Herman Daly

  • Franciscan Economics & Regenerative Capitalism

    October 22nd, 2015 by ewalsh
    Pope Francis delivers his blessing at the end of his weekly general audience in St. Peter's Square at the Vatican, Wednesday, Dec. 11, 2013. (AP Photo/Alessandra Tarantino)

    Image Courtesy of the Associated Press’ Alessandra Tarantino

     

     

     

     

     

     

    We are pleased to share with you this unsolicited guest blog post from Bob E. Ulanowicz, an American theoretical ecologist and philosopher.

    The recent media flurry over Pope Francis’ Encyclical on the environment, Laudato Si’, appears to have missed his major thrust, which happens to connect strongly with Regenerative Capitalism. Most reviews highlight Francis’ concern about global warming or his Integral Ecology – the manifold connections between the natural world, economics, society, and politics. Yet, while attention to such relationships is laudable, this focus has already received considerable notice in the academic and professional literature. Other analysts point to his critique of unfettered capitalism, yet this too is nothing new – Catholic Social Teaching has criticized unrestrained capitalism since Pope Leo XIII’s Rerum Novarum in 1891.

    Instead, the radical thrust of this document relates strongly to Jorge Bergoglio’s choice of name as Bishop of Rome – Francis, as in St. Francis of Assisi, the Saint who championed the poor and outcast, and preached that poverty often was the road to deepest spirituality. Pope Francis channels the Saint in his opening section, citing Francis’ “refusal to turn reality into an object simply to be used and controlled” [paragraph 11] and relates how Francis always made sure that a part of the friary garden was to be left to God’s plants and creatures. He shows his awareness of the complex ties between the health of the natural and human worlds and the workings of finance and monetary policy by noting that “whatever is fragile, like the environment, is defenseless before the interests of a deified market, which becomes the only rule” [56], adding that the “Economic and financial sectors, being transitional, tend to prevail over the political” [175]. He argues that the “undifferentiated and one-dimensional paradigm” [106] of economics in which “the maximization of profits … reflects a misunderstanding of the very concept of the economy” [195]. He regrets that “Finance overwhelms the real economy” [109] – these days by a factor greater than 50:1[1]. Yet, Pope Francis reveals his hand most openly in Chapter 5 when he makes what might be his most counter-cultural statement:

    “In any discussion about a proposed venture, a number of questions need to be asked in order to discern whether or not it will contribute to genuine integral development. What will it accomplish? Why? Where? When? How? For whom? What are the risks? What are the costs? Who will pay those costs and how?” [185].

    Such questions about who benefits and who pays also tie into Regenerative Economics’ concern about externalities, and to ecological economist Herman Daly’s condemnation of “growism.” Nowadays, if a shopping center is proposed, the guiding issue is whether the project will achieve a high return to the developer – i.e., high “growth” – all other matters become secondary. In contrast, Francis states that, “a decrease in the pace of production and consumption can at times give rise to another form of progress and development” [191]. He cautions we must “contain growth by setting some reasonable limits and even retracing our steps before it is too late” [193]. Francis is confident of the need for such slow-down, writing, “the present world system is certainly unsustainable from a number of points of view” [61] and we must “leave behind the myth of unlimited material progress” [78].

    These Franciscan prescriptions also speak to regenerative economics emphasis on balance. For example, studies of energy and currency flows in healthy systems show that pursuit of ever greater efficiency and growth pulls the system away from a healthy balance, and heightens the probability of collapse. In contrast, healthy systems maintain a balance between “throughput efficiency” – akin to the kind that fuels economic size and growth – and a diversity that allows for resilience in the face of perturbation. Translated into economics, processes that decrease market efficiency somewhat in order to permit the survival of slightly less-efficient actors may actually improve the system’s overall sustainability.

    Studying such dynamics might also clarify how, in a world of very finite resources, to reconfigure economics to achieve a more just apportionment among the “universal destination of goods” [93]. For example, studies of natural systems also tell us that balance is improved by shorter, quicker, lower-level feedback loops – the kind found in well-knit “cooperatives,” in a sense. In contrast, today’s massive corporate structures tend to crush smaller, quicker ventures as soon as they begin to succeed, as happened with the Saturn experiment under GM.

    It’s also of note that the balance between efficiency and resilience-enhancing diversity is related to Adam Smith’s balance between self-interest and “sympathy,” the kind produced when we connect to another person’s circumstances as our own. Smith argued that there was a close relationship between moral behavior and the maximization of virtue, and healthy economic behavior which involved the maximization of wealth as a means to a higher end. Self-interest drives wealth; sympathy drives virtue; only a combination of the two drives wealth as a means to a higher end. Regenerative Capitalism also emphasizes the need to balance self-interest and sympathy because the two play important roles in balancing efficiency and resilience. This is also what Rerum Novarum was about.

    It remains for people of good will and organizations like the Capital Institute to elaborate the means for dialing back the overall amplitude of the economy without endangering fundamental human needs and dignity. Meanwhile, Francis consoles us by encouraging that we adopt an attitude of “less is more” and a spirituality marked by “the capacity to be happy with little”. [222]

  • Financial Overshoot

    July 23rd, 2012 by John Fullerton

    Last week, I gave a talk to the Missouri Association of Public Employee Retirement Systems annual meeting.  This was the first time I presented my developing thesis of financial overshoot, which arithmetically accompanies ecological overshoot unless we manage to >> Read more

  • Beyond Firm-Level Sustainable Capitalism

    February 27th, 2012 by John Fullerton

    Co-authored by Peter Malik, Director of Center for Market Innovation at the NRDC

    Generation Investment Management’s recently released white paper calls for a “paradigm shift” to Sustainable Capitalism. It is an admirable and important contribution to the discussion >> Read more

  • Guest Post: Limits to Growth – Forty More Years?

    October 31st, 2011 by Herman Daly

    From The Next Forty Years, Jorgen Randers, ed. (forthcoming) Forty years ago when I read The Limits to Growth I already believed that growth in total resource use (population times per capita resource use) would stop within the next forty years. The modeling analysis of the Meadows’ team >> Read more

  • Debt Limit Nonsense

    July 18th, 2011 by John Fullerton

    The debt limit negotiations are 99% political and 1% economic, so I have little directly to say about them.  But I do have some related thoughts to share as we stumble toward the deadline, with much wasted tax payer money paying for amateur hour in Washington while real challenges are left to smolder and in some cases burn.

    I was surprised to learn that Americans for Tax Reform >> Read more

  • Guest Post: What Should We Tax?

    July 11th, 2011 by Herman Daly

    For some time a small group of ecological economists has been suggesting that we switch the tax base from income (value added to natural resources by labor and capital), and on to natural resources themselves. Value added to resources is something we want more of, so don’t tax it (either at each stage of production as in Europe, or at the final stage as income as in the U.S.). The >> Read more

  • Hell Hath No Limits

    June 27th, 2011 by John Fullerton

    Somehow I missed the release of a new collection of essays by Wendell Berry in 2010, What Matters: Economics for a Renewed Commonwealth.  The introduction is by Herman Daly, whose clarification of how scale limits transform economics remains the most important idea still not acknowledged in mainstream economics today.

    When two of my heroes collaborate on a book >> Read more

  • Guest Post: Not Production, Not Consumption, but Transformation

    May 9th, 2011 by Herman Daly

    Well-established words can be misleading. In economics “production and consumption” are such common terms that it is easy to forget that they do not really mean what they literally say. Physically we do not produce anything; we just use energy to rearrange matter into a more useful form. Production really means transformation of what is already here. Likewise, consumption merely >> Read more

  • Guest Post: Fitting the Name to the Name

    March 26th, 2011 by Herman Daly

    There may well be a be a better name than “steady-state economy” (SSE), but both the classical economists (especially John Stuart Mill) and the past few decades of discussion, not to mention CASSE’s good work, have given considerable currency to “steady-state economy” both as concept and name. Also both the name and concept of a “steady state” are independently familiar to demographers, population biologists, and physicists. The classical economists used the term “stationary state” but meant by it exactly what we mean by steady-state economy—briefly, a constant population and stock of physical wealth. We have added the condition that these stocks should be maintained constant by a low rate entropic throughput, one that is well within the regenerative and assimilative capacities of the ecosystem. Any new name for this idea should be sufficiently better to compensate for losing the advantages of historical continuity and interdisciplinary familiarity. Also, SSE conveys the recognition of biophysical constraints and the intention to live within them economically—which is exactly why it can’t help evoking some initial negative reaction in a growth-dominated world. There is an honesty and forthright clarity about the term “steady-state economy” that should not be sacrificed to the short-term political appeal of vagueness. A confusion arises with neoclassical growth economists’ use of the term “steady-state growth” to refer to the case where labor and capital grow at the same rate, thus maintaining a constant labor to capital ratio, even though both absolute magnitudes are growing. This should have been called “proportional growth”, or perhaps “steady growth”. The term “steady-state growth” is inept because growth is a process, not a state, not even a state of dynamic equilibrium. Having made my terminological preference clear, I should add that there is nothing wrong with other people using various preferred synonyms, as long as we all mean basically the same thing. Steady state, stationary state, dynamic equilibrium, microdynamic-macrostatic economy, development without growth, degrowth,post-growth economy, economy of permanence, “new” economy, “mature” economy. These are all in use already, including by me at times. I have learned that English usage evolves quite independently of me, although like others I keep trying to “improve” it for both clarity and rhetorical advantage. If some other term catches on and becomes dominant then so be it, as long as it denotes the reality we agree on. Let a thousand synonyms bloom and linguistic natural selection will go to work. Also it is good to remind sister organizations that their favorite term, when actually defined, is usually a close synonym to SSE. If it is not then we have a difference of substance rather than of terminology.

    Some say it is senseless to advocate a steady state unless we first have attained, or can at least specify, the optimal level at which to remain stationary. On the contrary, it is useless to know the optimum unless we first know how
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    to live in a steady state.

    Out of France now comes the “degrowth” (decroissance) movement. This arises from the recognition that the present scale of the economy is too large to be maintained in a steady state—its required throughput exceeds the regenerative and assimilative capacities of the ecosystem of which it is a part. This is almost certainly true. Nevertheless “degrowth”, just like growth, is a temporary process for reaching an optimal or at least sustainable scale that we then should strive to maintain in a steady state. Some say it is senseless to advocate a steady state unless we first have attained, or can at least specify, the optimal level at which to remain stationary. On the contrary, it is useless to know the optimum unless we first know how to live in a steady state. Otherwise knowing the optimum level will just allow us to wave goodbye to it as we grow beyond it—or as we “degrow” below it. Optimal level is one thing; optimal growth rate is something else. Once we have reached the optimal level then the optimal growth rate is zero; if we are below that level the temporary optimal growth rate is at least known to be positive; if we are above the optimal level we at least know that the temporary growth rate should be negative. But the first order of business is to recognize the long run necessity of the steady state, and to stop positive growth. Once we have done that, then we can worry about how to “degrow” to a more sustainable level, and how fast. There is really no conflict between the SSE and “degrowth” since no one advocates negative growth as a permanent process; and no one advocates trying to maintain a steady state at the unsustainable present scale of population and consumption. But many people do advocate continuing positive growth beyond the present excessive scale, and they are the ones in control, and who need to be confronted by a united opposition! Nicholas Georgescu-Roegen, adopted by the “degrowth” movement as its posthumous founder, indeed recognized that the very long run growth rate must be negative given the entropy law and the final dissolution of the universe. But he did not advocate speeding up that cosmic result by negative growth as an economic policy, nor for that matter did he in the least advocate a steady-state economy! In fact he speculated that the destiny of mankind might be to have a short, fiery, and exciting life rather than a long and uneventful one. He did, however, tentatively suggest a “minimal bio-economic program”[1] that would surely reduce growth. In general he was interested in what is possible more than in what is desirable. The question—given the limits of the possible, what is the most desirable policy for mankind?—was not his main focus, although he did not entirely ignore it. The closest he came to explicitly dealing with that question was in the following footnote[2]:

    Is it not true that mankind’s problem is to economize S (a stock) for as large an amount of life as possible, which implies to minimize sj (a flow) for some “good life?”

    In other words, should we not strive to maximize cumulative lives ever to be lived over time by depleting S (terrestrial low-entropy stocks) at an annual rate sj that is low, but sufficient for a “good life”? There is no point in maximizing years lived in misery, so the qualification “for a good life” is important. I have always thought that Georgescu-Roegen should have put that question in bold in the text, rather than hiding it in a footnote. True enough, eventually S will be gone and mankind will revert to what he called “a berry-picking economy” until the sun burns out, if not driven to extinction sooner by some other event. But in the meantime, striving for a steady state at a resource use rate sufficient for a good (but not luxurious) life, seems to me a worthy goal, a goal of maximizing the cumulative life satisfaction possible under limited total resource constraints. This puts at the very center of economics the questions:

    Needless to say these questions have not been central to modern economics—indeed, not even peripheral! Georgescu-Roegen did not like the idea of “sustainability” any more than that of a steady-state economy because he interpreted both to mean “ecological salvation” or perpetual life for our species on earth—which of course flies in the teeth of the entropy law. And he was right about that. So sustainability should be understood as longevity, not eternal species-life in the sense of perpetuity. Clear scientific thinking about “forever” seems, interestingly, to lead to the religious model of death and resurrection, new creation, not perpetual continuation of this creation. Perpetuity in this world is just a glorified perpetual motion machine! To think about forever we must cross from science into theology. But longevity (a long and good life for both individual and species), even if it falls short of forever, or “ecological salvation”, is still a worthy goal both for scientists and theologians, not to mention economists. A steady-state economy is arguably the best strategy for achieving longevity—regardless of what we call it.


    [1] N. Georgescu-Roegen, “Energy and Economic Myths”, reprinted in H. Daly and K. Townsend, Valuing the Earth, MIT Press, 1993, p. 103-4. [2] Ibid. p. 107, fn 11. DalyHerman Daly is a professor emeritus in economics at the University of Maryland, School of Public Policy. He is a member of Center for the Advancement of the Steady State Economy (CASSE). Visit the Daly News for more essays by Professor Daly and CASSE staff.

  • Guest Post: Sustaining Our Commonwealth of Nature and Knowledge

    February 2nd, 2011 by Herman Daly

    Let’s start with this phrase: “sustaining our commonwealth.” By sustaining, I don’t mean preserving inviolate; I mean using, without using up. Using with maintenance and replenishment is an important idea in economics. It’s the very basis of the concept of income, because income is the maximum that you can consume today and still be able to produce and consume >> Read more

  • Guest Post: Homo Economicus Versus Person-in-Community

    January 10th, 2011 by Herman Daly

    The problem with Homo economicus (the abstract picture of a human being on which economic theory is based) is that she is an atomistic individual connected to other people and things only by external relations. John Cobb and I (For the Common Good) proposed instead the concept of “person-in-community” whose very identity is constituted by internal relations to others in the >> Read more

  • Guest Post: A Shift in the Burden of Proof

    December 7th, 2010 by Herman Daly

    Preface for Sustainable Welfare In The Asia-Pacific: Studies Using the Genuine Progress Indicator, by Philip Lawn and Matthew Clarke, 2008

    It is no small thing to shift the burden of proof. Yet that is what Lawn and Clarke, and their colleagues, have done in this remarkable study >> Read more