One thought on “Monday Message Board”

1. Degrowth already

   Centrists like Rachel Reeves and Noah Smith lambast left-wingers for opposing economic growth. They have a point, in that a bigger pie makes arguments over its distribution much easier to resolve. But in one respect they are clearly wrong. Degrowth is already here, if we use better metrics of general welfare. To the extent that GDP (Ok, GDP per head) aligns with a proper metric of welfare, its growth is a good thing. To the extent it is misaligned with an ideal index, it can lead us badly astray. I suggest this has already happened.

   We have the GDP -V1 and carbon emissions in CO2-eq for most countries. For some of them we also have professional estimates of shadow carbon prices, routinely used in cost-benefit analyses for public investment. If we apply these prices to current emissions, we have a reasonable offset to GDP-V1 for unpriced environmental damage, giving a better GDP-eco. Let us have a first go at this.

   Here is a summary table of this calculation for the USA and the EU, for the year 2025. The input data are unfiltered results from Google AI, so should be thoroughly checked for load-bearing use.

   ———————————————-USA—————-EU————

   Nominal GDP-V1 end of 2024……………….$ 29.30 trn………….. €17.9 trn

   Nominal GDP-V1 end of 2025……………….$ 30.76 trn………… €18.17 trn

   Nominal GDP-V1 growth……..………………… $ 1.46 trn……………. €770 bn

   Nominal GDP-V1 growth rate…….………………. 5.0 %…………………. 4.3 %

   CPI %………………………………………………………. 2.7 %……………………….. 2.8 %

   Real GDP-V1 growth………………………….. $ 674 bn…………………… €268 bn

   Real GDP-V1 growth rate……………………….. 2.3 %……………………..1.5 %

   Carbon-eq emissions 2025……………… 5.35 bn t……………….. 3.3 bn t

   Shadow carbon price*…………………………. $ 190 t…………………. € 229 t

   Negative value of emissions……………… $ 1,016 bn……………… € 756 bn

   Corrected GDP-eco real net growth…. $ – 343 bn……………….. € 14 bn

   Corrected GDP-eco real growth rate….. – 1.17 %………………..… 0.08 %

   * Biden’s EPA recommended $190 / tonne for use across the federal government. This was cancelled by Trump on taking office. The EU uses several different shadow prices; I took the lowest.

   Properly measured the US economy is in decline. The EU is not growing at all. Degrowth is not a piece of leftwing ideology, it is the decaying world many of us live in. The disconnect may be part of the reason why so many people, across party divides, have become cynical and disaffected. They figure that the government has been lying to them about the real prospects for their families. They are quite right.

   The EU and Biden-US shadow prices are close but not identical; a point in their favour methodologically, but an awkward technical problem for international comparisons. Perhaps we need two prices, one domestic, representing the considered and politically accountable judgement of the government or organisation issuing it, the other a best-guess global benchmark by the worldwide professional community.

   Note 1: climate damage is of course not the only externality unrecognized by the GDP metric. Two other important externalities are growing inequality and falling biodiversity. Compare two worlds, one ours, in which Elon Musk has net wealth of $1 trn, and another otherwise identical in which he is worth $1m. The former is clearly worse, since enormous wealth gives Musk an elevated platform for his noxious views. Similarly take two worlds, one in which the coral reefs are dying and another in which they thrive. Again the choice is a no-brainer. But unlike the social cost of carbon emissions, there is no clear way of shoehorning plausible corrections into the Keynesian system of national accounts. It seems better to treat them as unwanted side-effects, demanding policy corrections in their own ledgers. We do this all the time in health and social care, imperfectly but not symbolically. The same goes for national security.

   Note 2: I labelled my two growth indicators CDP-V1 and GDP-eco, for simplicity. Nerds might prefer GDP-JMK and GDP-CPG. If you get this, you are a nerd or Cambridge graduate.