Economics for Sustainability
Professor Wayne Hayes
November 7, 2011
V. 0.4 | Build #8
The goals of this session are:
1. Explain the basics of economics to sustainers.
2. Lay out an approach for harmonizing
economics and sustainability.
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.
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.
Not everyone is happy
with the economy.
Are we in the Anthropocene?
See the original report
for indicators
See especially table 1 and figure 2, page 617 of
the original article on the Anthropocene.
What are the implications?
Shanghai, 2007
We need to examine the economy,
the engine of the Anthropocene.
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.
Resolution: Situate the economy
within society and ecology.
Resolve the antagonism between
ecology and economy.
Economy and ecology share the same Greek root,
Oikos, meaning “the inhabited house” or “dwelling.”
Economy = Oikos + Nomos.
The term “economy” derives from the Greek
oikonomia, household management, based on
oikos, "house," and nemein, "manage."
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).
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?
Consider ends and means.
Like humanity, should ecology (nature) be
considered as an end in itself?
Doesn’t economy refer to the efficient, if not
always wise, allocation of means to fulfill ends?
Therefore, shouldn’t ecology
precede economy?
Consider this: The inversion of economy and
ecology should be the first strategic move to
harmonize ecology, economy, and society.
Sachs provides an example
of embedding economics.
Fairness in a Fragile World by Wolfgang Sachs
exemplifies several principles:
1. How to invert and to embed the economy
within nature and culture.
2. How sustainable development can occur
within non-OECD nations.
3. How to equitably harmonize technology,
ecology, and society.
What brand of economics
supports sustainability?
We will consider three schools of thought:
1. Neo-classical economics, including
contemporary neoliberalism
2. Ecological economics
3. Eco-economics.
Neo-classical economics includes
micro- 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.
Supply and demand within markets
are basic to microeconomics.
Economic growth is the engine
of 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.
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.
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.
Ecological economics tells
a different story.
Ecological economics
recasts economics.
Daly, still grounded in economics, expands the
boundaries. The economy has three essential
functions:
1. Allocation: efficiency of resource use
2. Distribution: fairness
3. Scale: appropriate size. The impulse is to get
bigger, to grow in scale.
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.
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.
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.
Perverse subsidies form a
hidden industrial policy
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.
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.
The distribution of income in the USA
is now a matter of concern.
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.
What is the appropriate scale
of the economy?
An ontological shift from ideal theory
to grounded substance is needed.
The School of Athens by Raphael
Look around you: Ecosystem services
are everywhere.
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.
Natural capital extends the core idea
of capital as a producer of value.
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.
Eco-economics is basic to
Sustainability
Two examples of eco-economics are
1. Lester Brown, Plan B 4.0
2. Bill McKibben, Deep Economy
The 99% are a new form of
civil 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.
What do you think?