Sustainability in Economics: Escaping the Downward Spiral
Posted on May 05, 2009
I listened to an economist on the radio this morning, droning on about how "history repeats itself". I propose that this (often misused, always annoying) common phrase be replaced with the first assumption of the scientific method: "If you keep doing the same thing, you will get the same results".
The difference is important. If "history" has the magical power to repeat itself at will, then we are powerless, and we are absolved of responsibility at each iteration of the cycle - JUST BLAME HISTORY! Every time the growth of our economy slows, we "stimulate" it with a few billion dollars of bail-out money and tax cuts. We make sure that credit is widely and easily available so that spending continues. The Canadian, American and British stimulus packages all focus on these two points. And yet, last week, everyone agreed that the current economic slump was CAUSED by the over-availability of credit (e.g. sub-prime mortgage crisis) and massive deficit spending (e.g. Bush Administration). I propose that the solution for this economic problem is unlikely to be the same as the cause. Unfortunately it is probably too late to stop THIS cycle of our economic history from repeating. Stimulus packages, reduced energy prices, and easily available credit will stimulate the economy... temporarily. After the next round of explosive growth, as we approach yet another depression, we need to consider restructuring the world's economic systems. The world today is different from the world in which our economic system was born. A century ago, resources and energy were (for all we knew) infinite. It was simply a matter of finding and digging up precious substance x. The 1973 oil crisis was probably the first time it became alarmingly clear how closely our economic system is linked to the infinite availability of resources and energy. Our knee jerk reaction was to increase efforts to assure access to resources, overthrowing governments and waging wars as necessary. The part that no one seems to want to talk about is the fact that these situations show how our economic models are based on an assumption of infinite economic growth. Sustainability is a term more commonly associated with environmentalists than economists, and when economists do mention it, they are instead referring to sustainable growth. We can all agree that unlimited growth is impossible, and yet when investors go to work, they leave this idea at home. Lately, the most publicly discussed symptom of this problem is the American Social Security program, which was designed around the idea that one could invest money and realize a solid, predictable profit on it, year after year, from now until eternity. With an imminent increase in retirees/payouts, the government is being forced to realize that this plan cannot work indefinitely. I see various reactions to evidence of these sustainability issues. Economists know it's true but don't seem to have any suggestions on how to make things better. Politicians are only interested in band-aid short term solutions that will yield quick enough results to get them re-elected. Authors and the media usually steer the issue toward the kind of fear-mongering and sensationalism that sells books. The one reaction I don't see very often from anyone, is making suggestions for how to fix things. Here's my list: 1. Apply Economic Stimulus Cautiously Economic stimulus must be directed toward new, promising technology and manufacturing. When sales of a product decrease, we should not continue to fund the production of that product just because we're afraid of job loss. Tax-payers should not pay to keep factories pumping out fuel-inefficient cars that no one's buying. 2. Focus on Retraining Programs In times of economic shifts, jobs will be lost in some fields, and created in others. Support programs must be in place to ensure workers stay reasonably mobile. 3. Maintain Control Over Natural Resources The government must not allow corporations to develop natural resources at whatever rate they choose. Corporations are bound by a responsibility to share-holders to pay dividends and are therefore motivated by profits much more than they are motivated by the long term welfare of the people. Closer attention should be payed to economic and environmental advisers when granting licensing. 4. Repair Instead of Replace Programs should be put in place to encourage people to have things repaired, rather than replaced. Programs should especially attempt to divert potentially repairable items from landfill toward repair shops. Anyone who has been to Cuba will understand what I mean when I say that we are much to quick to throw away things and buy new. blog comments powered by Disqus |
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