Wednesday, 29 January 2014

Economics for hamsters

This cute little animation is doing the interweb rounds (again - he's a few years old now!). Baby hamsters double in size every week until puberty, but if they kept doing that they’d end up consuming everything the whole world produces. In nature, there are limits to growth. So why do most economists think economic growth can continue forever, and ever, and ever? 

So intones the voice-over, encouraging the vilification of economists. Well here are a few responses from an environmentally minded economist.

First, economics is a diverse profession, not a cult. Check out the membership of the Club of Rome and you’ll find quite a few economists. Or dip into some of the economic research on limits to growth, like these papers by Nicolas Kaldor and Nancy Stokey. Just please don't kid yourself that constraints are a foreign concept to economists. 

Second, composition matters. The economy is not a single thing (like an ever-growing hamster) but a complex web of interactions many of which are neither measured nor priced. Nature is like this too, and in fact there are strong connections between economics and evolutionary biology. Yes, this stuff shows us economists learning from those biologists rather than the other way around, but let's not pretend there is no learning going on.

Third, what are you going to do about it? Orthodox economics already points towards the most (only?) effective policy response to environmental and resource constraints, which is to price them properly. Put another way, assume that the hamster is correct and economic growth has to slow or stop. How, practically, can/should that outcome be forced?

Fourth, some things that cause measured economic growth also ease environmental constraints. Biological farming for example is more profitable and better for the environment. Some renewable energy developments are in the same category. And there would be much more of this kind of thing if the advice of economists to price environmental and resource constraints (#3) was more widely accepted. 

[Update 31/1] Not all things in nature have this hamster property. Trees, it seems, keep right on growing fast.

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