Misunderstanding What Economic Growth Means

I would probably have no argument with Peter Dorman if he said that "degrowthers" have a different understanding of what economic growth means, with which he takes issue. By the way, I don't consider myself a "degrowther" -- I consider myself a critic of the growth paradigm. The growth critics I know have a very sophisticated understanding of what economic growth means. Please leave the condescension in the country club locker room where it belongs.

Roefie Hueting, for example, is the former head of the Department for Environmental Statistics of Statistics Netherlands. He developed the Sustainable national income, (SNI) indicator. Peter Victor's book, Managing without Growth, starts out with a comprehensive discussion of the idea of economic growth, including a section reviewing economists who question growth, such as John Kenneth Galbraith, H. W. Arndt, Ezra Mishan, E. F. Schumacher, Kenneth Boulding and Herman Daly. I would add, very prominently, Nicolas Georgescu-Roegen and Simon Kuznets.

Not all these economists have the same understanding of economic growth or the same objections to what it means, how it is calculated and whether it is sustainable. But on the other side there is this kind of claim that seems to typify standard economic thinking:

If the elasticity of substitution is not constant, what is crucial is what happens to the elasticity asymptotically as resource input goes to zero. In these cases the produced input is sufficiently substitutable for the natural resource that the decrease in supply of the natural resource can be compensated for by an increased supply of capital. Of the two cases, the Cobb-Douglas case is clearly the most interesting for there natural resources are essential in the sense that some input of the natural resource is required for production (the isoquants never do hit the axes). But a small input of natural resource can be compensated for by a sufficiently large input of capital, and whether that is feasible for the economy depends simply on the relative shares of the two. -- Joseph Stiglitz, "Neoclassical Analysis of Resource Economics."

Notice how much work the word "capital" does in that paragraph without a clear definition of what "capital" means?

One of the "misunderstandings" I repeatedly hear attributed to critics of the growth paradigm is that we don't take into account "dematerialization" and the value of intangible products and services. That is pure bunk. These magical solutions have been studied intensely by critics. To make a long story short, the issue is an empirical one and the proponents of dematerialization and intangibility haven't delivered the goods. Miniaturization may seem like a form of dematerialization but, in fact, the manufacturing process often involves more, not less material throughput.

The shift from products to services is also no magic bullet because the service providers come from households that use the income from service work to purchase products made from stuff (possibly in China). Many of the presumably "new" services in the economy are actually old services that used to be performed directly by households and the industrial provision of services, even though it is less material intense than the manufacture of products is usually MORE material intense than the direct household production of those services.

I hear these refrains of substituting capital for natural resources, miniaturizing products and substituting services for manufactured goods all the time. And I read empirical analyses by critics of growth that question the sweeping claims about how easy it is to dematerialize the GDP. And let's be clear, we are talking about less material throughput, period, not only less material throughput per unit of GDP. If absolute material throughput increases while relative throughput decreases the bottom line is that absolute throughput has increased. This is a relentlessly empirical question. What counts is what happens not what "could" happen (ceteris paribus).