Ecological macroeconomics: resolving the three dilemmas of transformation

Jonathan Harris, “Ecological macroeconomics: consumption, investment, and climate change”, real-world economics review, issue no. 50, 1 September 2009, pp. 34-48,

Harris (Tufts University) begins his discussion by using the charmingly mild phrase “cognitive disconnect” to decribe the yawning great chasm between “scientists’ warnings of potential catastrophe if carbon emissions continue unchecked on the one hand and the political and economic realities of steadily increasing emissions on the other” (p.34)

It is, as he says, “the outstanding economic problem of the twenty-first century. Can economic growth continue while carbon emissions are drastically reduced?” (p.34) And asking that question makes us look more closely at what, in fact, economic growth is and how we might make a successful economic and social transition to sustainability.

Three dilemmas: economic, demographic, and ecological

In making the changes we need to make to become sustainable, says Harris, we face three dilemmas:

“the balancing of consumption and investment while maintaining high employment as well as limits on material consumption; the provision of adequate social and health expenditures, including the added expenditures necessary for a “graying” population with greater longevity; and sufficient investment in the maintenance of critical natural capital systems including ecosystems and atmosphere. These are essential macroeconomic issues for the twenty-first century.” (p.42)

A proposed resolution of the dilemmas

“The [standard macroeconomic] equation can be rearranged to distinguish between macroeconomic aggregates that we wish to limit [say for environmental reasons], and those that we wish to encourage…” (p.43) The three dilemmas seem more tractable when this is perceived.

Essentially, we can ease all three dilemmas at once by replacing private consumption and investment (that increases the use of material resources and pressure on environmental carrying capacities) with public consumption and investment, aimed at providing for an inclusive, healthy society, dealing with the effects of the demographic transition, and undertaking necessary environmental protection and repair work.

This does imply a significantly larger ‘public’ element in the economy, but as Harris points out this needn’t be heavy handed or centralised. “Systems for decentralizing grants, encouraging community initiatives, and providing microlending can provide for social investment controlled and directed at the local level. Tax rebates for purchases such as hybrid vehicles or solar systems effectively combine macro policy with microeconomic incentives.” (p.44)

Events since the global financial crisis have reminded us that there is a need “to compensate for the limitations of the market system at the macro level” (p.44), and that there is no profound theoretical barrier to large-scale action to do so – rather the main limitation to a Green Keynesian approach “is a political and cultural adherence to the “old” view of material-based, energy-intensive, market-driven economic growth as the only route to prosperity.” (p.46) On the other hand, and in the spirit of Keynes, “A broader view of macroeconomics [goes beyond economic stabilization and] takes into account other goals: ecological sustainability, provision of basic social needs such as education and health care, and distributional equity.” (p.45)

Comments:

This is a paper that is easy to see as a glass half-full or a glass half-empty. Part of me wanted to throw up my hands and say: “When will economists ‘get over’ growth?!” and “How nice, it seems like we don’t really need to give up anything” (read with intense sarcasm) and “where is the acknowledgment of the deep, hard to break, power structures of our (capitalist) societies?”

But on the other hand accepting the need for things to change in our economies – and that change could be successful – seems to be very difficult for many people,  and if power structures are to be challenged, popular support is essential – and that’s where this paper seems to be aimed.

I found it very useful as a way of looking at our current situation and how we might begin getting from ‘here’ to ‘where we need to be’, intellectually and practically. Harris succinctly shows that – conceptually at least – economic growth, suitably…or lets face it – radically – re-defined, could continue even as carbon emissions fall dramatically, and he identifies the key issues that developed/rich-nation societies have to resolve while undertaking the profound economic and social transformation needed to avoid a potential global ecological catastrophe.

It’s that transformation that is critical to our futures. If this line of thinking can persuade more people to be open to real change, I’m all for it.

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