Environmental Economics, Politics, and Worldviews Chapter 17
HOW ARE ECONOMIC SYSTEMS RELATED TO THE BIOSPHERE? Section 17-1
Not all market systems are free- market systems Economics is a social science that deals with the production, distribution, and consumption of goods and services to satisfy peoples needs and wants. Market-based economic systembuyers and sellers interact in markets to make economic decisions about how goods and services are produced, distributed, and consumed. In a free-market economic system, all economic decisions are governed solely by the competitive interactions of supply, demand, and price.
Not all market systems are free- market systems If the demand for goods or services is greater than the supply, the price rises, and when supply exceeds demand, the price falls. Ideally, (1) no company would control the prices of any goods or services; (2) the market prices would include direct and indirect costs; and (3) consumers would have full information about the beneficial and harmful environmental and health effects of goods and services. Many companies push for government support such as subsidies, tax breaks, trade barriers, or regulations that will give their products a market advantage over their competitors products.
Not all market systems are free- market systems Three types of capital, or resources, are used to produce goods and services. Natural capital includes resources and services produced by the earths natural processes, which support all economies and all life. Human capital, or human resources, includes peoples physical and mental talents that provide labor, innovation, culture, and organization. Manufactured capital, or manufactured resources, are items such as machinery, equipment, and factories made from natural resources with the help of human resources.
Most economic systems use three types of resources to produce goods and services
Fig. 17-2, p. 436 ++= Natural CapitalManufactured Capital Human CapitalGoods and Services
Economists disagree over the importance of natural capital and the sustainability of economic growth Economic growth for a city, state, country, or company is an increase in its capacity to provide goods and services to people. Economic development is the improvement of human living standards made possible by economic growth. High-throughput economies attempt to boost economic growth by increasing the flow of natural matter and energy resources through their economic systems to produce more goods and services.
The high-throughput economies of most of the worlds more- developed countries rely on continually increasing the flow of energy and matter resources to increase economic growth
Fig. 17-3, p. 436 Inputs (from environment) System throughputs Outputs (into environment) High-quality energy Low-quality energy (heat) High-waste economy High-quality matter Waste and pollution
Economists disagree over the importance of natural capital and the sustainability of economic growth Neoclassical economists, following the ideas of Alfred Marshall (18421924) and Milton Friedman (19122006) view the earths natural capital as a subset, or part, of a human economic system and assume that the potential for economic growth is essentially unlimited and is necessary for providing businesses with profits and workers with jobs.
Economists disagree over the importance of natural capital and the sustainability of economic growth Ecological economists believe that: There are no substitutes for many vital natural resources such as air, water, and biodiversity, or for natures free ecological services such as climate control, pest control, and nutrient recycling. Economic systems are subsystems of the biosphere that depend heavily on the earths irreplaceable natural resources and services. Conventional economic growth eventually will become unsustainable because it can deplete or degrade various irreplaceable forms of natural capital, and because it will exceed the capacity of the environment to handle the pollutants and wastes we produce.
Economists disagree over the importance of natural capital and the sustainability of economic growth The models of ecological economists are built on three major assumptions. Resources are limited and should not be wasted; there are no substitutes for most types of natural capital. We should encourage environmentally beneficial and sustainable forms of economic development, and discourage environmentally harmful and unsustainable forms of economic growth. The harmful environmental and health effects of producing and using economic goods and services should be included in their market prices (full-cost pricing), so that consumers will have more accurate information about these effects.
Economists disagree over the importance of natural capital and the sustainability of economic growth Many environmental economists argue that some forms of economic growth are not sustainable and should be discouraged through fine-tuning existing economic systems and tools.
Ecological economists see all human economies as subsystems of the biosphere that depend on natural resources and services provided by the sun and earth
Fig. 17-4, p. 437 Solar Capital Goods and services Economic Systems Heat Production Natural Capital Depletion of nonrenewable resources Natural resources such as air, land, soil, biodiversity, minerals, and energy, and natural services such as air and water purification, nutrient cycling, and climate control Consumption Degradation of renewable resources (used faster than replenished) Pollution and waste (overloading natures waste disposal and recycling systems)
HOW CAN WE USE ECONOMIC TOOLS TO DEAL WITH ENVIRONMENTAL PROBLEMS? Section 17-2
Most things cost more than we might think The market price, or direct price, that we pay for something does not include most of the indirect, or external, costs of harm to the environment and human health associated with its production and use. Hidden costs are the indirect or external costs that can have short- and long-term harmful effects on other people, on future generations, and on the earths life- support systems.
Most things cost more than we might think Analysts say that full-cost pricing would: Reduce resource waste, pollution, and environmental degradation. Improve human health by encouraging producers to invent more resource-efficient and less-polluting methods of production. Enable consumers to make more informed decisions about the goods and services they buy.
Most things cost more than we might think Phase in shift to full-cost pricing so that environmentally harmful businesses would have time to transform themselves and consumers have time to adjust their buying habits. Resistance to full-cost pricing. Opposition from producers of harmful and wasteful products and services who would have to charge more for them and might go out of business. Difficulty estimating environmental and health costs and how they might change in the future.
Environmental economic indicators could help us reduce our environmental impact Gross domestic product (GDP) is the annual market value of all goods and services produced by all firms and organizations, foreign and domestic, operating within a country. The per capita GDP is the GDP divided by the countrys total population at midyear. GDP provides a standardized, useful method for measuring and comparing the economic outputs of nations, and does not distinguish between goods and services that are environmentally or socially beneficial and those that are harmful.
Environmental economic indicators could help us reduce our environmental impact Environmental and ecological economists and environmental scientists call for new indicators help monitor environmental quality and human well-being. Genuine progress indicator (GPI) is the GDP plus the estimated value of beneficial transactions that meet basic needs, but in which no money changes hands, minus the estimated harmful environmental, health, and social costs of all transactions. In the U.S., between 1950 and 2004 the per capita GDP rose sharply and the per capita GPI stayed nearly flat and even declined slightly, which shows that even if a nations economy is growing, its people are not necessarily better off.
Comparison of the per capita GDP and GPI in the US between 1950 and 2004
Fig. 17-5, p. 439 35,000 30,000 25,000 20,000 Per capita gross domestic product (GDP) 15,000 1996 Dollars per person 10,000 5,000 Per capita genuine progress indicator (GPI) 0 195019601970198019902000 Year
We can reward environmentally sustainable businesses Governments can use several strategies, including subsidies, to encourage or force producers to work toward full-cost pricing. Perverse subsidies and tax breaks enable businesses to operate in such a way that they do damage to the environment or to human health, such as: Extracting minerals and oil. Cutting timber o