Opinion: 10 'steady state' solutions for a successful economy

By Neville Bennett Interesting times! We have Green Shoots eaten by Black Swans. The crash might have dented confidence in the capitalist system and certainly there is a consensus on the need for better regulation. Some ideas are more radical, and in the spirit of freedom I am airing principles of environmental economics. Few readers will accept these, but I like to think of business people saying over a coffee or chardonnay, "should we cap top salaries at a lower level?" or "Should banks have to have 100% capital behind their loans?" Warning: the total package of 10 ideas below consciously limits growth. It comes from Herman Daly's keynote address to the US Society for Ecological Economics. Steady State Economics Steady state theorists aim to sustain a constant, sufficient stock of real wealth and people for a long time. They want to halt the present "Greater Depression" (my term) but not resume the old continuous growth, for that is uneconomic and has negative effects, like asset bubbles. A not-growing steady-state is judged superior in the long run. Growth might make people poorer. Daly says growth is not the answer to poverty, unemployment, environmental destruction etc. Infinite growth is impossible in the finite biosphere. At present much production has negative effects. Are we to assume it will go on forever? Or will it stop when people are wealthy enough? By encouraging growth governments are postponing issues. Poverty is assumed to be curable by growth, but steady -state people say the way to cure it is by sharing. But redistribution, beyond progressive taxation, is an anathema to most of us. Another anathema is population control. A third is reducing consumption in order to invest in environmental repair. A steady state maintains a constant metabolic flow of resources from depletion to pollution-a through-put that is within the assimilative and regenerative capacities of the ecosystem: 1. Cap-auction-trade for basic resources. As I understand it, the state would auction quotas of resources. This captures huge rents for the state. Quotas are tradable, which leads to efficient use. The cap limits the depletion and pollution that can be imposed on the ecosystem. A higher price for resources will encourage more economical use. The same system could apply to forestry and does to NZ fishery. The revenue would reduce income tax. 2. Ecological tax reform. Shift the tax base from value added by labour and capital, to "that to which value is added", the entropic throughput of resources extracted from nature (depletion) and returned to nature (pollution). I favour this as it places the producer with the costs of externalities, as well as raising revenue more equitably. It puts prices on the previously unpriced contribution of nature. In principle, we need to lower tax on value-added contributions. We need to tax depletion and pollution. 3. Limit the range of inequality in income distribution. Complete inequality is unfair. Complete equality is also unfair. The church, military, university and civil service have a range of incomes of a factor of 15 or 20. A gardener in a NZ university might earn one-tenth of a vice-chancellor's salary. Corporate America has a range of 500 or more. Why not try a lower limit and see if it works? 4. Free up the length of the working day/week. The work contract could be freed up. In an ideal world there would be less advertizing too to create the urge to work in order to accumulate. One proposal is to cease allowing advertising to be a tax-deductable expense for business. 5. Re-regulate international commerce. Move away from free trade, free mobility of capital and globalization. Impose tariffs to protect, not inefficient firms, but efficient national policies of cost internalization. It is hard to integrate high wages, high environment standards and social-safety nets with an open world. I struggle with this idea, but readers should be advised that it is likely to be adopted by the Obama regime, starting with charges on non- Kyoto exporters. 6. Downgrade IMF-WTO-WB, towards the original Breton Woods vision of multilateral clearing union, charging penalties on surpluses as well as deficits, with a world reserve currency (the bancor) not the US dollar. In Herman Daly's view, the IMF serves the interests of the multinationals who want full capital mobility and convertibility to escape regulation. As there is no global government they are uncontrolled. 7. Move to 100% reserve requirement in banking. Banks would no longer be able to create money out of nothing. They could receive extra non-interest bearing fiat money from the Government. If prices rise, the government would print less and tax more. Exchange rates would float. I scratch my head on this one as I believe society would crash with insufficient credit. 8. Stop treating the scarce as though it were non-scarce, but also stop treating the non-scarce as if it were scarce. This apparently means price commons of natural capital (like parks, the atmosphere, electromagnetic spectrum etc) and brings it under cap-auction-trade. Also loosen from private hands knowledge and information in order to share knowledge. Keeping knowledge artificially scarce is expensive and perverse. Patents should be for fewer years. 9. Stabilize Population. Work towards a balance where births and in-migrants equal deaths and out-migrants. Make contraception available. Have a public debate on the numbers of migrants to be accepted and be firm on violations. This is in accord with NBR's brilliant editorial on Friday, July 3. 10. Reform National Accounts. This is interesting-separate GDP into a cost account and a benefits account. Compare them at the margin, stop throughput growth when marginal costs equal marginal benefits. Examine if more GDP growth increases self -evaluated happiness. Actually, once a certain level is reached, more GDP delivers little extra happiness, but generates more depletion and pollution. It must not be assumed more GDP growth is "economic growth". Conclusion. The package is scary, but the drive for sustainability has merit. These measures are based on private property, and decentralized markets which lose legitimacy if prices do not reflect opportunity cost. The extra costs of growth should not exceed the benefits, otherwise we experience uneconomic growth.