Degrowth: A Flawed Strategy to Address Climate Change

This posting is largely a response to “Degrowth can work – Here’s how science can help,” authored by Jason Hickel and his colleagues. It relates to alternative strategies to reduce CO2 emissions and concentration.

I agree with the authors’ notion that not all income growth has equivalent value, but that doesn’t mean that developed economies shouldn’t continue to grow.  Although GDP commonly represents the income for an economy, few economists believe that GDP serves as a “good” measure of economic well-being. For example, see Diane Coyle’s GDP: A Brief But Affectionate History and The Economics of Enough. In GDP, she concludes that GDP only measures what flows through markets. Attempts to find an alternative have not generated a consensus. Examples such as Tobin and Nordhaus’s Measure of Economic Welfare and the UNDP’s Human Development Index have not attracted enough attention to be taken seriously by either economists or policy makers. In a recent Project Syndicate column, however, Diane Coyle argues that GDP’s days are numbered because there has been progress on integrating social and ecological measures into an overall representation of well-being.

Degrowth advocates, such as Hickel, attempt to account for the “true material footprint” of production and consumption.  In response, McAfee argues that the approach used is based on flawed assumptions regarding the relationship between the material footprint and observed consumption. Furthermore, the degrowth argument tends to not account for the adaptation that will take place as scarcity of material resources becomes evident, especially if market prices reflect both such scarcity and negative spillovers (such as pollution), which often are not faced by either consumers or producers.  Current incentives are even worse than the lack of reflection of such spillovers in market prices. Many European governments have responded to the increased scarcity and rising prices of fossil fuels with public subsidies of €573 billion for European consumers (according to Bruegel as cited in the Economist, November 26, 2022.)

The Hickel et al. article cites policy recommendations made in reports by the International Panel on Climate Change and the Intergovernmental Science Policy Platform on Biodiversity and Ecosystem Services as if these are based on science.  In my view they are much more based on value judgments than science.  Here are two examples:

  1. “Reduce less necessary production.” Any judgments about what is and what is not necessary require both judgments about efficiency and values – neither of which are provided.
  2. “Enable sustainable development,” which includes canceling “unfair and unpayable debts of low and middle-income countries.” Determination as to what is fair and what is not requires value judgments, not science.

The authors also make a variety of judgments about or ignore important economic effects and constraints.  They provide no discussion of how much income is needed to implement a life-sustaining universal basic income as well as “desired” free public services. They argue for a green jobs guarantee policy without addressing the relative capital intensity of a green economy.  Further, they claim that work time could be reduced without discussion of its effects on productivity and income generation as well as on well-being. Finally, the authors don’t address the fundamental tradeoff between material goods / services and leisure, which is at the heart of household decision-making, except through implicit value judgments (see above) as to what is necessary consumption and what is not.

None of the policies they recommend take account of the aging population in most developed countries and the resultant reduction in the ratio of workers to retirees.  Given existent income and health care commitments to the elderly in all such countries, with the authors’ recommended policies, these countries would face a situation with more intense competition for less income.  Reducing these commitments to the elderly will be a difficult political exercise.  See the Conversable Economist for the growing problem for a detailed characterization of such constraints in the U.S.  Western Europe, with declining population in many countries, will face even greater challenges.  Thus, the authors’ recommendation to lower the retirement age seems particularly bizarre given existent demographic trends in high income countries.

How much income generation (or reduction in high income countries) will be needed to deliver the Hickel et al. “desired” standard of living? They don’t tell us; however, they clearly want a lower standard of material well-being for those in rich countries than their populations presently have.  That’s a value judgment unrelated to science.

In contrast to the policy recommendations made by the authors to achieve a sustainable world, I recommend employing serious carbon pricing and dividend policies such as those recommended by both the Citizens Climate Lobby and the Climate Leadership Council The former has developed legislation introduced in Congress in recent sessions while the latter developed a policy statement signed by over 3,600 professional economists (including yours truly.)  Carbon policy alone will not be sufficient to achieve the goals for both climate change and socio-economic policy. Additionally, policy makers should consider such promising market-based approaches as advanced market commitments as described in Stacy Kauk’s recent TED talk.

Rather than attempting to identify a set of circumstances that might yield a sustainable climate, as posited by Hickel et al., it’s worth carefully exploring the impact of various policies and the range of uncertain effects on climate and other outcomes including material well-being.  For example, a recent Brookings article reports on research designed to understand the relationship (as described by climate policy curves) between carbon prices and global warming.  Initial results include the following:

“The creators of climate policy curves show how varying the DICE model parameters creates a wide swath of possible curves. Thus, for example, limiting peak global warming (by 2100) to 2°C likely requires a carbon price of between $50 and $150 a ton coupled with a 4% subsequent annual price growth rate. However, this entire price range far exceeds the current global effective carbon price, which is less than $10.”

Carbon pricing, especially in the US, remains an untried policy option.  It is being tried in some parts of Europe (see previous post related to Sweden) as well as in China.  In my view, aggressive use of such a policy (consistent with CCL and CLC recommendations), with a substantial portion of the resultant revenues distributed to the public as dividends that decline with household income, would enable the US to make positive strides in achieving both control of CO2 emissions and reduced income inequality.

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