Economics for Sustainability

Professor Wayne HayesNovember 7, 2011

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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 happywith 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 betweenecology 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 exampleof 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 economicssupports sustainability?

We will consider three schools of thought:1.Neo-classical economics, including contemporary neoliberalism2.Ecological economics3.Eco-economics.

Neo-classical economics includesmicro- 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 engineof 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 scaleof 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 are1.Lester Brown, Plan B 4.0 2.Bill McKibben, Deep Economy

The 99% are a new form ofcivil 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?