Saturday, November 13, 2010

The Ecological Headstand

Karl Marx is said to have stood Georg Hegel's idealistic philosophy on its head by proposing – following the lead of Ludwig Feuerbach – that material circumstances shape ideas rather than the other way around. William Rees co-developed the concept of the Ecological Footprint, an estimate of the impact on ecosystems imposed by human activity.

Footprint analysis indirectly implicates economic growth as responsible for ecological destruction because of the dependence of a growing economy on increased material throughput. Technological optimists argue that economic growth could become ecologically sustainable by finding a way to "dematerialize" economic production thus "decoupling" GDP growth from environmental damage. Critics of growth point out that although relative decoupling has been a staple of technological progress, it has not led to absolute decoupling. They cite the Jevons Paradox whereby an increase in the efficiency of using a resource, such as coal or petroleum, leads to a decrease in the price of its final products and thus to an increase in total demand for the resource. The same principle can be extended to environmental consequences. If a cleaner energy source can be employed at a lower cost (factoring in the prospect of "green" subsidies) than dirty energy, then expanded consumption will be enabled, offsetting the original advantage. There would appear to be no way around this dilemma, short of some sort of "breathairean" perpetual motion fantasy.

Perhaps both technological optimists and critics are missing a rather disturbing and game-changing prospect, though. What if economic "growth" today consists entirely of efforts to cope with, repair or mitigate the environmental and social consequences of past industrial activity? Technically speaking those expenses shouldn't even be included in GDP because they are, from the perspective of product life cycle, "intermediate goods." They do not add any new value but merely restore what previously existed.

The accounting mistake underlying this dismal prospect of growth without growth is something that Dutch economist Roefie Hueting calls "asymmetric entering" or "asyms". The concept is akin to the idea of double counting, something that the statisticians who compile national income accounts are supposed to studiously avoid.

Asyms happen because the damage done to the environment by human activity is not entered as a subtraction from national income accounts. This is as it must be because no money changes hands. But the cost of repairing the damage IS entered into the GDP as a value added, when in fact there has been no value added. Of course, if the industrial firm doing the damage pays for restoration as part of its cost of production, the expense is treated as an intermediate good. It is only when those costs are shifted to governments or individuals as "externalities" that they are counted in the national accounts as final consumption goods. And there is a whole lot of cost shifting going on. There are substantial financial incentives for firms to externalize their social and environmental costs. And one of the foremost objectives of lobbying and "free trade" agreements is to ensure that those costs doen't get internalized. Since the externalization of social and environmental costs nominally adds to GDP, there are also substantial financial incentives for governments to look the other way through regulatory disregard. It's called "deregulation."

The concept of asymmetric entering literally turns the idea of the environmental impacts of economic growth on its head. What are the real impacts of environmental damage on economic growth? The uncritical inclusion of asyms in the GDP conceals those impacts by counting clean ups as if they were shiny new toys. "Been down so long it looks like up to me" has become the politicians refrain as the sell toxic waste dumps as green shoots of recovery. Witness the BC Liberal Government's eagerness to turn Fish Lake into a tailings pond and call it "Prosperity".


  1. Tom, a bit off subject, but I note you "write scholarly articles on the history of economic thought." You might wish to bring your history up to date by examining Monetary Sovereignty

    Rodger Malcolm Mitchell

  2. Rodger,

    Off-topic solicitations would be more effective if you would first engage what I say here. Maybe you're the one who might wish to bring your history up to date.