Resources for the Future Senior Fellow Michael A. Toman reflects on the life and legacy of Herman E. Daly, an influential economist who passed away in October.
Herman E. Daly (July 21, 1938–October 28, 2022) joined the University of Maryland faculty in 1994 as a professor of public policy and served as an emeritus professor from 2010 until his death. Prior to joining the University of Maryland faculty, Professor Daly was a member of the Louisiana State University faculty from 1968 to 1988, and he served as a senior economist in the environmental department at the World Bank from 1988 to 1994.
Professor Daly’s obituary in the Washington Post noted his contributions to the field of economics: “Dr. Daly was widely regarded as a founder of ecological economics, a field that stood on the margins of economic study when he entered academia five decades ago but in recent years has attracted increasing notice around the world. He argued for a fundamental shift in the way the economy is understood—not as an independent system, but rather one that exists within the ecosystem of the Earth and is constrained by the resources available on the planet.”
Daly is remembered for his efforts to draw wider attention to the idea that, because the economic system is contained within the surrounding planetary ecosystem, constraints on the function of the ecosystem also would have consequences for the economic system. Loosely speaking, when materials and energy are drawn into and utilized by the economic system, the materials return to the surrounding ecosystem as residuals—degraded materials and dissipated energy. When the economic system takes in and discharges a lot of residuals relative to the scale of the ecosystem’s capacities to process and store those degraded products, the residuals have negative consequences on aggregate economic productivity and economic welfare.
Daly asserted that this “full world” situation is the one we currently face. From that idea, he concluded that conventional concepts of economic growth from increasing “throughput” will have irreversible negative consequences for humanity, even if some groups might continue to benefit. He argued that the focus of macroeconomic policy needed to shift from material growth to “steady-state” paths with greatly reduced rates of material consumption and nonrenewable fossil energy use, along with growing investment in the restoration of natural capital. He was one of the early critics of conventional measures of consumption that do not account for unsustainable depletion of natural capital.
Daly was only one of many advocates of those ideas during the time leading up to the founding of the International Society for Ecological Economics in 1989, and many others have taken up that call since then. However, Daly was one of the most effective exponents of the theory, remaining active right up to the time of his death. His published writings had a largely descriptive and big-picture approach that focused on his main premises and their implications, with none of the sometimes highly technical modeling and empirical content found in many other papers on ecological economics.
My duty is to do the best I can and put out some ideas … Whether the seed that I plant is going to grow is not up to me. It’s just up to me to plant it and water it.Herman E. Daly
Critics of Daly’s ideas among mainstream environmental economists found the lack of supporting empirical evidence to be trying, to put it mildly. (I still vividly remember the aftermath of a seminar that Daly gave at Resources for the Future in the mid-1990s, after he moved from the World Bank to the University of Maryland.) His ideas also gained little traction among economists at the World Bank, many of whom may have found incongruous the appointment of an avowed opponent of conventional ideas about economic growth to the world’s leading institution for international development.
One of Daly’s standard ripostes was that mainstream economists were measuring the wrong things. For example, although data collected by the World Bank would show a dramatic decline in global poverty over the last few decades, Daly could question the sustainability of that progress when, in his view, it reflected an unsustainable depletion of natural capital. A quotation in the obituary for Daly in the New York Times sums up his view about continued resistance to his theories: “My duty is to do the best I can and put out some ideas … Whether the seed that I plant is going to grow is not up to me. It’s just up to me to plant it and water it.”
Although many mainstream economists scoffed at Daly’s ideas, his critique of conventional economic thinking pushed the mainstream to think more carefully about what it meant for an economy to be sustainable and how that might be achieved. His theory about physical limits also has found its way into mainstream discussions of climate change policy. The goal of achieving “net-zero” greenhouse gas emissions globally by the middle of the century, to meet the warming targets in the 2015 Paris Agreement, reflects a widely shared scientific judgment that failing to meet the targets risks catastrophic consequences for much of humankind. Yet, optimal greenhouse gas mitigation in many economic models is significantly less stringent than net zero by midcentury. The net-zero goal in climate policy debates seems to function very much like a planetary boundary in Daly’s lexicon.