Secular stagnation and the steady-state

Krugman has just promoted a new ebook by Vox on "secular stagnation" that will prove interesting to serious scholars of ecological economics and other economics of climate change, particularly micro.

You can access it here.

The secular stagnation hypothesis is important not only because it helps us think through what will happen when population growth in the US finally peaks, as it is scheduled to do around 2050. It also informs a much older debate on steady-state thinking.

This is all a bit wonkish, but basically when it comes to economic policy to prevent climate change, or adapt to it, you have several choices.

"Strong" ecological economists like Herman Daly and his Huxlerian "bulldog" Brian Czech want us to move to a point where the global economy isn't growing, at least in terms of material throughput. This is one version of what has been called a "strong" sustainability rule. We would have to arrange matters very differently to provide access to psychologically satisfying and productive employment, as well as sustainable consumption, for all, in the absence of a purely free market in raw materials (and thus a more planned economy). Something like a "gross national happiness" calculus or "sustainable economic welfare" would have to take the place of current GDP-based policy. This is the economics I studied under Herman Daly in the 1990s, and the economics of the International Society for Ecological Economics. I think their approach is more scientific, but politically unreachable, and worry about the effects on individualism and human rights. One result, however, would be the aversion of climate disaster. That would be rather nice.

You might also opt for a "weaker" sustainability rule, whereby a nation might run down its natural capital, substituting human capital. I thought this was dangerously subjective, and so didn't properly address climate change, which after all is a material throughput problem that can't be solved by substitution. I also thought that this subjectivity would lead to endless international arguments. But at least it would be something.

A narrower approach, more palatable for the mainstream, is that of climate economics à la Nick Stern and other "precautionists" who would have us limit throughput in climate emissions (but not in other material flows), essentially as insurance against climate disaster (but not other ecological difficulties). The one percent of GDP Stern thought was necessary to avert disaster (albeit back in 2006 -- the sell-by date has expired on that one, I'm afraid) was, as he put it, an "insurance" premium that a responsible global "householder" would surely pay in order not to have to face climate collapse, even if that householder didn't have a perfectly certain climate prediction on which to base this expense. I thought Stern's ideas were "good enough" in the sense that they would get us where we needed to be in terms of GHG emissions, but were also conservative enough to win political support. I was willing to put off wider ecological economic reform for now, if only we could get emissions reductions at least on the table, politically speaking. Stern remains to my mind the best bet for a politically palatable climate economics.

Then you have my "Green Keynesianism." I doubt very much that anyone that considers themselves a serious climate economist thinks of this theory as a contender yet, but that may change.

The secular stagnation hypothesis feeds into this important climate economic policy debate in this way: If the economy is no longer growing, doesn't that actually begin to get us where we need to be with material throughput? Isn't this ecological economics through the back door?

A purely stagnant economy is not, I must admit, in a steady state of material throughput. But with deliberate policy it could get there much more easily than a growing economy can.

The fly in this rose-colored ointment (mixing my metaphors rather unforgivably) is that democracy continues to need growth to face down the planet's remaining dictatorships and brigands.

Wouldn't Vladimir Putin just love it if (as he masses his troops on the Ukrainian border and waits for a Hitlerian pretext) the west went into another recession? The sanctions would fly, but he could just turn to the already woefully under-informed Russian people and say, in effect, "Look at this basket case, the west. Why would we worry about sanctions? Why chain ourselves to this corpse."

While the Communist Party of the People's Republic of China would simply continue with their current policy of substituting internal for export-led growth, no doubt using the political power this gave to stave off democratic reform for yet another generation, watching happily as democracy in the west went into a death spiral, saying to its woefully under-represented people, in effect, "look at what democracy gets you. Aren't you better off with us?"

Oy vey and Ai Wei Wei.

So we'd better not have secular stagnation just yet, had we?