The transition to a steady-state economy: a reply to Michael Keating

Feb 2, 2023
The green world map is on a light bulb that represents green energy Renewable energy that is important to the world.

Scientific research shows that the environmental impacts of human civilisation have exceeded several planetary boundaries. To avoid societal collapse and to assist the transition to an ecologically sustainable civilisation, we must transition to a steady-state economy.

Like Roger Beale, Michael Keating is reluctant to accept the scientific assessments of the threat to civilisation. Keating restates conventional economic ‘wisdom’ and then poses the important but difficult question: how could we commence the transition? Before suggesting a strategy to do this, I’ll comment on some conventional myths.

Both Keating and Beale assume, contrary to scientific assessments, that business-as-usual, together with existing minimal environmental regulation and technological innovations, will be sufficient to avoid collapse. But on both global and national scales, current environmental protections and current rates of transition to ‘green’ technologies fall far short of what is needed to prevent collapse.

For example, despite the rapid growth of renewable energy, the percentage share of fossil fuels in total global final energy consumption in 2019 was the same as in 2000, namely 80 per cent. In absolute terms (gigajoules), growth in energy consumption exceeds growth in renewables.

Post-2020, we continue to emit greenhouse gas emissions; to destroy biodiversity, forests, soils and groundwater; to pollute the atmosphere and freshwater; and to dump the essential element phosphorus into the ocean from where it cannot be recovered.

While green technologies and increased efficiencies of production and use are necessary, they are not sufficient to save the planet. Limits must be set.

The goal should be to transition the whole global economy to a steady state. This is the primary goal of the interdisciplinary, multi-stranded field of ecological economics, which, unlike environmental economics, is not a branch of neoclassical economics.

In ecological economics, a steady-state economy (SSE) is defined in physical terms, that is, an economy with limits on the use of energy, materials and land, and on population. The fate of GDP is less important than the fate of our life support system, Earth’s biosphere. An SSE is internally dynamic: industries that are destroying the environment, damaging human health or reducing social justice will decline while ‘green’, healthy and socially desirable ones will thrive.

To achieve its primary environmental goal, ecological economics aims to ensure that renewable resources – such as forests, soils and fish – are used at rates that do not exceed their rates of replenishment; that the rate of use of non-renewable resources, such as copper and lithium, are limited to the rates at which they can be reclaimed or substituted with renewable resources; and that the rate of waste generation is limited to the rate at which wastes can be assimilated by the environment.

Ecological economics recognises that the human-constructed economy can and should serve humanity rather than the opposite. It works towards an economy in which the vast majority of the people have greater wellbeing than at present. Wellbeing is measured by a set of several indicators that does not include GDP.

Keating assumes that economic growth can be identified with high living standards and then frames the problem erroneously as a trade-off between living standards and the environment.

For rich countries like Australia, economic activity, as measured by GDP, is a poor measure of living standards, human wellbeing or happiness. GDP counts environmentally and socially destructive activities alongside beneficial ones, takes no account of the distributions of wealth and income, and ignores the important role of unpaid work. The abject poverty of a large minority of the population of the world’s richest country, as measured by GDP, is well known.

Because the environmental threats are so severe at current levels of economic activity, because the Global North has the greatest environmental impacts, and because the Global South needs to develop, the Global North must reduce its environmental impacts. This means reducing its physical consumption and capping its population.

Keating’s calculation assumes that the strategy for transitioning to an SSE with greater wellbeing for the vast majority would be limited to taxing the rich and giving the proceeds to the poor. But, as mentioned in my previous article, increased government spending can be devoted to Universal Basic Services (UBS) and a job guarantee (JG) for all who wish to work. UBS include greatly increased public housing, public education and training, public health and public transport.

For jurisdictions without monetary sovereignty (e.g. member countries of the European Union; Australian states), UBS and a JG can be funded by taxing the rich and discontinuing wasteful and harmful projects such as military equipment designed for offence rather than defence, and subsidies to fossil fuels and private education.

However, governments with monetary sovereignty – such as Australia, the USA, the UK, Japan and China – can (and do) create and spend their own currency without borrowing or increasing taxes. To avoid causing demand-pull inflation, total spending by the national economy should not exceed the economy’s capacity in terms of labour, physical resources, etc. This is discussed in detail in the books The Deficit Myth by economist Stephanie Kelton and in Macroeconomics by economists Bill Mitchell, Randall Wray and Martin Watts. Brief introductions to Modern Monetary Theory are Kelton’s video and Steven Hail’s article.

Neoclassical economics and neoliberalism were partly responsible for the Global Financial Crisis (GFC) and failed to meet the challenge of the economic recovery from the GFC and the COVID-19 pandemic. In each case the Australian government had to reject temporarily these ideologies it normally accepts and rely on alternative policies.

The time is long overdue to reject neoclassical and neoliberal economic ideologies permanently. They are unscientific, applied selectively, and damage the environment, social justice and, in some cases, the economy. Guided by insights from the interdisciplinary field of ecological economics and by Modern Monetary Theory, a transition to a steady-state economy defined in physical terms is feasible.

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