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Economics for Sustainability

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Neoliberalism cannot be reconciled with sustainability. Ecological economics tells a different story. The founder of ecological economics is Herman Daly. – PowerPoint PPT presentation

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Title: Economics for Sustainability


1
Economics for Sustainability
  • Professor Wayne Hayes
  • November 7, 2011
  • V. 0.4 Build 8

2
The goals of this session are
  1. Explain the basics of economics to sustainers.
  2. Lay out an approach for harmonizing economics and
    sustainability.

3
Table of Contents
  1. Introduction
  2. Context the Anthropocene
  3. The economy
  4. Brands of economics
  5. Ecological economics
  6. Eco-Economics

4
The 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.

5
How 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.

6
Not everyone is happywith the economy.
7
Are we in the Anthropocene?
8
Examine indicators of the Anthropocene
9
See the original report for indicators
  • See especially table 1 and figure 2, page 617 of
    the original article on the Anthropocene.

10
What are the implications?
Shanghai, 2007
11
We need to examine the economy,the engine of the
Anthropocene.
12
How 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.

13
The 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.

14
Resolution Situate the economy within society
and ecology.
15
Resolve the antagonism betweenecology and
economy.
  • Economy and ecology share the same Greek root,
    Oikos, meaning the inhabited house or
    dwelling.

16
Economy Oikos Nomos.
  • The term economy derives from the Greek
    oikonomia, household management, based on oikos,
    "house," and nemein, "manage."

17
Ecology 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).

18
Which 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?

19
Consider 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?

20
Therefore, shouldnt ecology precede economy?
  • Consider this The inversion of economy and
    ecology should be the first strategic move to
    harmonize ecology, economy, and society.

21
Harmonize economicswithin ecology.
22
Sachs 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.

23
What brand of economicssupports sustainability?
  • We will consider three schools of thought
  • Neo-classical economics, including contemporary
    neoliberalism
  • Ecological economics
  • Eco-economics.

24
Neo-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.

25
Microeconomics 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.

26
Supply and demand within markets are basic to
microeconomics.
27
Macroeconomics 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.

28
The macroeconomy is linked by complex feedbacks.
29
Since September 2008, macroeconomics has been
problematic.
30
Economic 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.

31
Some, 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.

32
Neoclassical 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.

33
Neoliberalism 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.

34
Ecological economics tells a different story.
35
The founder of ecological economics is Herman
Daly.
36
Ecological 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.

37
Ecological 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.

38
What 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.

39
Microeconomics 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.

40
Herman 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.
  •  

41
There 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.

42
There 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.

43
Are 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.)

44
Perverse subsidies form a hidden industrial
policy
45
Myers 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.

46
Distribution 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.

47
The 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.

48
In 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.

49
The distribution of income in the USA is now a
matter of concern.
50
Macroeconomics 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.

51
The 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.

52
What is the appropriate scaleof the economy?
53
An 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.

54
An ontological shift from ideal theory to
grounded substance is needed.
The School of Athens by Raphael
55
Look around you Ecosystem services are
everywhere.
56
Ecosystem services and natural capital contribute
to human well-being
  • But natural capital and ecosystem services are
    not included in economic calculations such as GDP.

57
Natural capital extends the core idea of capital
as a producer of value.
58
Eco-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.

59
Some 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.

60
Eco-economics is basic to Sustainability
  • Two examples of eco-economics are
  • Lester Brown, Plan B 4.0
  • Bill McKibben, Deep Economy

61
The 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.

62
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