I’ve worked in the field of higher ed sustainability for several years now. Many of my colleagues, when asked to identify the main hurdle towards sustainability in existence today would respond with “America’s consumerist culture.” Not a bad answer, at first glance. Just looking around my room, I see dozens of items which I don’t use and indeed, many which I have NEVER used–and I’m supposed to be the sustainable one! It is not usual at all for American families to have 2 cars, 3 televisions, and a computer for every person in the house. Lots of people out there want to rethink this, especially in face of the facts such as “the useful life of a power drill is about 4 minutes.” and “there is a portion of the Pacific Ocean filled with plastic which is twice the size of Texas.” To fight this problem, people have set up system of “sharing” in which several people will buy 2 cars, or 1 vacuum cleaner, or one washer/dryer set, and share amongst themselves. People have even reformed their libraries so that if you need a power drill, you can check it out like you would the most recent George RR Martin book. A good idea, right?
Its true, it takes a lot of energy and carbon emissions to make a lot of the stuff that we don’t use, and it is further true that increased carbon emissions are heating the planet to the point that the world will likely become something none of our grandparents would recognize by the time we are dead. Ergo, reducing our consumption of stuff and sharing makes sense, right? As is true with everything, nothing is quite that simple. Our economic system is a complex system of purchases–purchases of big things like cranes and roads and tanks; purchases of important things like labor and art and food, and yes, even purchases of junk like McDonald’s toys and plastic spoons and cheez-its. When a piece of this consumption train breaks down, it causes all sorts of economic pain and suffering. In a piece published last Saturday in the New York Times Sunday Review, David Leonhart examined the effect which falling consumer purchases have prolonged the economy. His conclusion was that the old, consumerist economy, was dead; we need to build “an investment and production economy, with rising exports, expanding factories and more good-paying service jobs.”
Okay, that’s fine, but if we build one of these “investment and production economies” and shy away from the debt which helped us to build this huge consumption bubble, don’t we still need people to export to, and people to buy the things we make in these new factories? Don’t we need people who sell things to spend their money in places where these “good paying service jobs” still exist? I know that Leonhart is not making a case for sustainability in his article, but I think the solution he posits in his article still keeps relatively the same system in place which created the consumer problem in the first place: in order to create growth, stuff needs to be sold. Paradoxically, the more stuff that gets sold, the worse off the world is.
Sustainable growth is a buzz term that makes some people very excited, and makes many other people roll their eyes. In the opinion of some, our system of consumption can be improved to the point where it is indistinguish
able from our current system, yet with only a tiny fraction of the impacts on the global system which the current system destroys. After all, isn’t America built on innovation? Didn’t we perfect everything from the steam engine to fast food? Why can’t all this innovation be turned into making the world sustainable? Other scoff at this idea, and say that conspicuous consumption is by definition a bad thing. In their eyes, there is a Newtonian physics to consumption–in order to consume something for yourself, you have to take the resources, and there aren’t enough to go around as it is. These new technologies are bound to be expensive, and the global south will again be the loser.
Both of these viewpoints are based in solid logic and make sense. Consumption is killing us, yet is is the only thing keeping us alive. How can live like this? I believe there is a balance somewhere–a point in which we can build a system that is not as dependent on consumerism of the junk and cheap goods that fill up the Pacific Ocean. In an economy where less is consumed, less is produced. This means that in the long run, the demand for our labor will lessen. It’s smart to share–and following this line of logic, sharing and consuming less (if done by all) will lead to all of us making less money. In order to build a sustainable economy, it is necessary that we realize this. While the United States failed (and still is failing) to realize that rebuilding our economy in order to mimic recent pattern of consumption will only lead to similar problems in the future, there will inevitably be another down turn. While I hope it doesn’t happen anytime soon, and that the economy does indeed begin to grow–when it does again fall, I hope we build a better system.
I want to unpack these statements a little more and explore the ramifications of our reduced consumption and increased sustainability. I drew some graphs, because I fashion myself to be at least somewhat of an economist. Here is the first one.
In this graph, the economy is experiencing a shock to demand. A negative demand shock is usually thought of as a very bad thing in terms of economics: we recently experienced (and are indeed, still experiencing) a very major one in the wake of the 2008 financial crisis. In that case, the loss of household wealth meant that people couldn’t spend as much money, lowering the quantity of things that we could buy. However, if there was massive “sharing” in the economy, or if we all just quit buying so much junk, this would ALSO cause a negative demand shock. As you can see, the thing that happens initially is that prices deflate, meaning that everything is cheaper. Here is what happens in the labor market when we experience a negative demand shock:
This is the effect of a negative demand shock on the labor market. With declining demand for stuff, firms no longer need to employ so much labor. This is a phenomenon I am all to familiar with, being an unemployed person. If you have ever heard a manager of a firm say “we will start hiring when business picks back up”, this is that effect–reduced demand pushing the quantity of labor downwards (from Q*–>Q1). A second effect that is likely to happen is that, if the supply of labor doesn’t fall (due to people falling out of the labor market due to becoming discouraged workers or early retirement), the wages for labor will also fall. This is also something with which I am intimately familiar. If you hear about people working “unpaid internships” or if you have heard stories of firms rehiring entry level people at lower salaries after firing seasoned employees, this is that effect–a demand shock causing a decline in the demand for labor.
There are no ifs, ands, or buts about this–a negative demand shock is bad news for wages and labor quantity. If there is a negative demand shock, due to massive sharing or consumption reduction or due to a recession, there will be fewer people employed and at lower wages. All of the people who say green is bad for jobs have this piece of logic in their back pocket at all times: reduced consumption leads directly to less employment. It’s an economically sound argument. Let’s look at the third graph in order to see the next effects that would take place.
This graph is what happens after the correction in the labor market (“correction in the labor market” is what economists like to call massive layoffs and wage depreciation). The effect is a lower supply of goods. This makes sense: if there is less demand for labor, fewer things can be made. This pushes the prices back up to where they were before the demand shock, and further reduces the quantity of goods supplied, from Q1–>Q2. This is where REALLY bad stuff has a chance to take place. Typically, in situations like this, economies are at risk of “deflationary spirals“. Think about this: what caused the labor supply mess in the first place? A negative demand shock causing a drop in the aggregate quantity of goods demand (a move from Q to Q1). What is the effect of the labor supply mess? Another drop in the quantity demanded (from Q1–>Q2). This would set off a horrific cycle, where drops in ‘Q’ would cause lower wages and employment, which would in turn cause less ‘Q’ etc. A horrific prospect indeed.1
So, would an increase in sustainable behavior through less consumption by people as a whole, or an increase in sharing societies really set off a deflationary spiral? Well, it’s certainly possible, and definitely something to think about before proclaiming to the masses that consumption is killing us. However, while I lack the calculus chops and PhD in Economics required to take you though a theoretical model of how sharing would NOT set off a deflationary spiral in a Keynesian setting, I can at least walk you through the logic of such a happening.
If the cause of negative demand shock in the first graph were do to a permanent reduction in consumption by everybody in the economy, it would be called a “secular shock“. This means it is a long term change, and in this case, the thing changing is people’s behavior. Furthermore, the deflationary spirals which Keynesians fear are typically started by something that FORCES people to consume less–people physically are unable to buy things, and therefore stop. If people made a conscious attempt to use less stuff, the spiral might be stopped. There wouldn’t be a massive reduction in household wealth which would necessitate a further spin of the cycle–once consumption lowered to the amount that people preferred, people would just consume at that point. There would be no driving issue or problem which would necessitate them continuing to consume less. The new aggregate supply and demand situation would be at lines S1 and D1, with points P and Q2 as baselines. There would be no reason to expect that labor would continue to decline, or for consumption to necessarily dive further. (I THINK this makes sense economically, but if anybody knows better, speak up!). In this framework, there would certainly be losers. People who preferred to work would be out of jobs, and other people who made high wages would make less. However, if people made a conscious decision to consume less, the fact that individuals made less money would be slightly mitigated.
So, like many across the political spectrum seem to be saying: our economy is out of whack, and it will take some pain to fix it. However, unlike many who make that statement due to their opinion of public balance sheets and the unemployment rate, I am making that argument about sustainability. The problem remains, however, that nobody is making these consumption choices in the midst of this downturn. The goal of our public policy on the right seems to be to increase the consumption of the private sector magically through “expansionary austerity” while the left-wing elites sit around and do nothing (or agree with the right), and left plebeians seem to be asking for more government spending to plug the consumption hole. Nobody seems to be thinking seriously about reducing consumption. I suppose that makes sense–it is the foundation of our economic system. Its just too bad we missed this opportunity to rethink that system.
(This originally appeared as a two-part post on my personal blog, which I just started)
1A note here about economic theory: Deflationary spirals are to Keynesian economics as debt is to Austrians. While Keynesianists think of debt as a necessary tool utilized to get the economy back in shape and Austrians absolutely despise debt; Keynesians think deflationary spirals are the scariest things in the world and Austrians don’t even believe that it is possible for them to occur.