Economic issues have taken a dominant place in our society. In general, the economy is the main focus of most governments; a large majority of citizens assess and elect their politicians based on their impact on the economy; and everyday conversations and newscasts are peppered with talk of the economy, jobs and growth.
Conventional thinking is that growth is good: Politicians are lauded when they preside over terms experiencing growth, and chided when GDP falls. But what do these terms really mean? Are these the right goals for our economy? How much do we really know about conventional economics and the theories underlying it?
Our economic illiteracy leaves us without the tools to question assumptions that our current systems are based upon, or to contribute to this debate.
My opinion is that if we are to have any chance of making a timely transition into a sustainable society, it’s fundamental that more people increase their awareness about the deep-seated premises and beliefs that lie behind conventional economics.
I find it equally important to improve our understanding of alternative lines of thought (which aren’t generally taught at universities), such as ecological economics.
Can we achieve sustainability with conventional economic thinking?
When I first began learning about macroeconomics, I couldn’t believe the postulates and assumptions that underlie this discipline. The issue that shocked me the most is the fundamental belief that it is desirable (and possible) for the human economy to grow exponentially and indefinitely on a finite planet.
For me, this is an evident contradiction, as the economy depends on the use and transformation of limited natural resources. However, now I understand that conventional economists hold an unrealistic worldview that the economy has no physical restrictions and can grow indefinitely (represented in the circular flow of exchange value – Figure 1), as they believe that the economy exists as an isolated system, abstracted from the physical environment.
Figure 1. Model showing the circular flow of exchange value (Mankiw & Scarth, 2004).
Furthermore, conventional economists omit natural resources as one of the primary factors of production (with capital and labor) and their depletion is not accounted for. This means that the mathematical models they build to represent the economy allow them to believe that technology can make up for the exhaustion of nature and that human ingenuity will keep the economy growing.
While I do believe that with the right policies and incentives technology and human creativity may be able to buy us some time, I don’t consider it possible (nor desirable) to replace nature entirely with man-made artifacts.
The abstraction of neoclassical economics from the natural world is partly reflected in recent research carried out by Tom Green during his doctoral studies at the University of British Columbia.
Green analyzed some of the standard textbooks used for introductory economic courses and found that most of these pay little attention to sustainability issues and ignore the intricate relation between the environment and the economy.
The removal of this field from the social and empirical reality is also revealed in the students’ movement for a Post-Autistic Economics.
Ecological economics: An economy suitable for a finite planet
In my view, the trans-discipline of ecological economics has much to offer in the shift to sustainability.
First of all, the human economy is viewed as an open system that occurs within a closed one – the ecosphere (Figure 2). The economy is seen as fundamentally dependent on nature for its growth and development, so the existence of biophysical limits and global carrying capacity is fully recognized.
This is reflected in the factors of production, which have been expanded to include natural capital, resources, energy and waste generation.
Figure 2. Simplified model showing the fundamental vision of ecological economics (adapted from Daly and Farley, 2011).
Ecological economics has three major goals. The first one is achieving a sustainable scale for the human economy, which means that there is an optimal size for the economy where marginal costs equal marginal benefits.
It is in this argument that the differences between mainstream and ecological economists are diametrically opposed. “Where conventional economics espouses growth forever, ecological economics envisions a steady-state economy at optimal scale” (Daly & Farley, 2011, p. 23).
Fundamental to this view is the idea that there are opportunity costs to economic growth. In fact, Herman Daly explains that, globally, we may well be in a period of uneconomic growth, where the costs of growing exceed the benefits (i.e. we are actually becoming poorer rather than richer in the long term).
The second major objective is attaining a fair distribution of resources. Economic growth and the trickle-down effect are often used by conventional economists as a justification for not dealing with distributional issues. However, in a non-growing economy, a just distribution is central to achieving sustainability.
Finally, the third main goal is the efficient allocation of scarce resources. Conventional economics does not deal with the first two objectives, but it focuses greatly in this last one.
Ecological economists put great focus in improving the macro-allocation between market and non-market goods. They argue that the market has been efficient in increasing the availability of market goods, but it has decreased the existence of non-market ones. Efficiency is not the MAIN goal, but rather it is subordinated to sustainability and justice concerns.
I think that the main objectives and proposals of ecological economics are very rational, prudent and adequate for the reality of living in a planet with finite resources.
Nonetheless, not everything is resolved in this field – there still needs to be more discussions and empirical research in various areas, such as macroeconomics, businesses, policies, and social behavior, among others.
Village Vancouver: Increasing awareness about Ecological Economics
Village Vancouver – a transition community in Canada – is trying to increase people’s awareness and knowledge about economics.
Since January 2013, short courses have been organized once every month, where various individuals get together to study and discuss different aspects of ecological economics.
The topics covered are related to micro and macroeconomics, international trade, policies, etc., and are based on Herman Daly’s and Joshua Farley’s textbook Ecological Economics: Principles and Applications. The classes are guided by three wonderful teachers: Michael Barkusky (Secretary-Treasurer of the Canadian Society for Ecological Economics), Jordan Bober (Co-founder of Seedstock Community Currency) and Randy Chatterjee (Board Director at Village Vancouver).
I’ve taken the course and found it extremely valuable. It has allowed me to identify useful tools and concepts from conventional economics, while also keeping a critical eye for recognizing its flaws.
In addition, it has offered me a unique opportunity to explore more profoundly many questions that I’ve had for a long time, such as why many economists and policy-makers discard the idea that the economy should have an optimal scale, or why the costs of economic growth aren’t more widely discussed.
Through the interaction with the facilitators and other participants I’ve been able to partly answer many of my doubts; however, new questions keep coming with the process of learning.
Luckily, various participants are motivated to continue with these discussions, so there are plans to expand the course to environmental and resource economics, and contrast them with ecological economics.
I think that Village Vancouver is setting a great precedent about the importance and value of increasing economic literacy among the general population.
In fact, I believe it’s filling in some way a gap that formal education institutions aren’t dealing with at the moment.
My hope is that more people around the globe start recognizing the inherent unsustainability of our growth-oriented economic model, and get together to learn about alternatives like ecological economics that aim to build an economic system for a finite planet.
Daly, H. & Farley, J. 2011. Ecological economics: Principles and applications. Second edition, Island Press.
Mankiw, N.G. & Scarth, W. 2004. Macroeconomics: Canadian edition. Second edition, Worth Publishers.