Economics

A ten-point plan for sustainable prosperity

By | | comments
Economist Herman Daly (Image via YouTube)

We need to embrace ecological economics in order to achieve a better working national infrastructure, writes Stephen Williams.

THIS PLAN is closely based on U.S. economist Herman Daly’s ten-point plan for a qualitatively improving steady-state economy.

Many of the words are his, not mine, but I have made departures here and there.

A steady-state economy is one where the physical size of the economy does not increase, yet there are continual improvements in things like knowledge, health, the quality of goods and services and general wellbeing.

It is essential that the physical size of economies are brought back within the physical limits of the biosphere. Moreover, the optimal size of a nation’s economy – where wellbeing is maximised – may be smaller than the ecologically sustainable size.

The words of U.S. economist Kenneth Boulding from 1973 are worth repeating:

“Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”

1. Cap-auction-trade systems for basic resources

There is a limit to the amount and rate of depletion and pollution that the economy can be allowed to impose on the ecosystem. Caps limit the throughput of basic resources, especially fossil fuels. Also, the higher price of basic resources would induce their more economical use at each upstream stage of production, as well as at the final stages of consumption and recycling. Once purchased at auction, the permits could be freely bought and sold by third parties, just as the resources whose rate of depletion they limit. The cap serves the goal of sustainable scale, the auction serves the goal of fair distribution and trading allows efficient allocation. Although mainly applied to non-renewable resources, the same logic works for limiting the use of renewable resources, such as fisheries and forests, with the quota level set to approximate a sustainable yield.

2. Ecological tax reform

Shift the tax burden from value-added (labour and capital) to that to which value is added, namely the resources extracted from nature (depletion), and returned to nature (pollution). Such a tax shift prices the scarce but previously un-priced contribution of nature. Value-adding to natural resources by labour and capital is something we want to encourage, so stop taxing it. Depletion and pollution are things we want to discourage, so tax them. Payment above necessary supply price is “economic rent” (unearned income), and most economists have long advocated taxing it, both for efficiency and equity reasons. Ecological tax reform would supplement a cap-auction-trade system.

3. Reduce wealth inequality with a minimum income and a maximum income

Many of us are now familiar with the notion of a guaranteed basic income for all, either through direct payments from the Government or via a Government job guarantee: see the GetUp proposal, for instance. Less discussed is a cap on high income. The job of prime minister has a salary of about $530,000 a year. Should anyone in Australia earn much more than that? Salaries above the maximum should be taxed at 100 per cent. This could be brought in gradually. There are plenty of resources in Australia, but they must be distributed more equitably if we want a healthy and just society. Surprisingly, a more equitable society would benefit the rich as well as the poor, although the rich may not know what is good for them. I do not believe that an income cap would limit innovation, which the Government can always invest in.

4. Introduce a Government Job Guarantee scheme

This would guarantee full employment: 1-2 per cent unemployment and no underemployment. Taxing the super-rich (policy #3) would provide “space” for the job guarantee to be introduced. The Federal Government has unlimited money to fund jobs if it wants, but the space I refer to are resources that the now unemployed would consume once they were employed. To put it another way, we need to free up resources for the poor to consume without increasing inflation. We should stop increasing the size of the economy as that means the use of more resources and therefore more waste.

5. Move away from free trade, free capital mobility and globalisation

When we account for environmental costs of production we will raise prices, putting us at a competitive disadvantage in international trade with countries that do not internalise costs. We should, therefore, adopt compensating tariffs. This “new protectionism” is very different from the old protectionism that was designed to protect an inefficient domestic firm from a more efficient foreign firm. The first rule of efficiency should be “count all the costs” — not “free trade”, which, coupled with free capital mobility, leads to a standards-lowering competition to count as few costs as possible. But what would the World Trade Organisation say?

6. Reform the World Trade Organisation, World Bank and International Monetary Fund

Insofar as these organisations promote neoliberal policies based on flawed economics, forget them. We need a new economics – ecological economics – that includes modern monetary theory. A sovereign government like Australia should not fear the opinion of these organisations that have passed their use-by dates.

7. Federally, run large-enough budget deficits to control private-sector debt

Excessive private-sector debt is largely the result of inadequate government deficits (government deficit = fiscal injection). Moreover, these deficits do not have to result in the Government “borrowing” money to fund the deficit as the Federal Government never needs to borrow Australian dollars. It always has unlimited dollars at its disposal if it wants to spend them. Inflationary pressure is best dealt with by reducing luxury spending at the top while ensuring the Government does not spend beyond the productive capacity of the economy.

8. Stop treating the scarce as if it were free and the free as if it were scarce

Enclose the remaining commons of natural capital (the atmosphere, the electromagnetic spectrum and public lands) in public trusts and price them by cap-auction-trade systems, or by taxes. At the same time, stop privatising knowledge and information. Knowledge, unlike natural resources, is not divided in the sharing, but multiplied. Once knowledge exists, the opportunity cost of sharing it is zero and its allocative price should be zero. International development aid should more and more take the form of freely and actively shared knowledge, along with small grants and less and less the form of large interest-bearing loans.

9. Stabilise population

Work toward a balance in which births plus in-migrants equals deaths plus out-migrants. As a start, contraception should be made available for voluntary use everywhere, with no unwanted pregnancies. We should support voluntary family planning and enforcement of reasonable immigration laws, democratically enacted. Each country has a responsibility to limit its own population numbers to sustainable levels, albeit with help from the international community.

10. Chase increases in genuine progress, not mindless GDP

The genuine progress indicator subtracts the costs from the benefits of economic activity. GDP, on the other hand, adds benefits and cost together, as if costs are good. Using GDP as a proxy for wellbeing is the cause of many of the world’s problems.

(Thanks to ecological economist Dr Philip Lawn for his input.)

Stephen Williams is a freelance journalist focusing on politics, economics and the environment.

Support independent journalism Subscribe to IA.


 

 
Recent articles by Stephen Williams
Billy McMahon: A hopeless, forgettable PM

In this new biography of Billy McMahon's life, author Patrick Mullins recounts his ...  
A response to MMT criticism

An online criticism of two articles published by the ABC on the modern monetary ...  
Australian federal politics for beginners P2: The Nationals are not very national

For a party that only represents about 4.6% of the lower house vote, the Nationals ...  
Join the conversation
comments powered by Disqus