The Macroeconomics Of Degrowth

Written by Steve Keen, Patreon.com/Steve Keen

Can planned economic contraction be stable?

The Limits to Growth (Meadows, Randers et al. 1972) is infamous for many things, but above all for its "Standard Run" scenario, which predicted that, if there were no changes to the direction of economic development after 1972, then by some time in the early to mid-21st century, human civilisation would undergo a serious decline.

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Figure 1: The Limits to Growth standard run (Meadows, Randers et al. 1972, p. 124). The legend for all plots is provided in Figure 2

Figure 2: The legend for all the Limits to Growth plots (Meadows, Randers et al. 1972, p. 123)

Less well known is its stabilised run, in which a range of policies were hypothetically introduced in 1975 to achieve a state of "global equilibrium ... so that the basic material needs of each person on earth are satisfied and each person has an equal opportunity to realize his individual human potential" (Meadows, Randers et al. 1972, p. 24). The simulation concluded that no single policy was sufficient: population control on its own was not enough, nor pollution abatement without population control, and so on. But if all the policy changes they modelled were undertaken (they are described in Figure 3), then the world could achieve a sustainable future where average living standards for the globe as a whole were three times as high as they were in 1970 - and much more equitably distributed.

Figure 3: The state of global equilibrium run (Meadows, Randers et al. 1972, p. 165)

As crucial as the need for a swathe of coordinated policies was the timing: if the changes were delayed for another 25 years till 2000, then they would fail: there would be overshoot of the biosphere's capability to endure the pressure put upon it by humanity's industrialized society. Both output and population would reach a peak in the mid-21st century and then decline.

Figure 4: Policies for global equilibrium introduced in 2000 instead of 1975 (Meadows, Randers et al. 1972, p. 169)

It is stating the obvious that policies to restrain humanity's pressure on the biosphere were not put in place in 1975, nor 2000, nor even 2020. With research by Graham Turner (Turner 2008; Turner, Hoffman et al. 2011Turner 2014) confirming that the world is still largely tracking the Standard Run of Limits to Growth, and studies like the Human Ecological Footprint (https://www.footprintnetwork.org/resources/data/) asserting that the human species alone is using 1.6 times the reproducible limit of the biosphere, we are well into ecological overshoot. Meadows et al noted that there were only three possibilities for the future, and that only two were possible:

All the evidence available to us, however, suggests that of the three alternatives - unrestricted growth, a self-imposed limitation to growth, or a nature-imposed limitation to growth - only the last two are actually possible. (Meadows, Randers et al. 1972, p. 168)

Since we have clearly failed to impose limits ourselves, we now face Nature doing that for us. Meadows et al deliberately avoided providing precise timing for their predictions, stating that:

We have deliberately omitted the vertical scales and we have made the horizontal time scale somewhat vague because we want to emphasize the general behavior modes of these computer outputs, not the numerical values, which are only approximately known. (Meadows, Randers et al. 1972, pp. 123-24)

However, it is hardly being hyperbolic, at this point in 2020 - with Australia's wildfires behind us (Dowdy, Ye et al. 2019), Covid-19 all around us (Korolev 2020), India and Bangladesh suddenly reeling under the impact of Cyclone Amphan, and the prospect of catastrophic wildfires in the approaching American Summer - to feel that the deliberately vague timing of the Limits to Growth has proven to be precisely correct. Nature may be imposing its limits now.

But just as Covid-19 has severely jolted our consciousness, and led to policy changes that were unthinkable as recently as January 2020, what if these and subsequent ecological calamities shook humanity so much that we decided, belatedly but instantly, to impose the limits that Limits to Growth recommended we should implement 45 years ago? What would happen to global GDP?

Answering this question thoroughly would require updating the Limits to Growth study with current data. This should have been happening on a regular basis since 1972, but it was prevented in large measure by the ferocious attacks on the study's credibility by economists in general - and by William Nordhaus in particular (Nordhaus 1973; Nordhaus 1992). These attack were based on misinformation and ignorance rather than knowledge (Forrester, Gilbert et al. 1974), but - or should I say "and"? - their impact was devastating. Though the book itself sold millions of copies, the group's research funding evaporated. Whereas the original study was run on top of the line (for the time) mainframe computers at MIT, with a budget of the order of a million dollars in 1972, today Jorgen Randers, one of the authors of the original study, is working without pay on developing an extended version of the World3 model called MODCAP (using the PC-based system dynamics program Vensim). In 2019 he was unable to raise funds to continue employing his one assistant.

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