gradually educate ourselves to buy better quality goods that would last longer, even if they cost more. The gap between rich and poor would narrow significantly. Affluent nation salaries would fall to levels comparable to struggling nations’, reversing the offshoring of jobs. Imperial wars could no longer be financed with the drastic drop in income taxes and prohibitive borrowing rates.

Of course, the current public debate, about whether gasoline taxes should be cut to stimulate consumer spending and lessen the recession, or how long the recession will last before ‘sustainable growth resumes’, misses the point entirely. Ever-increasing consumer spending, the engine of our ‘growth’ economy, is not sustainable, period. The longer we wait to wean ourselves off our addiction to growth, the harder it will be.

The pundits and politicians know that doing what Daly recommends is immediate political suicide, and that not doing what he recommends is accelerating ecological suicide. Not much of a decision there.

The real debate, I think, shouldn’t be over the wisdom and necessity of instituting the policy changes that Daly recommends. It should be about the political impossibility of doing what he proposes. And about what we will do instead, and its consequences, for ourselves and futuregenerations.

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3 Responses to Could Our Economy Survive in a Steady State?

  1. Chaitanya says:

    I used to think in terms of this kind of “systemic” solution .. but i now wonder if this is like putting cart before the horse. As you said, in absence of political consensus, these are mere theories.The real debate to me is — why is it that some of us feel strongly of the necessity of a different kind of economy/life , while other do not. What is the deepest reason ? Is the question emotional .. merely intellectual .. spiritual ? One needs to attack the problem from there and resolve it. Once that is resolved political consensus becomes automatic.Once there is political consensus, i believe strongly that solutions will evolve naturally .. both individually and societally.

  2. These things are dynamic – neither the “cart” nor the “horse” comes first. Changes in public opinion encourage changes in policy, and new policies that work and turn out not to be so bad encourage public opinion.The key question is what is the limiting factor. I honestly think it is leadership – certainly in the UK the political classes are showing none on this kind of issue. They aren’t using their position to explain it clearly, think about the future, and then enact what needs doing.Of course the dynamic two-way feedback nature comes in here – and improving the public position will encourage people to be leaderful.I don’t think that Daly’s policies are political suicide. Given the right marketing (i.e. explaining the necessity of doing them to save our economy), the right language (i.e. not using words like green or environmental), and the right political courage. The UK Government invaded Iraq, and that was very controversial, and a hard decision, and became less popular with time. But they still won the next election. I hardly think, say, abolishing income tax tomorrow would upset people more.

  3. Rimu says:

    In terms of what we will do instead, it looks like ‘transition towns’ have a few ideas!’s a bottom-up grass roots solution, rather than hoping for a top-down (central government) solution

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