Group 4- The Honey Badgers
THE WORLD WE LIVE IN: FULL VERSUS EMPTY
One of the most common assumptions behind Neoclassical economics is the belief that our
economy can sustain continuous economic growth. However, in a world limited by the laws of
thermodynamics this is an inaccurate and dangerous assumption. It causes us to misunderstand
our economy’s position within the ecological systems that sustain it.
Continuous growth is impossible to sustain indefinitely and it is important for
economists to gauge where we are on the spectrum from an empty to a full world. For the
majority of human history we have lived in a relatively empty world. Human population
growth remained materially constrained and it was not until technology increased the
accessibility and allocation of goods that we reached the point of exponential growth.
Over the past century the per-capita output has doubled more than three times and the
human population has skyrocketed from 1.6 billion to 6.1 billion. Clearly, we are
approaching the point of a full world. Ecological Economists use statistical information
and analysis to gain insight into “the fullness” of our world and how close we are to
resource exhaustion.
”Empty World" Model of the Economy
Individual
Utility/welfare
Property rights
Private
Public
Consumption
Building
(based on fixed
preferences)
Perfect Substitutability
Manufactured
capital
Between Factors
Education, Training,
Research
Labor
Improvement
Land
Economic
Process
GNP
Goods
and
Services
Cultural
Norms and
Policy
Investment
(decisions about, taxes
government spending,
education,
science and
technology
policy, etc., based
on existing property
rights regimes)
“Full World” Model of the Ecological Economic System
positive impacts on human capital capacity
Well Being
(Individual and
Community)
being, doing, relating
Complex property
rights regimes
Individual
Solar
Energy
Restoration,
Conservation
Education, training,
research.
Institutional
rules, norms, etc.
Building
Common
having, being
Ecological
services/
amenities
doing, relating
- having,
- being
Public
Between
Capital Forms
Limited
Substitutability
having
Consumption
(based on changing,
adapting
preferences)
Wastes
Natural Capital
Human Capital
SocialCapital
Economic GNP
Production
Process
Goods
and
Services
Evolving
Cultural
Norms and
Policy
Investment
(decisions about, taxes
community spending,
education, science and
technology policy, etc., based
on complex property
rights regimes)
Manufactured
Capital
negative impacts on all forms of capital
Materially closed earth system
Waste heat
From: Costanza, R., J. C. Cumberland, H. E. Daly, R. Goodland, and R. Norgaard. 1997. An
Introduction to Ecological Economics. St. Lucie Press, Boca Raton, 275 pp.
Objective1: Determine how the economy is a subset of the ecosystem.
In the views of Neoclassical economics, the environment is a subset of the economy. It focuses
on the circular flow and linear throughput which focus solely on the system of supply and
demand. The laws of thermodynamics, when applied to neoclassical economic theories of
growth, proves that in our closed earth system the supply of raw material and the accumulation
of waste can not be carried out indefinitely. Thus we turn to the more appropriate view of the
economy as a subset of the ecosystem. In this view there is a limit to the services nature can
provide in terms of natural capital and waste absorption. The following activities have been
designed to further explain this idea.
Activities:
A. Use these provided PowerPoint slides on micro and macro economics to gain an
understanding of how the economy functions as a subset of the ecosystem. These slides are an
introduction to the ideas of Marginal Cost vs. Marginal Benefit as well as efficient allocation.
Read Environmental Economics: The Essentials from The Environmental Literacy Council.
Chapter 10 will explain in depth how marginal cost and marginal benefit relate to the ecological
economic view.
B. Design a survey to test whether or not your peers believe the ecosystem is a subset of the
economy or vice a versa. Clearly you can’t just ask that. The goal is the gain knowledge on
consumption and the relative size of the economy verse the ecosystem. Here are some questions
you might want to ask: Do you believe the economy has infinite space to grow? Are there limits
to economic growth and what might they be? What is the connection between the natural
resource bases (the biosphere/or individual ecosystems) and the economy? How does the
economy interact with the ecosystem? Can you name a product that does NOT come from a
natural resource? Are all resources finite (or are some infinite)? Compile the results of the survey
based on similar responses. Present this data in a visually accessible way (i.e. Graphs, tables,
charts.)
C. Write a letter to your senator or congress representative. This requires a little bit of research
into a natural resource or economic issue of your region. Use this website to look up contact
information- https://forms.house.gov/wyr/welcome.shtml . Be sure to make practical policy
recommendations in a manner that shows how the economy is restricted by growth of
biophysical laws. The idea is to gain an understanding of the connection between environmental
and economic issues of study and practical policy solutions in a real world scenario. Click here
to view a standard format for a letter.
Objective 2: Understanding Peak Oil
Today 85% of the world’s energy needs comes from natural fuels,
and the demand for natural fuels will only grow worldwide as India
and China gain more wealth and increase consumption. Alarmingly,
some scientists agree that we have used up over one half of the
earth’s readily available natural gas reserves. There are several
different substitutes for natural fuels, but none that can readily meet
the demands of the world’s energy needs. We need to slow down
our consumption of natural fuels before we use up all our reserves,
unlimited growth forever is not a possibility. We are rapidly draining
the Earth of its available energy.
Assessing when and if we have reached Peak oil is a difficult task that economists have been
struggling with for decades. Geologist, M. King Hubbert, created a theory for
estimating future oil production in 1954, he predicted that peak oil production in the US
would occur from 1967-1971. His theories have held up remarkably well as we reached peak
production in 1970. Using his theories geologists today believe worldwide oil production will
peak between 2003 and 2020, with many believing peak oil production has already occurred.
Many organizations have an interest in saying that there are more available reserves than there
may be, leading to an array of different estimates, many having a questionable validity. Due to
massive subsidies the price of oil per barrel has remained nearly the same from 1869 to present
day, even though we have more demand and fewer oil reserves than today. This reflects one of
the biggest difficulties in assessing the “fullness” of our world. Markets do not always reflect the
scarcity of the resource leading people to believe that it is in far greater abundance than it
actually is.
So what does this mean to you? We have to minimize the amount of energy we use, so that we
have more to meet the needs of future generations. We all needlessly waste energy from one
time to another. How can you decrease the amount of energy you use?
Activity 2: Understanding Peak Oil
A. Watch the following video clip on an introduction to the issue of peak oilhttp://www.youtube.com/watch?v=Ulxe1ie-vEY
B. Make a comprehensive list of things that come from oil, and then answer the following
questions; How many of those things end up as waste? How much can be reused? Recycled?
What are the alternatives and what are the implications of implementation? What are the barriers
and challenges associated with living in a post-peak oil world and how can they be overcome?
Are there any benefits to living in a world that is independent of oil?
C. Try reducing your reliance on oil, and then do a free write on how you achieved this.
For example use public transportation instead of driving your car, and then write a
paragraph on your experience.
Objective 3: An introduction to optimal scale.
Neoclassical microeconomic theory teaches us that rational self-interested people will continue
to consume a good or service until the marginal costs are equal to the marginal benefits (see
Figure 1). In other words, the benefits or costs associated with consuming one additional unit of
that good or service will eventually become equal and the person will stop consuming that good
or service. This is a function of decreasing marginal benefits. For example, consuming a second
slice of pizza is less satisfying than the first, just as the third is less satisfying than the second and
so on. When marginal benefits equal marginal costs, optimal scale is reached. Neoclassical
macroeconomics, however, has ignored the optimal scale principle, and many economists have
the explicit goal of unending macroeconomic growth. Ecological economics, by contrast,
realizes that there are biophysical limits to growth. Furthermore, continued growth has costs of
its own. Further production creates more costs like pollution and reduced resources, which
society as a whole pays for in a sense. Growth beyond this point is uneconomic, that is the costs
outweigh the benefits.
Figure 1. Optimal scale, when marginal costs equal marginal benefits (Q*).
Activity 3: Understanding optimal scale
Take a quick survey to determine your ecological footprint at www.earthday.net. Develop some
practical steps you and your friends can take to reduce the size of your ecological footprint. And
see why more is not always better. (See Growth and Development Module)
Submit as Proof of Learning
- Compiled data from peer survey
- Letter to your representative
- List and questions from activity 2b
- Write a one page free write reflecting the Ecological Footprint Survey - what did you get
out of it and how did that exercise change your mind? Or how did it not? Do you think
the responses received were an artifact of the questions asked, or did they reveal what
you were looking for?
Quiz on Full World vs. Empty World View
Definitions [2 points each]
Write a short definition, in your own words, describing the terms listed below.
1. Optimal Scale
2. Marginal Cost
3. Marginal Benefit
Label [2 points each] Fill in the blanks with words from the word bank.
Word Bank
- Full World View
- Empty World View
- Economy (2)
- Ecosystem (2)
Short Answer [5 points each]
1. Explain what causes the leveling out in The Hubbert Curve from 1970 to 1975?
2. Why is it better to view the economy as a part of the ecosystem?
3. How can the idea of the economy as a subset of the ecosystem be applied directly to the
idea of peak oil?