How does the economy affect the environment? Economist Herman Daly talks with Karina

We met with Dr. Herman Daly to discuss ways for students to strike a balance between subjects they truly enjoy and subjects they must take, and much more. Enjoy!

How does the economy affect the environment?  Economist Herman Daly talks with Karina
"My sophomore mistake in majoring Economics really became sort of my life's project was to repair what I thought was the mistake of Economics."” – Dr. Herman Daly

Herman Daly is an expert in economics who worked at the World Bank in its environmental studies group. He discusses sustainability and the perpetual tension between economic growth and ecological impact, how students can find balance between the subjects they enjoy studying, and why happy mistakes can lead to a fulfilling career.

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Karina Macosko’s Interview with economist, Dr. Herman Daly

Interview Transcript

(Editor’s Note: The following transcript has been lightly edited to improve clarity.)

0:00:22.0Why economics?

Karina Macosko: Hi, my name is Karina Macosko from AcademicInfluence.com, and I am here with Professor Daly, who is from the University of Maryland School of Public Policy. And Professor Daly, we just wanna know how did you get into the field of economy, and what influenced you to go into Economics?

Herman Daly: Well, that’s a long story. I’ll try to make it short. I actually went into... I grew up in Texas, in Houston, and I was interested in Latin culture and in Mexico, being a neighbouring country. And I travelled to Mexico and studied a little Spanish. And I got interested in poverty, both in Texas and in Mexico. And so I decided that perhaps Economics would be a good field of study, as a means of helping the world to diminish poverty, particularly in Latin America. So that was my beginning.

So I started out life, I went to Rice University as a student, which was in Houston, Texas where I grew up. I was the first person in my family to go to college, so I did not have a whole lot of coaching from my parents. And I just started out, and I guess for... You might say that I was a diligent student of Orthodox Economics in my undergraduate time, and through most of my graduate period, which was at Vanderbilt University, later on. Later on, I became an apostate to the religion of economic growth. But that’s another story we can get into that wasn’t at the beginning. So that was the way I started out.

0:02:23.8While at the World Bank

Karina: Well, that is so fascinating. And you mentioned that you spent time working for the World Bank.

Can you tell us what you did while you were there and what your influence was there?

Herman: Well, I don’t know what my influence was, but what I did, I... Why did I go to the World Bank in the first place? Well, I taught at LSU for many years, and I got kind of tired of academia, and I didn’t like the way academia was going particularly in the field of Economics. And I was much more interested in environmental questions and in economics, there wasn’t much interest in things having to do with environment. It was all dedicated to growth, and industrialisation, and so forth.

Well, for one reason, another came along an opportunity at the World Bank in their environment department, which was run by an ecologist at the time named Robert Goodland. And I knew Robert from having worked in Brazil. And Robert asked me if I’d be interested in coming to work in the Environment Department. And basically, I said yes and did it.

What did I do once I got there? Well, at that time, the Environment Department would review the projects that the World Bank was financing. And it would review them with an eye towards their environmental impact, and basically classify them into three categories: A project that really didn’t have any environmental impact, so don’t worry about it; one that had severe environmental impact, so really look at that one hard; and then one that was in between. And then that’s what we try to do, and then we would offer suggestions for reducing the environmental impact or improving the project with an eye towards environmental results. Okay, that sounded good, and it seemed to work for a while.

The problem was that the World Bank is designed to make loans, and they wanna make loans. It’s a money pump, and the Environment Department made it more difficult to make the loan. If there were a lot of negative environmental consequences, it was more difficult to make the loan. It had to be a bigger loan, more complicated. So we were not very popular within the World Bank because they wanted to make loans, and we were getting in the way. And they had a big budget for doing their work, and we had a very small budget for going and reviewing projects. So it was kind of a lack of balance, you might say.

So that was what I tried to do and basically, I got in the way of making loans, which did not make me popular. So later on, they transferred me to the Research Department dealing with questions of sustainability, rather than the operational part of the bank. And that was convenient for the bank, and I have to confess, it was also I’m better qualified to deal with research than I was to deal with operation, so it did make some sense.

0:06:01.2A more sustainable environment

Karina: Well, yeah, it’s so interesting that you’re an economist geared towards the environment, because I feel like nowadays, most people see those as two clashing fields. So when you went into research, what was your findings on how we can use... Or how you could use your background in economy to develop more sustainable solutions or better for the environment solutions?

Herman: Yeah, that’s your perception, I think, is quite right. There is a conflict between economics and environmental preservation. And I realised that long before I went to the World Bank. In fact, that was one of the reasons why I left LSU in academia because of precisely that conflict. And while I was at LSU, I had a colleague over in the coastal studies part of the university who was an ecologist, an energy ecologist named Robert Costanza , and this was back in the early 1980s, early 1980s. And we looked at the world in the same way, and so we both saw economics as being a subset of ecology. So the economic system is contained within a larger ecosystem. The larger ecosystem is finite, non-growing, materially closed, and subject to all sorts of natural constraints.

Well, so we got together and started a society, which we called the International Society for Ecological Economics, ISEE the acronym, or ISEE, which was our... And that was going well before I went to the World Bank. In fact, that was sort of one of the reasons why I was accepted at the World Bank. They needed someone who... Or at least Robert Goodland, who has hired me, needed someone who, you might say, knew something about Latin America.

He was the head of the Latin American division. Who spoke Spanish or Portuguese, who knew something about economics, who was an economist, and also who knew something about the ecosystem or was at least attuned to learning about the ecosystem because Robert himself was an ecologist, a botanist by training.

So that kind of got me into the World Bank, but it was also the thing that made me a little bit unpopular in the World Bank. So I guess the basic conflict is, if you see the economy as a subsystem contained within a larger ecosystem, then when the economy grows physically, in physical terms, both population growth and growth in commodities and capital equipment and all the physical part of the economy, when the economy grows, it grows into the ecosystem.

Karina: Oh, wow, yeah.

"So there's a continual encroachment on the natural system when the economy grows."” – Dr. Herman Daly

Herman: And where does it get the material and the energy to propel that growth? Well, it draws it out of the ecosystem. So there’s a continual encroachment on the natural system when the economy grows. Well, if the economy is very small and the ecosystem is very, very big, then it doesn’t make much a difference, I mean, whatever you take out, it’s not much. But when the economy gets big when you’re in an empty world, it doesn’t really matter, but when you grow, growth takes you from... When something grows, it gets bigger, and so you get into from the empty world and into the full world, and then it becomes very, very touchy, then you really are paying a big price for increasing the size of the economy. So that’s the conflict. And unfortunately, the World Bank did not wanna recognise that conflict and economics in general. It’s been very slow to recognise the conflict.

Karina: Right.

Herman: They want to say, “Oh well, technology will take care of everything. We’ll just find... When we run out of one resource, we’ll find another one. And pollution is not so bad, we can learn to deal with it,” etcetera, etcetera. Well, in ecological economics, we just don’t accept the idea that there’s no conflict between economic growth and environmental maintenance and sustainability. We say, “There is a conflict. You have to deal with it. You have to look for an optimal scale of the economy relative to the total system.” And we’ve not done that. Maybe we’re beginning to think about it a little bit now.

0:11:30.5Environmental science

Karina: And obviously, you have dealt a lot with the, I mean, the environment throughout your career, but were you trained, did you study environmental science or whatever in college? Or did it come after you started working as an economist?

Herman: Well, no. At the time I was in college, there was no such thing as environmental studies, and I did study biology and a little bit of chemistry and physics, and that was basically enough for me to realise that these things are important. And I guess my first course in economics was in the history of economic thought, and so it went back and I studied John Stuart Mill and the classical economists. And they had a concept that they called the stationary state. They actually saw the economies growing up to a level beyond which it would be uneconomic to grow. You would stop growing. It would sort of automatically happen because the cost of growth would constrain further growth and you would learn to balance out and make the best of it. Well, that concept of the stationary state, that just got thrown out of economics, but I remembered it, and so later on, I guess that was... By the way, maybe I should say since part of this is to deal with students who are choosing a major, my problem when I was your age or in school, in undergraduate, I liked humanities very much, I liked philosophy and English literature and all this, and I also liked science.

And when I confronted with choosing a major, I didn’t wanna give up either one. I said, “I’d like to keep them both.” But then I looked at, “Well, what about social science? That maybe is sort of in between, has some science and some ethics and humanities in it, and Economics looks interesting and I have to make a living, so maybe that’ll help me make a living, to study Economics.” So that was my reason for choosing Economics as a major, was because I thought that it would have one foot in the humanities and ethics and another foot in the physical sciences and ecology and so forth, and that way I wouldn’t have to give up either interest.

Well, that was a big mistake. [chuckle] It turned out that Economics had both feet in the air and did not have one foot in either, it was totally abstract and really didn’t do that. So in a way, my sophomore mistake in majoring Economics really became sort of my life project, was to repair what I thought was the mistake of Economics, is to put one foot actually in the physical sciences and to put the other foot in the world of humanities and ethics and so forth. So that’s been the thing I’ve been trying to do throughout my teaching and research life.

Karina: And you said it was kind of a mistake going into this field that has... You said two feet up in the air, but if you were to go back and do it, do you think you would take the exact same path, or do you think you would have done something slightly different?

Herman: Oh, that’s an interesting question. The world has changed so much...

Karina: Right.

Herman: That my advice is... But I imagine looking at my students now, that it would be... I probably would not major in Economics.

Karina: Oh, really?

Herman: Yeah, I probably would major in either Biology or Ecology.

Karina: Wow.

Herman: Who knows? It’s hard to say.

Karina: Yeah, of course.

Herman: Because Economics has not moved in the way that I was trying to make it move and hoping it would move. It’s moved a little bit that way. Yes, there is such a thing as Environmental Economics and what we call Ecological Economics. But if you were to go, if you were to, say, to apply to an Economics department in any university, you would be hard-pressed to find courses in that area, so it’s... My advice to students today who write to me and who say, “You know, I’d really like to work in Ecological Economics. Where should I go to school? What should I do?” You know, “Well, there’s the University of Vermont, is a good place.” I would suggest that, but I would also suggest that mainly you’re not going to be able to do it the way you want to, you’re going to have to do a lot of your studying on your own, take as many courses as you can where you’re allowed freedom to set your own programme and choose your own curriculum in Ecological Economics, but accept the fact that you’re going to have to do a whole lot of work and study in standard Economics, and some of it is worthwhile, some of it. You know, I am an economist, I do think that a lot of Economics is important, although I think it’s gone hog-wild on the question of growth, and it’s left many good important topics behind.

0:17:37.1Progress

Karina: Right, that is some great insight. And do you think that you’ve seen Economics kind of shift in the way that you were pushing it, and do you think it’ll continue to shift, or do you think it’ll kind of push back too much to go the direction you were hoping it would?

Herman: Yeah, well, of course, it has been pushing back and there has been progress in the direction that I’ve been pushing along with other people. I’m not the only one, there are other people, of course, who are pushing in the same direction that I am, and so there is progress in that sense, but it’s been very slow, and you would think that by now people would recognise that growth in terms of population and energy use and resource use and take over of the natural system, that the cost of that now are greater than the benefit. I mean, one very useful thing you do learn in economics is The Law Of Diminishing Marginal Utility, that just means that we satisfy our most pressing needs first, so you don’t satisfy trivial needs if you have important needs that are unsatisfied.

So as growth happens, as production increases, we satisfy our most important needs first and later and later and later, least important needs, so we’re satisfying now relatively unimportant needs because we’ve grown so much that the margin would be, what’s happening? You know, we got get an electric toothbrush instead of a hand-push toothbrush. Big deal, who cares? Not so important. And when you have a great, big... A huge forest and you cut down trees, well, if you just cut down one or two trees that’s not important, it doesn’t cost much, but if you clear cut a whole area, you lose all sorts of important natural services like water retention, wildlife habitat, absorption of CO2 from the... And so forth. So the costs go up, the benefits go down at some point they become equal, at that point you say, whoops, time to stop growing. We’ve sort of hit an optimum. And Economics hasn’t realised that yet, they’re still gonna keep on growing.

0:20:19.8Sign off

Karina: Well, thank you for this amazing insight, it was so interesting to talk to you. I’m so thankful for being able to have this opportunity, I hope a lot of young people out there can see this kind of different perspective of economics, so thank you so much.

Herman: Well, thank you, Karina, I appreciate the interview. Thank you.