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The Steady State Economy: A New Financial Architecture

An introduction to the Steady State Economy. Should this be the way globalisation goes? Read the article then add your thoughts below.

Previous posts in the “New Economic Architecture Required” series have looked at Wealth & Value, Money & Debt and Growth & Competition.

What these very brief analyses have shown is that we, the human race, are living beyond our means.

A Steady State Economy may be a way of bringing our consumption back into line, eliminating boom and bust in the process.

The Steady State Economy

This economic model was first advocated within classical economics as John Stuart Mill’s “stationary state”. It has since been developed by Herman Daly, former senior economist at the World Bank and now a public policy professor at the University of Maryland.

There are a number of principles which underpin the Steady State Economy, not all of which can be detailed here. The article Towards A Steady State Economy, published earlier this year on The Oil Drum, provides a full discussion.

Here is an outline of three of the key points:

The Limit of Economic Growth

Basic economic growth is fuelled by an increasing population buying ever more stuff. This cannot be sustained an so there comes times when spending can no longer support growth – recession.

The economy is therefore a finite creature which cannot sustainably grow beyond a population’s overall wealth. Once that ceiling has been reached any further growth is demonstrably unsustainable an should not be allowed to happen.

However, different parts of the economy will always rise and fall according to market pressures, thus continuing economic activity and its support for prosperity and rising standards of living will continue.

These rises may not be as fast, but they will be financially sustainable and permanent.

Conservation of Natural Resources

All economic activity is ultimately based upon the supply of naturally sourced materials: the raw materials which human ingenuity puts to good use.

Commodity markets are excellent vehicles to regulate the foreseeable availability of such materials.

However, they do not preserve these resources for future use: a boom in demand will always leads to a boom in consumption. Oil is a perfect example of this.

A supplementary cap and trade system on all raw materials will ensure that they are not all used up in a decades long glut but would remain available for centuries to come.

As well as having a positive effect upon the economy’s environmental footprint this will also gear economic activity towards development rather than growth.

This will put quality above quantity, establishing a lean and efficient economy where product differentiation is based upon the value as well as price.

Fair Participation In Free Markets

Free markets work at their best when as many people as possible are able to participate in them in a fair and equitable manner.

At present this is not the case; the wealthy are able to game the system to their advantage. This prices the poor out of the market, disenfranchising them and leading to a market which is no longer free or fair.

The best way to remedy this is to set minimum and maximum levels to individual income and a ceiling on personal wealth. These need not be overly constraining, just enough to ensure that dominance and disenfranchisement no longer occurs.

The knee jerk is to think about this as being anti-wealth. It is not; it’s a pro-market measure designed to protect it and ensure all can participate and prosper in continued economic development, irrespective of wealth.

The Future Economy

[social_buttons] No one can doubt the tremendous value free markets can bring to economic activity. Like any powerful force, they need to be channelled to ensure their effect is predominantly beneficial.

The only question is, where should the regulatory boundaries be drawn in order to maximise the value created by free markets and limit their potential for destruction?

Picture Credit: “Globus im Geographieunterricht” from the Archival Research Catalog

Written by Chris Milton

is a seasoned sustainability journalist focusing on business, finance and clean technology. His writing's been carried by a number of highly respected publishers, including The Guardian, The Washington Post and Scientific American. You can follow him on twitter as @britesprite, where he's one of Mashable's top green tweeters and Fast Company's CSR thought leaders. Alternatively you can follow him to the shops... but that would be boring.


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