By Sandwichman. Originally published at Econospeak
In “De-growth vs a Green New Deal,” Robert Pollin relies on the same blurring of distinctions that Robert Solow employed 46 years earlier in his condemnation ofThe Limits to Growthas “bad science.” Nicholaus Georgescu-Roegen pointed out Solow’s obfuscation in the article that inspired the term “degrowth.” That historical context is vital for understanding why Pollin’s “blueprint for ecological salvation” is no advance over Solow’s.
In “Is theEnd of the World at Hand” Solow scolded the “bad science” of TheLimits to Growthreport on the grounds that its authors’ model assumed “that there are no built-in mechanisms by which approaching exhaustion [of resources] tends to turn off consumption gradually and in advance.”Solow cited increases in the productivity of natural resources to illustrate the importance of the price system as the built-in mechanism of capitalism for “registering and reacting to relative scarcity.”
According to Solow, between 1950 and 1970, consumption of iron in the U.S. increased by 20 percent while the GNP roughly doubled. Consumption of manganese rose by 30 percent. Copper consumption increased by one-third, as did lead and zinc consumption. These increases represented productivity gains ranging from 2 percent per annum for copper, lead and zinc to 2.5 percent for iron. Meanwhile, productivity of bituminous coal rose by 3 percent a year during the same period.
There were, Solow conceded, some “important exceptions, and unimportant exceptions.” Among the more important ones was petroleum, “GNP per barrel of oil was about the same in 1970 as in 1951: no productivity increase there.” Nevertheless, Solow was confident that “no one can doubt that we will run out of oil… [s]ooner or later, the productivity of oil will rise out of sight, because the production and consumption of oil will eventually dwindle toward zero, but real GNP will not.”
Solow acknowledged another important exception to his productivity argument: pollution. The price system is flawed, he admitted, in its failure to charge polluters “for using the environment to carry away waste.” Thus “the waste-disposal capacity of the environment goes unpriced; and that happens because it is owned by all of us, as it should be.” Solow saw this problem as easily remediable through common sense regulation, user taxes and investment in pollution abatement.
Georescu-Roegen’s response to Solow, in the 1975 article, “Energy and Economic Myths” emphasized the distinction between growth and development:
…if we are talking about growth, strictly speaking, then the depletion of resources is inherent in the process by definition. Solow’s exposition of why he thought The Limits to Growthwas bad science relied on blurring the distinction between qualitative development and quantitative growth and counting the former as an instance of the latter. This sort of legerdemainis, of course, standard in so-called growth economics.In 1979, Jacques Grinevald and Ivo Rens translated “Energy and Economic Myths” and included it with two other articles on bioeconomics in a book titled Demain La Décroissance: Entropie – Écologie – Économie.The term, décroissance occurs in the translation of a section in which Georgescu-Roegen criticized what he considered “the greatest sin of the authors of The Limits” — their exclusive focus on exponential growth, which fosters the delusion that “ecological salvation lies in the stationary state.”
In opposition to that view, Georgescu-Roegen argued, “the necessary conclusion of the arguments in favor of that vision [of a stationary state]is that the most desirable state is not a stationary, but a declining one (emphasis in original).“His argument was notthat ecological salvation lies instead in a declining (or “degrowth”) economy. It was that there can be no “blueprint for the ecological salvation of the human species.” as he elaborated in the subsequent paragraph:
Undoubtedly, the current growth must cease, nay, be reversed. But anyone who believes that he can draw a blueprint for the ecological salvation of the human species does not understand the nature of evolution, or even of history — which is that of a permanent struggle in continuously novel forms, not that of a predictable, controllable physico-chemical process, such as boiling an egg or launching a rocket to the moon.
Pessimistic? Perhaps, but it is less so if one keeps in mind Georgescu-Roegen’s injunction against blurring the distinction between quantitative development and quantitative growth. There are no “built-in mechanisms,” either of the price system, of the regulatory and tax regime or of a Green New Deal that can ensure ecological salvation because the latter requires not blueprint or a formula but “permanent struggle in continuously novel forms.”
So how does Pollin’s Green New Deal stack up compared to Solow’s “built-in mechanism” of the price system? First, with regard to the distinction between qualitative development and quantitative growth, Pollin gives no indication of being aware of Georgescu-Roegen’s (and Schumpeter’s) distinction. Instead, Pollin does distinguish between “some categories of economic activity [that] should now grow massively” such as those associated with clean energy and others, such as “the fossil-fuel industry that needs to contract massively.” Charitably, this shift may be interpreted as at least tacitly acknowledging a qualitative development rather than simply a quantitative growth/contraction. But because Pollin doesn’t make that distinction explicit, his concluding comparison of “average incomes” from a degrowth scenario vs his Green New Deal is fundamentally flawed.
Decoupling the Derivative
Pollin refers to the process by which this simultaneous massive growth of clean energy and massive contraction of fossil fuel is supposed to occur as “decoupling.” Decoupling is a synonym for what Solow called natural resource productivity. The calculation is the same — national income divided by the quantity of the resource consumed or waste emitted. But decoupling, as Pollin uses it and as it is commonly used, is a deceptive term. Economic activity is not decoupledfrom the consumption of fossil fuel, as Pollin claims. It is the rate of changeof economic activity that is decoupled from the rate of change of fossil fuel consumption.
Resource productivity (or rate-of-change decoupling) is analogous to labour productivity, as Solow pointed out, and that parallel suggests a method for side-stepping the measurement complications that arise from GDP. One can instead calculate the decoupling of carbon dioxide emissions from aggregate employment. This alternative restores the original sense of productivity measurement, which was in terms of physical inputs and physical outputs rather than dollar values.I will discuss the measurement complications later, in connection with incomes but first, let’s review Pollin’s optimistic account of the prospects for “absolute decoupling.”
According to Pollin, citing a blog postfrom the World Resources Institute, “between 2000 and 2014, twenty-one countries, including the US, Germany, the UK, Spain and Sweden, all managed to absolutely decouple GDP growth from CO2 emissions…” This did not happen. GDP growth was notdecoupled from CO2 emissions. What was “decoupled” was GDP growth from emissions growthand, more precisely, from growth in one commonly-used estimate of emissions.
Such claims need to be examined for their attention to two important subtleties: territorial emissions can be reduced by outsourcing those emissions to an offshore supplier. What about emissions embodied in trade? And GDP growth incorporates all kinds of distortions (we’ll get to those). What about a more meaningful indicator of the level of economic activity, such as total employment?
Of the twenty-one countries claimed by the WRI to have achieved “absolute decoupling” between 2000 and 2014. Slovakia, Switzerland and Ukraine had increases in their consumption-based CO2 emissions that adjust for emissions embodied in trade. Bulgaria’s consumption-based emissions were unchanged from 2000-2014. Portugal, Romania and Ukraine had declines in aggregate employment. Denmark had no increase in employment. There was no consumption-based data for Uzbekistan and its reported employment data (ILO) does not appear credible, so it can be excluded from the analysis.
That leaves 13 countries with “absolute decoupling” of the rate of change of employment and the rate of change of consumption-based emissions. Of those 13, the Czech Republic had reductions in average annual hours that exceeded the increase in employment. Finland just squeaked through into absolute decoupling territory if defined by changes in aggregate working hours and consumption-based Co2 emissions.
Twelve of the 21 countries touted by WRI meet the more rigorous rates of change decoupling criteria. Again, no countries decoupled employment growth from CO2 emissions. The average gap between growth in employment and decline in emissions, weighted for the size of employed work force in 2014, was a bit less than half of the gap between GDP growth and change in territorial emissions. (17.6 percent versus 37 percent). That is 12 out of the 63 countries that had emissions of at least 12 MtC/yr in 2000, as did Bulgaria. In other words, 51 other countries among the top 63 did not have absolute decoupling of employment growth and emissions decline.
In spite of those 21 or 12 countries that “absolutely decoupled” the rates of change of GDP/employmnt and CO2 emissions between 2000 and 2014, tons of CO2 emitted globally per employment-year rose from 9.5 to 11.4. That is neither an absolute decoupling nor a relative one. That is a 20% intensificationof emissions per job, a declinein the productivity of emissions. Meanwhile, China’s increase in consumption-based carbon dioxide emissions from 2000 to 2014 was 8 times the total decrease of all 21 counties for whom WRI proclaimed “absolute decoupling” of “GDP and energy-related carbon dioxide emissions.”
On the Rebound
Pollin’s treatment of the so-called “rebound effect” is also inadequate. This phenomenon, also known as the Jevons Paradox is not a separate, add-on effect to productivity and should not be treated as such. It is an intrinsic part of the “built-in mechanism” of the price system. Again, the use of synonyms and euphemisms adds to the confusion. Just as decoupling is a synonym for productivity, the productivity of resources is another way of referring to the efficiency or economy of their use. When the use of a resource, such as a fuel, is made more economical through technological innovation, its relative cost may fall even though its absolute price may be rising. Thus increased efficiency (or productivity) may lead to increased consumption. Separating out the rebound effect from the analysis of productivity or of rate-of-change decoupling is about as plausible as separating out the butter from a baked cake.
In formulating the “paradox” of greater efficiency leading to increased consumption in 1865, W. S. Jevons described it as “principle recognised in many parallel instances,” particularly that of labour-saving machinery eventually increasing employment.But fuel efficiency and labour saving machinery are not merely two “parallel instances,” they are two defining moments in a single, continuous positive feedback loop.
Pollin speculates that rebound effects from efficiency gains will be modest, at least in developed countries, but he still argues it is crucial that “all energy-efficiency gains be accompanied by complementary policies (as discussed below), including setting a price on carbon emissions to discourage fossil-fuel consumption.” I would agree with the need for regulation or taxation to discourage fossil-fuel consumption but would insist that putting a price on carbon emissions will also put a damper on the jobs that increased fuel consumption would otherwise generate. Until the link between fossil-fuel consumption and jobs is decisively broken, you can’t choose to dial down one without affecting the other. One can’t assume post-transition availability and relative prices of clean energy sources during the transition!
This point is missed in virtually every discussion of the rebound effect or Jevons Paradox. There are not two, “parallel” rebound effects, one for fuel consumption and one for employment. The rebound of employment drives the rebound of fuel consumption, which in turn drives the rebound of employment. To decouple the employment rebound from fossilfuel consumption requires the fantasy that one can substitute clean energy supplies that do not yet existfor fossil fuels that do.
Comparing Average Incomes
In his criticism of Peter Victor’s Managing without Growth, Pollin argues that per capita GDP in 2035 for a degrowth scenario would “plummet” to little more than half the 2005 level, while under Pollin’s proposed clean energy investment programme, “average incomes would roughly double.” The second chapter of Darrell Huff’s 1954 classic, How to Lie with Statisticsis all about averages, so I can’t claim originality for this point: Pollin’s otiose comparison of averageincomes under the two scenarios says nothing but insinuates too much about distribution. To mix a few metaphors, a rising tide lifts all boats as the sparrows pick away at the remnants of “oats” that have “trickled down” from the horse.
There are several other egregious distortions in Pollin’s comparison of “average incomes”: leisure time doesn’t count as income and “average income” doesn’t say anything about what a person has to give up in time and effort to receive it. GDP is not some magic cake that just appears and gets doled out in equal-sized slices. As Maurice Dobb pointed out quite some time ago:
It is not aggregate earnings which are the measure of the benefit obtained by the worker, but his earnings in relation to the work he does — to his output of physical energy or his bodily wear and tear. Just as an employer is interested in his receipts compared with his outgoings, so the worker is presumably interested in what he gets compared with what he gives.In comparing the projected average incomes of his clean energy investment programme and Peter Victor’s degrowth scenario, Pollin appears to have set aside his earlier solidarity with the “values and concerns of degrowth advocates” particularly regarding GDP as a measure of wellbeing:
…there is no disputing that it fails to account for the production of environmental bads, as well as consumer goods. It does not account for unpaid labor, most of which is performed by women, and GDP per capita tells us nothing about the distribution of income or wealth.
Dividing up GDP into per capita income doesn’t eliminate these problems – or others. In 1995 the Atlantic Monthly published an article that asked, “If the GDP is up, Why is America Down,” a great riff on the title of Richard Fariña’s novel, Been Down So Long, It Looks Like Up To Me. That article explained a lot of what’s wrong with the economy and what’s wrong with economics:
Once you start asking ‘what’ as well as ‘how much’ — that is, about quality instead of just quantity — the premise of the national accounts as an indicator of progress begins to disintegrate, and along with it much of the conventional economic reasoning on which those accounts are based.
Questions about distribution, about quality vs. quantity of goods, the production of environmental “bads” and the disregarding of unpaid labor only skim the surface of what is wrong with the GDP. Those questions focus on the symptoms. A deeper understanding of the root causes reveals that the discrepancy between the measurement and the thing that is purported to be measured may be orders of magnitude.
Basic accounting errors of double-counting and “asymmetric entry” abound in the compilation of National Income and Product Accounts. These fundamental errors have been highlighted by Irving Fisher, Simon Kuznets, Paul Samuelson, Roefie Hueting, Angelo Antoci, Stefano Bartolini and others. These mismeasurements are not one-off discrepancies – they also establish a positive feedback loop of incentives for cumulative misallocation of resources and miscalculation of outcomes.
In his 1948 critique of the Commerce Department’s National Income and Product Accounts, Kuznets focused on the double counting of intermediate goods, especially in the form of military expenditures and government services that facilitate commercial activity.Hueting identified the problem of asymmetric entering in which expenditures on remediating environmental damage adds to GDP even though no subtraction was recorded for the damage itself.Antoci and Bartolini analyzed the cumulative role of negative externalities in boosting GDP growth.
It is not only that GDP doesn’t distinguish between goods and bads. Systematic mismeasurement puts a premium on expanding the proportion of bads to goods.
Over a century ago, Fisher, one of the most influential American economists in the early 20th century, maintained that faulty definitions of income resulted in rampant double-counting errors. There are three compelling reasons for not ignoring Fisher’s views on income and double counting. First, Fisher is an acknowledged pioneer of national income accounting – his definitions of income need to be acknowledged, even if only to show that they are not practicable or even are defective. Second, Fisher’s critique of the ill-defined “general concepts of income” addresses precisely the “heterogeneous combination” of goods and services that is standard in the GDP. Third, the recurrent examples of double counting lend empirical support to Fisher’s claim that the improper definition of income inevitably results in such errors.
In The Nature of Capital and Income, Fisher argued that the usual definitions of income fail one or both of the tests of being both useful for scientific analysis and harmonizing with popular usage.The pitfalls of those faulty definitions go largely unnoticed, making them “all the more dangerous.”
Fisher focused on two common concepts of income. The first concept, money income, is reasonably adequate for commercial affairs because the purpose of business is to make money. But making money is not the purpose of households. Part of household production takes place outside of monetary exchange and even monetary earnings have as their ultimate purpose the purchase of food, clothing, housing and the like, which constitute the household’s real income.
The second concept, pertaining to real income, is commonly defined in terms of both goods and services. Fisher criticized this concept for its eclecticism and inconsistency. The procedure treats some items — such as fuel, food and apparel – as current consumption but apportions very long-lived items such as dwellings as if they were being rented. This leaves a variety of moderately durable items such as furniture or vehicles to be treated in an ad hoc manner. Fisher concluded that “such a patchwork of arbitrarily selected elements is incapable of furnishing any consistent, reliable, and logical theory of income.”
That patchwork is where double counting comes in. Economists “have not known where to cease calling the concrete instrument income and begin calling its use income instead. In their hesitation they have in some cases ended by including both. By so doing they commit the fallacy of double counting.”
Fisher’s alternative to the goods and services concept was “to regard uniformly as income the service of a dwelling to its owner, the service of a piano and the service of food; and in the same uniform manner to exclude alike from the category of income the dwelling, the piano, and even the food.” The latter, he argued are “capital, not income.”
As logical and consistent as Fisher’s definition of income may appear in the abstract, it is hard to imagine how it could ever be implemented in national income accounts. Monetary transactions occur when items are purchased, not when they are actually consumed. Fisher’s definition would require a vast and highly subjective extension of financial record keeping. Similarly, Commerce Department economists responded to Kuznets’s critique, conceding many of his points but stressing the technical difficulty of putting an alternative into practice.
The arguments presented in defense of the goods and services concept are usually framed in terms of expediency. Such expedients have a limited shelf life, however. Typically, proponents of the monetized goods and services concept cheerfully admit its perishability, logical frailty and limited portability. “This process can never claim complete logical watertightness,” Colin Clark confessed in 1937, “but we can be satisfied that it works well enough in practice for comparisons over periods up to, say, twenty years, or for comparisons between communities whose ways of living are not too widely different.” Once the tabulations are up and running, those caveats are ignored.
If you start with an accounting system that systematically double counts some revenue items and doesn’t count others, you also have a system of perverse incentives to shift more and more effort, investment and expenditures, over time, to the double-counted items because that will project the illusion of more robust economic performance. For apostles of growth, double counting is not so much a social accounting debacle as it is a public relations triumph.
Clearly Pollin presumes there is nothing inevitable about the system of perverse incentives that engorges GDP and proposes that the proceeds of growth can, in effect, be “siphoned off” to fund investment in clean energy. In this vision, the transition to clean energy would be funded by a portion of the increment of national income rather than requiring diversion of a portion of the “principal” thus making ecological salvation economically painless. Pollin’s Green New Deal posits investment in clean energy as a supplementary “built-in mechanism” that will gradually wean GDP from dependence on fossil fuels (once “those powerful vested interests”, who “wield enormous political power” have been defeated). The faster GDP grows, in this vision, the more rapid will be the transition to clean energy because more growth will automatically result in more investment.
The word “investment” does a lot a work in the Pollin plan. What the term abbreviates is a complex process of institutionalizing selection criteria for the funding of projects, project design and budgeting, ranking and selection of competing projects, project oversight and post-project evaluation of success in meeting objectives. There is not some ready-made pool of self-evidently effective clean energy projects. The whole process — conducted presumably by hundreds of agencies operating in hundreds of countries — is subject to cronyism, administrative padding of costs, inept selection criteria, mislabeling, miscalculation, lobbying, boondoggles, administrative capture by powerful vested interests and outright embezzlement. There is no “built-in mechanism” to guarantee a “trillion dollar annual investment in clean energy” delivers what the name advertises.
In short, investment in clean energy is not “apredictable, controllable physico-chemical process, such as boiling an egg or launching a rocket to the moon.” The successful outcome of such a programme would require “a permanent struggle in continuously novel forms” not simply the once-and-for-all defeat of thosepowerful vested interests who wield enormous political power.
Deja Vu All Over Again
Forty-six years ago, Robert Solow placed his faith mainly in the “built-in mechanisms” of the price system, which, he claimed, “tends to turn off consumption [of scarce resources] gradually and in advance.” Evidence for the success of this mechanism was to be seen in the increasing productivity of a variety minerals used as industrial inputs. But pollution presented an exception to this rule because it escaped the price system. Solow offered a remedy for that defect – investment in pollution abatement:
An active pollution abatement policy would cost perhaps $50 billion a year by 2000, which would be about 2 percent of GNP by then. That is a small investment of resources: you can see how small it is when you consider that GNP grows by 4 percent or so every year, on the average. Cleaning up air and water would entail a cost that would be a bit like losing one-half of one year’s growth, between now and the year 2000.
Robert Pollin’s critique of degrowth and his proposed alternative of a Green New Deal unwittingly recycles Robert Solow’s 1973 rebuttal to TheLimits to Growth. Pollin substitutes the euphemistic “decoupling” for Solow’s more conventional “productivity.” He acknowledges criticism of GDP and then ignores those criticisms when comparing degrowth and Green New Deal scenarios. He updates, refines and globalizes his investment target to one trillion dollars from Solow’s $50 billion, although both figures are presented as approximately the same percentage of annual gross product.
Pollin’s one major digression from the Solow blueprint is a curiously nostalgic one. He stresses the need to defeat “powerful vested interests” of the fossil fuel industry who “wield enormous political power” and charges the degrowth perspective with “the critical error of ignoring the reality of neoliberalism in the contemporary world.” Yet Pollin makes no suggestion about how those vested interests might be defeated or “how to put capitalism back on the leash that prevailed during the ‘golden age’ [before the era of neoliberalism].”
Speaking at a symposium on The Limits to Growthat Lehigh University in October 1972, Robert Solow could not have foreseen the military coup in Chile the following September that ushered in the regime of neoliberalism nor the OPEC oil embargo a month later that ushered in a new era of petro-political economy.
Consumption-based CO2 emissions estimates are from ‘The Global Carbon Budget 2017’ updated from Peters, GP, Minx, JC, Weber, CL and Edenhofer, O 2011. Growth in emission transfers via international trade from 1990 to 2008. Proceedings of the National Academy of Sciences 108, 8903-8908. Employment estimates are from International Labour Organization, ILOSTAT, Key Indicators of the Labour Market, Status in Employment.
“[The] dramatic disjuncture between the blind optimism of the decoupling proposal and the daunting (thermodynamic, financial, and distributive) obstacles in the face of its realization suggests that the concept works as a Lacanian fantasy, presenting both the prospect of sustainable development at some unknown future point and a convenient a priori explanation for why this aim is not achieved. …
“The pressing danger, of course, is that even if decoupling is infeasible, it will take some time for this to be demonstrated to the satisfaction of its proponents as well as those merely using it as a smokescreen to continue business as usual for as long as they still can. Thus, the decoupling fantasy may allow us to maintain an increasingly destructive path with both the promise of success and demonstration of its impossibility deferred into the future.”