Title: Economics for Sustainability
1Economics for Sustainability
- Professor Wayne Hayes
- November 7, 2011
- V. 0.4 Build 8
2The goals of this session are
- Explain the basics of economics to sustainers.
- Lay out an approach for harmonizing economics and
sustainability.
3Table of Contents
- Introduction
- Context the Anthropocene
- The economy
- Brands of economics
- Ecological economics
- Eco-Economics
4The growth of the economy undermines
sustainability
- depletes resources
- exceeds global and bioregional carrying capacity
- destroys ecosystems
- overwhelms natural waste disposal sinks
- alters the climate
- wages war on subsistence cultures
- produces shocking maldistribution of wealth and
income.
5How can the economy be turned around to
reinforce sustainability?
- This alchemy must be resolved to promote
sustainability. Economics and sustainability must
be harmonized. - Resolving the antagonism between economics and
sustainability is basic to the enabling analysis.
6Not everyone is happywith the economy.
7Are we in the Anthropocene?
8Examine indicators of the Anthropocene
9See the original report for indicators
- See especially table 1 and figure 2, page 617 of
the original article on the Anthropocene.
10What are the implications?
Shanghai, 2007
11We need to examine the economy,the engine of the
Anthropocene.
12How is economics defined?
- This standard definition of economics comes from
the authoritative International Encyclopedia of
the Social Sciences "Economics . . . is the
study of the allocation of scarce resources among
unlimited and competing uses" (Vol. 4 472). I
unpack the definition in my web site for
the Economics of Sustainability.
13The economy is market-driven and growth-compelled.
- The national economy is measured as the monetized
market value of all the goods and services
produced in the nation in a calendar year. - For more detail and definition, go to my web page
defining economics.
14Resolution Situate the economy within society
and ecology.
15Resolve the antagonism betweenecology and
economy.
- Economy and ecology share the same Greek root,
Oikos, meaning the inhabited house or
dwelling.
16Economy Oikos Nomos.
- The term economy derives from the Greek
oikonomia, household management, based on oikos,
"house," and nemein, "manage."
17Ecology Oikos Logos.
- Now consider the related term, ecology, which
is defined as "the branch of biology concerned
with the relations of organisms to one another
and to their physical surroundings." - Ecology also derives from the ancient Greek term
oikos, but instead of management, focuses on
logos, "reason" (Oxford English Dictionary).
18Which should come first,ecology or economy?
- Now, economy trumps ecology.
- But should we not understand our home, the Earth,
before we muster the audacity to try to manage it?
19Consider ends and means.
- Like humanity, should ecology (nature) be
considered as an end in itself? - Doesnt economy refer to the efficient, if not
always wise, allocation of means to fulfill ends?
20Therefore, shouldnt ecology precede economy?
- Consider this The inversion of economy and
ecology should be the first strategic move to
harmonize ecology, economy, and society.
21Harmonize economicswithin ecology.
22Sachs provides an exampleof embedding economics.
- Fairness in a Fragile World by Wolfgang Sachs
exemplifies several principles - How to invert and to embed the economy within
nature and culture. - How sustainable development can occur within
non-OECD nations. - How to equitably harmonize technology, ecology,
and society.
23What brand of economicssupports sustainability?
- We will consider three schools of thought
- Neo-classical economics, including contemporary
neoliberalism - Ecological economics
- Eco-economics.
24Neo-classical economics includesmicro- and
macroeconomics.
- Neoclassical economics builds on the classical
tradition that began with Adam Smith. - Microeconomics examines the basic economic units,
firms and consumers. - Macroeconomics examines the aggregate economy as
a unit of analysis.
25Microeconomics examines the market behavior of
the firm and the consumer.
- Microeconomics extends Adam Smith, assuming
perfect competition among small firms and
independent consumers. Price theory and market
analysis defies the reality of mammoth
transnational corporations as the principal agent
of economic globalization.
26Supply and demand within markets are basic to
microeconomics.
27Macroeconomics attempts to explain aggregate
economic categories
- Growth
- Consumption
- Unemployment
- Savings and investment
- Inflation
- Money and finance, including public finance
- The rates of interest
- The composition and level of imports and exports.
28The macroeconomy is linked by complex feedbacks.
29Since September 2008, macroeconomics has been
problematic.
30Economic growth is the engineof macroeconomics.
- In the world of macroeconomics, more is always
better. No consideration is given to what is
produced, so long as it enhances the total flow
of goods and services. Prisons, bloated health
care costs, responses to toxic spills, the repair
of the damage caused by climate change all are
"goods" that add to economic output--not "bads"
which should be prevented.
31Some, like Vandana Shiva, disagree
- Instead of living up to its promise to alleviate
poverty, economic growth actually undermined
ecological stability, thereby destroying people's
livelihoods and causing further poverty.
Moreover, development strategies have been based
on the growth of the market economy, even when
large numbers of people operate outside of this
network. The emphasis on the market economy has
resulted in the destruction of the other
economies of nature's processes and of people's
survival, but this destruction is seen as nothing
more than the 'hidden negative externalities' of
the development process. (87) - Shiva, Vandana. "Recovering the Real Meaning of
Sustainability." Ed. Rajaram Krishnan, Jonathon
M. Harris, and Neva R. Goodwin. A Survey of
Ecological Economics. Washington, DC Island
Press, 1995. 86-88.
32Neoclassical economics spawns economic
globalization.
- The neoclassical brand projects economic
globalization and the doctrine of neoliberalism
to the world economy. - See my web-based presentation on economic
globalization.
33Neoliberalism cannot be reconciled with
sustainability.
- There exists no middle ground. The principles
underlying each and the dynamics they drive are
thoroughly incompatible. If neoliberalism
triumphs, sustainability cannot be achieved, with
drastic implications for future generations of
humans and for the hospitality of the Earth for
life. The stakes are high and the prospects grim.
34Ecological economics tells a different story.
35The founder of ecological economics is Herman
Daly.
36Ecological economics recasts economics.
- Daly, still grounded in economics, expands the
boundaries. The economy has three essential
functions - Allocation efficiency of resource use
- Distribution fairness
- Scale appropriate size. The impulse is to get
bigger, to grow in scale.
37Ecological economics supports markets for
efficient allocation.
- Ecological economists are still practicing and
trained as economists. They generally support
markets as efficient allocators of scarce
resources among competing ends. - There are two exceptions externalities and
subsidies.
38What is an externality and why does it matter?
- An externality is a consequence, positive or
negative, of an economic activity that affects
other parties without this affect being
incorporated into market prices. Thus, market
price deviates from the "true" social cost,
sending the wrong signal.
39Microeconomics ignoresthird-party effects,
calledexternalities.
- Instead of recognizing such market distortions as
externalities, neoclassical economists claim to
catch sight of Adam Smith's "Invisible Hand" of
the unfettered market. Neoclassical economics is
not only blind to environmental degradation and
social disintegration but is enthralled in a
mystical séance of market perfection, a
reification exceeded only by neo-liberalism.
40Herman Daly comments on the trivialization of
externalities by neoclassical economics
- When increasingly vital facts, including the
very capacity of the earth to support life, have
to be treated as externalities, then it is past
time to change the basic framework of our
thinking so that we can treat these critical
issues internally and centrally. (45) - Daly, Herman E. Beyond Growth The Economics Of
Sustainable Development. Boston Beacon Press,
1996. -
41There are limits toecological economics.
- The transition from neoclassical economics to
ecological economics is essential, but is not
sufficient. Too much is left out of the story - Ecological economics must incorporate a theory of
political economics.
42There are limits to the idea of externalities.
- Identifying externalities as a market failure is
important but - The political economic system, i.e. capitalism,
staunchly resists internalizing externalities. - Beyond externalities is the essential issue of
perverse subsidies and implicit industrial policy.
43Are externalities built into thebusiness plan of
corporations?
- The modern firm transcends Adam Smiths village
shops and now includes immense and diversified
global corporations. Their quest to maximize
shareholder returns includes dumping costs onto
others. The political muscle of such corporations
protects external costs from being internalized
and seeks government subsidies and bail outs.
(See Annie Leonards The Story of Stuff for
details.)
44Perverse subsidies form a hidden industrial
policy
45Myers and Kent estimate subsidies at 5.6 of
total global economy.
- The 2001 study found total subsidies to be about
two billion dollars, or 5.6 of the prevailing
world economy. (Myers, Norman, and Jennifer Kent.
Perverse Subsidies How Tax Dollars Can Undercut
the Environment and the Economy. Washington, DC
Island Press, 2001.) - Myers and Kent are scientists, not economists.
- Note that economists have not, to my knowledge,
attempted to estimate the total costs of
externalities or subsidies.
46Distribution is ethical and political, not
economics per se.
- The socially acceptable distribution of the goods
and the bads produced by the economy is
ultimately political and ethical. Left to itself,
a market society (capitalism) will produce large
maldistributions in wealth and income.
47The market distributes according to economic
class.
- In practice, the market-driven returns to
capital, as profits and capital gains, accrue to
the wealthy few, the capitalist class, while the
returns to labor, wages and salaries, go to a
multitude, the working class. This dynamic
produces a class-based inequality of both wealth
and income, which translates into differential
political power.
48In practice, distribution is done through
politics as well as economics.
- In economic theory, distribution is considered as
an efficient return to factors of production
(land, labor, capital). - But distribution is influenced by tax policy and
government expenditures.
49The distribution of income in the USA is now a
matter of concern.
50Macroeconomics fosters growth bigger is always
better.
- The appropriate size of the material economy is
relative to nature's carrying capacity. This
aspect of macroeconomics has been altogether
disregarded by the dominant neoclassical school
of economic thought. In sharp contrast,
ecological economists such as Herman Daly have
emphasized that scale is central to
sustainability.
51The distinction between development and growth is
essential.
- Herman Daly says this well
- Since physical growth is limited by physical
laws, while qualitative development is not, or at
least not in the same way, it is imperative to
separate these two very different things. Failure
to make this distinction is what has made
sustainable development so hard to define. With
the distinction, it is easy to define sustainable
development as development without
growth--without growth in throughput beyond
environmental regenerative and absorptive
capacities. (69) - Daly, Herman E. Beyond Growth The Economics Of
Sustainable Development. Boston Beacon Press,
1996.
52What is the appropriate scaleof the economy?
53An eco-economy must go beyond ecological economics
- Daly-driven ecological economics challenges
neoclassical defects, especially - Externalities as a market failure
- The distinction between sustainable development
and physical growth - The inherent differences in distribution of goods
and bads. - But ecological economics still emerges from
economics, but an eco-economy broadens the scope
even further and includes others.
54An ontological shift from ideal theory to
grounded substance is needed.
The School of Athens by Raphael
55Look around you Ecosystem services are
everywhere.
56Ecosystem services and natural capital contribute
to human well-being
- But natural capital and ecosystem services are
not included in economic calculations such as GDP.
57Natural capital extends the core idea of capital
as a producer of value.
58Eco-economics emerges outside the domain of
formal economics.
- Seeks a holistic and pluralistic outlook.
- Supports a symbiosis with nature and facilitates
a restoration of ecosystems. - Respects the diversity of human culture.
- Expands the time horizon to a long-term,
generational perspective - Practices critical thinking.
- Encourages the participation of other folks
besides professional economists.
59Some help comes from economic historians.
- Key insight comes from economic historians who
grasp the larger dynamic and embed the economy in
society and nature. We will examine the thought
of - Karl Polanyi
- Henri Braudel
- Gilbert Rist
- Joseph Schumpeter --- and his intersection with
Karl Marx.
60Eco-economics is basic to Sustainability
- Two examples of eco-economics are
- Lester Brown, Plan B 4.0
- Bill McKibben, Deep Economy
61The 99 are a new form ofcivil society enablers.
- The Occupy Movement provides witness and speaks
back to power. - They have done so recently in Chicago in response
to Governor Scott Walker of Wisconsin.
62What do you think?