Toward an Earthwise economy, part 1: Ecological economics

The economic crisis we’re in gives us an undreamed-of opportunity to make course corrections in our economy and our lives. Today’s post marks the first in a series taking a serious look at viable alternatives to the economic practices and assumptions that have landed us in the mess we’re now in. Each post will suggest ways we might move the economy in more Earthwise directions–friendlier to the Earth and to everybody living here. My warmest thanks to guest blogger Laurel Ball, who introduces us to ecological economics.

Ecological Economics: Questioning Growth, Fostering Sustainability

By Guest Blogger Laurel Ball

Research Assistant

University of Maryland Center for Integrative Environmental Research

Many of us are aware that we’re in an economic crisis, but the problem may be deeper than we realize. Mainstream economists use growth in the physical size of the economy (gross domestic product, GDP) to gauge economic health. According to this school of thought, growth must continue, and a decline in the rate of growth is cause for concern.

However, a growth-based economy ignores the principles of ecology and the laws of physics. The first law of thermodynamics states that matter and energy cannot be created or destroyed. The second law of thermodynamics states that matter and energy tend toward entropy; that is, they become less useful. Taken together, these laws of nature tell us that economic growth cannot continue indefinitely because there is a finite amount of resources that can be used, and as natural resources and ecosystem services are used in economic production they become less useful to humanity. For example, fossil fuels are a useful and potent source of energy, but burning them releases greenhouse gasses and air pollution which endangers human health and threatens ecosystem stability.

Ecological economics is a revolutionary paradigm shift in economic theory. Whereas traditional economics sees the environment and the economy as separate entities, ecological economics places the economy within the ecosystem. The earth is a semi-closed system; its only input is solar energy, and its only output is heat. The economy therefore relies on the ecosystem to supply the raw materials used in production and assimilate the wastes of every society. The size of the economy is limited by how many natural resources are available and how much waste the ecosystem can absorb. When we acknowledge that the economy cannot grow indefinitely, it becomes necessary to limit the economy to scale that matches the resources of the natural world. An economy that is too big depletes natural resources and overwhelms the ecosystem’s ability to provide us with clean air and water and to break down wastes.

Once we find the optimal scale for the economy, we need to think hard about how to allocate and distribute resources. The goal is to improve quality of life by addressing the way that resources are used rather than by using more resources and causing damage to the ecosystem, which reduces welfare in the long run. It is particularly important to think about what we are leaving behind for future generations. How long we expect the human race to continue and how much right we think future generations have to enjoy the wealth provided by the earth’s resources determine how much is available for us to use today.

Finding the right scale for the economy is an ethical question because the answer affects the well-being of people alive today as well as future generations. To create a sustainable economy, we must start a public dialog about using our resources in a way that optimizes long-term well-being. We must also realize that economic growth physically cannot continue indefinitely, and we need to find a way to improve quality of life that doesn’t rely on continued economic growth.

To move from a growth-based economy to one that values sustainability and quality of life, a society needs new ways to measure economic performance. GDP is a flawed measure because it fails to include some activities that contribute to well-being, such as volunteerism, household work, and of course the prerequisite of a healthy environment. The Genuine Progress Indicator (GPI) gives a more accurate view of the economy’s health than GDP because it accounts for quality-of-life factors like income distribution, crime, resource depletion, pollution, volunteerism, and education.

When comparing GPI to GDP in the United States, we find that until about the 1970s, GPI grew along with GDP. After that, GDP continued to grow while GPI stagnated and then declined. There is reason to believe that GDP is not a proxy for social progress. The first step toward sustainability is to know when we are moving in the right direction and to measure our progress with GPI. The next step is replacing growth-driven economic policy with policies that promote a healthy environment, a thriving culture, and individual fulfillment.

Further Reading:

The Transdisciplinary Journal of the International Society for Ecological Economics

International Society for Ecological Economics

U.S. Society for Ecological Economics


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