Economics for a Finite and Unequal Planet Joshua Farley Community Development and Applied Economics Gund Institute for Ecological Economics University of Vermont Doran Lecture on Population, Resources and Development Hebrew University of Jerusalem Economies as Evolutionary Systems Hunter gatherer economies (Pleistocene) “Limited wants, unlimited means” Accumulation = death Agricultural economies (Holocene) Property rights, division of labor, political hierarchy Population density, knowledge, and rate of change Industrial economics (Dawn of Anthropocene) Fossil fuels, non-renewables Competitive self-interest, capitalism and growth Great acceleration (population etc., 1950 on) Economies as Evolutionary Systems Financial economics (now) Profound change in our lifetimes Price from negative to positive feedback loops From growth to unequitable redistribution Information economy and Ecological Economy (emerging) Degrowth and equitable distribution (contraction and convergence) essential Cooperation and altruism necessary and more efficient Economy as a physical system: Laws of Physics Can’t make something from nothing or vice versa Can’t do work without energy Disorder increases Laws of ecology Conversion of ecosystem structure into economic products degrades and destroys ecosystem functions e.g. water purification, habitat Waste emissions degrade and destroy ecosystem services e.g. climate stability Laws of Economics • When marginal costs exceed marginal benefits, stop • 4x increase in population, 9x increase in per capita consumption in 100 years • Uneconomic growth Societal Challenges on a Finite Planet Planetary Boundaries Social Foundations demands just and sustainable degrowth Marginal value (cost) Ecological thresholds and the economic supply curve Must sum together all costs: labor, capital, biodiversity loss, nitrogen, climate change, etc. (marginal cost) Degrowth essential Economic output (fossil fuel economy) Trade-offs: Life sustaining benefits Value: Increasing rapidly with decreasing quantity. Trade-offs: Resilience, increasingly important benefits food security, household security Value: shift from marginal to total value (e.g. diamond-water paradox) physiological threshold: e.g. starvation Marginal value (benefit) Physiological boundaries/thresholds and the demand curve Value: low and stable Trade-offs: relatively unimportant benefits Essential resources (social foundation), e.g. calories/day Societal Challenges on a Finite Planet Market Solutions Competition, self-interest and choice Preference satisfaction Internalize externalities Make prices reflect full costs Creates incentives for innovation and substitution Preferences weighted by purchasing power Americans spend 6% of income on food for home consumption; ~1% on raw food Many Africans spend 75%; ~ 50% on raw food What happens when prices double? Preferences prioritized over physiological need Middle class food security, household security Price Rich physiological threshold: e.g. starvation Market Demand curve for essential resources Poor Food production (in calories/day/capita) Markets in Action Marginal market costs (Market supply curve) Ignore ecological costs Ignore needs of the poor Why markets fail Non-excludability (ecosystems) Lack of laws and institutions, e.g. oceanic fisheries, waste absorption capacity, population Inherently non-excludable, e.g. climate regulation, protection from storm surges, etc. Only collective ownership is possible Non-rivalry (e.g. information and green technology) Physical characteristic Resources not depleted through use; prices create artificial scarcity Optimal price is zero Collective provision with no ownership is optimal Why markets fail Essential Resources Demand insensitive to price Gross inequality Preferences of the rich trump needs of the poor Prisoner’s Dilemmas Global Climate Change Population growth Natural resource depletion/biodiversity loss (finite raw material sources, finite services) Innovation in the information age E.g. green technology Cooperation is best solution Collective ownership Collective production/protection Can People Cooperate? Stupid question? Are people good or evil? Characteristics of an evil person Characteristics of a good person Evolution of Cooperation Genetic Multi-level selection Distribution of pro-social behavior Good person puts group ahead of individual Bacteria, slime-molds, social insects, humans (super cooperators) Oxytocin Cultural Altruistic punishment (public good game; ultimatum game) Punishing non-punishers Group identity Reciprocity and indirect reciprocity Economics of Cooperation Alternative energy, sustainable food system technologies Values maximized at price of zero Competitive markets create scarcity (production and consumption) “Energy transitions produce cultural transitions” Myxococcus xanthus, Dictyostelium discoideum and the human predicament “Struggle for energy causes violent conflict” Cooperation for energy ends violent conflict Institutions for Cooperation Institutions can make generous people act selfishly, or selfish people act generously Economics, money and cooperation Bauman Y, Rose E. Selection or indoctrination: Why do economics students donate less than the rest? Journal of Economic Behavior & Organization. 2011;79(3):318-327. Frank RH, Gilovich T, Regan DT. Does Studying Economics Inhibit Cooperation? Journal of Economic Perspectives. 1993;7(2):159-171.; Kirchgässner G. (Why) are economists different? European Journal of Political Economy. 2005;21(3):543-562; Vohs KD, Mead NL, Goode MR. The Psychological Consequences of Money. Science. 2006 November 17, 2006;314(5802):1154-1156. Reciprocity, altruistic punishment, social norms Intrinsic vs. extrinsic motivation From Markets to Commons Essential ecosystem functions cannot be made into private property Collective decision making, protection is necessary No one owns waste absorption capacity Green technologies should not be private property Collective provision, open access is most efficient Unilateral action is possible Redefining the group Altruistic behavior towards group Monitoring and enforcement: altruistic punishment Changing Complex Systems Change the paradigm What is biophysically possible Human nature Change the goals From growth and maximizing monetary value to sustainability, justice and basic needs Change the rules/institutions Depends on what is possible and desirable Based on science, not ideology Conclusions Markets emerged simultaneously with fossil fuels Nature of ‘scarce’ resources has changed from rival, excludable to non-rival and/or non-excludable Cannot transform physical characteristics of resources to fit market model Must transform economic system to resource characteristics, human behavior Prisoner’s dilemmas Physiological necessities Cooperation and common ownership for most pressing problems Naïve and utopian?