Transcript Diapositiva 1 - telecom

GDP growth: an inevitable lock-in?
Simone D’Alessandro, Tommaso Luzzati, Mario
Morroni
Dipartimento di Scienze Economiche – Università di Pisa
[email protected]
First International Degrowth Conference
Paris 18-19 April 2008
Dou we need GDP growth? Alleged reasons
1) An increase of income per capita is regarded as a widening of the set of choices
available to individuals. Therefore it is seen as an increase in individual freedom
of choice.
2) Equity: a) intragenerational: increasing GDP reduces conflicts in income
distribution, facilitates redistribution policies and the provision of public goods. b)
intergenerational: how to cope with population ageing and the provision of
pensions and social services fo the elderly.
3) Unemployment:
a) to contrast a labour saving technical change and avoid decreasing
employment levels. If GDP increases less than productivity, the number of
employees decreases possibly increasing unemployment.
b) the main Keynesian recipe for decreasing unemployment has been the
increase in the equilibrium level of income. In fact demand for labour derives from
the demand for goods and services. An increase in the demand for goods and
services determines a rise in employment and a consequent decrease in
unemployment (if the elasticity of employment in relation to output is positive).
4) Dynamic efficiency : firms tend to invest in technical change, which enhances
competitiveness, if they forecast an increase in demand of the goods and service
they supply.GDP growth provides resources for basic research and R&D.
Growth as a Nercessary Condition for Social/Political Consensus
No need for telling here reasons against GDP growth
(after a given threshold?) !
Social costs of GDP
and the breaking up of the relation between
GDP & welfare
Against GDP?
Against growth?
Against growthmania?
"We will find neither national purpose nor personal satisfaction in a
mere continuation of economic progress, in an endless amassing of
worldly goods. We cannot measure national spirit by the Dow
Jones Average, nor national achievement by the gross national
product. For the gross national product includes air pollution and
advertising for cigarettes, and ambulances to clear our
highway carnage. It counts special locks for our doors, and jails
for the people who break them. The gross national product
includes the destruction of the redwoods, and the death of Lake
Superior. It grows with the production of napalm and missiles
and nuclear warheads . . . It includes Whitman's rifle and
Speck's knife, and the broadcasting of television programs
which glorify violence to sell goods to our country."
Speech by Robert
Kennedy, March 18,
1968, University of
Kansas
"And if the gross national product includes all this, there is much
that it does not comprehend. It does not allow for the health of
our families, the quality of their education or the joy of their
play. It is indifferent to the decency of our factories and the safety
of our streets alike. It does not include the beauty of our poetry or
the strength of our marriages, the intelligence of our public debate
or the integrity of public officials . . . the gross national product
measures neither our wit nor our courage, neither our wisdom nor
our learning, neither our compassion nor our devotion to our
country. It measures everything, in short, except that which makes
life worthwhile; and it can tell us everything about America -except whether we are proud to be Americans.
Main arguments
We model an economy that produces with
funds and flows which are
complementary.
(1) Y(t) = min ( AK(t) , e(t)E(t) )
K capital stock A>0
E energy flow,
e energy efficiency
e >0, e  [e0, eM ) ,
e'>0
Main arguments
Our exercise starts (t=0) when the issue of exhaustion of
fossil fuels enter the agenda.
Before t=0 non-renewables energy sources were largely
abundant ; renewables were biomasses harvested at a
rate higher than the regeneration rate since the stock was
large. The economy, GDP, consumption and investment,
grew at positive rates, i.e. exponentially.
At t=0 our society would like to invest in renewable energy
sources, both in terms of research and development and
of installation of renewable energy capacityR.
The reason is to start replacing fossil fuels so to avoid, if
possible, energy shortages when, at time t, the
production of non-renewable energy will stop to have
positive net energetic yield («accessible » in Georgescu
terms).
How should our society invest in R?
Two polar cases,
either the society takes the resources from the
investment in capital (included human capital,
knowledge,…) or from consumption.
FIRST: part of the investments in capital are
diverted towards renewables.
IR(t) = (1- (t)) (Y(t)-C(t))
(t) quota of investments diverted to renewables.
How much has to be diverted? What will be the
consequences?
Since the investment in capital affects the economy growth
rate, the quota destined to investments in capital should
be rather high: a relatively high growth rate, will make
the absolute amount of investment in R high even if this
is small in relative terms, i.e., as compared to total
investments.
IR(t) = (1- (t)) (Y(t)-C(t))
(t) = quota of investments diverted to renewables.
At the same time higher rates of growth will make more
rapid the fossil fuel extraction, so that our society will
have less time to accumulate R.
In synthesis
higher (t)  higher growth in R however and t close
lower (t)  lower growth in R however t far away
Long-Run Income
1,100
825
550
275
0
0
150
300
450
8.5% GDP in Renewables
8.44% GDP in Renewables
7,6% GDP in Renewables
600
750
900 1050 1200 1350 1500 1650 1800 1950 2100 2250 2400 2550 2700 2850 3000
T ime (Year)
6% GDP in Renewables
2% GDP in Renewables
This suggests that the range of available choices of f(t) is tiny, or even void.
As a consequence it might be difficult to induce investments to make the accumulated R at t to be
enough to avoid energy shortage.
If this condition is not met, capital would become unemployed and income drop.
The amount of the energy shortage affects the long run outcome.
if the gap is small enough to make the economy to be able to replace most/all of the depreciated
investments, without squeezing too much consumption, then the economy could enter a path that
goes to a relatively high level of income in the long run or even enter a path of constant growth;
otherwise the economy will start to decumulate and enter a path leading to a low level income in the
long run.
Short-Run Income
1,100
825
550
275
0
0
20
40
60
8.5% GDP in Renewables
8.44% GDP in Renewables
7,6% GDP in Renewables
80
100 120 140 160 180 200 220 240 260 280 300 320 340 360 380 400
T ime (Year)
6% GDP in Renewables
2% GDP in Renewables
This suggests that the range of available choices of f(t) is tiny, or even void.
As a consequence it might be difficult to induce investments to make the accumulated R at t to be
enough to avoid energy shortage.
If this condition is not met, capital would become unemployed and income drop.
The amount of the energy shortage affects the long run outcome.
if the gap is small enough to make the economy to be able to replace most/all of the depreciated
investments, without squeezing too much consumption, then the economy could enter a path that
goes to a relatively high level of income in the long run or even enter a path of constant growth;
otherwise the economy will start to decumulate and enter a path leading to a low level income in the
long run.
“Installed” Capacity of Renewable Resources
Renewables (Installed Capacity)
550
412.5
275
137.5
0
0
20
40
60
8.5% GDP in Renewables
8.44% GDP in Renewables
7.6% GDP in Renewables
80
100
120
140
160
180 200 220
T ime (Year)
240
260
6% GDP in Renewables
2% GDP in Renewables
280
300
320
340
360
380
400
• Why the path to sustainability is so narrow, or even nonexistent ?
Just because our economy choose to let the macroeconomic
aggregates to grow at a constant rate in the period from 0 to
t. Consumption has grown exponentially until nonrenewables “end”.
• Therefore, let us consider an alternative strategy, a strategy
that considers consumption at t=0 as satisficing so that
income growth goes entirely to finance investment in
capital and in renewables. Obvioulsy the path towards
sustainability is much more wider so that it is easier to enter
the path towards steady states with relatively high
consumptions.
Fixed Consumption
500
375
250
125
0
0
150
300
450
600
Initial Co nsumption
Minimum Level o f Consumption
750
900 1050 1200 1350 1500 1650 1800 1950 2100 2250 2400 2550 2700 2850 3000
T ime (Year)
Optimal Level of Consumption
T oo High Consumption
Three Different Strategies
600
450
300
150
0
0
150
300
450
600
7,44% of GDP
From 2% to 10% in Few Years
750
900 1050 1200 1350 1500 1650 1800 1950 2100 2250 2400 2550 2700 2850 3000
T ime (Year)
Stop Growth
Further specifications of our model
We assume that :
a) a logistic learning curve exists for accumulating in R. In other words, for low
levels of accumulated investments investment in R causes low increases of R ;
for R sufficiently high, the return of investment increases quickly with R leading
to a mature stage in which the return tends to an upper bound.
b) the accumulated investments in R depreciate at a lower rate than ordinary
capital.
c) that energy efficiency improves with time according to an exogenous logistic
process.
Under these assumptions, which are made merely because the seem plausible, the
« end » of non-renewables should not be too early in order to exploit progress in
energy efficiency. At the same time it is important to invest quickly enough in R
in order to enter the take off stage in R technology before the « end « of non
renewables. For this purpose growth is important since it makes resources
available for investment in R technology.
For the sake of simplicity, we assumed that exponential growth is impossible and
that in the long run income converges to a STEADY STATE values.
Parameters used to simulate our model are set accordingly, that is, by imposing that
a) the energy(material) efficiency is limited from above, in other words, a unit of
energy cannot « produce » more than a maximum amount of GDP.
b) the investment in renewable energy has decreasing returns in its accumulation
process ( f( )<1 in eq. 6).
Both conditions seems to us plausible.
This paper does not tackle the welfare effects of GDP
growth.
Of course we are conscious that sever limits to the working
of our society come from the waste-side of the story.
We are at risk of poisoning ourselves in a process where
consumption is not anymore welfare enhancing.
This can be used as a sound reason for policies favouring
substitution of growth in consumptions with growing
investments in renewables as suggested above. This
would widen the narrow path towards sustainability.
THE MODEL
Goods production
(1) Y(t) = min ( AK(t) , (t)E(t) )
K capital stock
E energy flow,
A>0
 energy efficiency
 >0,  [) , '>0
Capital accumulation
(2) K = IK(t) – KK(t)
depreciation rate
IKinvestment in CapitalKcapital
Energy
(3) E(t)=Q(t)+H(t)
Q use/production of non renewable energy sources
H  use/production of renewable energy sources
Non renewable extraction
(4) Q(t) = –X(1/X(t))
where >0 and  /Xunitary physical extraction cost
Q(t)> 0
iff
/X(t)<1
XNonRenewable stock
i.e. energy cost<energy production
from (4) 
(4bis) X = – Q(t) [1+/(X(t)]
Use of renewables
(5)
H(t) = hR(t)
h>0
R  stock of installed capacity
(6)
R = IR(t) f(R(t)) – R [R(t)-R(0)]
IRinvestment in renewables Rrenewables depreciation rate
(7)
f (R(t))= +/ [1e R(t)]
f (R(t)) is a logistic function : the productivity of the investment in
renewables increases logistically with the accumulated stock. The inital
level of stock R(0) does not deteriorate due to the natural reproduction
processes (R(0)biomass)
Behaviour
Consumption and investment:
Decision variables :
C(t)  consumption , (t)  proportion of savings invested
in capital
(8)
C(t)  Y(t)
(9)
IK(t) = (t)(Y(t)-C(t))
(10)
IR(t) = (1(t)) (Y(t)-C(t))
(Y=C+ IK +IR)
Production:
Technical efficiency : (t)E(t) = AK(t)
Efficiency attained
A) through the control of non-renewable energy FLOWS (Short-term/myopic
efficiency), i.e.
the economy extracts exactly the needed amount of non renewable energy, provided
the stock of NRs is enough.
(11) Q(t) = AK(t)/(t)  H(t)
if AK(t)/(t)H(t), else Q(t)=0 (no NRs needed)
and if X  X, that is if Q<(X) (from eq. 4),
otherwise efficiency cannot be attained since accessible NRs are exhausted
Q(t): X(t+1)=i.e. Q=(X-)2/X<Qdesired  AK>E
B) (long-term efficiency) through the control of the accumulation process of both
Capital and Renewable capacity (i.e. the choice of Investments and their ripartition )
so that
(t)E(t) = AK(t)  t (even if X=0)
Some related references
•
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Some related references
• GDP Growth
MISHAN, E.J. (1967),
London.
The Costs of Economic Growth , Staple Press,
AUDRETSCH, D.B. (2007), "Entrepreneurship capital and economic growth",
Oxford Review of Economic Policy, 23, n. 1, Spring.
BONAIUTI, M. (2004), Obiettivo decrescita, EMI, .
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trad. it. di m. Schianchi, La scommessa della decrescita, Feltrinelli, Milano
2007.
MIERNYK, W.H. (1999), "Economic grought theory and the Georgescu-Roegen
paradigm", in Mayumi K. Gowdy J.M., Bioeconomics and Sustainability,
Edward Elgar, Cheltenham, pp. 69-81.
SOLOW, R.M. (2007), "The last 50 years in growth theory and the next 10",
Oxford Review of Economic Policy, 23, n. 1, Spring.
WIESER, R. (2005), "Research and development productivity and spillovers:
Empirical evidence at the firm level", Journal of Economic Surveys.
THANKS FOR YOUR PATIENCE !