Pity the billionaires. High in the towers on Billionaires’ Row, life is hard. The pencil-thin buildings groan as they sway in the wind, keeping penthouse dwellers up at night. Water pipes break, ruining posh décor. And elevators are unreliable, interrupting billionaires’ highly productive lives. So reads Stefanos Chen’s recent piece about the pitfalls of sky-high living.
Chen admits (thankfully) that “the plight of billionaires won’t garner much sympathy.” He is correct. As I read Chen’s piece, I shed no tears. Instead, I was fantasizing about an alternative world, one in which the super-rich would be problem free … because they wouldn’t exist.
Imagining this world without billionaires got me thinking about degrowth. In a world without billionaires, the ridiculous towers on Billionaire’s Row (below) wouldn’t exist. And that means the stupendous amounts of energy required to build these towers could have been spent on something else … or not spent at all. In short, ridding the world of billionaires sounds like a great policy for reducing resource consumption (a.k.a. ‘degrowth’).
In the real world, billionaires continue to multiply. But suppose they didn’t. Imagine instead that we taxed billionaires out of existence. Then we taxed millionaires out of existence. And we kept going until we harmonized all incomes down to what the bottom half of society now lives on. How much would this rich-ridding scheme reduce our consumption of resources?
I call this thought experiment ‘radically progressive degrowth’. It’s about reducing resource consumption not by lowering everyone’s standard of living, but by taxing the rich out of existence. It’s politically unthinkable, yes. But as I will show, getting rid of the rich could lead to significant degrowth.
Degrowth immiseration?
The idea of degrowth is not popular among mainstream economists. And it’s not hard to see why. For a century, economists have been both the cheerleaders of economic growth and the soothsayers who claim to know how best to achieve it. So the idea that we should do without growth — and instead degrow the economy — is viewed as heresy. Economist John Voorheis recently summarized this opposition succinctly. The problem with degrowth, he argues, is that it “requires the immiseration of the median voter in the developed world”.
At first glance, Voorheis’ claim seems solid. Degrowth requires that rich countries reduce their per capita resource consumption. And that means lowering the material standard of living of the ‘average person’. Sounds like ‘immiseration’, right?
Not necessarily.
What’s missing here is that there are different ways to bring down an average. You can do so by reducing consumption across the board. But you can also bring down the average by reducing consumption at the top. This latter possibility doesn’t involve ‘immiseration’. A better word would be ‘liberation’.
Let them eat cake
Upon hearing that starving French peasants had no bread, Marie Antoinette supposedly remarked: “Let them eat cake”.1 The phrase reflects a disturbing fact about elites. During times of crisis, it rarely occurs to elites that they are the main cause of strife.2
To drive this point home, let’s imagine a hypothetical feudal society that has a problem with over-consumption. The society consists of a king and 100 peasants. Every winter, the peasants harvest wood to heat their modest homes. Each peasant gets 1 cord of wood. (A cord is a stack of wood about 8 feet wide, 4 feet deep, and 4 feet high.)3 To heat his enormous castle, the king gets 100 cords of wood.
If you do the math, you find that this society consumes about 2 cords of wood per person:
Now, imagine that this wood comes from a nearby forest that can sustainably support a maximum of 1 cord per person (per year). Things seem fine … at first. But after many years of harvest, the peasants realize that the forest is disappearing. To stave off disaster, they need to halve their wood use. How?
“I have the answer!” says the king. “We shall tighten our belts. Everyone must cut their wood use in half!”
The king returns to his castle and celebrates his ‘fair’ decision. Meanwhile, there is ferment among the peasants. It’s a ‘let-them-eat-cake’ moment. The problem is that the king’s decree requires that each peasant survive on a half cord of wood. That, the peasants realize, is a recipe for ‘immiseration’. And so the peasants devise a plan of their own. Rather than halve their use of wood, the peasants decide to get rid of the king.
And with that, the problem is solved. The peasants get the wood they need, while per capita consumption gets halved. The math:
This parable of insurrection illustrates a basic principle of degrowth. Achieving degrowth is a recipe for ‘immiseration’ only if we hold existing patterns of distribution constant. But if we redistribute resources (by eliminating the rich), those at the bottom need not suffer. This is ‘radically progressive degrowth’.
(Some clarification. No, I am not advocating that we execute rich people. I am supposing that we eliminate their command of resource flows.)
How inequality drives resource consumption
Let’s return to our feudal king and his peasants (pre-insurrection). Each peasant consumes only 1 cord of wood. Yet because the king consumes such a stupendous amount (100 cords), the society’s per capita wood use is roughly double that of each peasant. What’s happening here is that inequality is driving up resource use.
Figure 1 illustrates this principle. Here I imagine that our feudal king starts at peasant-levels of wood consumption (1 cord). But over time, he ramps up his wood use to astronomical levels — all the while peasant consumption remains the same. As the king’s habits grow more gluttonous (labelled on the blue curve), they pull up the average level of wood use (vertical axis). The king’s gluttonous consumption also drives growing inequality (horizontal axis).
The point of this feudal thought experiment is to illustrate how inequality can drive up resource use. The gluttony of elites (here, the king) pulls up the average level of consumption from what it would be if the elites did not exist.
From this principle comes a corollary that is equally simple yet far more provocative. One way to lower average resource use is to get rid of elites.
The land of the free
The United States proclaims itself ‘the land of the free’ — a perennial nod to its freedom from monarchical rule. In recent years, though, the slogan has come to evoke a different type of ‘freedom’: the freedom for the rich to get richer.4
Figure 2 shows how this newfound ‘freedom’ has played out. Since 1970, income inequality — measured here using the Gini index — has exploded. In modern America, the rich have gotten richer. (And the poor … well never mind them.) Importantly, this rich-get-richer dynamic has been a bipartisan affair. Inequality rose under Republican and Democratic administrations alike.
Thanks in large part to the work of Thomas Piketty, many people know about the recent rise of US inequality. What is less well-known, though, is the structure of this shift. Figure 3 shows this structure in its entirety. It’s scandalous … once you understand what’s going on.
I’ve plotted, in Figure 3, the distribution of US income in 1970 (red curve) and in 2012 (blue curve). I’ve chosen these years because they represent the minimum and maximum (respectively) of modern US inequality. You can easily spot the difference between the two curves. But to understand what this difference means takes some explaining.
Let’s first talk about the axes in Figure 3. The horizontal axis shows income. But rather than plot the dollar value of income, I’ve plotted its relative value. I have taken the bottom half of Americans and defined their average income to be 1. That’s the grey vertical line. I’ve then measured everyone’s income relative to this value. (Example: a value of 100 on the x-axis indicates an income that is 100 times the average of the bottom half of Americans.) The vertical axis in Figure 3 shows the relative number of people with the given income. The higher the value, the more people with the corresponding income.
Next let’s talk scales. Both the vertical and horizontal axes in Figure 3 use a logarithmic scale. That means tick marks correspond to factors of 10. The reason I’ve used double-log scales is that this highlights top incomes. The very rich appear in the right tail of the distribution. Their incomes are so large (hundreds of times the average) that we can only see them when we plot income on a log scale. Likewise, extremely rich individuals are so rare that we can see them only when we plot their relative numbers on a log scale.
Now that we’ve got the mechanics out of the way, let’s discuss what Figure 3 tells us about the growth of US inequality. We’ll start with what has not changed.
To see what did not change between 1970 and 2012, look at where the red and blue curves (in Figure 3) overlap. You can see that this overlap happens when incomes are close to or below 1. Now, remember that by definition, the average income of the bottom half of Americans equals 1. So the fact that the curves overlap around income = 1 doesn’t indicate that the dollar value of incomes has remained fixed. (It hasn’t.) Rather, the overlap tells us that in relative terms, the distribution of low incomes has remained stable.
The same is not true for top earners, whose incomes have exploded. To see this explosion, turn your attention to the right tails in Figure 3. (To save you from scrolling, I’ve reproduced Fig. 3 below.) The right tails tell us about the relative number of rich people in each respective year.
Since 1970, the American rich have gotten richer. Here’s how to read this fact from the chart. At every point in the right tail of the distributions, the 2012 curve (blue) is above the 1970 curve (red). This tells us that today, there are far more extremely rich Americans than there were 5 decades ago. In 1970, few people had incomes that exceeded 100 times the bottom-half average. Today there are plenty such people. In fact, we can now find Americans whose income exceeds 1000 times the bottom-half average.
This is the scandal implicit in Figure 3. Yes, it takes some technical chops to understand what’s going on. But now that you do, I hope this rich-get-richer story is seared in your memory.
The rich drive up the average income
Let’s return to Figure 3, but turn our attention now to the dashed vertical lines. The grey line is the average income of the bottom half of Americans — equal to 1 by definition. The red vertical line shows the average income of all Americans in 1970. Note that this average is higher than 1. That’s because the top half of Americans earn more than the bottom half, so they pull up the average. The blue vertical line shows the average income of all Americans in 2012. It seems that since 1970, the average income has grown.
I’m anticipating some misunderstanding here, so let me preemptively clarify. No, the increase in average income is not due to economic growth. It is also not due to inflation. The jump in average American income (between 1970 and 2012) is due to growing inequality. The average American income has been pulled up by the rich getting richer.
More clarification. The growth of average income (in Figure 3) is not some absolute feature of the world. It is a counterfactual thought experiment. It’s what happens when we imagine a world in which the average income of the bottom half of Americans didn’t change.
Given this assumption, I find that from 1970 to 2012, the average of all incomes rose by 70% … purely because the rich got richer. Figure 4 shows my estimate. On the horizontal axis I plot US income inequality, measured using the Gini index. On the vertical axis I plot the average US income— defined so that the bottom half of Americans have a mean income of 1.
To interpret Figure 4, it may help to return to our hypothetical feudal society, consisting of a king and his peasants. Recall that as we dialed up the resource use of the king, inequality rose, as did per capita consumption. (See Figure 1.) Something similar happens in the US, as shown in Figure 4. Except in the US, it’s not a single person who’s grown richer — it’s a whole class of people. Still, the principle remains the same. Inequality pulls up the average income.
This rich-get-richer effect, you’ll note, is not small. Given my assumptions, I estimate that between 1970 and 2012, the average American income grew by about 70% … purely due to increasing inequality.
Radically progressive degrowth
We’re now ready to return to the idea of ‘radically progressive degrowth’. Recall that this is a reduction in resource use achieved by lowering inequality. The idea sounds far-fetched … until we do the math.
Let’s set the stage. Imagine a future version of the United States in which income inequality has been eliminated. It’s an America without billionaires or millionaires. In this future, every US citizen earns exactly what the bottom half of Americans earns (on average) today. With this scenario in mind, we ask ourselves — how much would per capita resource use drop?
To answer this question definitively, we’d have to complete the experiment. But doing so, you can probably see, would take a revolution. Fortunately, there’s an easier way to see how radically progressive degrowth might play out. We can do the experiment on paper.
In fact, I’ve already done so. In Figure 4, I found that the average income of all Americans is roughly 4 times that of the bottom half of Americans. This implies that if we downward harmonized everyone’s income to the bottom-half average, per capita income would drop by a factor of 4.
Yes, we are talking here about reducing income (not resources). But there’s good reason to suspect that an income reduction would translate into resource degrowth. The reason is simple. At the national level, per capita income correlates strongly with resource use.5 So if our four-fold drop in income translates into a similar drop in resource use, we’re talking about factor-four degrowth. That’s huge.
Now the caveats. Having considered this scenario of radically progressive degrowth, you probably realize that it’s not going to happen. No human society has ever eradicated inequality completely. So the point of this radical scenario is not to envision the degrowth that is plausible … it is to estimate the upper limits of what is possible. On that front, it is conceivable that by eradicating inequality, the US could decrease its resource use by a factor of 4.
Having made this upper estimate, let’s turn now to a scenario that is more plausible. Instead of ‘radically progressive degrowth’, let’s look at merely ‘progressive degrowth’. I’ll define ‘progressive degrowth’ as the degrowth that can be achieved by returning inequality to levels seen a few decades ago.
Imagine a counterfactual world in which Bernie Sanders won the 2016 election. He institutes an ambitious plan to reduce inequality back to 1970 levels. And he guarantees that the average income of the bottom half of Americans will not change. Billionaires protest. But there is an upswell of popular support, and the Sanders plan proceeds. Now here is the question: how much degrowth would this plan achieve?
We can get a rough estimate by returning to Figure 4. Between 1970 and 2012, the average American income grew by 70%, purely due to rising inequality. The upshot is that if we role back this inequality (in the way I have outlined), per capita income would fall by the same amount. If that translates to a similar drop in resource use, we are talking about achieving significant degrowth … just by returning inequality to 1970 levels.
The big picture
The United States is not the only country where inequality pulls up the average income. The phenomenon is ubiquitous. To illustrate this fact, Figure 5 shows the trend across all countries in the World Inequality Database. On the horizontal axis, I plot income inequality (measured by the Gini index). On the vertical axis, I plot average income (defined so that the mean income of the bottom half of earners in a country equals 1).
Let’s start at the bottom end of inequality. As I have defined it here, a society with no inequality would have an average income of 1. Since there is always some inequality, real-world societies never reach this point. But a few come close. In 1984, communist Hungary had a Gini index of 0.13. In that year, the average income of all Hungarians was 1.2 — a mere 20% above what it would be with no inequality. Other communist countries (of that era) are in the same vicinity.
In these countries where inequality is low, the average income isn’t much above what it would be with no inequality. The consequence is that reducing inequality will produce little degrowth. The upshot, however, is that the low-inequality observations (in Figure 5) are mostly ghosts of the past. In communist Hungary, inequality was exceedingly low. But in the capitalist Hungary of today, there is far greater inequality. The same holds true for most former communist states. With the collapse of communism came the rise of inequality. That means there is now more room for achieving degrowth by reducing inequality.
Let’s turn now to the upper range of inequality (i.e. where the Gini index is greater than 0.7). Here we see that by eliminating inequality, staggering degrowth is possible. In Kuwait, for instance, if all incomes were harmonized to what the bottom-half of Kuwaitis currently earn (on average), per capita income would drop by a factor of 10. Other Arab countries (Saudi Arabia, Qatar, Oman, United Arab Emirates) could achieve similar reductions. If this income decrease translated into an in-kind drop in resource use, it would amount to astonishing degrowth.
It’s interesting that it is oil-rich Arab states that could achieve monumental degrowth by mitigating inequality. These states, you’ll note, are the real-world equivalent of my feudal kingdom. They are ruled by despotic monarchs with astounding wealth.6 Get rid of these despots, the evidence suggests, and you could achieve significant degrowth … just like in my feudal parable.
Moving on, note that just because a country could reduce its average income by mitigating inequality, it does not follow that it should. The principle of degrowth is that rich countries should degrow their consumption. Poor countries, on the other hand, deserve to increase their resource use.
On that front, Figure 5 shows that there are many impoverished nations that have significant inequality, and could therefore reduce their resource consumption by mitigating inequality. But doing so goes against the philosophy of degrowth. In these poor countries, the appropriate course of action is to turn our reasoning on its head. We hold average income constant, and then ask — if we eliminate inequality, how much could we pull up up the income of the bottom half of society?
The answer is shocking. In countries like Sierra Leone, Lesotho and Botswana, it’s something like ten-fold. Let me say that again. By eliminating inequality, it’s conceivable that we could increase the income of the bottom half of these societies by a factor of 10 … all without changing per capita resource use.
A model of radically progressive degrowth
The empirical data in Figure 5 speaks for itself. If you live in a rich country with rampant inequality, know that there is likely significant degrowth to be had by eliminating this inequality (assuming you downward harmonize top incomes).
As a scientist, however, I like to go a step beyond the empirical data and build a model. (We scientists love a good equation that predicts reality.) On that front, have a look at Figure 6. I’ve reproduced here the empirical data from Figure 5 — the trend between inequality and average income. But I now show that a simple model can predict the international trend.
The model consists of two theoretical distributions — a lognormal distribution and a power law distribution. To create the model, I adjust the parameters in these theoretical distributions, thereby ramping inequality up or down. What results are the two dashed red lines in Figure 6. The left line is produced by ramping up/down inequality in a lognormal distribution, the right line by ramping up/down inequality in a power-law distribution. You can see that the vast majority of the real-world data sits between these two curves.
What does this model tell us? It suggests that while the causes of income inequality are maddeningly complex, the results are shockingly simple. When inequality increases, the average income predictably grows.
A vanishing act
I can hear many of you saying: “The data is interesting. But what I really want to know is — how do we achieve radically progressive degrowth?”
The scientific answer is that we don’t really know, since no society has ever tried it. Still, we can speculate. On that front, the mathematics of my thought experiment are clear about what needs to happen to bring down average income. These mathematics are also shocking.
My thought experiment involves progressive income redistribution, but in a way that is different than we usually picture. We usually think of progressive redistribution as a Robin-Hood affair. We ‘take from the rich and give to the poor’. In my thought experiment, there is a Robin-Hood element. Some of the income of the rich goes to the poor. However, most of the rich’s income must simply disappear.
The most visceral way to frame this redistribution is to think of the Joker’s antics in the The Dark Knight. He steals millions from Gotham banks … and then burns the money. Fortunately, this incendiary policy (pun intended) is not the only way to make income disappear. Today, only a tiny fraction of money circulates as paper cash. The vast majority of money circulates as electronic digits, which makes destroying it less shocking. Gasoline is not required.
The reality is that governments create and destroy money every day to little fanfare. That’s because when a currency-sovereign government spends, it creates money. When the government taxes, it destroys money. It’s that simple. The net creation/destruction of money therefore depends on the government’s finances. When the government runs a deficit, money is created. When the government runs a surplus, money is destroyed.
With this dynamic in mind, here’s a fiscal policy for radically progressive degrowth. First, the government must adopt a radical tax scheme. I’m talking negative taxes for the poor, and something like a 99% tax on the incomes of the very rich. The effect of this policy will be a massive cash flow into government coffers. The next step is for government to not spend this money. As a result, the incomes of the rich will be downward harmonized (to some desired baseline). If all goes as planned, resource use should decrease.
Having laid out this fiscal policy, I’ll admit that no government (to my knowledge) has ever tried it. And it’s not hard to see why. When you take money out of a capitalist economy, you create a crisis. The result is degrowth … but we don’t call it that. We call it a recession, or a depression.
So here is the reality. Radically reducing inequality could lead to significant degrowth. But in a capitalist economy, it would be a disaster. It’s up to us to create a social system in which radically progressive degrowth is not a crisis.
Support this blog
Economics from the Top Down is where I share my ideas for how to create a better economics. If you liked this post, consider becoming a patron. You’ll help me continue my research, and continue to share it with readers like you.
Stay updated
Sign up to get email updates from this blog.
This work is licensed under a Creative Commons Attribution 4.0 License. You can use/share it anyway you want, provided you attribute it to me (Blair Fix) and link to Economics from the Top Down.
Further reading
If you’re new to the idea of degrowth, I suggest reading a debate between Branko Milanovic (an economist known for his work on global inequality) and Jason Hickel (an anthropologist and vocal advocate for degrowth). The debate has played out in the blogosphere over the last few years. Here’s the tit for tat:
- Branko Milanovic: The illusion of “degrowth” in a poor and unequal world
- Jason Hickel: Why Branko Milanovic is wrong about de-growth
- Branko Milanovic: The illusion of degrowth: Part II
- Jason Hickel: De-growth is feasible: people want a new economy
- Branko Milanovic: Degrowth: solving the impasse by magical thinking
Hickel has not yet responded to Milanovic’s last piece. But he does have a new book that makes the case for degrowth. It’s called Less is More: How Degrowth Will Save the World.
- Timothée Parrique: A response to Branko Milanović: The magic of degrowth
Sources and methods
All data used here comes from the World Inequality Database.
Gini index. I have estimated the Gini index by constructing the Lorenz curve from income share data.
Average income. I estimate average income by taking the weighted mean of income threshold data:
I then normalize average income (\overline{I}) by dividing it by the mean income of the bottom 50 percentiles:
US sources. For US data (Figs. 2–4), I’ve used income share series sfiinc992j and income threshold series tfiinc992j. This data ends in 2014. In Figure 2, I’ve projected the Gini index forward using data from series sfainc992j and tfiinc992j.
I estimate the probability density of US income (Fig. 3) using the slope of the cumulative distribution (constructed from income share and income threshold data).
International sources. For international data (Figs. 5 & 6), I use income share series sptinc992j and income threshold series tptinc992j.
Model. In Fig. 6, I model income using a lognormal distribution and a power law distribution. One could do this analytically, but I’ve done it here by drawing random numbers from each distribution. For the lognormal, I use the R function rlorm, varying the sdlog parameter. For the power law, I use the function rplcon (from the R package poweRlaw), varying the alpha parameter.
Notes
- The phrase ‘let them eat cake’ appears in Jean-Jacques Rousseau’s Confessions and is attributed to a ‘great princess’. It seems likely that the phrase is Rousseau’s invention.↩
- A case in point is Bill Gates. He has a new book out called How to Avoid a Climate Disaster. I haven’t read it, so I can’t say if he gives sound advice. But I can say that I’m skeptical of listening to climate-change advice from someone who emits about 1600 tonnes of C02 (per year) by flying around the world in a personal jet.↩
- Personal side note: I can attest that one ‘cord’ is a significant amount of wood. When I was in my early teens, my father and brother and I ran a firewood business in rural Alberta. We delivered wood by the half cord in a 1950s Mercury pickup truck. It was fun … and a hell of a lot of work.↩
- I use scare quotes around ‘freedom’ here because in an important way, inequality measures an anti-freedom. As inequality increases, inter-generational mobility tends to decrease. (See the ‘Great Gatsby curve’.) So it becomes harder to go from rags to riches.↩
- At the individual level, it’s dubious to equate income with resource use. That’s because we all spend money on different things, which affects the amount of resources we consume. Second — and more importantly — it is impossible to objectively attribute resource use to individuals. Sure, when I buy gas for my car, it’s clear that I’m responsible for burning that fuel. But suppose I get in my car and drive on a new freeway. Who’s responsible for the energy needed to build that? And what about the energy needed to build the machines that built the freeway? You see where I’m going. Just like it’s impossible to attribute a portion of economic output to individuals (sorry neoclassical economists), it’s impossible to attribute a portion of resource consumption to an individual.↩
- Cory Doctorow aptly summarizes the job of being an oil-rich dictator:
All you need to run an extraction economy is a hole in the ground surrounded by guns. Being a leader of such a state requires merely that you be able to judge which mercenaries and diggers to hire.
People who believe their lives will improve under such a plan will favour it. People who believe their lives will not improve or get worse under such a plan will oppose it. This is because the average human acts in self interest, not altruistically. If humans were altruistic by nature we would not need such a plan. But humans are not altruistic in nature. We act in our self interest so capitalism will always create inequality.
In other words, if one believes humans are altruistic in nature, capitalism should work fine. But it doesn’t work fine because humans are not altruistic, but rather self interested. That is why we need to convince the majority of people to believe the truth that a more socialist system (99% tax on excess wealth) is in their self interest. Rather than coaxing them to act more altruistically via cultural nurturing.
Expecting humans to act more altruistically will lead to the wrong conclusion that capitalism will work fine if people just smarten and stop being so selfish. However expecting people to act in their self interest will lead to the right conclusion that capitalism will lead to massive inequality but socialism will serve the self interest of the majority of individuals.
You have everything right except the “humans are altruistic by nature” claim that you take from Wilsonian group selection theory, which is erroneously backed up by a few misguided game theory experiments.
Sorry but if you get to be repetitive, so do I.
I have your video scheduled for next week and will post this the week after.
As I commented on Twitter – this is great stuff!
John
John B. Lounsbury Ph.D. CFP
Managing Editor Econintersect.com
Senior Contributor TheStreet.com
Highly ranked author Seeking Alpha
________________________________
Hi Blair
Very interesting work as ever. A thought on sorting your conundrum re degrowth becoming a financial crisis. Taking your example of the peasants and the king, what if after the king was got rid of, money was created to fund the regeneration of the forest? It seems to me that the creation of money sparks activity. If the resulting activity is focussed on regeneration or generally increasing the carrying capacity of the planet, then wouldn’t it be ‘ok’? If we view our world as made up of people acting to increase the ecological crisis with the result that the ecologies we live in are degraded, degrowth stops the increase in ecological crisis but doesn’t address repairing the damage. Repairing is an activity that would involve financial transactions and so would count as growth in GDP (this is often used as an accusation against GDP as a measure) but would be ecologically positive. So the challenge could be to organise an economy so that the money created goes into repair while not fueling consumption. I would suggest this would involve the government only funding collective repair vehicles that paid low wages ie the governmend drove demand for repair while restricting levels of pay and profit by only funding collective vehicles with such commitments similar to CICs.
what do you reckon?
Henry
PS Of course claims that humans are by nature selfish are clearly not supported by evidence and nor is altruism the only alternative to selfishness. This is the classic missunderstanding. Nicholas Gruen covers this quite well here: https://clubtroppo.com.au/2020/05/02/altruism-comes-from-a-model-the-virtues-from-life/#more-33843
There are many complexities that I have purposefully ignored in this post. Chief among them is that money creation has no simple relation to resource use. That’s because how much we consume is a function of both income and prices. If both incomes and prices rise, then consumption stays the same. Now, the dynamics between money creation and inflation are complex and poorly understood. So I completely ignore them here.
About regenerative activity. Yes, this is important. One of the main thrusts of ecological economics is that mainstream accounting principles are dubious, since they add social/environmental ‘bads’ to GDP.
Note, though, that here I am not trying to aggregate ‘production’ or ‘economic output’. I am just aggregating incomes. And you earn an income regardless of whether what you do is actually useful to human society. Actually, it’s likely that income is inversely proportional to what you contribute to societal welfare. But I digress.
To your point, I think it broadly fits into the idea of building a social order in which consuming less is not a crisis. That requires that we devote effort to regenerating the environment (and social institutions). Safe to say, none of this can be captured by looking at the distribution of income.
Hey Blair, I have a few questions and I hope you’ve thought of them before writing this peice.
The first what is the transition mechanism? Normally we see the uber wealthy as saving/investing their wealth rathing than fueling consumption. They do consume luxury goods to be sure, but whats the mechanism here between high net worth and growth?
This brings me to my next question and that is, did you ever feel like this may be inconsistant with other parts of CASP? You’re somewhat saying here the rich are responsible for growth, and we must rid ourselves of them for degrowth. CASP has said from the begining that capital and capitalists are not productive, that there is a separation between business and industry. A large part of CASP is about how capitalists sabotage production and stall growth.
I want to highlight a few of your examples here too. Communist countries were incredibly industrious, and very much contributed to the climate crisis of today while having low inequality. How or why would reducing inequality then degrow the economy when the period of reference throughout much of this peice (the post-war golden era) is usually seen as a period of intense growth and industry?
The oil rich monarchies have tried to restrict production and growth through OPEC. Nitzan’s work, in my interpretation, is based on early socialist views that without capitalists the working world would be more productive and he has an implied idealized society in mind when describing private property as sabotage. Capitalists sabotage production through unemployment and supply restrictions and without them we would see unprecedented industry, or at least that’s been the classical socialist view of the world.
I would love to hear your responce to this and see if I got confused somewhere in the terminology of growth. If you got lost in the graphs (it happens), then perhaps we should say that if capitalists can plan to restrict production so can we (and in a much more democratic and egalitarian fashion) Why are we paying them so much just to stop us from having stuff? And this is related to my last comment with you, I’m digging into the data on coops and inequality. I’ll email you whatever I find.
Cheers
Hi James,
Many interesting questions here. Let me respond to each.
I have purposefully left the ‘mechanism’ unspecified because I do not know what it would be. Yes, the rich consume luxury goods through conspicuous consumption. But you can’t go far thinking in individualist terms. That’s why I focus on per capita income, which is robustly related to per capita resource use.
Many things to discuss here. First, I am not saying that the rich are responsible for growth. Remember that everything here is counterfactual, and depends on the assumption that we hold the incomes of the bottom-half steady. But that doesn’t actually happen in the real world. Most of the time when societies rid themselves of the rich, they redistribute to the bottom. That causes resource use (at the bottom) to rise. In the US, for instance, there is fairly robust relation between downward redistribution of income and increasing energy use.
That seems, at first, to be inconsistent with the arguments advanced here. But it is not. Remember that I am proposing downward redistribution in the absence of growth. I don’t think there is any historical precedent for that.
About being consistent with capital as power, it depends how you interpret the theory. I personally do not agree with all of the arguments proposed by Nitzan and Bichler. For instance, I am skeptical that capitalists hinder growth. I am also skeptical of the distinction between ‘business’ and ‘industry’. That’s because while ‘business’ is well defined (capitalist hierarchies) it’s not clear what ‘industry’ is in the absence of business. It’s like asking — what would Walmart’s employees be doing if Walmart didn’t exist? A very hard question to answer. But surely they would not be running a supply chain similar to Walmart’s.
Anyway, how my own ideas sit with those of Nitzan and Bichler’s exceeds the scope of a blog comment. Suffice to say that I accept the core premise that capital is a symbolic representation of power. But I don’t agree with some of the smaller pieces of Nitzan and Bicher’s arguments. And there’s no reason that doing CasP research requires such an agreement. The worst thing that can happen is that we treat Capital as Power as some sacred text.
Fully agree. Communism was sold on the promise that a) there would be radical redistribution and b) there would be massive economic growth. At least initially, the communists achieve both.
Again, this is not inconsistent with my degrowth thought experiment. I’m very clear that it is about something that no society has ever tried — radical redistribution in the absence of growth. Just because you redistribute incomes does not mean that the income of the bottom half will stay the same. Indeed, history suggests that it won’t. But the point is to imagine what might happen if we did hold incomes constant.
I do not agree with this line of reasoning, because I see it as inconsistent with my own research on hierarchy. The growth of energy use seems to be deeply entangled with the growth of hierarchy. That holds whether the hierarchies are governments (as in the Soviet Union) or business (as in capitalist countries).
Would the world be ‘more productive without capitalists’? That depends on what you replace capitalists with. If you replace them with socialist hierarchies, then maybe. If you get rid of hierarchy entirely, then likely not. Get rid of hierarchy, and my bet is that ‘production’ would collapse. (Let’s also be clear that the word ‘productive’ is ambiguous. Do we mean churning out useless material stuff? Or do we mean creating welfare for humans?)
On that note, in their paper Growing through Sabotage: Energizing Hierarchical Power, Bichler and Nitzan reflect on how their ideas of sabotage sit with my research on hierarchy. Worth a read.
Glad to see you realized that redistribution does little to change resource use. This means that almost all of the taxes taken from the rich can’t be given to the poor anywhere to increase their income, not even in the Global South.
Of course, the effect of such dramatic degrowth on employment might be dramatic. If the rich don’t have any more money to spend on either investment or consumption, a lot of jobs might disappear. Perhaps the taxes taken from the rich could be used for a universal basic income or heavily subsidized unemployment payments so that those who lose their jobs still have income. This might last for a few years, but taxing the rich so that the only have average wealth would be a one-off event. Once the rich become average, they have no more money to take away via taxes.
Since a lot of the assets of the rich are purely financial instruments and unrealized capital gains, a financial crisis might vaporize a lot of money quickly. Debt defaults are another way that money disappears, too.
Also, I wonder if it would even be possible to liquidate the assets of the rich and have proceeds to tax. Who would buy the assets of the rich anyway? There would be no other rich people to do so. I think government would basically just have to destroy the physical assets of the rich and zero out their financial assets by declaring them unsellable.
Lots to think about in your thought experiment!
Upon further reflection, I think it is not so easy to tax or even bankrupt wealth out of existence. Consider the owner(s) of a factory, a store or any other capital asset that produces income, thereby making the owners wealthy. If they are removed from the ownership hierarchy, won’t some other person or entity take their place, thereby making the new owner just as wealthy as the old owner?
If capital assets continue to function, resources are consumed, wealth continues, and growth is likely to continue, even if captital ownership is a game of musical chairs. If degrowth is to happen, the physical assets of capitalists need to be destroyed so that no one can use them. It may be that sabotage would be more effective than taxation in promoting degrowth.
I would argue that both GDP and energy consumption growth are driven by extending credit subject to payment at compounding interest, Unless you eliminate credit money that requires continuous, compounding GDP growth (and energy use) to service existing debt, there can be no “de-growth.” Even if you eliminate interest-bearing credit money, the state must also somehow tax existing wealth to service existing debt, as taxing income alone won’t be enough.
I am not saying the kind of de-growth you envision cannot be achieve. Indeed, I think it can, but the way money is created by commercial banks must be changed. When you recognize that the “principal” of a commercial loan is lent into the existence, it makes no sense to allow the bank to treat the payment of “principal” as non-taxable (indeed, the tax on the principal should be 100%). So, banks should be able to make commercial loans with no interest and receive income equivalent to interest income by setting the tax on principal at less than 100%.
This reminds me of Huey Longs “Share the Wealth” Program. Pretty cool
hey Blair
nice work on this article.
Question, How much could we degrow the economy if the US had a maximum wage that was 10 x greater than the minimum wage?
I think that some inequality is functional, even good but extremes of inequality is very bad. So i think that limiting inequality is probably a better goal than completely equality.
Fascinating read! I have never been into “degrowth” because I always had the idea it was “across the board” and I never felt that lots of people who have sacrificed for decades needed to sacrifice more nor was it morally OK to ask them to do so. Even if for noble cause. However, this is an interesting take. Reduce avg consumption by reducing it at the top. Very interesting, and you make a compelling point. I mean, the data can’t be argued with.
I have two questions. First, the natural tendency will be to “use” the tax money to help the bottom (we here know this is not how it works but I’m gunna use the lingo of the mainstream, as that is what would happen). People will want to use the tax money for redistribution. Naturally, raising living standards will raise consumption. In wealthy nations is there some degree of “robin hood” we could accept that would still achieve degrowth? In other words how much lifting up can we do and still see huge benefit of the bringing down the top?
Second, being a pragmatist I cant shake the “ok but…this is beyond any realm of possible”, but since you speak of changing society itself to help get there…. are there ways we can improve the efficiency of our consumption so that it continues while still reducing harm to the environment/using up our resources? You know, achieve a 100% clean energy grid, retrofit buildings to be carbon neutral (green new deal time?), more fuel efficient cars, increase public transport, etc Basically improve our consumption (without asking the many to sacrifice)? It is well short of your goal, but would it be enough to have major impact? It strikes me as more achievable to do this then find ways to get that wealth. That is a nightmare to dive into but the government forcing more eco friendly planes maybe they’d only grumble. Needless to say I would still want to tax the wealthy as much as we can manage to do. Maybe with all these changes, we would reach a future where it’s possible to destroy more of their wealth.
Hi Brian,
1. About the Robin Hood element. In the scenario I have envisioned, roughly 25% of people will have their income lifted. These are the people below the bottom-half average. Their incomes would rise. Everyone else’s income would fall. So there would be neither poverty nor riches.
2. I agree that it ‘s almost ‘beyond the realm of possible’ to achieve degrowth this way. Of course, an authoritarian regime could do it. But it’s hard to fathom that a democratic government could achieve it without getting voted out. And that is why, while I think it is necessary, I’m quite skeptical that any society will voluntarily degrow. If degrowth happens, it will almost surely be involuntary.
Thank you for the response. Very thought provoking stuff! Agreed, an involuntary walk towards it would be the only way, but still interesting to ponder the big picture.
In my area some people suggested ‘raising the minimum wage ‘ to 15/hour eg at walmart—
they put one up the street a few years ago on what was and still is an illegal open drug market. people didnt want the walmart since its non union and would wipe out alot of small businesses. but part of the reason they put it there was to get rid of the illegal and dangerous activity there. (i personally favor some sort of illegal drug decriminalization or legalization –but maybe with strings attached.) so people were split–they didnt want either walmart or an open air drug market.
i heard 4000 people applied for those walmart jobs–maybe 500 and many part time. so some people wanted the walmart. )
( legalizing alcohol stopped some crime, but did not solve the issue of addiction. i view addiction as primairly a result of people having nothing to do or ‘bad jobs’—
the people i’ve met who work at the local walmart have to take a bus to work for 1-2 hours each way, and leave their kids at home in what are even more dangerous neighorhoods than here. some tell me some customers at walmart can get a bit hostile.
you add this stress together and you may get an ‘after work ‘ alcohol or other addiction problem.
many would prefer other jobs closer to home but for now are content with what they have. )
—————–
for degrowth some suggest raising wages so people can afford to buy or rent a bike –you can rent bikes here— or having the government subsidize mass transit fees–minimum 4$ round trip—or buy low income people bikes , and also creating bike lanes.
alot of low income people here pool their money and first thing they buy is a truck or car. some ‘libertarian’ groups suggest the govt just buy low income people cars.
then with more cars you need more lanes on highways. (and the cars are made usual, with lots of things from china or elsewhere).
—————–
so you can level or redistribute income –eg lower the salary of the Walmart CEO and raise the slaries of their employees—and then they can buy a bike or a car.
they can continue renting a small place or buy a big place–eg some new house in a subvidiision on what used to be a forest in the suburbs and commute —for almost the same cash price in the long run.
the cash price does not include the ‘externalities’–eg loss of land due to roads and buildings, foreign trade for transporting cars, govt debt to build roads, etc.
——————–
‘you can teach a man how to catch a fish in the creek down the hill, or buy him a fish imported from the pacific ocean’.
you could buy someone some gardening tools and teech them to grow food, or give them a catalog afor astore and then order food from it with the money you give them,.
You make the following claim that you then use to justify the supposed benefits of degrowth:
“Between 1970 and 2012, the average American income grew by 70%, purely due to rising inequality. ”
But this is demonstrably false.
Of course it’s difficult to find credible data sources that exactly match your year range, but according to the CBO (https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51361-householdincomefedtaxesonecol.pdf) for the period 1979-2014 REAL income grew for the bottom quintile by 39% before taxes/transfers, and by 46% after taxes/transfers. The middle 3 quintiles fared a little worse (32%/41%). While it’s true the top quintile fared even better, and the top 1% fared the best, the fact is that ALL income quintiles saw income increases of 40% or more.
The problem with your analysis is that you set the mean income of the bottom 50% to 1 FOR BOTH YEARS IN YOUR STUDY.
This isn’t to say that there aren’t benefits of reducing income inequality. But that debate is impossible to have when both sides of it use falsehoods to support their point.
Every income quintile is better off. And that’s not to mention that many people who were in the bottom quintile in 1979 are no longer in the bottom quintile in 2012. Even if the quintiles didn’t change at all, movement through the quintiles as one progresses in their career would improve quality of life for the individual.
You seem to have missed the point of this thought experiment, which was precisely to hold the mean income of the bottom half constant, even though it was not constant in the real world. That is what a thought experiment means … something that could have happened, but did not.
[…] French peasants had no bread, Marie Antoinette supposedly remarked: “Let them eat cake”.1 The phrase reflects a disturbing fact about elites. During times of crisis, it rarely occurs […]
[…] Radically Progressive Degrowth: Reducing Resource Use by Eliminating Inequality […]
[…] in the ground surrounded by guns” https://economicsfromthetopdown.com/2021/02/26/radically-progressive-degrowth-reducing-resource-use-… […]
[…] in the ground surrounded by guns”https://economicsfromthetopdown.com/2021/02/26/radically-progressive-degrowth-reducing-resource-use-… […]
[…] in the ground surrounded by guns”https://economicsfromthetopdown.com/2021/02/26/radically-progressive-degrowth-reducing-resource-use-… […]