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Where economists fear to go by Chuck Baclagon
December 16, 2008, 7:16 am
Filed under: Deep Green, Greenpeace | Tags: , ,

In 1992, World Bank officials handed renowned economist Herman Daly a draft of its “Sustainable Development Report” to review. Daly had written Steady-State Economics in 1977, proposing that economists consider the requirements of ecology.

Traditionally, economists presume a continuous cycle of production and consumption that can grow forever without regard to the environment. However, events in the real world – pollution, global warming, declining fish populations – had exposed this fallacy, so the World Bank took a bold step in its report by amending the traditional diagram of economic cycles. It added two arrows, one entering the economic cycle, labelled “inputs,” and another exiting, called “outputs.” Daly suggested the Bank illustrate the source of these inputs and destination of the outputs – our waste and pollution – with a circle around the diagram labelled “ecosystem.”

World Bank managers considered his suggestion, but when the final report emerged, the bankers had deleted the diagram entirely. Apparently, acknowledging an ecosystem proved too unsettling for the brilliant minds at the pinnacle of global economics.

Where economics failed

The current global recession can be traced to the scams and oversights of bankers and traders, but also to the erroneous assumptions of professional economists. Governments now squander trillions of dollars from public funds to save the banks, but unless economists replace wishful thinking with ecological realism, they will fail.

Ignoring nature has been the fundamental mistake of classical economics. Nature appears on no corporation’s balance sheet, so when forests disappear or when rivers die from pollutants, no one accounts for the missing assets. Economists presumed that nature would provide free resources and an infinite sink for waste and pollution. This was a big mistake.

For example, classical economic theory assumes that price increases always stimulate production, but this only works if resources are infinite. Last summer, when oil prices soared, the US urged Saudi Arabia to produce more oil, but it could not do so because their its oil fields are in decline. Someone could offer a million dollars for a Labrador duck, New Zealand quail, or Bali tiger, but no amount of money can purchase an extinct animal.

Many economists still cling to an inverted world view, that the environment is a division of the economy. We tack “green” onto our old habits like a new sales gimmick. In fact, the reverse is true: human economy is a subsidiary of the Earth’s ecology.

As long as the global economy remained small compared to the Earth’s bounty, these illusions could be perpetuated, but human enterprise has now reached the planet’s scale. The current global recession differs from earlier collapses because there is no big, untapped resource pool to plunder, no new continent to harvest, no new ocean to deplete.

Those pesky laws of nature

Many economists either did not attend biology and physics classes or presumed they could simply ignore natural laws. The fundamental principles governing matter and energy in an ecosystem are contained in three laws of energy exchange (called “thermodynamics”). If economists – or ecologists – are going to discuss “sustainability,” they should understand these requirements of nature.

As far as humanity has observed, matter and energy cannot be created in our world, only transformed. This is the first law: No new stuff. Matter and energy are not produced by work, but transformed. Fair enough, but the second law is the annoying bit for classical economists.

Whenever energy is transformed – when you eat a doughnut and convert carbohydrates into sugars and proteins – energy is dissipated. Used energy cannot be recycled like newspapers or compost. Physicists call this decay of energy’s usefulness “entropy.” Bodies work constantly, fixing cell walls, fighting disease, and hunting for nutrients, and the energy used is no longer available.

The third law states that without energy input, organisation falls apart. A salmon, hummingbird, or human civilisation must constantly seek more energy than it expends in the search or it will perish. Because of these physical laws, growth in nature – a colony of mussels on the seashore, a human population, or a 4 percent economic growth – requires a constant throughput of materials and energy. But since these resources are finite, growth has only two possible futures: ecological balance or collapse.

But what about technology?

Classical economists assumed that humans could defy these biological and physical laws by contriving new technologies that increase efficiency. “There are no great limits to growth,” US President Ronald Reagan declared in 1985, “when men and women are free to follow their dreams.”

This inspiring proverb serves as the neo-conservative rebuff to any talk of environmental limits. Danish anti-environmentalist Bjorn Lomborg simplified it: “Smartness will outweigh the extra resource use.” Dreams. Ideas. Smartness. These powers of human imagination are presumed to overcome the requirements of physics and biology, but human history tells a different story.

Technology may yield efficiencies, but every technical efficiency in history has resulted in more consumption of energy and resources, not less. When 19th century British industrialists discovered their factories could supply customers with only two days of production per week, they didn’t go fishing or spend more time with their children; they devised marketing to convince people they needed more products. Modern automakers invented “planned obsolescence” in the 1950s to insure that those products would become obsolete, so factories could produce and sell even more.

People once believed that computers were going to save paper. That never happened. Paper consumption grew from about 50 million tonnes (metric tons) per year in 1950, to over 250 million tonnes today. During that period, computers increased paper use, and paper consumption per person doubled. Meanwhile, 12 million hectares of forest disappear every year.

The Internet is not a heavenly realm where ideas are exchanged for “free.” Computers require copper, silicon, industrial chemicals, oil, and massive energy supplies to run server networks. As users upgrade, their “old” technology accumulates in toxic garbage heaps.

Human science knows of no technology that allows us to grow populations and economies without using more material and energy. Technology does not create resources or energy; it uses them. In every industrialised nation in the world, individual consumption of energy and materials is increasing, not decreasing.

No substitute for the real thing

Another economic fallacy claims that money is a “near perfect substitute” for resources. If we run low on hardwood, capital will create plastic; if oil runs low, we’ll invest in biofuels. However, when farmers converted fields to corn for biofuels, global food prices soared, and the UN could not meet even minimal targets for feeding 880,000,000 starving people living in degraded environments. Biofuels will never remotely replace the Earth’s store of oil that we have squandered.

In October, after decades of denial that oil production would peak, the International Energy Agency announced that the world’s 800 largest oil fields are in “accelerating decline” and the global energy supply is “patently unsustainable.” This announcement arrives now that the data prove irrefutable, but geologists warned in the 1950s that we should plan ahead for the oil decline.

For centuries, humans increased ocean-fishing yields with faster boats and advanced technology. As commercial fish stocks declined, modern fishing fleets moved down the food chain, harvesting smaller fish and even phytoplankton. In 1900, the coastal North Atlantic provided habitat and nutrients to support 10-15 tonnes of commercial fish per square kilometre. Now, that figure is less than 1.5 tonnes, a 90 percent reduction in ocean productivity. Cod stocks crashed by 99 percent, triggering economic collapse for costal communities in Iceland, the UK, Canada, and the US. We may build bigger ships, but no new technology can catch fish that aren’t there.

Classical economists failed to see these changes coming, in spite of ample warnings, because they clung to the faith that “capital” could always substitute for depleted resources. But ultimately, all capital begins with natural assets. Economy requires an environment.

The real alternative

Economic activity, or Gross Domestic Product (GDP), has been associated with well-being, but GDP confuses benefits with costs. Cleaning up a polluted river, for example, represents a cost of growth, not a benefit. Sitting in traffic, burning gasoline increases GDP, but does not equal more benefit or welfare.

Nor does growth “trickle down” to relieve poverty. Twenty years ago, 2.2 percent of global growth found its way to those living below the World Bank poverty line. Today, less than 0.5 percent of global growth helps those living in poverty. Most economic growth – 99.5 percent – enriches the wealthy, while consuming resources from the poorest nations.

This time around, we’re not going to recover from global recession by consuming more resources and energy. Growth cannot solve the problems created by growth. Economic theorists must return to Earth.

Economists may fear ecology as a dark wood, where monsters devour their carefully crafted theories. Little do they know, the environment is our salvation. Human economics must change because, in the 21st century, the scale of human activity has reached the scale of the Earth’s material resources, the “carrying capacity.” Capital and technology cannot increase carrying capacity, as economists once believed, but only devise new ways to consume more of that capacity.

The alternative to bankrupt capitalism is not socialism, but ecological economics. Few politicians possess the vision or courage to deliver the message that economic growth is limited, so that job falls to farsighted economists such as Herman Daly, who originated “steady state economics.” Charles Hall at the State University of New York has created a conference series on “biophysical economics.” Hazel Henderson pioneered “Quality-of-Life Indicators” to replace GDP. Such initiatives – not bailouts for failed bankers – point to the future of human economics.

In the 21st century, as we feast on nature’s bounty, Earth steps up to our table and says: “Hi. I’ll be your host this century. Enjoy your meal. Sorry, but due to the crowds, some popular items are limited.”

Rex Weyler

You can respond to “Deep Green” columns at my Ecolog, where I post portions of this column and dialogue with readers.

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