Economists become famous by winning the Nobel Prize (technically the Swedish National Bank’s Prize in Economic Sciences in Memory of Alfred Nobel) or becoming public intellectuals like John Kenneth Galbraith or Paul Krugman. But economists do not have to be famous to be important. Significant contributions come in many guises.
The most important economist you may never have heard about is Herman Daly, sometimes known as the father of ecological economics. Daly challenged the prevailing of 20th Century economic paradigm, building on earlier work by John Stuart Mill, Nicholas Georgescu-Roegen, and Kenneth Boulding. Daly’s vision provides reason for hope when the prevailing model suggests pessimism.
In my recent blog on Robert Gordon’s new book The Rise and Fall of American Growth I laid out the reason many conventional economists are pessimistic about future economic growth. In the conventional paradigm growth is created by innovations that improve the efficiency of labor and technology (increases in total factor productivity in economic jargon). Gordon suggests that the technological changes created the dramatic economic growth from 1870 to 1970 and such innovations are not likely to be replicated in the future. Gordon believes the economic growth of post-World War II America is unlikely to return.
Daly’s vision is different. He sees the end of the economic growth of the past century to be necessary. We need a new paradigm to understand this difference, as explained in a new book, Beyond Uneconomic Growth. This collection of essays is an homage to Daly and his innovative thinking.
The core of Herman Daly’s economic thought is seen in several key insights. First, Daly sees the economy as a system nested within the larger biophysical world; the economy is not separate from nature, the unstated assumption of much modern economic thinking. The human economy ultimately relies on importing matter and energy from nature and returning that matter and energy back to nature when we are done with it. (Physicists remind us of their first law, matter and energy can neither be created nor destroyed.) The economy is constrained both by the quality and quantity of resources to be imported from nature and by the ability of nature to handle waste matter and energy. Daly’s insight was rooted in the work of his mentor Nicholas Georgescu-Roegen, who emphasized the role of entropy in economic systems. A challenging read on this topic is Georgescu-Roegen’s book The Entropy Law and the Economic Process.
Second, recognizing that the economy is nested within nature changes the economic paradigm. Economic growth is as much a function of the matter and energy we extract from nature as it is of technological change. Natural resources and technology are complements, not substitutes for each other. Therefore growth cannot continue indefinitely no matter how clever we are. There are limits to growth imposed by the natural world. Kenneth Boulding provided a foundation for Daly in this area of thought.
Third, Daly then concludes that we need to figure out how to live satisfying lives in a non-growth environment, what came to be known as steady-state economics. Here there is a separation between the ideas of growth and development. Lives can improve (develop) without increasing matter and energy use (growth). Daly recognizes that a central problem in this non-growth world is distribution. Many conventional economists shy away from addressing the distribution of goods and services in society. They assert that economists should not say who should get more or less of society’s produce; those decisions are left to market outcomes, particularly when markets produce economic growth. “A rising tide lifts all boats.” Daly argues that we need to face distribution head on and a steady state economy must also be one that deals directly with inequality. Economics cannot ignore ethics.
Finally we learn from Daly that what we measure matters. Journalists, policy-makers, and some economists are fixated on Gross Domestic Product (GDP), a deeply flawed measure of how well the economy serves people. In the book Daly co-wrote with John Cobb For the Common Good: Redirecting the Economy Toward Community, the Environment, and a Sustainable Future, he details one alternative to GDP, the Index of Sustainable Economic Welfare. This spawned an outpouring of research on alternatives to GDP. Daly understood from his time working at The World Bank that what matters gets measured. How things are measured matters even more.
Beyond Economic Growth shows the enduring impact of Herman Daly in challenging the conventional paradigm. He was tireless in promoting the understanding that economists cannot ignore the laws of nature. He challenges us to recognize that, just because our society was able to enjoy increasing levels of material wellbeing for over a century, we can continue that path indefinitely. Like honest investment advice, the lesson is that “past performance is not indicative of future results.”
The irony is that Daly is really more optimistic than Robert Gordon. Gordon worries that we are unable to continue economic growth. Daly hopes that we will choose not to grow in the future. Instead we must find ways to make better lives for all in harmony with nature, the source of that life.
Farley, J., & Malghan, D. (Eds.). (2016). Beyond Uneconomic Growth: Economics, Equity and the Ecological Predicament. Edward Elgar Publishing.