Sustainable Growth

Economic development is widely accepted as a prerequisite for a stable society. Yet, industrial production contributes to the massively destabilizing phenomenon of global warming. This blog documents the research of SCEPA economists Duncan Foley and Lance Taylor as they investigate how nations can reconcile their needs for growth, stability and sustainability. This project is generously supported by the Institute for New Economic Thinking (INET).

Alternet and the Huffington Post published an interview by Lynn Parramore with SCEPA economist and New School Professor Emeritus Lance Taylor. The two discussed research published as part of SCEPA's Sustainable Growth project supported by INET.

"...economist Lance Taylor and his colleagues examine income inequality using new tools and models that give us a more nuanced — and frightening —picture than we've had before. Their simulation models show how so-called reasonable modifications like modest tax increases on the wealthy and boosting low wages are not going to be enough to stem the disproportionate tide of income rushing toward the rich.

Lynn Parramore: So what’s to stop us from becoming a Downton Abbey society?

Lance Taylor: We’ve got to have a real social consensus that the way things are going is dangerous and unacceptable, and an understanding that it will take seriously progressive taxation to make a dent in the problem. But I am not optimistic about the prospects. Through various channels 10 percent of national income has been transferred to an über class. Without the political will, that sort of change is difficult to undo."

On March 23, 2015, SCEPA Economists and New School Professors Duncan Foley and Lance Taylor received the 2015 Leontief Prize for their research in understanding the relationship between macroeconomics and environmental quality. Their work makes up SCEPA's project on Sustainable Growth, generously sponsored by the Institute for New Economic Thinking (INET). 

The Leontief Prize for Advancing the Frontiers of Economic Thought recognizes "outstanding contributions to economic theory that address contemporary realities and support just and sustainable societies," according to the Global Development And Environment Institute, which administers the award. "Our Institute's work has been much influenced, and has greatly benefited, by the ways in which Dr. Foley and Dr. Taylor have crossed the boundaries between economics and other disciplines to produce the kind of rigorous analytical work that the Leontief Prize was created to recognize," said GDAE Co-Director Neva Goodwin.

"Dr. Taylor's research has integrated relevant social relations into macroeconomic models, and is of critical importance for understanding present and future environmental realities and challenges. Dr. Foley's unique approach to combining research on political economy with advances in statistics and a broad grasp of the relevant data has produced a deeper appreciation of the policy consequences of economists' choices in theories and models."

New School Economist Lance Taylor released a symposium of literature on Thomas Piketty’s Capital in the Twenty-First Century in conjunction with the INET-sponsored research project on Economic Sustainability, Distribution and Stability. It includes papers offering a structuralist response to Piketty's explanation of inequality and advancing alternative theories.

  1. Thomas Piketty’s Capital in the Twenty-First Century: Introduction to a Structuralist Symposium
    Lance Taylor (The New School)
  2. Capitalism, Inequality and Globalization: Thomas Piketty’s Capital in the Twenty-First Century
    Prabhat Patnaik (Jawaharlal Nehru University, New Delhi)
  3. Elasticity of substitution and social conflict: a structuralist note on Piketty’s Capital in the 21st Century
    Nelson Barbosa-Filho (São Paulo School of Economics)
  4. Piketty’s Elasticity of Substitution: A Critique
    Gregor Semieniuk (The New School)
  5. The Triumph of the Rentier? Thomas Piketty vs. Luigi Pasinetti and John Maynard Keynes
    Lance Taylor (The New School)

Download all papers in a zip file.

Lance Taylor critiques Thomas Piketty's prediction of ever-increasing shares of national income going to the owners of capital. Using a demand-driven version of Luigi Pasinetti's (1962) growth model, he shows "along strictly Keynesian lines that euthanasia, persistence, and triumph of the rentier are all possible." Read Taylor's article that appears as a contribution to INET's "Institute Blog." To get an idea of Taylor's argument, see the blog post "Must the Rich Grow Richer?" on our Worldly Philosopher blog.

Lance Taylor, SCEPA Faculty Fellow and Emeritus Professor of Economics at The New School for Social Research, will join the keynote panel for the annual conference hosted by the Institute for New Economic Thinking (INET) and the Centre for International Governance Innovation (CIGI).

The conference will be in Toronto, Canada, from April 10-12. The event will highlight INET and CIGI's work to promote "new economic thinking" by identifying pervasive flaws in existing economic paradigms, promoting innovative interdisciplinary research, creating a strong global community for young scholars, and pushing the economics discipline to meaningfully address challenges of the 21st century.

Taylor will join the panel discussion, "Innovation and Inequality: Cause or Cure," to discuss his work with Professor Duncan Foley on an INET grant investigating the long-term consequences of economic growth, including the effects on climate change, the shift toward a service-centered economy, and the potential for financial and fiscal instability.

On October 25, 2013, Lance Taylor, economics professor emeritus at The New School for Social Research, gave a presentation at a Berlin conference hosted by the Research Network Macroeconomics and Macroeconomic Policies (FMM) titled, "The Jobs Crisis: Causes, Cure, Constraints." 

Taylor's presentation provides a long-run analysis of economic growth and CO₂ emissions from his research paper, "Greenhouse Gas Accumulation and Demand-Driven Economic Growth," coauthored by Duncan Foley, Jonathan Cogliano and Rishabh Kumar. 

His demand-driven growth model analyzes how economic growth through capital accumulation requires an increase in energy consumption. Increased energy consumption releases harmful greenhouse gases and reduces growth through the adverse effects of climate change, such as natural disasters and an increasing business costs. A possible solution would be increased spending on mitigation to reduce climate change damages. The model shows that investment in mitigating greenhouse gases to a "good," steady-state would cost 1.25% of the global GDP, roughly equal to military spending. On the distribution side, greenhouse gases cut into the profit share in any scenario - moderately in a mitigated scenario, but precipitously on an unmitigated, "business-as-usual" path.

INET and SCEPA will host a conference on Sustainable Growth at The New School in New York City on April 25-26, 2014. 

The purpose of the event is to discuss issues of growth theory emerging from the current travails of the world economy. One focus will be the treatment of distribution and climate change in models of growth and stability, but the conference will not be limited to that agenda.

Below are links to the preliminary program and target papers for the three sessions of the conference.

Preliminary Program

Target Paper 1:
Greenhouse Gas Accumulation and Demand-Driven Economic Growth: A Simulation Model

Target Paper 2:
US Size Distribution and the Macroeconomy, 1986–2009

Target Paper 3:
Rethinking Financial Capitalism and the “Information” Economy

Lance Taylor, SCEPA Faculty Fellow and emeritus Professor of Economics at The New School, analyzes Paul Krugman's "IS/LM" macroeconomic model. His analysis includes a discussion of the theory's origins in the history of economic thought and ends in a critique that the policy implications may not be robust.  

In the United States, there is ongoing debate about how the positions of the “poor” (say households in the bottom one or two quintiles of the size distribution of income), the “rich” (the top decile or top percentile), and the “middle class” (households “between” these two groups) will be affected by fiscal and other initiatives such as raising the minimum wage.

In a new SCEPA/INET paper prepared for the Eastern Economics Association (EEA) conference in May, 2013, "U.S. Size Distribution and the Macroeconomy, 1986-2009," the authors use a social accounting matrix, or SAM, and a simple demand-driven model to investigate rising inequality and the effects of redistributive economic policies. The database for the paper is made available as a spreadsheet.

They find that the resulting simulations of macroeconomic policy measures do not markedly affect the distribution of household disposable income. Only policies directed at explicit wage equalization in the form of rising wages at the bottom lead to significantly greater equality.

In principle, the social cost of carbon emissions measures the overall impact of greenhouse gas emissions on societal well-being.  The U.S. government uses estimates of the social costs of carbon (SCC) to perform cost-benefit analyses of proposed emission-control legislation, giving this number a significant role in the economic analysis – and subsequent decision-making – regarding climate change policy.

The Social Cost of Carbon Emissions,” is a joint Policy Note by SCEPA and the Institute of New Economic Thinking (INET) that reviews the welfare economics theory fundamental to the estimation of the SCC.  

Several key points are raised:

  • The SCC concept is meaningless unless the economy is presumed to be at full microeconomic equilibrium.  In that case, society’s willingness to pay for mitigating the adverse effects of greenhouse gas emission must be equal to the marginal cost of mitigation.  Many estimates of the SCC are inconsistent, based either on willingness to pay or marginal costs. A discrepancy between the two estimates signals that reducing current consumption to pay for more mitigation is unnecessary.
  • Most calculations of the SCC are based on the assumption that the social rate of discount is constant.  In full dynamic micro equilibrium, however, the discount rate will change over time, meaning that such estimates make no sense.
  • Numerical estimates of the SCC along a fully optimal path suggest that the marginal cost and benefit of mitigation would be around $200 per ton of carbon.  The total annual cost would be around 2% of world GDP, roughly the same amount as spending on defense. As consumption growth slows over time, the discount rate would decline. At the same time, there should be relatively high mitigation spending in the near future to reduce the base level of atmospheric carbon concentration in anticipation of years to come.