Economics of Sustainability

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CDAE 237:
Economics of Sustainability
Course Introduction
Joshua Farley
Assoc. Prof, CDAE
205 B Morrill Hall
Quotable Quotes from famous
economists
• “Anyone who believes exponential growth can go
on forever in a finite world is either a madman or
an economist.” Kenneth Boulding
• “Economics makes a wonderful servant but a
terrible master ”-- Joan Robinson
• “You must learn economics to keep from being
snowed by economists” --Joan Robinson
• "But nobody can become a great economist who is
only an economist-- and I am even tempted to add
that an economist who is only an economist is
likely to become a nuisance if not a positive
danger." F.A. Hayek
Quotable Quotes from Nobel
Laureates
• ". . . economics has become increasingly an arcane branch
of mathematics rather than dealing with real economic
problems"
Milton Friedman
• “[Economics as taught] in America's graduate schools...
bears testimony to a triumph of ideology over science.”
Joseph Stiglitz
• “We live in an uncertain and ever-changing world that is
continually evolving in new and novel ways. Standard
theories are of little help in this context. Attempting to
understand economic, political and social change requires
a fundamental recasting of the way we think”
Douglass North
One more Nobel Laureate,
plus a valid critique...
• “There is no reason we can’t have a perfectly healthy
economy with virtually no resources whatsoever”
Robert Solow
• “neo-classical economics is a form of brain damage” - Hazel Henderson
Course Overview
Content
• We pick up where CDAE 61 leaves off
• Intermediate level, problem based
• The allocation of available resources
among alternative desirable ends,
primarily at macro level
Content
• Transdisciplinary
• Economic system is part, not whole
• Core issues:
– Ecological sustainability
– Just distribution
– Efficient allocation
Course Goal
• Explore the three basic questions that arise from
the definition of economics, particularly as they
apply to essential resources with no substitutes:
– What are the desirable ends towards which society
should allocate its scarce resources?
– What are these scarce resources, and what are their
characteristics relevant to allocation?
– Based on the nature of the scarce resources and
human nature and institutions, what allocative
mechanisms are best for achieving these desired
ends?
• All economics courses should focus on these questions,
or they are not courses in economics by definition
Course Objectives
• Apply the theories of ecological economics and market failure
to some of the most pressing problems society currently faces:
global climate change, peak oil, biodiversity loss, natural
resource depletion, and the degradation of ecosystem services.
• Review empirical studies of human behavior/psychology in
order to:
– Better assess the desirable ends for economic activity;
– Examine the role of rationality and emotionality in the economic
decision process;
– Scientifically test the neoclassical assumptions underlying human
behavior to better understand the potential role of competition and
cooperation, selfishness and altruism in economic systems.
Course Objectives
• Critique conventional theories of macroeconomics from
empirical validity of underlying assumptions to desirability of
theoretical outcomes.
– Assess the effectiveness of GNP and its alternatives as measures of
economic welfare.
– Analyze the current monetary system, identify its strengths and
weaknesses, investigate more sustainable, just and efficient alternatives.
– Analyze the current distribution of wealth and income and its role in
quality of life and economic efficiency. Examine mechanisms for
creating a more desirable distribution.
– Review monetary and fiscal policy, and apply it to ecological economic
goals.
Course Objectives
• Critique conventional theories of international economics from
empirical validity of underlying assumptions to desirability of
theoretical outcomes.
– Critically analyze theories of international trade and build superior
alternatives.
– Critically review theories and outcomes of globalization, and build a
theory of internationalization as an alternative.
– Analyze international fiscal crises.
Course Objectives
• Evaluate and Design policy tools based on ecological
economic principles
– Investigate basic policy principles
– Evaluate existing policies addressing sustainable scale, just
distribution, and economic efficiency.
– Design new policies for solving specific scale, distribution, and
efficiency problems
• Develop professional research and communication skills and
actively contribute to creating a more sustainable planet by
working on applied projects
Teaching Philosophy
• My goal is not to teach you facts, but to teach you
how to think: analysis, synthesis and
communication
• I don't know all the answers, and no professor
does (nor does the boss in any job you'll ever
have)
– In an evolving system, knowledge must also
evolve. Much of what I teach is wrong now, or will
be in the future.
• You are not here to absorb and regurgitate, but
rather to cogitate and contribute
Course Structure
• Follows layout of Daly and Farley textbook
from Ch. 11 on
• Problem based projects will follow
structure laid out in Farley, Erickson and
Daly workbook
• Integration of seminar and lecture formats
– Lectures are meant to stimulate discussion
• October events
– Beyond Capitalism
– Environmental valuation
– Planet in 2050
Instructional Approach
• Hybrid with problem based learning
– Not all material will relate to project problems
• Discussion and original thinking more
important than memorization
– Come to class prepared: review “think about
it” and “big ideas” sections
• I hope to promote systems thinking:
Synthesis/integration more important than
analysis.
• Learning pyramid philosophy
Teaching Philosophy
Administrative Stuff
Course Resources
• Blackboard will be used to:
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Post the syllabus and important announcements
Post required and recommended readings
Post and receive assignments
Facilitate discussions between students
Communicate with all of you
Receive feedback on the course
Keep track of grades??
• http://bb.uvm.edu/
– Log in like you do for e-mail
Course Texts
• Ecological Economics: Principles and
Applications, by Herman Daly and Joshua
Farley, Island Press, 2004 ABBREVIATED AS
DF IN THE TENTATIVE SCHEDULE
• Farley, J., J. Erickson and H. Daly (2005).
Ecological Economics: A Workbook for ProblemBased Learning. Island Press: Washington, DC.
ABBREVIATED AS FED IN THE TENTATIVE
SCHEDULE
Contact Info
• Instructor: Joshua Farley
205 H Morrill Hall
656-2989
• Subject line for e-mails must begin with
CDAE 237
• Office Hrs.: Morrill Hall, T-Th, 10:0012:00 or by appointment
Course Requirements
• Attending lecture is necessary
– Participation = 15% of grade
• Readings must be done carefully.
• Main grade based on projects
• Homework assignments intended to help you
learn material, reflect on material, and contribute
to projects
Grading
•
•
•
•
•
•
•
•
Class Participation:
15 points
Group discussions:
10 points each
Homework assignments: 15 points
Newspaper articles:
10 points
Project Steps:
12 points
Group Presentations:
10 points
Final Project:
30 points
Peer Evaluations:
3 points
TOTAL
~105 points
Assignments
• Assignments with no graphs will be due via Blackboard.
• Assignments must be handed in on time. If there is a
valid reason you cannot turn an assignment in on time,
let me know ahead of time by e-mail.
• There may be a learning curve on Blackboard
Course Projects
Contribute to Research on
Vermont’s Common Assets Trust
• Goal: contribute the background research necessary for
Vermont’s citizens and legislators to make informed
decisions about a common asset trust for Vermont
• Objectives:
– Identify which resources should be part of the common asset trust
based on the criteria of justice, sustainability and efficiency, and
identify mechanisms for integrating those assets into the trust.
– For assets that can be transformed into economic products or left
intact to generate ecosystem services, determine how much
should be allocated to either use.
– Determine the optimal allocation method (e.g. regulation, cap and
auction, rationing, taxation, etc.), including institutional design and
management structure, for each asset.
Research and develop a funding mechanism
for salmon restoration in the Puget Sound.
• Goal: research and design innovative funding mechanisms for salmon
restoration, that account for the numerous ecosystem services that
restoration projects would provide. Your target is $300 million (I need
to check with Earth Economics to find out the time span involved).
• Objectives:
– Conduct a literature review on existing tax districts;
– Conduct a literature review on existing mechanisms for financing
watershed management;
– Create a list of planned infrastructure projects, describe the linkages
between these projects and the ecosystem services provided by salmon
restoration, and if possible estimate the financial impact on the
infrastructure projects.
– Brainstorm mechanisms for creating a watershed utility along with other
financing mechanisms;
– Submit a complete report on your study to Earth Economics and draft an
op-ed piece on your best ideas for Earth Economics to submit to local
newspapers.
Ecuador: designing a new economic
paradigm
• Goal: assist Earth Economics in it’s efforts to develop an alternative
development model for Ecuador and other countries..
• Objectives:
– Conduct a literature review on existing development models, paying
particular attention to their shortcomings, such as failure to achieve their
own goals, the shortcomings of these goals, ecological impacts, and so
on;
– Work out more specific tasks in collaboration with Earth Economics
– Brainstorm alternative approaches to development;
– Submit a complete report on your study to Earth Economics;
– Perhaps write an op-ed piece on your best ideas and submit it to various
newspapers.
Alternatives to off-shore drilling in the US
• Goal: research alternatives to off-shore drilling, including the potential
for increasing oil production from existing megareserves, and write a
campaign proposal for implementing the best alternative.
• Suggested objectives:
– Research the average price for enhanced oil recovery from existing
reserves;
– Research the energy returns on energy invested for enhanced recovery;
– Estimate the net carbon emissions of off-shore drilling vs. enhanced
recovery;
– Determine approximately how much additional oil we could recover using
enhanced recovery as compared to off-shore drilling;
– Estimate the impact on energy dependence;
– Research existing subsidies for the oil sector;
– Prepare a campaign proposal for mandating enhanced oil recovery.
Alternatives to off-shore drilling in the US
• You may be able to negotiate the scope of work with Earth
Economics, shifting your focus towards alternative energy. In
particular, they might be interested in looking at the returns on
research and development in alternative energy, and contrasting the
returns of government supported research that would be freely
available to anyone anywhere vs. patented research that forces
people to pay monopoly prices for the use of the technology. This is
something in which I am particularly interested.
Other Earth Economics Projects
• Go to the Earth Economics Web-site (www.eartheconomics.org) and
look at their other projects. If you find one that interests you, I will
contact them and set something up.
Class policies
• This is an upper level course. I expect you to act
accordingly.
What is Sustainability, and do
we want it?
• Strong sustainability vs. weak
sustainability
• Ethical issues:
– Technological advance, like human impact on
ecosystems, is inherently unpredictable
– Ecological impacts inherently unpredictable,
often irreversible.
• Implications of Irreversibility
– How can we develop substitutes if we don’t
even know what we are losing?
– What we risk: more sport utility vehicles and
second homes, or basic necessities
How much do we want it?
• Do we want to curb our consumption so
the future can have more?
• Would we sacrifice to provide more for
those who don’t have today?
– How much of our GNP currently aids
developing countries?
• Is the future more important than the
present?
• Is sustainability a sacrifice?
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