The Great Stagnation and the Environment
I recently read The Great Stagnation, a very excellent book by the economist Tyler Cowen about how the U.S. economy is stagnating and its growth prospects are poor. The Economist has named Cowen one of today’s most influential economists. Nick Schulz at Forbes has said the book is one of the most important non-fiction books of 2011.
Why do I bring it up here on the blog? Well, because it offers some nice opportunities for me to discuss the role of the environment in the economy. Specifically, this blog let’s me put out there a few ideas on how we might modify Cowen’s argument to better fit with ecosystem declines. You might say I read the book with “green” tinted glasses or that I engaged the book through the “green economy” paradigm now growing in the enviro community.
All in all, I really liked the book. It’s very smart and helps me put into perspective the state of the U.S. economy. But ultimately, I finished the book thinking that I would have added more to the argument. I would have added another “low hanging fruit” as well as a couple caveats on government spending and the importance of economic growth.
1. The Loss of Ecosystem-based Public Goods
Cowen’s central argument is that the U.S. economy is stagnating because we’ve used up three types of “low hanging fruit”:
Free land. Free and fertile land was essentially gone by the end of the 19th century.
Technological breakthroughs. The greatest breakthroughs have been achieved, including electricity, electric lights, powerful motors, automobiles, airplanes, household appliances, the telephone, photography, and pharmaceuticals. We still innovate, but new discoveries tend to be far less revolutionary.
Educated workforce. Sixty percent of Americans graduated high school in 1960, almost 10 times the rate of only sixty years early. But this number can’t keep going up and the quality of education is arguably worse today.
I find this low-hanging fruit argument compelling. I think, however, we might add one more low-hanging fruit that is disappearing: ecosystem-based public goods.
Cowen’s “free land” fruit could well be extended to other types of natural capital inputs, like food fish or timber or fresh water. But its extension wouldn’t make sense for the public goods I believe are most important. Land and fish are “rivalrous” goods (consumption of the good reduces availability to others) and “excludeable” goods (people can capture and exclude others from the good). Meanwhile, public goods are “non-rivalrous” and “non-excludeable”.
So here’s what I’d add to Cowen’s book:
Ecosystem-based Public Goods. Ecosystem-based public goods are important economic inputs (in the U.S. economy and elsewhere) and many are threatened or have been degraded. As a result, future growth will require even more labor, physical capital, and technological innovation.
Not sold yet? Here are some ecosystem-based public goods now in danger.
- Natural Agricultural Services. Both bats and bees are now disappearing, likely due to human causes. A study in Science recently estimated that bats are worth $23-54 billion per year to U.S. agriculture because they function as effective and free, natural pesticides. Bats are now dying at an alarming rate. Meanwhile, bees pollinate a great many of the crops we eat. One Cornell study estimated this service was worth $14.6 billion in 2000. Further, rising global temperatures have reduced yields of wheat and corn in some countries, a decline that probably has contributed to the rise in agricultural commodity prices in recent years, according to a study in the journal Science. Though the U.S. hasn’t yet seen such declines, there’s no reason we won’t see such crop disruptions as global temperatures rise.
- Domestic Security. The ecosystem provides us security in many ways and this security is threatened as sea levels rise and weather becomes more extreme. The latest prediction is that sea levels will rise by 35 to 63 inches by 2100, far more than the 2007 projection of 7 to 23 inches made by the IPCC. Roughly one in 10 persons in the world lives in a low-elevation coastal zone and is therefore at risk of flooding. In the U.S., a number of cities and their populations face devastating losses due to future flooding. New York faces potentially $2.2 trillion in losses to flooding by 2070. And Miami, Florida faces $3.5 billion in losses by that time. There is also a strong link between climate change and extreme weather events.
- International Security. According to military and intelligence analysts, the changing global climate will pose profound strategic challenges to the United States in coming decades, raising the prospect of military intervention to deal with the effects of violent storms, drought, mass migration and pandemics.
- Human Health. The environment also has provided us many protections from vicious tropical diseases and heat-related illness. Unfortunately, climate change means many diseases will eventually affect the greater USA. According to the American Medical Association:
Rising air and water temperatures and rising ocean levels since the late 1960s have increased the severity of weather, including hurricanes and droughts, and the production of ground-level ozone. That means more asthma and respiratory illnesses, more heat stroke and exhaustion, and exacerbation of chronic conditions such as heart disease. Florida’s large elderly population makes it even more vulnerable to climate change. In the last two years, the Florida Keys have seen a tropical disease rarely apparent in residents of the United States — dengue fever…
- Tourism. And the environment supports tourism. For example, sharks are worth a great deal more as a source of tourism than a food source. In Palau, sharks are worth an estimated $2 million each. Nature works the same way for U.S. tourism. Just think of the coral reefs in Hawaii, recreational fishing in the Gulf of Mexico, and whale watching in California. Yet our reefs, fish populations, and whales are all threatened from such things as ocean acidification, pollution, and ecosystem destabilization through overfishing.
2. Government Spending
A second argument of Cowen’s is that government spending is less productive than private sector spending, so we’ve got to bring down government spending. As he puts it:
The larger the role of the government in the economy, the more the published figures for GDP growth are overstating improvements in our living standard.
This is based on the observation that successive increments of government are “on average less valuable than the core functions [of government that are already provided].”
No disagreement here, and the implication is that government should slim down. But I would add a caveat that it is possible that the government might need to expand in some areas to fulfill its core function.
What is the government’s core function? One theory, and one which I subscribe to, is that government exists to provide public goods. These are things that the market place simply won’t provide, or provide in a way that is less desirable than if the private sector provided for it. A great example is national security.
Connecting this caveat with the clear decline in ecosystem-public goods, it makes sense that the government should be expanding its role in conserving nature to support economic growth and ecosystem services for present and future generations.
Of course, I doubt we’ll see the U.S. government expand in this way. There is a great deal of momentum today to reduce or entirely cut funding to the EPA and other environmental protection and management agencies.
3. Importance of Economic Growth
My second caveat and final addition to Cowen’s brilliant book would be to add that economic growth doesn’t necessarily get us greater happiness, the real aim of all our toils.
So is stagnation so bad? Oh yeah. In DC, a recent Princeton study found that annual income beyond $75,000 did not bring the average person any additional happiness. Up until that point, additional income would get you closer to that “double rainbow” state (so to speak). The median household income in the U.S. was $44,389 in 2004.
But money still isn’t everything. Our riches, for example, have also gotten us fat and many related health problems. It has also damaged the natural world, which provides stress relief, recreation, and other clear “happiness inputs”.
Further, the internet revolution has lowered the costs to achieving happiness for some segments of the population. Using my own life as an example, the internet – at almost no cost – has allowed me to connect with wonderful, like-minded people; find cheap/free furniture for my apartment; phone friends and family for zero cents a minute; have a car for $7 an hour; find cheap restaurant deals through Groupon; and search for fulfilling jobs far better than I could have even just 5 years ago.
Cowen does touch on the revolution, but principally he discusses how it hasn’t translated into private sector productivity gains.
What do you all think? Am I off base here? And will you read the book?