Herman E. Daly: A Steady-State Economy

Lending only money that has actually been saved by someone reestablishes the classical balance between abstinence and investment. This extra discipline in lending and borrowing likely would prevent such debacles as the current “sub-prime mortgage” crisis. 100% reserves would both stabilize the economy and slow down the Ponzi-like credit leveraging.

A SSE should not have a system of national income accounts, GDP, in which nothing is ever subtracted. Ideally we should have two accounts, one that measures the benefits of physical growth in scale, and one that measures the costs of that growth. Our policy should be to stop growing
where marginal costs equal marginal benefits. Or if we want to maintain the single national income concept we should adopt Nobel laureate economist J. R. Hicks’ concept of income, namely, the maximum amount that a community can consume in a year, and still be able to produce and
consume the same amount next year. In other words, income is the maximum that can be consumed while keeping productive capacity(capital) intact. Any consumption of capital, manmade or natural, must be subtracted in the calculation of income. Also we must stop the asymmetry of adding to GDP the production of anti-bads without first having subtracted the generation of the bads that made the anti-bads necessary. Note that Hicks’ conception of income is sustainable by definition. National accounts in a sustainable economy should try to approximate Hicksian income and abandon GDP. Correcting GDP to measure income is less ambitious than converting it into a measure of
welfare, discussed earlier.

The logic of the SSE is reinforced by the recent finding of economists and psychologists that the correlation between absolute income and happiness extends only up to some threshold of “sufficiency,” and beyond that point only relative income influences self-evaluated happiness. This result seems to hold both for cross-section data (comparing rich to poor countries at a given date), and for time series (comparing a single country before and after significant growth in income). Growth cannot increase everyone’s relative income. The welfare gain of people whose relative income increases as a result of further growth would be offset by the loss of others whose relative income falls.

And if everyone’s income increases proportionally, no one’s relative income would rise and no one would feel happier. Growth becomes like an arms race in which the two sides cancel each other’s gains. A happy corollary is that for societies that have reached sufficiency, moving to a SSE may cost little in terms of forgone happiness. The “political impossibility” of a SSE may be less impossible than it previously appeared.