Policies for a Steady-State Economy

A steady-state economy requires 1) qualitative development, that is, development through technology and science while keeping within physical limitations; 2) maintaining a constant stream of resources for the ecosystem it is contained in. While these policies are not the end all be all, they are the first steps of a gradual process towards sustainable growth for the long-term that is within our ecosystem’s capacity.

1. Cap-auction-trade systems for basic resources – Create quotas for depletion or pollution, and auction these quotas to distribute them equally. Trade always creates the most efficient allocation of resources. This method is transparent – quota ownership will be public at first – and the cap limits the amount of basic resources, especially fossil fuels, which can be used.  The revenues from the auctions will go to the treasury to ease regressive taxes and lower the income taxes for the poor. This policy would help with sustainability, equal distribution of quotas, and efficient allocation of resources all at once.
2. Ecological Tax Reform  - Stop taxing value added to natural resources, such as labor and capital. We want to encourage those but tax depletion and pollution, which we want to discourage.
3. Limit the range of inequality in income distribution with a minimum income and a maximum income -  Complete equality is unfair, but so is complete inequality. Limiting inequality is the goal. Trying to limit inequality to maybe a range of inequality of factor 100 could be an answer, with a minimum of 20 thousand and a maximum of two million as an example. Less inequality will create community and reduce conflict.
4. Free up the length of the working period and allow greater opportunity for part-time or personal work – Economics states that the length of the working day affects people’s decisions regarding labor and leisure. How many hours do you have to work until it is no longer worth the money to work an extra hour? Allowing people the choice of their working length means that they are no longer under constraints. They do not feel bound to the mass consumption of the current system, which could prove to beneficial towards issues of sustainability.
5. Re-regulate international commerce away from free trade, free capital mobility, and globalization – Creating the cap-auction-trade system and also ecological tax reforms will raise our prices and put as a disadvantage internationally. A new form of protectionism is thus needed where we use compensating tariffs because we take responsibility for the environmental costs we cause.
6. Downgrade the WTO/WB/IMF – Reform these organizations to be closer to the Keynesian plan of multilateral payments and charging penalty on surplus and deficit. Countries would then have incentives to balance their accounts and also adjust their exchange rates to their cleared accounts. Keynes called this exchange rate the “bancor” that would also be the world reserve currency and thus should not be a national currency.
7. Move away from fractional reserve banking toward a system of 100% reserve requirements – The government rather than private banks would control the money supply. Banks would earn profits through lending money from savers with a loan rate higher than the saving rate and charging for checking and safekeeping. 100% reserves would ensure that every amount loaned is a dollar saved and unusable to the saver while it is being loaned. There will then be more careful lending and borrowing. The price index would remain constant. If it rises, the government will print less and tax more and the value of the dollar will be determined by exchange rates.
8. Stop treating scarce as the free and the free as the scarce – We need to put the open-access capital such as the atmosphere and public lands into public trusts and use cap-auction-trade systems to price them. This is related to the principle of the tragedy of the commons. When a completely publicly shared resource is available, that resource cannot be sustained. Partially privatizing it will allocate it more efficiently for everyone. Contrastingly, we should free knowledge and information. The price of sharing should be zero and development aid should rely on it more. Patents on discoveries (ex. Medicine, technology…) should be more publicly financed and freely shared.
9. Stabilize population – This proves to be neither easy nor well received, but contraception should be made an option for all as well as well-enforced immigration laws that are created democratically.
10. Reform national accounts – Separate GDP into a cost account and a benefits account – The cost account should consist of natural capital consumption and defense expenditures and stop growth when marginal costs equal marginal benefits. We need to recognize that higher GDP does not always mean happiness.


While these policies may be slightly radical, they could be gradually developed. They are based on the classic conservative institutions of private property and decentralized markets. We cannot wait until the macro-economy reaches a scale beyond Earth’s physical limits. The economic limit that we have been experiencing, such as high costs for little benefits, is a wake up call to what is potentially coming and we must act proactively for everyone’s best interest.

In order for these reforms to happen, changes in the political system need to occur. The current divided government is causing legislative gridlock that is making it difficult to pass any kind of legislation. More compromise in the political system is one thing that could be improved and could help this issue. Also, larger public support for these kinds of issues could be enough to create an initiative that could create legislation to implement more of these policies. These current issues are not easy to solve, but there are things that can be done gradually to make progress.


Top 10 Policies for a Steady State Economy by Herman Daly



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