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Overhauling economics to combat climate crisis

  • 17 November 2020
There is a common error about economics that, if not corrected, has far reaching consequences. It is the widely held belief that economic growth and consumption are the same. They are not. Economic growth is an increase in transactions, the amount of money that changes hands. Consumption is the using up of resources. It is perfectly possible to have at the same time an increase in the amount of transactions, economic growth, and a reduction in the consumption of scarce resources and less despoliation of the environment.

This misconception largely came about because of a sleight of hand in the economics discipline that inflated their own importance and converted economists into something resembling modern day high priests pontificating on the state of society. To demonstrate, consider the difference between these two statements. First:

‘The Australian economy (GDP) grew by 2 per cent indicating that the country is doing well.’

Sounds good, does it not? The nation is strong, and our standard of living is on track. Then consider this statement, which is exactly the same thing:

‘The amount of transactions in Australia (GDP) rose by 2 per cent, indicating that more money changed hands.’

Not quite the same thing, is it? Money can change hands for all sorts of reasons that may or may not include consumption of scarce resources. Say, for example, there was a massive global investment in renewable energy sources that eliminates the use of fossil fuels. This would reduce consumption of scarce resources while dramatically boosting economic growth.

'Rather than considering the environmental challenge as a fight between the political right and the political left, the focus should instead be on overhauling economics completely.'

In Australia, recent economic growth has mainly come from rising property prices — or rather the increasing value of residential land — against which banks have loaned aggressively. That consumes hardly any resources at all. The bank loans are just blips on a computer screen (a little bit of electricity). Increasing the monetary value of land consumes no resources — the land remains the same.

This is not to suggest that there is not a problem with the over-consumption of resources or pollution. Both represent a critical challenge for the future of life on earth. But to conflate it with economic growth — and, in so doing, argue that capitalism is to blame — is dangerously wrong. It turns the issue into a political one, when correcting the problem is