Monday, April 23, 2018

The Illusion of Growth and the Fallacy of Kuznets Curve

Much of what we call growth is an illusion that is harmful to both humanity and the biosphere. Some have even ventured to put forward the absurd suggestion that economic growth as we currently define it can be good for both equality and biodiversity. This idea is expressed in what is known as a Kuznets Curve. In economics, a Kuznets Curve graphs the notion that as an economy develops, market forces first increase and then decrease economic inequality. The Environmental Kuznets Curve hypothesizes that in the early stages of growth, biodiversity tends to suffer and in the later stages it benefits. However, both of these hypotheses are contradicted by the facts. Inequality is increasing and so are the destructive impacts we are having on our ecosystems.

A 2013 Economist magazine special report uses the logic of the environmental Kuznets Curve to suggest that we may not need to be concerned about growth because among other things, as income rises people can focus on nature. It is premised on the belief that as a nation's prosperity increases so too will their support for the environment. This has not materialized as research shows that the environmental impact of wealthier nations is greater than that of poorer nations.

In a Quantdary article Professor Gregory Mikkelson, from the Department of Philosophy and School of Environment at McGill University, says the Economist special report is a "special fantasy". He points to our ecological footprint (environmental depletion and pollution) which shows that between 1980 and 2005, the total ecological footprint of humanity rose by two fifths, to nearly 1.5 Earth’s worth of regenerative and assimilative biocapacity. This trend has only worsened since 2005.

According to this logic wealthy people are more likely to pay for biodiversity conservation. However, this is not born out in the research. According to a paper on biodiversity conservation values and income, "the income elasticity of willingness to pay is less than one".

Inequality

Growth does not reduce inequality it causes it by driving down wages and creating a disenfranchised labor force. It incentivizes exploitation and exacerbates disparities and imbalance. It ignores planetary boundaries and over-consumes nature's capacities.

The boom and bust cycles mean that what we call growth is commonly just recapturing past gains and to make matters worse these gains are going to the tiny minority. The growth we have seen since the recession of 2008 has increased the concentration of wealth and power while the vast majority of people are experiencing declines in their standards of living. Median incomes have been stagnant while the richest 1 percent have captured 95 percent of the post-recession gains.

Globalization

The obsession with growth has fueled globalization which has disenfranchised huge numbers of people all around the world. Globalization has left many behind and contributed to a deep sense of isolation and alienation. "The man who is isolated—who is unable to share in the benefits of political association, or has no need to share because he is already self-sufficient—is in no part of the polis, and must, therefore, be either a beast or a god," Aristotle said.

We should appreciate that globalization is an offshoot of colonialism which allowed western nations to become wealthy by exploiting the resources of the colonies they dominated. This is neither efficient nor moral. Global marketplaces now undermine local realities and override regulatory frameworks.

In a pre-globalized economy, we were tethered to immediately available resources which tended to be more local. In a globalized economy resources are allocated not according to need but as a function of the wealth of the purchasers.

As is all too evident in the US and Europe, these dispossessed people are vulnerable to insular xenophobia and they have helped to give rise to authoritarian governments.

Neither productivity nor progress

Growth should not be confused with either progress or productivity. Free markets are meant to drive efficiency and growth is the incentive that hypothetically drives productivity and increases our standards of living. However, this is not how it actually works.

What seems like economic growth is actually taking place alongside stagnant productivity and a reduction in our standards of living. Since the 1970s we have seen a trend towards greater returns from stagnant production. This has been achieved in large part by privatization that capitalizes on low wages afforded by a globalized economy.

The perils of confusing growth are explained by Kent Welton as follows:
"The real meaning of capital's "progress" is that growth must proceed until all desirable optimums are exhausted and destroyed. Preservation of any human or ecological balance and more desirable state of affairs is denied in theory and practice. Pursued for its own sake, and without reference to extant conditions."
Financial innovations driven by and feeding into our conceptions of growth are another grand illusion. They do not represent either progress or productivity. The derivative and currency markets offer examples of economic growth that hurts investors and even contributes to disastrous political outcomes.

Innovation

Our market based economy is premised on the belief that when resources become too expensive due to scarcity we will find alternatives and/or innovate. However, this pervasive economic dogma is not supported by the evidence.  While such innovations exist the failure to implement them on the required scale is an enduring market failure of colosal proportions.

Leading technological innovations are focused on electronic platforms like Google and Facebook. These digital technologies are focused on data collection that is used for targeted marketing. Such psychometric marketing triggers us to buy things that we do not really need and the biosphere can ill afford.  

GDP

One of the reasons that we are able to sustain the mirage of growth is due to our use of gross domestic product (GDP) to measure success. Growth is measured by increases in production, distribution and consumption, as expressed by GDP. This is not an accurate guage of well-being or progress. A number of prominent people have expressed concerns about GDP as a measure of growth.

Robert F. Kennedy said, GDP, "measures everything, except that which makes life worth living." Vandana Shiva, Ph.D. is an environmental activist who says "The cult of 'growth' has dictated policy for decades. But if well-being, not growth, is our goal, selling resources that bring long-term well being to communities for short term gain is a very bad deal. Hard as it may be for the West to understand, protecting the ecological resources of communities might be more important than GDP figures".

Cancer

Gross National Product is another problematic metric. As explained by Bill Mckibben, "Under the current Gross National Product - GNP - system... all we do is add together expenditures, so the most 'economically productive' citizen is a cancer patient who totals his car on his way to meet with his divorce lawyer."

This is why growth as we currently define it can be compared to a deadly parasite or cancer.  It thrives by killing its host.  Edward Abbey was an American author and environmental advocate. He said, "Growth for the sake of growth is the ideology of the cancer cell". This type of growth is both uneconomic and amoral. It directly promotes environmental devastation and leads to ruin.

According to Welton, "growthism is a cancer producing continual per-capita diminishment and illusory profit - until space for natural freedom is exhausted and our enclosure, dependency, and despair are complete."

Population

Another way that we perpetuate the illusion of wealth is through population growth. A growing population gives the impression of growth. However, GDP conceals the fact that burgeoning populations also translate to per-capita declines.

Paul Samuelson was an American economist and the first American to win the Nobel Memorial Prize in Economic Sciences said, "A growing nation is the greatest Ponzi game ever contrived. Much of what we measure as growth is not about increased productivity it is a function of increasing populations. This is more accurately understood as a per-capita decline in the essential quality of life as measured by overcrowding, environmental degradation and resource consumption. According to this view, our notions of growth and progress are premised on a self-defeating premise that benefits the tiny minority."

Isaac Asimov wrote that overpopulation is a danger to both democracy and the basic value of human life. "As you put more and more people into the world, the value of life not only declines, it disappears. It doesn't matter if someone dies. The more people there are, the less one individual matters," Asimov said.

Global population increases the demands on the earth's already overburdened carrying capacity. Concerns about population growth have been around for decades. The famous oceanographer Jacques Cousteau (1910-1997) said, "We must alert and organize the world’s people to pressure world leaders to take specific steps to solve the two root causes of our environmental crises – exploding population growth and wasteful consumption of irreplaceable resources. Overconsumption and overpopulation underlie every environmental problem we face today."

The late world-renowned physicist Stephen Hawking has also weighed in on the dangers of overpopulation. Even religious groups are sounding the alarm about population growth. The General Synod of the Anglican Church of Australia has warned that current rates of population growth are unsustainable and may even be out of step with church doctrine.

Flaws and fixes

Our conceptions of growth are flawed.  Our economic models continue to largely ignore our diminishing standards of living and the ongoing destruction of our biosphere.  We have growth without productivity and misleading financial innovations that create the illusion of growth. Many of our greatest technological achievements are little more than sophisticated marketing platforms that encourage us to perpetuate the illusion of growth.

Many of the gains we call growth are illusory as they are based on recovery from past losses, the one percent capitalizing on low wages while producing less, population increase, and using metrics like GDP and GNP.

Prevailing definitions of growth benefit neither people nor the planet. To engage in international trade and adapt to population growth we need new more sustainable economic models that balance global and local concerns and factor social and environmental realities.

Related
The Perils of Growth and the Ubiquity of Growthism

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