Saturday, 9 February 2008

Where is the Keynes of environmental analysis?

There is an irritating problem with conventional growth theory, which comes from environmental damage. Economic output tends to increase the output of things which damage the environment, such as greenhouse gases from burning coal and oil. A recent report commissioned by UK finance ministry suggested that the long term damage will be equivalent to contracting the world economy by five percent every year, forever. This will probably exceed growth from other sources, so in other words, economic history will start to reverse and the world may end up looking something like it did a thousand years ago, that is, fairly rubbish in places. Even if the estimate is overblown, just three percent would still probably reduce the world economy overall, but we would reach catastrophe less quickly.

Growth theory is progressing quite nicely, and there are some interesting results. But it does not really seem to have risen to the enormous challenges of environment damage. The methods and analysis are all very "route one", the sort of thing that anyone can do if they worry away at things for long enough. Growth-caused global warming is civilisation threatening, and requires the sort of pioneering, iconoclastic, shocking, and useful insights that a Marx, a Keynes, or a Friedman made to the challenges of their day. Adjustments in discount rates or accelerated capital depreciation just don't measure up to the analytical and applied task.

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