October 2, 2013 by losingourcool
Presentation by Stan Cox to the 2013 Prairie Festival – 28 September – The Land Institute
Our assignment this weekend is to assume that our society or even the world has come to its senses and made the collective decision to put a tight ceiling on resource consumption and ecosystem degradation (a ceiling that cannot be raised, only lowered), and then to think hard about how, under those limits, we can ensure sufficiency for all. That is, once we have a ceiling, can we put a good, solid floor in place as well?
And it means, in effect, that all of us will be talking, in one way or another, about rationing in some form. The word ration migrated from French into English sometime in the seventeenth century. It referred to the daily quantity of food allotted to men in the army or on board ship (or to portions of feed given to livestock.) The French ration, in turn, goes back to the Latin ratiō, meaning “reason” or “calculation.” Rational, ratio, and other words, obviously, are related.
Then during the twentieth century, economists began to use rationing to denote any means of apportioning a factor of production or an end product. But one sees the term used in two different ways. The “rationing function of price” refers to the role of prices in bringing demand into line with supply. To convey this meaning, economists often (but by no means always) use a term like rationing “by price” or “by willingness to pay.” But rationing is also commonly used to mean the divvying up of scarce goods by some means other than price—that is, when prices are not allowed to move to a point at which demand and supply align—to, for example, ensure equitable sharing of scarce goods.
From World War II through the 1970s, economists took rationing seriously. A 1977 theoretical paper by economist Martin Weitzman, then at MIT, asked right in its title, “Is the Price System or Rationing More Effective in Getting a Commodity to Those Who Need it Most?”
This is not the kind of question economists usually ask. It gives priority to an explicit, material, social objective, and to literal need over demand or preferences that can be expressed only through purchasing power. Weitzman and other economists examining this question concluded that rationing by quantity is superior in getting a commodity to those who need it most in situations when economic power and income are concentrated in the hands of the few—a situation like, say, the present. Inequality has risen sharply and is much worse in the US and other countries in 2013 than it was in 1977.
Writing back in the early days of World War II, Dutch economist Jacques Polak had come to a similar conclusion: that rationing was necessary then because even a small rise in price can make it hard for the person of modest income to meet basic needs when there is a wealthy class that can “push up almost to infinity the prices of a few essential commodities.” Therefore, he stressed, it is not shortages alone that create the need for rationing with price controls; rather, it is shortages that occur in a society with “substantial inequalities of income.”
Our economy generates stark inequality and poverty as part of its normal, efficient operation. We desperately need to achieve a very different kind of economy and eliminate that inherent unfairness. But if we also decide as a society to live under a necessarily low resource ceiling, then leaving it up to high prices to quell demand will generate unacceptable hardship, no matter how much progress we can make in achieving greater equality of income and wealth.
Rationing has been adopted repeatedly in a wide variety of situations, as when civilian production was curtailed to conserve resources for warfighting, or when production or imports of essential resources were cut off; it is an essential tool for governments that are attempting to stabilize their nations’ food prices and prevent hunger in the face of a chaotic agricultural economy; it often occurs when water resources are scarce; and it is an inevitable, more or less built-in feature of the medical industry.
But fair-shares rationing should not be advertised as a first step toward curbing overconsumption. In the kind of future we’re talking about this weekend, it is the decision to put that ceiling in place that comes first. Only then does there arise the need for fair-shares rationing. It doesn’t work the other way around; it would be futile to ration individual consumption in hopes of correcting the problem of overproduction. That would not push Toyota and Con-Agra and Amazon to stop looking for new and better ways to gobble up fossil fuels and other resources, expand, advertise, and market more stuff. Rationing in itself also is not capable of correcting the huge imbalances of economic power that are at the heart of the problem. It can even be used, as in the case of Egypt’s and India’s food-ration systems, in attempts—often futile attempts—to keep oppressed populations pacified and willing to tolerate those economic imbalances.
Nevertheless, in a shrinking world, rationing will become essential to ensuring fairness, and it is possible to devise systems that are fair and can fit within a just economy. Among the many ideas for ensuring that economies conform to ecological reality, some of the the boldest have featured rationing of greenhouse emissions. Since the 1990s, for example, activists and academics in the United Kingdom, and even some members of Parliament, have been advocating mandatory carbon rationing. Under such plans, the nation as a whole would adhere to a total “carbon budget”, which would be reduced year by year. Each adult Briton would receive, free, an equal share of that budget in the form of emissions credits each month. Then every fuel purchase or payment of a utility bill would require a debit from the household “carbon account.” At the gas pump, for example, this might simply mean swiping a ration card in the same way a customer would use a so-called “loyalty card” today.
Eventually, though, circumstances may require more comprehensive systems, such as rationing of all goods and services based on some kind of ecological “points system”. There’s even the idea of general, or expenditure, rationing—first conceived by World War II-era economists but never put into practice—which would place a monthly ceiling on how much money each household can spend.
Experience shows that once the decision is made to ration, an in-for-a-penny, in-for-a-pound situation soon develops. If only a few items are restricted, people take the extra money that they saved by buying less of those goods and spend it on nonrationed ones, creating more scarcity and driving up prices. So those goods have to be brought into the rationing scheme. The cycle repeats, thereby extending restrictions to larger and larger regions of the economy. But should a line be drawn between basic necessities and luxury goods, with the latter exempted from rationing? In 1970, the economist James Tobin noted,
“The layman wonders why we cannot arrange things so that certain crucial commodities are distributed less unequally than is general income. . . . The idea has great social appeal. The social conscience is more offended by severe inequality in nutrition and basic shelter, or in access to medical care or to legal assistance, than by inequality in automobiles, books, clothes, furniture, boats. Can we somehow remove the necessities of life and health from the prizes that serve as incentives for economic activity, and instead let people strive and compete for non-essential luxuries and amenities?”
In other words, if wealthy people, prohibited from buying as much gasoline or food as they would like, use their increased disposable income to bid up the prices of luxuries—say swimming pools or vintage wines—then so what? But if the goal is to stay within limits on total resource consumption and ecological impact, it may be fine to leave up to the market the allocation of, say, paintings or music, but limousines and private pools would have to be cut way back to fit within the limits.
I am fully aware that such suggestions may appear alien, politically toxic, even absurd in the context of today’s economy, with its illusion of abundance. But historically, people facing grave challenges often have preferred to confine personal consumption between a firm ceiling and an equitable floor rather than risk a Mad Max world of all-against-all strife.
So I’m betting that the ecological ration card would be broadly accepted as a simple fact of life in any future society that manages to achieve economic democracy while averting ecological crisis. As for how we can become such a society, well, that’s going to be the hard part. Through history, we have proven that we can handle limits – but then times have changed. Here is Secretary of the Interior Harold Ickes explaining the U.S. government’s newly adopted gasoline rationing plan back in April, 1942: “No patriotic American can or will ask men to risk their lives to preserve motoring-as-usual.” Now here, almost exactly fifty years later—and one year after his successful war to maintain US access to Persian Gulf oil—is President George H.W. Bush addressing the Rio environmental summit: “The American way of life is not negotiable.”
Anti-environment free-market think-thimbles like the Heartland Institute have developed a kind of shorthand language for talking about the nightmare world they say awaits us if we practice restraint, and the key word in that language is, naturally, “rationing.” They are careful to leave the word vague and undefined; it’s just something strange and new that will arise as a consequence of stronger environmental or health policies. They ignore the fact that hidden rationing through individual ability to pay is the norm in society, and the source of many of our current problems.
But I’d like to give the anti-greens a little credit: by recognizing that more explicit rationing will be necessary in an ecologically sound society, they are being far more realistic than the green-growth enthusiasts who run for the exits when there’s any talk about the hardest decisions that will have to be made.
Given the dominance of free-market ideology, uttering the very word “rationing” has been compared with “shouting an obscenity in church.” Environmental scholar David Orr, with whom many of us here are familiar, believes that prospects for a resource ceiling in America today, whether society-wide or by individual, are dim at best. He told me, “We have to reckon with the fact that from about 1947 to 2008 we had a collision with affluence, and it changed us as a people. It changed our political expectations, it changed us morally, and we lost a sense of discipline.”
By that, I don’t think he meant that our aversion to restraints on consumption is simply a personal psychological condition–consumerism; rather, it’s a logical collective response to the way our system works. We’ve been painted into a corner by an economy that has been blessed with a seemingly bottomless bucket of paint. Overproduction, the chronic ailment of any mature capitalist economy, creates the need for consumption that is geared accordingly. So as Western society has evolved, the freedom to consume in excess (and the financial means to do so), have become essential to realizing many of our more fundamental rights—freedom of movement, freedom of association, ability to communicate, satisfactory employment, good health care, even the ability to choose what to eat and drink—and any policy that limits access to resources is going to mess around seriously with that system. If we do make a serious and maybe even successful effort to corral the national and world economies within ecologically supportable boundaries, the method we choose for divvying up the resources that humanity can afford to consume must be a method we can all live with. In fact—considering the many tragic consequences of rationing by ability-to-pay (like when North American shoppers bid up the price of quinoa to the point that Bolivian families can no longer afford to buy that nutritious grain in the very land of its origin, or when wealthy tourists can outbid the residents of villages in Zanzibar, the Gambia, and Kerala for groundwater lying under the village itself) we might even find that we can devise ways of sharing scarce resources that produce a happier, better-fed, healthier, more comfortable and secure world than the one we inhabit today.
In wartime, in the 1970s, and on many other occasions in many places, by the time circumstances had made rationing necessary, people were prepared to welcome it. (During the energy crisis of 1979, which President Jimmy Carter had labeled as “the moral equivalent of war,” even conservative columnist George F. Will was calling for coupon rationing of gasoline. A citizen clearly wanting hear less sermonizing, see less sweater-wearing, and have a serious common effort in which to participate wrote to Carter, and in a speech announcing his standby gas-rationing plan, the president read this line from the man’s letter: “When we enter the moral equivalent of war, Mr. President, don’t issue us BB guns.”) So it’s not rationing we fear; rather, it’s the circumstances that make rationing necessary. And our dilemma is this: any serious effort to steer clear of the ecological cliff will help intensify those difficult circumstances.
For one thing, in a green future, we will be devoting a much larger percentage of available energy, money, and physical effort to the acquisition of resources, construction of alternative energy capacity, wholesale rearrangement of living and working patterns to fit a smaller resource budget, and curtailment of damage to ecological life-support systems. It will be like we’re living in a wartime economy, because those green transformation efforts will consume a share of national and international resources similar to the proportion consumed by war production in the past. In what could be the material equivalent of war, there will arise the need for a fair way to apportion the reduced resources available to the consumer economy. Even with improved efficiency and beefed-up renewable energy production, private consumption will have to be sharply curtailed to support a larger common effort to keep civilization going. Only this time, we won’t be able to look forward to a postwar boom.
To paraphrase one of economist Herman Daly’s wonderful observations, the efficiency-first approach creates the illusion that restraint is less necessary, while the restraint-first approach induces efficiency as a necessary consequence. Given limits, we will figure out how to do enough with less. I was on a radio show this summer with writer Steven Kotler, who, with Peter Diamandis, published a book last year entitled Abundance: The Future is Better than You Think, in which they make an argument that’s 180 degrees off from mine: that new technologies will allow us to continue to enjoy great abundance without putting a crippling burden on the Earth. But contrary to what you might think, he and I got along very well on the show. That afternoon, he went straight back to his office and wrote a column for Forbes entitled “Rationing As An Innovation Driver?” in which he noted, “What I really like here is how much rationing would tick people off. It would make ‘em nuts. Congressmen would lose their jobs. Politicians would get voted out of office. But it would drive innovation—which, at least to me, is the real point.”
Kotler’s and Diamandis’s vision depends on some outrageously improbable technological advances—advances that would have to be of an unprecedented type that does not, through economic stimulus, create even more problems. But I don’t think Kotler would argue any more than I do that we should wait for a rising tide of innovation simply to sweep us all into utopia. Our ability to come up with resource-consuming innovations always outstrips our ability to develop resource-conserving innovations; therefore, we must be strict about accepting only those technologies that will make it possible to live in the future with a smaller total ecological footprint without stimulating further, harmful innovation—and there must be much fairer sharing of both the footprint and the benefits across the world’s population. There are a lot of people who desperately need to increase their consumption of resources.
And we need a system for getting all that organized. Long experience shows that example-setting and campaigns for voluntary restraint will not be sufficient to keep us under the necessary ceiling. In World War I America, the nation’s Food Administrator was Herbert Hoover, a guy who valued free-market economics more highly than either personal freedom or fairness. Therefore, rationing was a dirty word, and official language was always of voluntary sacrifice. In urging women to sign and comply with the so-called “Hoover Pledge” to conserve food, door-to-door canvassers laid on the hard sell. But millions of poor, often chronically hungry, Americans had no excess consumption to give up. Historian Christopher Capozzola relates this story: A Missouri woman told Hoover canvassers that yes, she would accept a pledge card so that she could “wipe her butt with it,” because she “wasn’t going to feed rich people.” (Her sentiment, if not her exact language, is echoed these days by people in regions of the Earth that never benefited from the fossil fuel bonanza but are now being asked to help curb the climate disruption caused by that bonanza). During that war to end all wars a century ago, according to historian Zoe Veit, “the choice to live more ascetically was a luxury, and the notion of righteous food conservation struck those who couldn’t afford it as a cruel joke.”
There was no need for rationing during the Great Depression, because the twin plagues of that decade—over-, not underproduction and low ability to consume—meant there there was no need to control demand. (Note that for many, that is again the case in the 2000s; thus, rationing sounds nonsensical today.) But in the wartime forties, the reverse combination of problems prevailed: the pool of consumer goods was limited, and people had a lot more cash in their pockets thanks to good-paying wartime jobs.
Early in World War II, the Office of Price Administration announced that “sad experience has proven the inadequacy of voluntary rationing. . . . Although none would be happier than we if mere statements of intent and hortatory efforts were sufficient to check overbuying of scarce commodities, we are firmly convinced that voluntary programs will not work.” Without price controls, inflation would have ripped through America’s economy, and the price controls could not have held without rationing. And unlike the voluntary campaigns of 1918, rationing in the forties inspired a general sense of shared responsibility and common purpose.
Voluntary restrictions and the price system have faltered repeatedly in peacetime situations as well: urban water use, the 1970s gas crisis, traffic congestion, carbon emissions, drug shortages, and many others. Lifestyle changes don’t scale up society-wide. Our immersion in an economy and a culture dedicated to profit through consumption, and corporate promotion of pale-green, profit-friendly products and practices are largely responsible for the failure of voluntary restraint. But an increasingly solid body of research is exposing an additional reason: that voluntarism suffers from built-in negative feedback. It seems that when people act, voluntarily, in what is generally considered an ethically correct way, they are much more likely to follow up those good deeds with selfish or otherwise unethical behavior. (It doesn’t take much. Subjects asked in one test to make selections from a catalog of organic foods were much more likely to cheat and lie in a subsequent test than were those asked to select from among desserts.) The usual explanation for such reversals of field is that we tend to regard “good” actions or even thoughts as providing us with a degree of “moral license.” The license to act badly may be created, according to Benoît Monin and colleagues at Stanford University, by the belief that one “can commit bad deeds as long as they are offset by prior good deeds of a similar magnitude”—a concept they characterize as a kind of “moral bank account.”
In contrast, an real-world ration account would give us all a better picture of what’s really necessary.
Proposed alternatives to non-price rationing would not go far enough. Taxation of greenhouse emissions, with climate scientist and activist James Hansen as the most prominent proponent, would attempt to steer demand indirectly through the price system. But without explicit physical limits, the effect of price-raising would be highly imprecise and unpredictable. To achieve the very very deep cuts necessary would require astronomical tax rates and hardship for people of modest means. Hansen would try to offset that burden partly by handing the tax receipts back in the form of annual dividends, but that would inject a lot of potentially troublemaking dollars back into the economy. The effects of increasing the cost of goods through taxes can veer even further off target when prices tend to be volatile, as they are in the petroleum and food markets. Then there is the political toxicity factor: to many voters and politicians, the only good tax is a repealed tax. The recent political firestorm in Australia that’s going to kill even their modest carbon tax gives just a hint of what would happen with a heavy tax.
Now for story time. Most issues of Solutions magazine include an article in which someone envisions a future or writes “from” a time decades from now in which the world turns out to have made the right decisions. I did that for their July issue this year. And you know, the future turns out not to be so bad after all when you can just make it all up. Here’s a part of what I wrote, as someone looking back from the year 2071:
An epoch-making course change came with the 2024 Common Resources Treaty, signed and ratified by 227 nations. It imposed ironclad barrel-and-ton ceilings on global extraction of fossil fuels and other minerals. Specific extraction, import, and export ceilings were adjusted in accord with each country’s domestic endowment of resources, taking into account per-capita requirements for good quality of life. An impermeable ceiling with no offsets or other escape hatches meant that accustomed volumes of production, consumption, and wealth generation were no longer possible in wealthier nations, while a solid floor made possible a better life for resource-poor populations.
This deliberately imposed scarcity, like all scarcities, triggered inflation that threatened the world’s poor majority in particular. Governments had learned from experience with resource shortages that price controls would have to be imposed for essential goods and factors of production. And they knew that with price controls, demand would far outstrip available supplies and that rationing by quantity would be necessary to ensure fair shares for all.
At first, rationing was restricted to energy and carbon emissions. As a model for how to proceed, governments dusted off several turn-of-the-century British proposals that had never been passed into law. As eventually adopted, the various post-2024 ration systems set strict national carbon-emissions ceilings that were lowered year by year. Every purchase of energy was then accompanied by a transfer of the appropriate number of ration credits, with each credit corresponding to the quantity of carbon dioxide (or equivalent in other gases) expected to be emitted in generating the energy. Utilities and other businesses and government bought their credits, while individuals received free quotas of credits, which were deposited monthly into their personal “carbon accounts.”
By the mid-30s, with these systems in place, anthropogenic climate impact was already declining steadily. But a problem that some had foreseen from the beginning was now becoming obvious to all. As producers and consumers became more carbon-efficient, and as they spent less on energy, they spent more on other goods and services, stimulating production that often resulted in ecological damage extending well beyond greenhouse emissions. A new strategy was needed, and it employed the concept of “ecological footprint,” which had by that time been under examination and refinement for several decades. An item’s footprint value encompassed not just the greenhouse emissions generated during production but also all of its impacts on soil, water, biodiversity, and even whole ecosystems. So in fairly short order, in country after country, both producers’ and consumers’ carbon accounts were replaced with eco-accounts. Like World War II-era grocery shoppers deciding whether to spend their meat points on a small piece of steak or a larger quantity of hamburger, consumers quickly became accustomed to a ration system that became the foundation of the one we still use today. Non-essential products with too-heavy footprints were excluded from the economy altogether.
The vision I just described differs from the proposals put forth over the past couple of decades in Britain, in that it does not include trading of ration credits. Those British plans, which are never called rationing but use terms like “tradeable energy quotas” and “personal carbon allowances” would include national markets in which individuals could buy and sell their ration credits. But I agree with critics who contend that a carbon market creates a two-tier system: energy conservation becomes mandatory for the less well-off but voluntary for the affluent, who can buy their way out of consumption limits. A market in rations chips away at the “fair shares for all” aspect of the system. James Tobin observed that a market in ration credits would undermine the intangible, and probably most important, benefit of rationing: community spirit. He wrote,
“it may be very difficult in practice to prevent inequalities due to transfers of rations among individuals. . . . The individualistic approach of the theory of consumer choice and of welfare economics may well obscure social effects of rationing of much greater importance than the effects which our atomistic theory discloses. For example, the feeling of sharing equally in an emergency situation may be more important for welfare than the individual incentives and choices on which economic analysis has traditionally centered.”
Trading of personal carbon rations was proposed as a way of helping the ration system fit into a contemporary capitalist economy. But is there any form of capitalism that could even tolerate the strict ceilings that will make rationing necessary in the first place? Isn’t unlimited growth the engine of capitalism? There is an argument gaining broader support that the human economy’s overshoot of the Earth’s physical and biological limits is caused not simply by overconsumption but by the pursuit of profit and accumulation of capital—and that those forces must be recognized and confronted directly. This vision, which goes under many names—I like Fred Magdoff’s term “ecological civilization” —maintains that, because the engine driving capitalism is the uninterrupted generation and accumulation of wealth and property, a capitalist economy, by definition, is not a creature that can survive in captivity. It certainly cannot be confined between the kind of ceiling-and-floor we are talking about.
We can futurize all day, but of course no one knows how this will all work out. Governments and economies may try to continue with business as usual or they may be turned inside out by the emergence of a post-capitalist ecological civilization. But the ecological cliff still lies ahead. Tight ceilings on production and solid floors under consumption will be essential. Rationing in some form will become unavoidable, and when it does, the way we make it work—justly or harshly—will depend very much on whether we have succeeded in breaking away from business as usual and building a fairer society.