Living Within the Bounds of the
Natural World
Joshua Farley
Community Development and Applied Economics
Gund Institute for Ecological Economics
University of Vermont
Ecological Boundaries and
Agriculture
Market Solutions?
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Negative externalities
Must be internalized for
efficient allocation
Monetary valuation
(implies substitutability)
How do we account for
changing values?
Army of technocrats
providing data to
politicians?
$
$
Essential and Non-substitutable
Resources
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Food, water, energy, ecosystem services
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Critical thresholds
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Essential to human survival with no adequate
substitutes
Ecological
Physiological
Inelastic demand
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Large changes in marginal value with small
changes in quantity
Ecological Boundaries and the
Supply Curve
Must sum together all costs: labor,
capital, biodiversity loss, nitrogen,
climate change, etc.
(marginal cost)
Economic output (fossil fuel economy)
Social/Physiological Boundaries
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
Opportunity cost
Physiological Boundaries/Thresholds and
the Demand curve
Value: low and stable
Trade-offs: relatively
unimportant benefits
Economic output (fossil fuel economy)
Irreconcilable Thresholds?
Economic output (fossil fuel economy)
Market demand in an unequal
world
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Competition and self interest
Americans spend 6.7% of income on food
for home consumption
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11.6% of food dollar goes to farmers
<1% of income spend on raw food
How did you react when wheat prices tripled?
Elasticity of demand to retail prices ~.08
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Implies ~.001 elasticity of demand to raw food
prices
Market demand in an unequal
world
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Many poor countries spend >70% of
income on food for home consumption
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Perhaps 50% spent on raw food?
How do poorer countries react when wheat
prices triple?
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Arab spring
Elasticity of demand ~.7
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Budget share and elasticity
Market Demand, Unequal World
Physio thresh w/ equal distribution
Eco thresh nitrogen
Eco thresh carbon
Trade-offs:
Starvation
now or in
future
1245 1800
2700
Sustainability and justice vs. preferences
Marginal market costs
(Market supply curve))
Physiological boundaries for rich
Price
Market Supply and Demand
Poor people have no
demand
Market Allocation of Essential
Resources on an Unequal Planet
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Does it maximize utility?
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Is it efficient (Pareto efficiency)?
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The perversion of utility
Would it be possible to re-allocate food from obese
people to malnourished people without making
anyone worse off?
Do we need to make subjective value judgments to
answer this?
Do we want to apply this logic to non-marketed
ES?
Objective needs should take priority over
subjective preferences weighted by purchasing
power
Market Equilibrium on a Full and
Unequal Planet?
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Equilibrium result of negative feedback loops
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Essential resources
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Price increase  decrease in demand
Finite resources on full planet (food, energy, land,
stocks)
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Scarcity price increase  decrease in demand; increase
in supply equilibrium
No prices for non-market goods
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Price increase  increase in supply (or only at cost of
future supply)
Speculation
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Price increase  increase in demand
Dis-equilbrium, redistribution from positive feedback loops
Market Equilibrium on a Full and
Unequal Planet?
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Growing concentration of wealth
stimulates speculation
Speculation  breakdown of market
mechanism
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Inequality
Instability
Complex system
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Negative and positive feedback loops, nonlinearity, surprises, etc.
Who benefits from
speculation?
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HEADLINE: Despite Drop in
Commodity Prices,
Farmland Values Rise
Solutions
Redefining Goals: Efficiency
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What is efficiency?
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Ratio of benefits/costs
Agriculture
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Food production/land; food/labor
Most efficient system ever?
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Energy in, energy out?
Economics
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diminishing MB, rising MC. MC=MB
Pareto efficiency
Maximizing monetary value
How do we do this for food?
Ecological Economic Efficiency
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What is the desirable end?
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Normative judgement
What are the costs?
economic
efficiency
technical
efficiency
ecological
efficiency
• Allocative efficiency
• Producing the right foods with
Food Security
the right resources on the right
land
• Taxes and subsidies?
• Land use inherently competitive
• Distributive efficiency
• Ensuring these foods go to those with the
greatest physiological need
• More equitable distribution of wealth?
• Alternatives to price rationing?
• Competition for food
• Brazil, India, small farmers
• Throughput broadly defined
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Water, energy, fertilizers, labor, capital,
land
Cannot rely on non-renewables
• Requires major investments in R&D, extension
• How do we minimize costs of developing new
technologies, maximize benefits?
Economics of information
Land grant universities
Markets fail to account for future generations,
negative externalities, public goods
• Competition and price rationing inherently inefficient
• Cooperation required
Agroecology and on farm throughput
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• Minimizing impact of throughput on ES
• Minimizing agrotoxins, fossil fuels, erosion
• Non-market benefits
• Open access and public goods
• Cooperation required
• Perennial polyculture, agroecology
• Restoring ecosystem services
Sustainable Money:
Vertical money, 100%
fractional reserve,
green taxes
Summary & Conclusions
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Markets fail to account for ecological
degradation
Markets fail to distinguish between needs and
wants
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Bad idea to extend them to ecosystem services
Markets promote unsustainable, unjust and
inefficient agricultural systems
Markets increasingly dominated by
destabilizing, inequality inducing speculation
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Changes over last 40 years
Summary & Conclusions
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Must define appropriate goals for
economic system on crowded, finite planet
Must understand resource characteristics
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Non-rival, non-excludable, interdependent
Appropriate economic institutions based
on resource characteristics and goals
Cooperation required to solve ecological
problems, achieve just distribution,
produce required technologies
Current System:
Vertical money
Current System:
Horizontal Money
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What if there’s a great lending opportunity,
and bank has already lent 19$?
Where do i (interest) and p (profit) come
from?
More loans or more vertical money required.
ECONOMIC GROWTH (physics and ecology)
What if p<i?
Procyclical monetary system (positive
feedback loops)
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Inherently unstable