Transcript Economics for unequal and finite planetx

Economics for a Finite
and Unequal Planet
Joshua Farley
Community Development and Applied Economics
Gund Institute for Ecological Economics
University of Vermont
Doran Lecture on Population, Resources and Development
Hebrew University of Jerusalem
Economies as Evolutionary Systems
 Hunter gatherer economies (Pleistocene)
 “Limited wants, unlimited means”
 Accumulation = death
 Agricultural economies (Holocene)
 Property rights, division of labor, political hierarchy
 Population density, knowledge, and rate of change
 Industrial economics (Dawn of Anthropocene)
 Fossil fuels, non-renewables
 Competitive self-interest, capitalism and growth
 Great acceleration (population etc., 1950 on)
Economies as Evolutionary Systems
 Financial economics (now)
 Profound change in our lifetimes
 Price from negative to positive feedback loops
 From growth to unequitable redistribution
 Information economy and Ecological Economy (emerging)
 Degrowth and equitable distribution (contraction and
convergence) essential
 Cooperation and altruism necessary and more efficient
Economy as a physical system:
Laws of Physics
 Can’t make something from
nothing or vice versa
 Can’t do work without energy
 Disorder increases
Laws of ecology
 Conversion of ecosystem structure into economic
products degrades and destroys ecosystem functions 
e.g. water purification, habitat
 Waste emissions degrade and destroy ecosystem
services  e.g. climate stability
Laws of Economics
• When marginal
costs exceed
marginal benefits,
stop
• 4x increase in
population, 9x
increase in per
capita consumption
in 100 years
• Uneconomic growth
Societal Challenges on a Finite Planet
Planetary Boundaries
Social Foundations
demands just and sustainable degrowth
Marginal value (cost)
Ecological thresholds and the
economic supply curve
Must sum together all costs: labor,
capital, biodiversity loss, nitrogen,
climate change, etc.
(marginal cost)
Degrowth
essential
Economic output (fossil fuel economy)
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
Marginal value (benefit)
Physiological boundaries/thresholds and the
demand curve
Value: low and stable
Trade-offs: relatively
unimportant benefits
Essential resources (social foundation), e.g. calories/day
Societal Challenges on a Finite Planet
Market Solutions
 Competition, self-interest and choice
 Preference satisfaction
 Internalize externalities
 Make prices reflect full costs
 Creates incentives for innovation and substitution
 Preferences weighted by purchasing power
 Americans spend 6% of income on food for home consumption;
~1% on raw food
 Many Africans spend 75%; ~ 50% on raw food
 What happens when prices double?
 Preferences prioritized over physiological need
Middle class
food security, household security
Price
Rich
physiological threshold: e.g. starvation
Market Demand curve for essential resources
Poor
Food production (in calories/day/capita)
Markets in Action
Marginal market costs
(Market supply curve)
Ignore
ecological
costs
Ignore needs of the
poor
Why markets fail
 Non-excludability (ecosystems)
 Lack of laws and institutions, e.g. oceanic fisheries, waste
absorption capacity, population
 Inherently non-excludable, e.g. climate regulation,
protection from storm surges, etc.
 Only collective ownership is possible
 Non-rivalry (e.g. information and green technology)
 Physical characteristic
 Resources not depleted through use; prices create artificial
scarcity
 Optimal price is zero
 Collective provision with no ownership is optimal
Why markets fail
 Essential Resources
 Demand insensitive to price
 Gross inequality
 Preferences of the rich trump needs of the poor
Prisoner’s Dilemmas
 Global Climate Change
 Population growth
 Natural resource depletion/biodiversity loss
(finite raw material sources, finite services)
 Innovation in the information age
 E.g. green technology
 Cooperation is best solution
 Collective ownership
 Collective production/protection
Can People Cooperate?
 Stupid question?
 Are people good or evil?
 Characteristics of an evil person
 Characteristics of a good person
Evolution of Cooperation
 Genetic
 Multi-level selection
 Distribution of pro-social behavior
 Good person puts group ahead of individual
 Bacteria, slime-molds, social insects, humans (super cooperators)
 Oxytocin
 Cultural
 Altruistic punishment (public good game; ultimatum game)
 Punishing non-punishers
 Group identity
 Reciprocity and indirect reciprocity
Economics of Cooperation
 Alternative energy, sustainable food system technologies
 Values maximized at price of zero
 Competitive markets create scarcity (production and
consumption)
 “Energy transitions produce cultural transitions”
 Myxococcus xanthus, Dictyostelium discoideum and the
human predicament
 “Struggle for energy causes violent conflict”
 Cooperation for energy ends violent conflict
Institutions for Cooperation
 Institutions can make generous people act
selfishly, or selfish people act generously
 Economics, money and cooperation
Bauman Y, Rose E. Selection or indoctrination: Why do economics
students donate less than the rest? Journal of Economic Behavior &
Organization. 2011;79(3):318-327. Frank RH, Gilovich T, Regan DT. Does Studying
Economics Inhibit Cooperation? Journal of Economic Perspectives.
1993;7(2):159-171.; Kirchgässner G. (Why) are economists different? European
Journal of Political Economy. 2005;21(3):543-562; Vohs KD, Mead NL, Goode MR. The
Psychological Consequences of Money. Science. 2006 November 17,
2006;314(5802):1154-1156.
 Reciprocity, altruistic punishment, social
norms
 Intrinsic vs. extrinsic motivation
From Markets to Commons
 Essential ecosystem functions cannot be made into
private property
 Collective decision making, protection is necessary
 No one owns waste absorption capacity
 Green technologies should not be private property
 Collective provision, open access is most efficient
 Unilateral action is possible
 Redefining the group
 Altruistic behavior towards group
 Monitoring and enforcement: altruistic punishment
Changing Complex Systems
 Change the paradigm
 What is biophysically possible
 Human nature
 Change the goals
 From growth and maximizing monetary value to
sustainability, justice and basic needs
 Change the rules/institutions
 Depends on what is possible and desirable
 Based on science, not ideology
Conclusions
 Markets emerged simultaneously with fossil fuels
 Nature of ‘scarce’ resources has changed from rival,
excludable to non-rival and/or non-excludable
 Cannot transform physical characteristics of resources to
fit market model
 Must transform economic system to resource
characteristics, human behavior
 Prisoner’s dilemmas
 Physiological necessities
 Cooperation and common ownership for most pressing
problems
 Naïve and utopian?