The Macroeconomics of Development without Throughput Growth

Serious discussion has begun of policies to promote the goal of increasing well-being without material growth. Moving towards this goal requires a profound reorientation of macroeconomic theory. Importantly, the call by ecological economists to move away from traditional growth-oriented models comes at a moment when standard macroeconomics is in considerable turmoil. The financial crisis of 2008/2009 seriously undermined the basis for mainstream macroeconomics and brought renewed attention to various forms of Keynesian analysis and policy previously regarded as outdated. There is a close complementarity between new Keynesian and ecological perspectives. While older Keynesian analysis was oriented towards promoting growth, a true Keynesian analysis of the relationship between investment and consumption does not depend on a growth orientation. What this analysis has in common with an ecological perspective is the rejection of market optimality assumed in classical models. Moving away from the neoclassical goal of inter-temporal utility maximization allows for different, pluralistic economic goals: full employment, provision of basic needs, social and infrastructure investment, and income equity. These goals are compatible with environmental preservation and resource sustainability, whereas indefinite growth is not. But they require a revitalization of the sphere of social investment, seriously neglected (indeed often omitted completely) in standard models. Reintroducing this perspective allows the development of an economic theory suitable for the transition to a stable-population, low-carbon, resource-conserving global economy. The barriers to this transition are primarily political and institutional, not economic. Specifically, an eco-Keynesian perspective emphasizes new macroeconomic categories including: * human-capital-intensive services * investment in energy-conserving capital * investment in natural and human capital The expansion of these categories provides a basis for growth in wellbeing without growth in throughput, while preserving full employment and economic stability. This paper explores some of the implications of this altered macroeconomic perspective for development in both the global "North" and "South". It is suggested that the problems following the global financial crisis cannot be resolved by a return to traditional growth patterns, and will require large-scale practical policies based on eco-Keynesianism.