The Economics of Limits

Article Summary

John S Veitch
The Network Ambassador

The idea of "limits" goes against much of the cultural baggage we carry in our heads. "You can do anything" we tell our children, but it's a lie.
Yet every politician in power claims that one of his/her key objectives is to make the economy "grow".
Every city is busy making plans for how the city will look in 30 years time when it's double it's present size. This is seen as both desirable and inevitable.

President Ronald Reagan expressed his optimism about the American economy with these words, "It's always morning in America".
Along with economic liberalism and the philosophy of markets, we got the knowledge economy and a narrowing of the debate to a single storyline.
Privatization didn't solve the problems. Knowledge became contaminated by "spin" and "political truth" and far too often by deliberate falsification of official sources.
G.W. Bush, opened a war in Iraq on the basis of a "political truth" agreed by both Democrats and Republicans. Self deception is the perfect way to close your own future.

The world's population is continuing to expand. Stabilization of the population would be to our future advantage.
If the planet as a living system is already experiencing serious negative effects in the environment, increasing the population adds to that pressure.

The intention of governments and economists is to "grow" the world economy at a constant rate of at least 3% over the next 100 years.
Is that likely? Far more likely is the probability that we come up against resource limits that make it harder and harder to supply our needs.
At some stage we need to adapt to the fact of limited resources.

I was first introduced to the concept of limits to growth in 1972 by the Club of Rome. They predicted an economic collapse in the 21st century.
"Limits to Growth" said that growth cannot proceed indefinitely against a finite resource base. This view is seriously challenged by current economic theory.
In the 37 years since then the general idea has proven to be more correct than most economists care to admit.
In 2008 Graham Turner published a paper called "A Comparison of `The Limits to Growth` with Thirty Years of Reality"
It examined the predictions made in 1972 and found that changes in industrial production, food production and pollution are all in line with the book's predictions.

How to Impose Limits - A partly market method
I'm thinking about the river system on the Canterbury Plains of New Zealand, consisting of several braided rivers, and a very strong underground water table.
"Water Rights" have been allocated on a first come, first served basis. The history of water rights goes back a long way, and they are seen as property attached to the land.
But we are now in a situation where in normal years all the available water has been allocated, and in a dry year the water has been over allocated.

I'm indebted to Dr. John Fritz Raffensperger of Canterbury University for the following suggestion.
The local political process must FIRST make a decision about measuring the resource and providing scientific information about environmental water needs.
There are political choices to make that cannot be avoided. Constraints must be set by a political process backed by scientific information.
If there is also a commitment to supply "free water" to somebody or everybody, that is also a political decision.
Whatever is left, is in theory available for commercial or agricultural use. Water can be allocated for sale every week.
Some people may have first rights. After those are met, the balance is sold at auction to the highest bidders.

I do appreciate the objections most people will immediately raise. Understand this. In the case of shortage someone will go without, there is no alternative.
The process of allocating the water supply should be perfectly open for everyone to see, and to argue about.
People will be able to see that the process is fair, and will make their own decisions on future land use based on that information.

The auction process will demand much better monitoring of the water people actually use.
This will vastly improve the quality of the information in the system, and enable the allocation model to be improved.
The principles above can be used in many situations where there are resource limitations, or where a government may want to impose limitations on resource use.

If you need the original article it's here.