The one-sentence summary

What is unsustainable will not be sustained, so we need to live within sustainable means, pay for capital maintenance, pay for pollution, and not pass on debt to the next generation.

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WHAT THE BOOK SAYS

  • The author sets out to define what a new sustainable economy should look like. The message is a tough one: we are way off course and cannot escape the consequences.
  • The current generation needs to pay for capital maintenance, pay for what it pollutes, and save to invest instead of borrowing all time.
  • The macroeconomics of a society’s balance sheet can be viewed in the same way as a bank account. The current account is the cost of current spending plus capital maintenance, funded by tax or other revenue. Meanwhile the capital account contains existing assets and some new ones that need to be maintained and protected without generating new debt.
  • This approach would protect our core assets in perpetuity and create resilience instead of constantly being in hock. Three critical components are:
    1. Citizens, not consumers. Growth and sensible levels of consumption are still acceptable, so long as they don’t outstrip savings or deplete assets.
    2. Uncertainty built in to all forecasting along with resilience.
    3. Concentrate on assets not flows. Make sure stocks are not depleted and remain fit for purpose, rather than concentrating on keeping money moving.
  • Discounting the future means prioritizing the present over the future. This expedience merely pushes the problem off into the future.
  • There are 4 types of core capital asset classes that matter for the sustainable economy:
    1. Natural capital. This is what nature gives us for free and comes in two types: renewable and non-renewable.
    2. Physical capital. Networks, infrastructure systems, houses and anything built.
    3. Human capital. Intelligence, ideas and knowledge.
    4. Social capital. The hardest to define, being intangible. This is anything that binds society together such as religions, national identities and shared cultural histories.
  • A sustainable economy requires a radical departure from conventional economics. It is not based on utility, but citizens. It is not based on GDP and flows, but assets and capabilities. It is not based on impartiality, but rather it is parsimonious in the assumptions it makes about the future. It is not based on all future people – just the next generation.
  • We need constitutional principles for the sustainable state, including that each generation must look after the assets it inherits and bequeath them to the next in at least as good condition, that the polluter pays, and that a margin for resilience is built in above the mean expected outcomes to provide resilience to shocks.

WHAT’S GOOD ABOUT IT

  • The pervasiveness of our ignorance is reinforced by our inability to forecast even a few years ahead. Economists’ forecasts of GDP growth are notoriously inaccurate and there is no evidence that forecasting is getting better.
  • Modern economics makes the heroic assumption that we act as if we have probabilities over all future outcomes, but we don’t. Heuristics work roughly well up to the point when unknown unknowns kick in, often called Knightian uncertainty or Black Swans. Extrapolating from what has worked in the past is potentially very dangerous, given that the past has brought us to the current environmental cliff edge.
  • It is hard to think of any shock that is unforeseeable in general. Tsunamis, pandemics, asteroids, sudden methane escapes from the tundra, volcanoes, and severe weather – these are all shocks that we can prepare for. Uncertainty is pervasive and it requires that the sustainable economy is designed around it.
  • To sum up, start with an assumption of radical uncertainty and then work out how best to organize the economy and the wider open society to embed trial and error, human ingenuity and entrepreneurial forces. Governments, committees and advisers are not better than markets.
  • Nuclear, wind and solar are all near-zero marginal cost technologies. Zero marginal cost will define the cost structures of the sustainable economy.
  • Consumption is a fashion which thrives in the context of low social capital. There is more to life than spending and turning economics away from pure consumerism towards citizens shifts the focus dramatically.
  • Attitudes to saving and spending vary hugely. The Victorians started with thrift and ethics and a deep fear of debt. In German the word Schuld means both debt and guilt – the two meanings are conflated.
  • Meanwhile Modern Monetary Theory (MMT) bolsters the case for Quantitative Easing and unlimited fiscal expansion up to a point of inflation. It is the greatest general economic policy threat to the sustainable economy.

WHAT YOU HAVE TO WATCH

  • The author is a Professor of Economic Policy and admits that he struggled with the temptation to make this a very academic book. The degree of complexity and difficulty in understanding some of the theories will depend on the reader’s existing level of understanding.