A Conversation with Herman Daly on Growthmania and Globalization

Question: You’ve written a lot about the hidden costs of economic growth, and we wanted to talk a little bit about why there was a need for urgent change. From an economist’s perspective can we achieve economic prosperity without economic growth?

Yeah, that’s a good one. I’ve found that the big difficulty is that everyone makes the assumption that growth makes you richer. Everyone wants to get richer. Well, how do you get richer? Growth makes you richer. That’s the whole issue under discussion really, because growth has both costs and benefits. There’s no reason in economics why the benefits always have to be greater than the costs, at the margins of growing. In fact in most of economics, microeconomics, the theory of the firm and household, it’s just taken for granted that there’s such a thing as uneconomic growth, growth stops at some optimal level at which, beyond which extra costs are greater than extra benefits. It’s hurting you more than it’s helping you to grow, so don’t do it. It’s making you poorer, not richer in an inclusive sense. So, why can’t we recognize this in macroeconomics when we talk about the whole thing? I think the reason we can’t is because we really think we are talking about the whole thing. The macro economy is everything in the economist’s eyes. It includes the natural sector, mines, wells, and garbage, but if you’ve seen the economy as a subsystem of the natural system then the economy is not everything. And when the economy grows it encroaches on something else and the thing that it encroaches on is the cost—the loss of that thing is a cost. And so it’s quite possible that in macroeconomics, just like microeconomics, for growth to cost more than its worth. And it’s so hard to get that across to people. There’s a Dutch economist named Rufie Hooting who’s on my mind right now because there’s going to be a dinner held in his honor in the next month. But back in the mid 70s he wrote a book called "The New Scarcity" and the subtopic was "More welfare through less production?" Well if production costs more than its worth at the margin then yes, more welfare through less. So this is really the most basic, fundamental elementary economics that we’ve completely lost sight of in this growth mania, this notion that we’re going to solve all problems by growing.

Question: Are you winning more converts to this perspective? Is there any movement forward over the years you’ve been writing about this, speaking about this? Is there a sense of a breaking open of the economics field, a recognition that there are such obvious hidden costs, I mean they’re not hidden anymore!

That’s right. "hidden costs" is really a dated term now. They’re just hidden costs from the people who won’t look at them, who refuse to see them. It’s hard to say. I think there is improvement. There are people who are changing. There is a lot more discussion. There hasn’t been a breaking open of the economics profession by any means, but I think there is a kind of building up of tension—though no movement has resulted yet. Maybe the forces are getting stronger and stronger and at a point there will be a sort of a shift of the plates or something like that.

Question: To make it concrete for people coming to the website…you’ve talked a lot about how we need to put the economy in a larger ecosystem, not separate the two. What are some concrete examples of how we’ve made that division and how we haven’t done that…and if we did make a switch to putting the economy in a larger ecosystem, what concrete changes would we see in how we conduct our businesses, even make little lists or models, how we measure GDP?

Well, they’re so many of them. To take a kind of extreme case, maybe for emphasis—it’s always interested me that we have these spray cans which are propelled by gases ...chluorofluorocarbons or something. So you spray your windex or whatever it is on your window and you release these into the atmosphere and the resulting cost is increased cancer incidents and global warming and so forth. So that’s a cost. What was the benefit that we got, the marginal benefit, the extra benefit of the spray can? Well instead of having a finger pump where you work you index finger up and down 5 or 6 times a minute, you have a can where you press down the top and hold it down. Well maybe that’s a benefit but it’s a very very tiny benefit and we don’t really need it and the costs could well be enormous. It’s not very clear, not very well defined, but that doesn’t mean it’s not real. Though there are many reasons to think its real. So that’s kinda an extreme example. Less extreme examples are, you know, you build an airport somewhere. It’s easier travel, more convenient, but there’s also more noise, more congestion. All of those things are costs that someone is bearing, but those don’t enter into our calculations. Well, we look at the extra travel, the extra money spent on travel, the extra money someone has to spend on soundproofing their house or moving to get out of the way. None of that is included, so those are some of the issues.

Question: When you imagine in your best vision of the future and your most hopeful vision of the future what are the mechanisms for incorporating the full costs?

Well, I think there are mechanisms. And here, while I’m often a critic of economics there are some standard ideas in economics that make a whole lot of sense and that is to make prices tell the truth. The prices should tell the truth about the full opportunity cost, the full sacrifice. The opportunity costs is the forgone opportunity—what are you not going to be able to do because you did this? You spent the resources in this way; that means you can’t spend them on the next best alternative. So, it’s very important to get the prices that measure the value of that next best alternative. And including all of these omitted cost of depletion, pollution, disruption are ways of doing that. I think it’s even more important to have some notion of a limited scale of the total economy as part of the ecosystem. If you can do that and put a limit on the total amounts of depletion then you automatically bring about an internalization of those external costs which is very difficult to do just by calculation and imposing taxes and stuff like that. Although that’s better than nothing. It’s better to have a high tax on gasoline rather than no tax at all—speaking of which I was appalled with our recent very low prices in gasoline which were reported in the media very often (even in the Lehrer report which you think might be better than the normal) it was all just celebration, "Oh, look it only cost me 8 bucks to fill up my tank. Isn’t this wonderful! I’m going to go here. I’m going to go there." Not a single journalist, that I saw, interviewed with anyone on what is this costing us to have this cheap gasoline? You know what is it, in terms of global warming, in terms of adapting our patterns of living, of buying big, great big cars instead of little cars, on and on and on, not a word about the costs of that.

Question: Why do you think there’s this total disconnect between on the one hand, all the articles of the US—we consume 40% of the world’s gasoline; the last 9 out of 10 years have been the hottest on record; we are the big giant of a climate change platform when you look at energy consumption—and the total disconnect with added gas prices and gasoline consumption and SUVs as well as light trucks. I mean it seems so obvious to me. Why does it seem that people are so unconcerned about this disparency?

Because I think it’s just too big an error to admit, I think. I saw the same thing in my years at the World Bank. You started out with just a little logic of if you know you try to generalize levels of resources consumption worldwide it’s just inconceivable, it doesn’t add up, you just can’t do it. People at the World Bank as individuals understand that. Nobody over coffee says that’s completely wrong. They sort of nod their heads and move off, but the institution itself is unable to come to grips with that, because it means they have to find a new reason to exist other than economic growth, a new coordinating ideology and that’s just too big and that means recognizing that too many people still important were too wrong for too long because they didn’t understand that. And all those adjustments, yeah, we don’t have the humility to recognize that big an error. That’s the way it seems to me. Now I’ve been puzzling that one for a long time and I may change my mind on that.

Question: That seems really right to me, especially now with globalization it seems like everything’s accelerated and the new rules of commerce have accelerated growth phenomenally, and the destruction of forests, and fisheries and water supplies all over the place. I just came back from Asia and I came back really frightened at how fast things were falling and how fast things were growing. Do you think ultimately that this old house of cards will have to get at least rearranged. I mean it seems like we’re accelerating in the wrong direction and my perception is there’s a lot of change being made…on the periphery lots of local economies being rekindled, lots of local, bi-local, some of these new…is this part of the answer?

I think it is and that’s why I think globalization is such a horrible thing is because it smashes and undercuts those seedlings where people are locally coming to grips with these problems. I tend to think of globalization as the last gasp of the whole growth ideology, because as you run into limits at national levels, national markets are limited, national resources are limited, national absorptive capacities are limited. What do you do? Well we go to the globe, you expand your boundaries to the whole globe. You penetrate other countries’ markets to a greater extent and allow them to penetrate yours to a greater extent. And you exploit the global commons to a greater extent. So you think…you push it to the last step. I guess it’s the last step. Maybe some people think we’ll exploit space and so far we haven’t got very much out of space it seems to me. And so that globalization…well on the subject I’ll just throw in my pet distinction between globalization and internationalization. Very often you talk against globalization and people say, "Oh you're an isolationist" "Old fogey" or this or that. But I think its important to say that internationalization means recognizing the importance of relations between nations, treaties, protocols for environment reasons, a certain amount of trade is, I think, beneficial. All of that is international. International is a space that is becoming more and more important. Globalization is something totally different. That means the erasure of national boundaries for economic purposes. That means integration, not relations among separate units. It means the merger of separate units into one unit by erasure of boundaries, so this is what is really frightening about globalization. When you do have that merger local communities, and local now even means national, lose control. Their laws for internalizing costs get undercut by integration with countries that don’t do that. So it seems to me that globalization is like making an omelet. You integrate the global omelet by breaking the national eggs and nobody wants to think about that it’s a logical implication of global integration is national dis-integration. You have to rip apart the economic structure of the nation in order to re-integrate it into the global structure. And this is happening and people are celebrating that. They say, "Oh that’s wonderful we have a bigger system.. and don’t you want to be in a global community with everyone else?" Well, yeah, global community is a nice idea, but I’d like to see it first reached through internationalization.

Question: Going to David Crocker’s work and others. You know a lot of people argue that this is so big that its in some ways so ingrained in us as humans to consume more to get our human identity from this desire for more that corporations their whole movement for power through consolidation coming from the human quest for more. And yet there is this other side of human nature that is about sharing, caring, and compassion…do you feel that real change is going to require a renaissance of discussion of values and the spirit?

Absolutely. I think that’s fundamental. And that’s a problem of reality which has been denied. And I’ve recently been thinking of that in terms of the whole idea of purpose. Before you can even begin talking about good and bad purposes you have to accept the reality of purpose itself in some sense. And that’s been read out of existence in the intelligencia in universities. I mean ever since the Enlightenment the whole movement has been against teleology against the importance of purpose as a real phenomenon in the world. To explain everything in terms of mechanical, efficient no final causation, the lure of purpose is no legitimate cause. It’s only the push of something mechanical that’s considered legitimate and I think this has led us to a growth in consistency because the most immediate experience that all of us have is that we have purposes. We move on those purposes and yet the mechanistic model wants to teach us that that’s just an illusion, that’s not real. It’s an epi-phenomenon as they say but that’s really, completely anti-empirical. If you’re most real experience, you just deny the reality of your most real experience in order to accept some abstract theory in which that doesn’t fit and this is what Alfred North whitehead called the fallacy of misplaced concreteness, denying what you most immediately and directly know in order to save some abstract theory that you’ve grown fond of. So I think purpose, and you see this particularly in biology and there’s now a field called conservation biology. And these guys now have a purpose, a goal that brings them into rather significant conflict with the fundamental assumption of their discipline which is "teleology is not legitimate".

Question: It’s interesting that academia is going to be again, one of the last ones, one of the last institutions to come around because they’ve such invested in this notion that the scientific way as the only way. Where it seems that in the broader culture there is this huge outpouring of yearning. If you go into any bookstore, all the books on meditation, spirituality, religion and values. They’re just bursting off the shelves but it’s still a bit taboo I guess in the university setting. Do you think that's true?

Yes, I think it’s true. I think the university is still very much stuck in the strict enlightenment paradigm. And I don’t want to say that everything out of the enlightenment was bad, but certainly we’ve thrown away a lot of things and particular purpose which just make nonsense of what is standardly taught in I teach in the school of public policy here. And policy presupposes that there’s such a thing as a better or worse state of the world. If we can’t make that distinction it would hardly make any sense to have any policy at all would it? And yet we have very little in our curriculum which really focus on the issue of purpose. We do have courses in ethics, yes, but even there I think there’s a certain moving away from an in depth judgment of where this comes from.

Question: Doesn’t it require humility and the belief that possibly there’s something bigger than we can grasp with rational analysis. Isn’t that pretty counter to the general culture?

Yes, I think its very counter to the general culture. I mean even for example if you’re talking about environmental action. I think it makes an enormous different if you can see the world as a creation or you think of it as a result, an accidental result of random processes that occurred over millions of years and there you are. Now people disagree very much on that. I frankly, myself, don't hold out a whole lot of hope for progress if one's cosmology, if the whole thing is a great big accident and there’s no purpose involved in anything. I don’t know where people get the moral energy and direction to make any fundamental changes. That doesn’t mean that everyone who proclaims that belief in a creator is going to help the environment, I mean there’s plenty of things that have happened as a result of religious beliefs that are you know, not good. But I don’t myself see how we can get very far in such a huge transformation without some underlying belief that the whole thing is not a futile series of accidents and that there is some fundamental difference in purpose that we’re serving.

Question: We’re constantly being told that if we don’t consume the economy is going to go into recession and more recently we’ve seen, Asia…go into great recessions and now we’re being told that as Americans we’re holding up the world economy. If we don’t consume, keep our consumption at a high level we’re going to cause economic problems for other people as well as ourselves. Do you feel that lowering our consumption would create these problems we see in other places?

That’s such a good question and if I could give a full answer to that I’d be very happy. One thing that I would say is, to give the people who raise that question their due, there is a sort of technical problem of employment, getting money to people and so forth. Now the problem I see, is the distribution of income. What do we mean when we talk about consumption? Are we talking about food, clothing, shelter, and basic things that we all need? Yes, we all need to consume that. We need to keep going with that. But if the distribution of income is so skewed that consumption really consists of a third bowl of crème for the rich ladies overweight cat and not enough milk for the poor person’s baby then consumption in that sense, in that mix, is off. And so I will give people for some credit that we do have to maintain certain levels of consumption if the content of that consumption reflects a distribution of income which is just so that consumption does not mean that the trivial wants of the very rich are being satisfied ahead of and instead of the very basic needs of the poor. So in that sense, and when people talk about consumption and increasing consumption, growing out of the Keynesian model and so forth, it’s aggregate consumption, they’re not distinguishing, so I think we need to focus a whole lot more on the distribution of income and if we get that to where its much more even, reasonable and just. I sort of think that will go a long way in reducing really outrageous consumption because a whole lot of outrageous consumption is really competitive consumption, to show one person that they’re richer than another. So if we could get some sort of limits to the degree of inequality then I think that would be very effective towards out better welfare. I’m not saying it would solve all problems related to consumption, but I think it would help a whole lot.

Question: We’re always seeing in the newspapers, I’ve seen in the new York Times, the way they measure the economy, for example, the two pillars of the economy in the American economy are auto sales and home construction and there is also growth of certain markets. What would be a better measure of our economy or quality of life or wellbeing?

Well, John Cobb and I went to a whole lot of trouble to develop an index of sustainable economic welfare in which we tried to start with personal consumption as the first category and then to make substractions and additions to make it a better measure of welfare. You know we subtracted things like the depletion of natural resources like commuting time and other things and then we added things for household production. So I think you could come up with a better measure and I think we did come up with a better measure as a certain caveat though, I think our index of sustainable economic welfare, I wouldn’t want to just have…I think it would be better to have that than GNP, but still I wouldn’t have that much confidence in it as to say whatever increases that index is a good public policy so it’s a little bit like smoking. If you smoke, if you’re addicted to smoking then cigarettes with the charcoal filter are better for you and we put a charcoal filter on GDP but maybe the best thing is not to smoke at all to sort of move away from that. So quantitative indices—I think they’re necessary, we are addicted to them, we do have to pay attention to improving them, but I’m still a little skeptical about being too dependent upon them and indeed today, the indices you mention, housing and automobile, the thing I see most today on tv is simply the Dow Jones average and that’s already 3 or 4 orders of magnitude removed from what is real and actually important in the world. There’s so much psychology, hype and herd instinct and just speculation that get involved in that. And it bothers me to see that that’s taken so seriously. I mean as bad as GNP is at least its closer to reality than the Dow Jones index

Question: Is there anything else that you want to share?

Yes there is a reason for hope which I have to constantly remind myself of. I used to be a pretty much of a growth-oriented economist. I thought when I was in graduate school that the salvation of the world was really through economic growth, that you could get rid of poverty through growth and technology and all other problems would be solved, fall into place and there are experiences, evidence and arguments that have forced me to change my mind on that very much. Now, why can’t other people. You see, I’m not unique. I have independent evidence that I am not, you know a genius. That’s revealed to me thankfully on numerous occasions so if the same evidence and arguments that convinced me…other people are experiencing these things as well and I’m not unique, so what convinced me? and why isn’t it going to convince other people who are not that different from me, so that’s sort of a basis that I have to constantly remind myself. And frequently other people raise the Hey wait a minute, nobody else is going to believe that. And I say, you’ve come to that conclusion, I’ve come to that conclusion. Why are we unique? So that’s a reason for hope. But you know, it’s kind of slow.