11 April 2008

Sustainable Development

[many excerpts = long post] I just learned of Herman Daly from the Pluralist Economic Review. He coined the concept of "sustainable development". (Ironic -- we need the term only when things become unsustainable.) I read a few of his pieces, and these are all worth a look:

Interview: The Irrationality of Homo Economicus
what if economics is to move away from being a self-centred academic discipline interested only in working out the consequences of its own assumptions and if it's to engage itself more in the world. And we argued that you have to shift from Homo economicus as the isolated individual to the idea of person in community, whose identity is largely a function of his relationships in community with others and with the ecosystem. So that this community perspective of social and ecological interdependence is critical - and for the future.

Sustainable Development: Definitions, Principles, Policies
[pdf]
[Speech to the World Bank:] Reducing poverty is indeed the basic goal of development, as the World Bank now commendably proclaims. But it cannot be attained by growth for two reasons. First, because growth in GDP has begun to increase environmental and social costs faster than it increases production benefits. Such uneconomic growth makes us poorer, not richer. Second, because even truly economic growth cannot increase welfare once we are, at the margin, producing goods and services that satisfy mainly relative rather than absolute wants. If welfare is mainly a function of relative income then aggregate growth is selfcanceling in its effect on welfare.
Steady-State Economics
The first question asked of any critic of the status quo is: What would you put in place? In place of the growth economy we would put a steady-state economy. But such a theoretical alternative is not of great interest unless there is dissatisfaction with the business-as-usual growth economy. If you have eaten poison, it is not enough to simply resume eating healthful foods. You must get rid of the specific substances that are making you ill. Let us, then, apply the stomach pump to the doctrines of economic growth that we have been force-fed for the past four decades. Perhaps the best way to do that is to jump right into the growth debate and consider critically some fifteen to twenty general pro growth arguments that recur in various guises and either expose their errors or accommodate their valid criticisms.
Speaking of growth and inequality, I also recommend this interesting essay [dead URL], which offers a very thorough critique of the current measures of inequality.
the problem of world poverty is both amazingly small and amazingly large. It is amazingly small in economic terms: The aggregate shortfall from the World Bank’s $2/day poverty line of all those 40 percent of human beings who now live below this line is barely $300 billion annually, much less than what the United States spends on its military. This amounts to only 0.7 percent of the global product or less than 1 percent of the combined GNIs of the high-income countries. On the other hand, the problem of world poverty is amazingly large in human terms, accounting for a third of all human deaths and the majority of human deprivation, morbidity, and suffering worldwide.
I exchanged several emails with the author (Pogge), and our agreement broke down over the "exchange rate" between efficiency and equity, aka, the pie and how to divide it. While everyone agrees that making the pie bigger is good (in a sustainable way -- see above), the difficulty comes in redistribution and the incentives that redistribution encourages. While I may be willing to give up one unit of "things I like" so that a "poorer" person could get 5 units of things she likes, would I give up four units? From my understanding of Pogge's email comments, ANY redistribution from rich to poor is defensible. For me, it is not: First, because things we have are sometimes earned. Second, because incentives to work or struggle fall when egalitarian redistribution is in the cards. (And we saw where "from each according to his abilities, to each according to his wants" took us...)

Bottom Line: Our economic system and ideology does not do a very good job at protecting the losers -- whether they be Nature, future generations or the poor. "Growing the pie" is hardly the solution when many benefits are possible from a wiser re-distribution of the pie. The tricky part is undoing the unfair, dumb and unsustainable distributions that we live with now -- within the U.S., within poorer countries and between countries.

3 comments:

  1. Well put -- some of your post when debating these other bloggers is pretty heady stuff.

    But we do a poor job of "protecting the losers".

    Some "losers" are losers because they don't want to contribute to society, their culture or mind set is self serving short term gain, perhaps, to their ultimate detriment.

    But the hardest working people I know stuggle financially, have a hard time getting to the next pay day, and are not sure of their financial future.

    One reason they struggle -- they are overtaxed. If we are going to help economic disparity -- lets start there. Lets get that mess cleaned up first.

    Then we can get to the more "heady" stuff.

    First -- do no harm. And I think overtaxing workers is a form of harm to them.

    I have no idea how to help these other developing countries, some of who are in abject poverty. Im still struggling to get a bit of rational fairness in the USA.

    Was it Marx or Engles who said from each according to his abilitie, to each according to his needs? Turns out, that was horribly flawed system.

    But given what Marx and Engles had seen of predatory capitalism, I don't blame them really. They moved the ball down the field, even if it went out of bounds.

    I would rather have learned those lessons without all the suffering. But that was because of cruel people in charge, and the limited ability of the victims to fight that totalitarian system.

    Marxs and Engles didn't anticipate a blended system, a system which could have some measure of fairness, but keep capitalism and greed as the prime movers.

    Whatever economic system you have, given the nature of selfish man, you need aalance, openness, and transparency.

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  2. You got me wrong on some important points.

    The main one is this: We never got to discuss the efficiency-equity trade-off question because we never arrived at a common conception of efficiency. I do not accept money as a morally acceptable metric for assessing the efficiency of an economic system; and, while I accept Pareto efficiency as a condition that an economic system should satisfy to count as efficient, I do not accept Kaldor-Hicks, that is, the idea that efficiency is higher when the social product (or the social product per capita) is higher -- regardless of distribution. Suppose two distributions differ such that the top two deciles have 20% more under A than under B and the bottom eight deciles have 20% more under B than under A -- I would not accept that A is "more efficient" than B merely because the relative gain of the affluent under A is greater than the relative gain of the poor under B.

    Second, in terms of any notion of efficiency I would find acceptable, I would certainly NOT say that you can trade off ANY amount of it for greater equity.

    There is a third point, maybe less important: My discussion is not of REdistribution, about how an existing distribution of holdings can be improved by taking from some and giving to others. My discussion is about how the rules of an economic system should be designed and adjusted in light of the distribution each design option is expected to generate.

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  3. Thomas, I completely agree with you on point one. My version: Kaldor-Hicks is B.S.

    On point two, I think we agree on the big picture but draw the line in different places.

    On point three, I think we have the biggest disagreement. Changing the incentives in the system of rewards can lead to dramatic changes in behavior -- for good and bad. OTOH, the system is often the problem, as has been stated so well by Daly (and supported by you). Although it seems I have little to lose in changing the current system, I would worry that we would end up more like China and less like Denmark if "reformers" are allowed free-rein.

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