Big Idea: A Steady-State Economy

The growth economy is failing and we have to attempt a steady-state economy. The steady state answer is that the rich should reduce their throughput growth to free up resources and ecological space for use by the poor, while focusing their domestic efforts on development, technical and social improvements, that can be freely shared with poor countries.

Big Idea: A Steady-State Economy
Photo: Elicia Di Fonzo







International capital mobility, coupled with free trade, allows corporations to escape from national regulation in the public interest, playing one nation off against another. Since there is no global government they are, in effect, uncontrolled. The nearest thing we have to a global government (IMF-WB-WTO) has shown no interest in regulating transnational capital for the common good. Their goal is to help these corporations grow, because growth is presumed good for all – end of story. If the IMF wanted to limit international capital mobility to keep the world safe for comparative advantage, there are several things they could do. They could promote minimum residence times for foreign investment to limit capital flight and speculation and they could propose a small tax on all foreign exchange transactions (Tobin tax). Most of all they could revive Keynes’ proposal for an international multilateral clearing union that would directly penalize persistent imbalances in current account (both deficit and surplus), and thereby indirectly promote balance in the compensating capital account, reducing international capital movements.

Taxing what we want less of (depletion and pollution), and ceasing to tax what we want more of (income, value added) would seem reasonable – as the bumper sticker puts it, “tax bads, not goods.” The shift could be revenue-neutral and gradual. Begin for example by forgoing $x revenue from the worst income tax we have.

Simultaneously collect $x from the best resource severance tax we could devise. Next period get rid of the second-worst income tax and substitute the second-best resource tax, etc. Such a policy would raise resource prices and induce efficiency in resource use.


could an sse support the enormous superstructure of finance built around future growth expectations? Probably not, since interest rates and growth rates would be low. Investment would be mainly for replacement and qualitative improvement. There would likely be a healthy shrinkage of the enormous pyramid of debt that is precariously balanced atop the real economy, threatening to crash. Additionally, the SSE could benefit from a move away from our fractional-reserve banking system toward 100 percent reserve requirements.

One hundred percent reserves would put our money supply back under the control of the government rather than the private banking sector. Money would be a true public utility, rather than the by-product of commercial lending and borrowing in pursuit of growth. Under the existing fractional reserve system, the money supply expands during a boom and contracts during a slump, reinforcing the cyclical tendency of the economy. The profit (seigniorage) from creating (at negligible cost) and being the first to spend new money – and receive its full exchange value – would accrue to the public rather than the private sector. The reserve requirement, something the Central Bank manipulates anyway, could be raised from current very low levels gradually to 100 percent. Commercial banks would make their income by financial intermediation (lending savers’ money for them) as well as by service charges on checking accounts rather than by lending at interest money they create out of nothing. Lending only money that has actually been saved by someone re-establishes the classical balance between abstinence and investment. This extra discipline in lending and borrowing likely would prevent such debacles as the current “sub-prime mortgage” crisis. One hundred percent reserves would both stabilize the economy and slow down the Ponzi-like credit leveraging.

while these transitional policies will appear radical to many, it is worth remembering that, in addition to being amenable to gradual application, they are based on the conservative institutions of private property and decentralized market allocation. They simply recognize that private property loses its legitimacy if too unequally distributed, and that markets lose their legitimacy if prices do not

tell the whole truth about costs. In addition, the macro-economy becomes an absurdity if its scale is structurally required to grow beyond the biophysical limits of the Earth. And well before that radical physical limit, we are encountering the conservative economic limit in which extra costs of growth become greater than the extra benefits.

Back Away from the Tipping Point
Ten crucial steps to attain an ecologically viable economic future

1. Cap-auction-trade systems for basic resources – Cap limits to biophysical scale according to source or sink constraint, whichever is more stringent. Auction captures scarcity rents for equitable redistribution. Trade allows efficient allocation to highest uses.


3. Limit the range of inequality in income distribution – A minimum income and a maximum income. Without aggregate growth, poverty reduction requires redistribution. Complete equality is unfair; unlimited inequality is unfair. Seek fair limits to inequality.

4. Free up the length of the working day, week and year – Allow greater option for leisure or personal work. Full-time external employment for all is hard to provide without growth.

5. Re-regulate international commerce – Move away from free trade, free capital mobility and globalization; adopt compensating tariffs to protect efficient national policies of cost internalization from standards-lowering competition from other countries.

6. Downgrade the IMF-WB-WTO to something like Keynes’ plan for a multilateral payments clearing union, charging penalty rates on surplus as well as deficit balances – seek balance on current account, avoid large capital transfers and foreign debts.

7. Move to 100 percent reserve requirements instead of fractional-reserve banking. Put control of money supply and seigniorage in hands of the government rather than private banks.

8. Enclose the remaining commons of rival natural capital in public trusts, and price it, while freeing from private enclosure and prices the non-rival commonwealth of knowledge and information. Stop treating the scarce as if it were non-scarce, and the non-scarce as if it were scarce.

9. Stabilize population – Work toward a balance in which births plus in-migrants equals deaths plus out-migrants.

10. Reform national accounts – Separate GDP into a cost account and a benefits account. Compare them at the margin, stop growing when marginal costs equal marginal benefits. Never add the two accounts.

_This article is adapted from Towards a Steady-State Economy, a paper Herman Daly wrote for the UK Sustainable Development Commission in 2008. The complete text can be found at