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Monday, December 9, 2013

Ecological Economics Part IV: Cultural Change



Last time I discussed a few of the options available on the supply side of a steady state economy, and deduced that most every solution requires heavy handed governmental policies that are unlikely to be enacted anytime soon.

One option I forgot to discuss is altering accounting standards to account for the negative side effects of company's products. For instance, if the only rational use for gasoline is to be burned for fuel, and the carbon produced by burning this gasoline has a quantifiable negative effect on the environment, then oil and gas companies could be forced to account for these negative effects on their balance sheets and/or income statements. Consumers are already taxed for this, but producers are allowed to essentially offload all responsibility for the negative side effects of the rational use of their products. Allowing this to continue is immoral and unfair, since some of the worst polluters are allowed to externalize an important social and environmental cost, instead of taking responsibility for their part.

One of the chief responses to this line of reasoning is that pollution is hard to quantify. This is unconvincing, since companies can currently account for such ephemeral things as "brand value" on their balance sheets. Anything can be quantified and we can witness a similar process occurring with something like real estate. It is very difficult to put a price on land, so it has become customary to allow the "market" to decide the value of land. Essentially, land is worth whatever someone is willing to pay for it. This accounts for why real estate prices fluctuate so much. Cap and Trade attempts to do something similar with carbon, create a market where the price of pollution can be “discovered”.

You could also achieve a similar goal by simply determining how much carbon we can put in the atmosphere before we're toast, then putting a starting price on carbon PPM's, then determining how much carbon is released for every barrel of oil. For every barrel of oil sold, the company would have to charge the pollution cost to their income statement. Since the price of carbon would be continually increasing as we got closer to the cap point, the cost of doing business would become increasingly prohibitive.

Obviously this is a far more Draconian policy than Cap and Trade, but if things continue as they have, I wouldn't be surprised to see large companies sued over climate change outcomes. It may be heavy handed, but charging for the negative social outcomes from rational use of products would force companies to account for the damage their products do, and provide space for socially conscious companies to grow in the market place. For instance, as it stands it is difficult for solar power to compete with oil and gas because the onerous costs of oil and gas is not paid by the company, while all of the cost of producing solar power is borne by the company.

But all of this talk of supply side policies ignores the obvious problem of stemming the increasing demand for products. Demand is extremely pliable. In one generation tastes can change completely, so it is possible that today's kids will grow to dislike obscene consumption as much as the Boomers love it. But a change in taste will be required if resource consumption is to decrease to a sustainable level and Climate Change halted. This is by far the stickiest wicket facing ecological economics, since there are really no policy alternatives other than making it illegal to consume too much. That may come to pass, but it is unlikely to be enacted right now. Our current economic policies and consumption patterns, ironically, are set to achieve the ultimate aims of a steady state economy, since exponential growth in consumption will collapse the natural economy and ultimately the human economy, thus creating a situation in which we simply can’t produce enough stuff to meet demand. This could lead to more or less permanent recession and stagnant supply of key resources, which achieves a sort of miserable steady state economy. Obviously ecological economists wish to avoid this path to a steady state.

What is really at the heart of the consumption patterns in America is that we have an economic and financial culture of consumption that has become so entrenched that we believe it is the “natural” way to order things. This is, of course, totally false. There is no natural way to order economies or societies, and we could, at any moment change the way we view our relationship to the natural world.

For instance, we could change the way we value real estate. As I mentioned before, we currently let the “market” decide the price of land, but the basic assumptions that go into this land valuation are relatively short-term. Since it is hard to gauge long-term value of something as dynamic as land, and we have a cultural bend toward short-termism, we do not consider what value that land might have in, say, 50 years. This made sense when colonists were first devising our land policies and they stood on but 1/64th of a gigantic continent, but it makes a lot less sense when land is now running scarce. We treat land as though there will always be more.

How might our economic system be different if we considered the opportunity cost of purchasing land and putting it to some use? For instance, how much should an acre of land in the mountainous areas of West Virginia be valued if it is to be used for a shale gas well? We know that the well will ultimately destroy that piece of land for several generations. I would argue that the proposed use of this land, versus its generational worth to West Virginians, should make it practically priceless. But because our financial and legal policies are geared toward the short-term, this piece of land would be sold for $50k, produce several millions of dollars in value over the next 5 years, and then be utterly useless for the next 100+. If you look to the long-term, then so many of our economic, financial, and social policies seem utterly ridiculous and immoral.

So, how might a steady state economy look? That is a complex question and one I can’t possibly answer here. But let me highlight a few details, many of which have been gleaned from Brian Czech’s excellent book Supply Shock: Economic Growth at the Crossroads and the Steady State Solution . For starters, there are far too many people on this planet. We have clearly reached or exceeded the planet’s carrying capacity, leaving only two options for providing a decent standard of living for all humans (the ultimate goal of ecological economics and a steady state economy): stay at 7 billion people and have the rich drastically reduce their standard of living to raise the standard for the 4 billion poor, or reduce the number of people on this planet by half so that everyone can enjoy a medium standard without taxing the planet.

Both of these solutions sound terrible at first, but the degree of terribleness is largely dependent on the implementation of these plans. For instance, one way of redistributing income more evenly throughout the world would be for inheritance laws to be changed so that 95% of estates must pass to charitable organizations, which would keep money from amassing in the hands of a select few and keep it flowing throughout the economy. On the population control side of things, it is not necessary to enact a strict one-child policy, ala China, or to kill half the people in this planet to achieve this. It has been proven that with education and economic stability, birth rates natural go down, to the point that birth rates in industrial nations are practically stagnant. Thus, by enacting better education and more evenly distributing wealth across the planet, we could naturally stem the exponential population growth over the course of a few generations, decreasing population to a more manageable level.

Unfortunately there are no solutions to the resource scarcity and climate change problems that do not require some level of cultural change on the part of the richer nations of the world. If we are going to leave the planet a better place than we found it, we are going to have to change our attitudes to the natural world. The alternative is a collapsed human economy, set amidst the ruins of the natural world. Humans could survive this sort of scenario, but who knows what sort of society it might be. If our goal is to preserve as much as possible our current civilization, then we must take proactive steps for doing so.

In the next—and last—post on Ecological Economics, I’ll discuss the best single option for stemming the tide of resource scarcity and climate change.

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