Roberto Peccei is a major star in physics and is my colleague at UCLA. He has recently written a paper on environmental economics and I’ve been chatting with him about this work. Roberto’s father was Aurelio Peccei who was the founder of the Club of Rome. The Club of Rome started a fascinating and ongoing debate concerning the big topic of the “limits of growth”. Roberto has returned to his father’s core topics. In a seminar at the UCLA Institute of the Environment today, Roberto sketched his vision for a new framework for economics. He endorsed this vision of measuring well being rather than relying on a nation’s per-capita GNP. He emphasized the importance of putting a price on natural capital so that national income accounts reflect “green accounting”. I agreed with 94% of his presentation.
To quote Peccei; “But what should we do? In my view we need to face squarely and honestly the phenomena
which is at the core of all our problems: growth must be limited. In a way, it is ironic that
40 years after “Limits to Growth” we should return to the original concept, which was then
so heavily criticized. However, in a finite globe it is not sustainable to have any of the
dynamical parameters of the world [population, industrial production, pollution, etc.] grow
continuously. We are well aware of the necessity of limiting the growth of many dynamical
parameters in our planet [e.g. population and pollution], but all our economy is based on
growth. Although concepts like “zero growth” or “steady state economics” are ideas that are not
very appetizing economically, to overcome the predicament that mankind finds itself in we
need a new economic system where growth is not the driving parameter.”
He is arguing that to guarantee that we do not exhaust finite resources that we must bound population growth and per-capita income growth.
A free market economist would say that we don’t have to suffer this tough “lock down” on well being. Why? We make our choices today over consumption and investment by forming expectations of the future. If we anticipate that we are running out of resources and if market prices reflect this anticipated scarcity (think of peak oil and rising oil prices), then rational consumers will substitute away from oil intensive products (i.e Hummers) and suppliers will invest in substitutes that economize on oil (i.e electric cars), the net effect of such anticipatory reactions is that we have a smooth adjustment such that we can have the win-win of ongoing economic growth without exhausting our resources.
Our mind is the key sustainability input. With good brains, enough time, and competition and access to capital to finance major labs and universities, we can substitute away from any resource. I made this point today at the Institute and my UCLA colleague Dave Jackson argued that there are scarce metals for whom there are no substitutes; that such metals have unique properties. If we have a finite supply and we are depleting this supply and if there are no substitutes then he is right that we are on an unsustainable consumption path. But, I don’t believe this. We are only “doomed” in the face of growth if there is only one way to produce products (i.e Leontief production technology) and if this product is crucial for our survival and if we have a finite supply of the raw key input. I don’t believe that these conditions hold in many cases but I will leave it to the smart RBC community to get nasty as usual.