[Over an extended period ZNet has been publishing excerpts of chapters from Robin Hahnel’s latest book, Green Economics: Confronting the Ecological Crisis, available from M.E. Sharpe. Excerpts published here are not the full chapters which are made available inside the book. More information about the book and links to purchase it are below. Or, if you want, first, go to previous excerpts: Introduction / Chapter 1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9]
Mainstream economic theory is based on a paradigm that dates back to the eighteenth century, and critics argue that is part of the problem. The world was a very different place when a Scottish moral philosopher wandered the grounds of the University of Glasgow in absent-minded reverie, thinking thoughts that would launch a new economic discipline called “political economy.” When Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations in 1776, there were less than 800 million people roaming the earth….
No wonder Adam Smith believed the value of goods and services was determined entirely by the amount of labor it took to produce them and never integrated the opportunity costs of using natural resources into his explanation of prices. No wonder it never dawned on Adam Smith that there might be effects on people other than buyers and sellers of producing and consuming the goods they bartered over in market exchanges. In a largely empty world, neither resource exhaustion nor effects on external parties were likely to be top concerns for creative minds trying to unravel the important economic conundrums of their day….
By the time this book is printed, roughly 7 billion people will be crowding into the same space occupied by only 800 million in Adam Smith’s day. The world is different today. It is now more full than empty, and one would think the underlying presumptions that make up the gestalt that informs our economic paradigm would reflect this difference. But as ecological economists point out, modern-day economics, to its detriment, remains largely an empty-world economics as our colleagues in the mainstream continue to operate under the influence of a paradigm pioneered well over 200 years ago….
Full-World Economics: Limits to Growth
Publication of a study titled Limits to Growth commissioned by the influential Club of Rome think tank in 1972 marked a turning point in popular thinking, but not in thinking inside the mainstream of the economics profession…. Mainstream growth theory continued to ignore any constraints imposed by nonrenewable natural resources, as well as resources that were renewable but only at rates that were often lower than the rates at which the world’s economies were exploiting them…..
Ecological economists point to an additional problem caused by wastes based on their full-worldview. Just as a full-world paradigm sensitizes researchers to ways in which the natural environment is overtaxed as a source of resources as inputs into economic activities, it also draws attention to limits on the capacity of the biosphere to serve as a sink to absorb and store wastes that are outputs of economic activities in relatively harmless ways. In effect, the Club of Rome report suggested that humans were on a trajectory to die of starvation as they exhausted needed environmental resources. Thirty years later, many environmentalists began to worry that people might asphyxiate themselves first as they exhaust even faster the capacity of the biosphere to act as their sink.
Ecological economists introduced a useful concept they call throughput to reorient thinking about how the natural environment limits growth as both a source of natural resources and as a sink for wastes. Throughput is defined as physical matter of one kind or another that enters the economic system and physical matter that exits the economic system as waste of some kind. As ecological economists point out, since physical stocks of different categories of natural resources are finite, and the capacity of the biosphere and upper atmosphere to absorb physical wastes of different kinds is also finite, economic throughput cannot grow infinitely….
Full-World Economics: Externalities Are the Rule, Not the Exception
There is a second important consequence of changing from an empty-world to a full-world mind-set. Not only are people more likely to bump into the limits of the physical world when there are more of them, people are also more likely to bump into each other when we are 7 billion than when we were only 800 million. Changing from an empty to a full-world economic paradigm reverses an assumption that is crucial to every major conclusion and economic theorem about markets and market systems.
An externality is defined as an effect on any party other than the buyer or seller when a good or service is produced, exchanged, and consumed. In an empty world it is more reasonable to presume—as a general operating principle, or default option—that externalities are the exception, not the rule…. Externalities were not taken seriously until popular concern over pollution—which economic theory defines as a negative externality—led to the rise of the modern environmental movement in the 1970s, when the world was much fuller. Yet mainstream economic theory continues to operate under the implicit assumption that external effects are insignificant in all but a few markets, despite compelling reasons to believe otherwise….
The biological world turns out to be more of a mystery than many people once assumed…. We are now smart enough to know that eliminating one species in an ecosystem may well unleash a chain of effects reaching many other species that appeared to be far removed. But this new knowledge often makes us less, not more, certain of what to predict. Even when biologists successfully unravel one long causal chain with many surprising links, it only heightens awareness of how many other long causal chains must also be out there about which we remain clueless. We are now smart enough to know that ecosystems can have tipping points where the effects of applying pressure of one kind or another suddenly change dramatically. But knowing tipping points exist without knowing how to pinpoint where they are only makes us feel less certain about our ability to predict outcomes. We are now smart enough to know that even if an ecological system were deterministic with no random elements, if it is a chaotic, complex dynamic system, outcomes can be surprisingly sensitive to small variations in initial conditions, making long-run predictions impossible. And of course random elements are numerous and greatly magnify our ability to predict outcomes. Again, knowing more only makes us less certain about predicting the effects of human interactions on ecosystems. In sum, in the field of biological systems much new knowledge has been humbling for any who were paying attention. As we will see, long causal chains, tipping points, and butterfly effects are all phrases that should strike fear into the heart of anyone trying to apply cost-benefit analysis to the environment.
Green Economics: Confronting the Ecological Crisis by Robin Hahnel is available from M.E. Sharpe.
To purchase the print edition please click here.
To order 180-day online access from the Sharpe E-text Center click here.
Coming soon from Google eBookstore and Barnesandnoble.com.