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Uneconomic Growth

Uneconomic Growth

Too much of a good thing is too much.

Long ago, in early 1960s courses in economics at Harvard College, they taught that a company’s production of widgets should not exceed the point where the marginal cost of producing one more widget exceeded that widget’s benefits for the company. In other words, generally you shouldn’t spend more to make something than you can get from selling it. The big error in the elegant marginal utility analysis was ignoring the “externalities” of producing the widget, the costs to society that were not borne by the manufacturer. Air and water pollution, greenhouse gases produced in manufacture and transportation, and other “externalities” did not show up as costs on the manufacturer’s financials, which included only costs the company paid directly.

Economic growth and a constantly expanding Gross National Product was my teachers’ gold standard for the success of government policies, and “externalities” were just fuzzy collateral damages, costs difficult to calculate or collect. Fifty years later, the results of unquestioning worship of economic growth, and of putting zero or artificially low price tags on use of the public commons air, water and other resources are obvious – climate change, depletion of fossil water in aquifers, the ozone alerts in our cities and so forth.

Economic theories evolve, and we now have a concept of “uneconomic growth” from Herman Daly and others. The basic idea is that we should consider any damage to natural systems as part of the cost of an economic activity. With that addition, some goods and services that we include as pluses in GNP cost more to produce than they’re worth, and may even leave  society with a net minus. Widget manufacture may be an overall loser once we look beyond direct consumer benefits and the higher net revenues the manufacturer enjoys from avoiding the full costs of production, including the “externalities” whose costs are left to the rest of us. The uneconomic growth concept has not become mainstream, and it will not be featured in this year’s political debates.

Recognizing and giving weight to economic activities’ phantom social costs is one part of realistic cost-benefit analysis. Analyzing the overall benefits people get from a particular economic activity is the other. The economics I studied had a marginal benefit concept that is useful: imagine you’re a really hungry omnivore and are served a good hamburger. It’s delicious, and you want more. Eating the second burger is not as satisfying as the first, and eating the third or fourth burger might make you sick. Generally the more you have of a good or service, the less benefit you get from the last, marginal piece.

A psychology professor from the University of British Columbia, Elizabeth Dunn, and a business administration professor from Harvard, Michael Norton, have combined skills and given us a comprehensive analysis of the relationship between income, which I will equate with consumption, and happiness. A philosophical American once said “I’ve been poor and I’ve been rich, and rich is better.” That may be true only for household annual incomes up to about $75,000. Dunn and Norton studied data collected from almost half a million Americans and arrived at something like our hamburger example. Their summary is that the net happiness effects of having more money, or more consumption, diminish quickly once basic comfort needs are met. Net psychological benefits go away entirely above about $75,000 annual household income, depending on where you live and special circumstances.

My takeaway is that cutting resource intake may increase net benefits, in terms of personal health and happiness, the public enjoys from consumption of goods and services. There might be dislocations from implementing full-cost pricing and a revised consumption ethic, but they are manageable. Advertising agencies might slide away from traditional strategies intended to create new material wants. Preachers might encourage us to appreciate what we have rather than pushing a “prosperity” gospel of ever-higher consumption. Movies and television might shift glamour and success ideals away from mansions and walk-in closets filled with designer clothes. But the necessary sea change will not happen easily, and not with our current politics.


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