The Steady Stater

Six Policies for a Steady State Economy

November 30, 2020 Brian Czech
The Steady Stater
Six Policies for a Steady State Economy
Show Notes Transcript

You can't have a steady state economy without a smartly designed policy infrastructure. In this episode, Brian explains six policies that would bring any nation closer to a steady state: (1) the Full and Sustainable Employment Act, (2) cap-auction-trade systems, (3) luxury taxes, (4) salary caps, (5) population stabilization incentives, (6) phase-out of fractional reserve banking.

Richard Tibbetts  00:01

From the Center for the Advancement of the Steady State Economy, this is The Steady Stater, a podcast dedicated to discussing limits to growth and the steady state economy.

Brian Czech  00:10

Welcome to the show. I'm your host, Brian Czech, and our episode today is Six Policies for a Steady State Economy. We've had several episodes already on steady-state politics, but we haven't talked much about what the steady-state politician would do once in office. There is also the closely-related question of what citizens and organizations should be advocating in order to get to a steady state economy. To be sure, public policy is not the only thing needed for a steady state. But it's right at the top of the list along with consumer reform. Today, I'll tell you about six policies for moving toward a steady state economy. I'd like to start by providing a very simple model for thinking about public policy. It's called the SATG model. SATG. The S stands for statement. That is, the policy statement. In the USA, the most formal type of policy is legislation. So we might say the S stands for statute. The A stands for the agent, agents or agencies that will administer the policy. So for example, the Securities Exchange Act is administered by the SEC, the Securities Exchange Commission. The T in SATG stands for the target of the policy. When they passed the Securities Exchange Act 1934, they wanted to change the behavior of stockbrokers and brokerage firms, so those comprised the T, the target of the policy. Finally, the G stands for the goal or goals of the policy. Usually these goals are listed up front. The goal of the Securities Exchange Act was to prevent inequitable and unfair practices in the stock markets, among other things. Now, as we go through the six policies today, we won't be stopping to identify all the SATG components in each case. But, you know, if you can't envision an SATG framework for your policy idea, chances are you won't get far with your policy goals. By the way, if you're wondering where this tidy little model came from, it was laid out by the eminent political scientists Anne Schneider and Helen Ingram in their 1997 book, "Policy Designed for Democracy." All right, our policy number one is the Full and Sustainable Employment Act. That's the S right there, an act of Congress called the Full and Sustainable Employment Act. But really, the big story with this one is the G, the goal. We don't have the right goal, we won't be headed in the right direction. The goal of the Full and Sustainable Employment Act is to establish a steady state economy in the USA, and to initiate steady statesmanship in international diplomacy. The Full and Sustainable Employment Act is a very 21st century vision. In the 20th century, when the original Employment Act was passed, growth was a positive vision. That original Employment Act was passed in 1946 and it was all about tackling poverty by reducing unemployment. That 1946 Act was amended in 1978 under the title, Full Employment and Balanced Growth Act, or FEBGA. The rationale behind FEBGA was that a rising tide lifts all boats. We didn't have to worry so much about an equitable distribution of wealth. As long as the whole pie was growing, supposedly everyone would get a bigger slice. You might say the 1978 FEBGA brought the US government fully into the formal pursuit of GDP growth and it's been the central economic policy ever since. So, 32 years passed before any major amendments were made to the 1946 Act. Now, it's been almost 43 years since FEBGA was adopted. In that period of time, we've seen GDP increase nearly tenfold, while thousands of species have become imperiled, greenhouse gas emissions have soared, glaciers have melted, sea levels have risen, and ecosystems have essentially unraveled all around us. All this ecological deterioration is pulling out the economic rug from our descendants too. That certainly threatens national security and international stability. Meanwhile, we've seen the utter failure of mainstream environmental organizations to address limits to growth and we've experienced the insult of the win-win rhetoric: "there is no conflict between growing the economy and protecting the environment." No one aside from CASSE has dared advance a statute for a steady state economy, but that doesn't mean such a statute is politically dead in the water either. It's the common sense thing to do and with diligent effort over a span of years, possibly decades, it'll happen. One thing's for sure though, it won't happen unless someone proposes it. So that's our biggest policy push at CASSE. Now, think about the acronym for the Full and Sustainable Employment Act. It's FSEA, or we might call it Full SEA, or just Full Sea. In fact, to juxtapose our rationale with the old, rising tide lifts all boats metaphor, let's just call it the Full Seas Act. As a listener to The Steady Stater podcast, you'll be hearing much more about the Full Seas Act in the coming months and years. You can also read the preamble of the Full Seas Act in my article from May 19th 2020, at the Steady State Herald. But for now, we better move on to policy number two, which would be the adoption of cap-auction-trade systems. If you're a Herman Daly fan, you will recognize this as one of his top 10 policy recommendations. Putting it right here in the episode begs the question, wouldn't this be a part of the Full Seas Act? Yes, most likely it would, because the Full Seas Act should actually include an entire collection of steady-state policies. It'll be like a central economic policy with many sub-policies, just like FEBGA is now. Still, it's worth thinking about some of the sub-policies, many of which could actually be passed prior to the comprehensive reforms of the Full Seas Act. So let's consider the basics of cap-auction-trade. Now, if we select the right resources, say fossil fuels, we can cap the size of the economy by putting quotas on depletion or pollution. Herman Daly thinks the quotas should normally be applied far upstream at the input end, where depletion is easiest to monitor. So, for example, we cap petroleum extraction at the wellhead, not at the gas pump. Now, the ownership of these quotas is initially public. In other words, the government auctions them off to individuals or more likely corporations. To put it in an economic terms, auctioning these quarters captures the so-called scarcity rent, which is the cost to future generations of our using up resource. Hmm, I'd say those costs are looking higher by the day, wouldn't you? Not only will the resource itself be unavailable to our grandkids, it's like taking money out of their bank, but the use of the resources ripping and rending the environmental fabric of their economic future. I think that means the crux of the matter is the cap itself and setting that cap is the key political challenge. It's got to be low enough. There's no magic in the markets. Sustainability entails some serious steady-state capping. Ideally, there's no so-called grandfathering of the quota rights to previous users either. That would only serve to perpetuate the inequitable distribution of wealth. Of course, weeding out the grandfathering adds to the political challenge of enacting the auctions to begin with. But that's the ideal to strive for anyway. What happens to the revenues from the auction? Those go to the Treasury in lieu of income taxes, especially at the lower income brackets, that helps make the income tax a little more progressive. Now, what about the trade part of cap-auction-trade? Well, once purchased at auction, the quotas could be freely bought and sold by third parties. That's the trade part of the system and that's what allows for an efficient allocation of resources, at least in the economic sense of allocative efficiency, with the resource being used for the so called highest and best use. So to summarize, the cap serves the goal of sustainability. The auction serves the goal of fairness and trading allows for efficient allocation of the resource. Alright, so now we've covered the first two of our six policies, but let's take a short non-commercial break with Rick Tibbetts.

Richard Tibbetts  10:32

Hi there, we hope you're enjoying the show. Without the support of listeners like you, CASSE would be unable to deliver high quality steady-state content every week or sustain its fight to advance the steady state economy. That's why we are humbly asking you to make a donation to CASSE, whatever you can afford, on Tuesday, December 1st, also known as Giving Tuesday. As a thank you for your contribution, we'll send a free copy of Peter Seidel's captivating new book, "Uncommon Sense: Shortcomings of the Human Mind for Handling Big-Picture, Long-Term Challenges," to those who donate $50 or more. By donating, you'll be taking an active role and helping CASSE achieve a smarter, fully sustainable economy that finally puts the wellbeing of our planet and species first. Now, back to the show.

Brian Czech  11:19

Now let's move on to policy number three: luxury taxes. I personally like this one quite a bit because it seems so eminently viable, politically. Who isn't for taxing the purchase of billion dollar yachts and million dollar earrings? Taxing conspicuous consumption is like shooting fish in a barrel. Just dont make it $1,000 tuna or you'll be mixing the metaphors. Seriously though, one of our CASSE interns has already drafted a luxury tax bill which gets the ball rolling with taxes on watercraft, private aircraft, jewelry, clothing and furniture. Automobiles and food can easily be added. Surely, these luxury taxes are bound for the tax code of the 21st century. By the way, yes, there's room for services in this tax code as well. Thousand dollar massage anyone? Well, before you answer, be sure to listen to our two-part episode on the trophic theory of money from back in October. Heavy expenditure equals a heavy ecological footprint. That's because money is ultimately generated as opposed to expended at the agro-extractive base of the economy. Now, these luxury taxes are purely from the demand side. From the supply side, I'm going to put in a word for salary caps as our steady-state policy number four. This was actually one of my proposals in "Supply Shock," my 2013 book, which I'm in the process of revising, by the way, for a second edition. The beauty of salary caps is the plenitude of precedent. From the NFL to the NBA, salary caps are part of the deal. They ensure the sustainability of professional sports. Well, what about the sustainability of professional construction, professional auto-making or professional hair cutting? When we understand that expenditure is a measure of ecological footprint, million dollar houses, thousand dollar meals and hundred dollar haircuts are all a bad deal. Maybe a pampered Trump-like consumer won't recognize it as a bad deal, but society experiences it as a bad deal. A salary cap can help prevent such bad deals. I asked in "Supply Shock," how much larger than minimum incomes should maximum incomes be? I answered, how about 15 times as large? And went on to consider the rationale. It's a starting point and I'd encourage you to have a look at it. Policy number five goes straight to the issue of population. We just have to get there. It's to stabilize population and aim for a long term population size that enables a reasonably high standard of living for everyone without undermining ecological systems. This one at first glance seems politically prohibitive. We're messing with family planning and reproductive decisions here. Yet if population growth is not addressed, any notions of a steady state economy can be summarily dismissed. The fact is, population stabilization is as fundamental to a steady state economy as speed limits are to driver safety. Yet how to go about it? Once again, we think the key is in fiscal policy. The bar is set pretty low here too. We simply have to start by reforming the earned income tax credit, and the child tax credit in the tax code. These credits were designed to support low income working families, but they also incentivize larger family size, when what we need is the opposite trend in the 21st century. It's not rocket science, and we can adjust the marginal tax rates toward a stabilized population. By the way, sometime soon, we'll have to talk about the steady state approach to immigration. I may as well state the key point here, though. In countries like the USA, yes, we need to establish tighter borders, but only if we have first announced the intent to move toward a steady state economy, rather than economic growth. Otherwise, it's going to backfire in terms of national security. Again, stay tuned on that one. Now, for policy number six, we have to say something about the monetary system. First of all, in the Full Seas Act, we'll get the Federal Reserve System out of the growth game. The mission of the Fed going forward should be its original mission of fighting inflation and/or deflation. Growth is not their concern. Furthermore, we need to reform the banking system toward a fee service system, rather than a fractional reserve system. The fractional reserve system, whereby the banks need to hold only a small fraction of the money deposited therein, indebts us literally to growing the GDP and exceeding the carrying capacity of the planet. We just can't continue with a fractional reserve system. One day soon, we'll have a monetary economist on the show too, to talk about this and other monetary reforms toward a steady state economy. Well, folks, that about wraps her up, we've covered a six pack of public policies, the Full Seas Act, a cap-auction-trade system, a luxury tax, a sectoral salary cap, population stabilization, and banking system reform. The gold standard, so to speak, is to roll all of these up into the Full Seas Act as the central economic policy of the USA, calling for the steady state economy and steady statesmanship in international diplomacy. I'm Brian Czech and you've been listening to The Steady Stater podcast. See you next time.