Saturday, February 07, 2009

In response to the last post Oli commented :

I'm not convinced that an economy with a growing numerical size (as measured by some currency) necessarily has to have a growing ecological footprint.

Agreed in principle. But probably hard to find counter-examples in practice.

Basically, if the *numbers* are growing, but the "consumption" isn't, then that's just *inflation*. And governments are already concerned to keep inflation low, meaning to keep the growth of the money in sync. with the growth of consumption.

But then Fractional Reserve Banking specifies that money *has to* grow, so to avoid either catastrophic failure or inflation, the only thing governments can do is try to *increase* "consumption".

That's the big issue as I see it. Not that *we* consumers are affected by FRB - we'd like to consume anyway - but that government policies are hostage to the desire for growth.

So when, for example, BAA promises that a new terminal at Heathrow will help increase business in the UK, the government is faced with a choice between a rather vague, "long term" threat of ecological damage (and frankly there's a tragedy of the commons because they think that if they don't allow it, another government will); and a very concrete risk that they won't make their growth quota this year and either a) they raise interest rates, throttle borrowing, create less money and a whole lot of debtors will go bust and people lose their jobs; or b) they don't raise interest rates, borrowing continues, extra money is created to pay the interest on last year's debts, but without new consumption, the extra money is soaked up in rising prices.

Now it's possible, in theory, that with technological innovation, consumption can increase while the ecological footprint decreases.

In practice, a) an innovation is a one-time event which drops the cost of a particular product, but doesn't alter the *trajectory* of increasing consumption (in other words, it's a delay, not a solution); and b) - worse - often the reduction in resources consumed by a product simply becomes a drop in price, which, in turn, *accelerates* consumption. People buy 20 dresses a year instead of 2.

In other words, to have growth in consumption without growth in ecological footprint, you need a constant and reliable stream of technical innovations which are reducing the footprint of a product-category *faster* than the increase in consumption of that category including acceleration of consumption due to the fall in price.

It's hard to think of examples.

1 comment:

Oli said...

Two thoughts:

1. I guess that a switch from physical consumption to digital consumption (with an accompanied switch in what the workers producing the goods are working on) could in theory allow consumption levels to rise with a falling ecological footprint.

For example, don't buy a real dress, but pay someone to design you a digital dress in Second Life.

Obviously the digital dress isn't entirely without an ecological footprint but in theory the consumption of some 'services' and digital 'products' could increase without an increasing ecological footprint.

In reality, of course, the ecological footprint of one westerner working for one day to make a digital dress, plus the continued requirement to use a computer to enjoy the dress might turn out to be more than the cost for 5 days of a Chinese worker's ecological footprint plus the cost of the materials and shipping of the dress to your local shop!

This does make me think that continued economic growth at the very least requires continued growth in energy consumption even if all other resource usage could be reduced until sustainable.

2. Maybe inflation is the 'answer' here. If inflation rate = interest rate then you are kind of at the point equivalent to where there is zero interest. Maybe inflation was a balancing term missing from the video explanation of how money works.

Also, if inflation = interest then maybe productivity gains could bring a genuine net benefit to society.

However, this is still all very unclear in my head and I'm still deeply concerned by the sense that the monetary system as it stands could be fundamentally unstable in a way that is systemically unfair, ecologically disasterous and that may not be necessary.