Consumption, GDP and the Environment

By Mike Koetting         August 22, 2017

This is the third post on the environment.  While it does follow from the first two, I also need to acknowledge that I was nudged into this post by a very thoughtful note from Jim Kent, a long-time friend and policy guru.  I have freely incorporated some of his ideas in the below.  I hope he doesn’t mind.

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Almost everyone, everywhere wants stuff to consume.  But the U.S. seems to be particularly vulnerable.  Consumption in the U.S. measures about 50 percent higher than in the European Union.  Americans consume more even than countries having higher per-capita GDPs.  American houses are bigger, they have more appliances in these houses, they drive more cars more miles, and they consume more food.

American consumption fever is in part simply a reflection of the abundance of the economy.  But there is also an attitude about consumption that is almost religious.  I think it stems from the fact that in its beginning, America had a different problem than existed in other countries:  resources were so abundant that the problem was not to steward them or divide them, but to put them to work.  There was a whole continent with endless possibilities if people had the drive and creativity to use it.  And the motivator was money, which is reflected in consumption.  As de Tocqueville said more than 150 years ago:  “I know of no country, indeed, where the love of money has taken stronger hold on the affections of men.”

Even though the underlying circumstances have changed considerably over the years, the ethic has been slower to modify.  Americans still want to consume things.  To some extent, this is fine.  Not only do people enjoy consuming things, the more consumption the more things that get made and sold.  More people are employed and there is more wealth to go around.  Which is why the public thinks the GDP is so important.

But it doesn’t take much reflection to see the limits of a GDP approach to society.  For one, not everything that contributes to GDP is good for society.  (Reduce automobile accidents and you reduce GDP.  Better diet and more exercise reduce the medical component of GDP—once you have paid off your Nikes.)  Conversely, there are lots of things that are important to society that don’t show up in GDP, either because they aren’t monetized (the pleasing effect of a park) or because the pricing structure poorly reflects reality (the lack of direct cost to producers for using clean air or clean water).

The over-reliance on the GDP is also a symptom of the fact that people who produce things tend to have a very big stake in the process of making policy.  By making this the measure of how well the country is doing, they frame the policy argument in ways that—for the very reason GDP is not a reliable guide—are not necessarily in the long run interests of the country, let alone the planet.  As I have noted previously, the constant refrain about “job killing regulations” is mostly political rhetoric, calculated to get the maximum response from people whose economic livelihood is precarious and who have other reasons to not like government.  If there were truth in advertising, this would be reworded to complaints about “profit limiting regulations”.

Rather, if people believe that there is a real environmental threat, we should focus on the simple mantra:  “Reduce-reuse-recycle.”  And, in fact, the real key is reduce.  Reusing is a means of reducing.  And recycling is useful only to the extent it actually reduces use of resources (including non-monetized resources, like clean air or clean water).

Reducing consumption, to my way of thinking, has three components—reducing waste, using more efficient technology, and simply using fewer things.  From the perspective of the consumer the amount of “pain” will be determined by how much “savings” can be accumulated from the first two.

For instance, Americans waste an unfathomable amount of food, due to servings that are too large, emphasis on the cosmetic appearance of produce, and distribution chains that are too spread out.  Making changes in these patterns need not be particularly onerous.  (Americans have also become addicted to certain kinds of food that are not healthy and are environmentally unsustainable.  Reducing the amount of beef or the amount of sugar will require bigger changes, but is necessary.  As a bonus, both beef and sugar benefit from substantial government subsidies, the withdrawal of which would free up funds for more healthful pursuits.)

America has already made much progress in improving efficiency, much of which consumers barely notice.  Refrigerator efficiency has improved so much in recent decades, that by themselves these improvements have saved by some estimates an amount of energy that would be equivalent to 400 coal plants.  Automobile mileage is at an all-time high.  And there has been enormous progress in converting to renewable energy.  All of these, it should be noted, spurred by a combination of government investment and regulation.

There is of course much more possible.  China, for instance, gets 18% of its energy from renewable resources; the U.S. only 9%.  More retrofitting of housing could dramatically improve efficiency.  And there are no shortage of other applications waiting to be developed that will reduce consumption in painless—or even gratifying—ways.  The more we accomplish these ways, the less the pain.

I don’t know enough to speculate as to whether we can get where we need to be through reducing outright waste and improving technology.  But I suspect we will still need to reduce the amount of overall consumption.  Americans now buy five times as much clothing as they did in 1980, according to Mattias Wallander, CEO of USAgain, a textile-recycling company. And between 1999 and 2009, the volume of textile trash rose by 40 percent.  It’s hard to believe we need this much more clothing than we did 25 years ago.  Other examples abound.  Overall, National Geographic’s Greendex found that American consumers rank last of 17 countries surveyed on sustainable behavior.

Whether it is through less waste, better technology, or buying less “stuff”, we need to reduce the amount of resources we use.  Reducing consumption will, on balance, reduce GDP and jobs.  It’s clearly not a one-for-one—green energy does produce green jobs–but when combined with other trends, particularly automation, it is hard to imagine that the number of jobs will keep pace with increases in population.

To varying degrees, this poses problems for all societies, but it is a huge problem in America, where the quality of a person’s job is not only integral to self-concept, but is the passport to even the most basic services.  (Recall that Republican opposition to the ACA expansion of Medicaid is that it provides health insurance to “able bodied people”.  The same argument is advanced to reduce food stamps.)

I don’t see how we get to an environmentally sustainable life unless we rethink the role of work in society.

Relevant Postscript

There are powerful reasons for developing a simple summary measure that summarizes societal “well-being”.  But the measure chosen is a reflection of the society.  There are other measures than GDP.  One is the Social Progress Index that ranks countries on their achievement at meeting basic human needs, opportunity, and development of foundations of well-being.  Another is the Human Development Index created by the UN that ranks countries on their ability to create long and healthy lives, equitable standards of decent living, and a knowledgeable population.  In both these indexes, the U.S. ranks lower than a pure GDP measure (16^th and 10^th respectively, as opposed to 6^th on per-capita GDP).  And, in both these indexes, the U.S. has lost material ground to other countries in recent years.

Below is the cover of the 2016 Human Development Report.  I found the attached explication of the cover particularly evocative.

 

“The cover reflects the basic message that human development is for everyone—in the human development journey no one can be left out. Using an abstract approach, the cover conveys three fundamental points. First, the upward moving waves in blue and whites represent the road ahead that humanity has to cover to ensure universal human development. The different curvature of the waves alerts us that some paths will be more difficult and sailing along those paths will not be easy, but multiple options are open. Second, in this journey some people will be ahead, but some will be lagging behind. Those lagging behind will need helping hands from those who are ahead. The gestures of the two hands reflect that spirit of human solidarity. Third, the two colours— green and blue—and the hands at the top—convey that universal human development requires a balance among planet, peace and people.”