Posts Tagged ‘Obama’

Sane Economics After Obama

December 29, 2009

Between now and Obama’s departure, progressive economists, environmentalists and political radicals need to get their act together.

There are many books and papers that provide the basis for developing a shared understanding of why today’s dominant free-market paradigm is lethally inadequate in the face of the challenges we face in the coming decades.

Nature’s role in sustaining economic development by Partha Dasgupta is a useful summary of  the kind of economic thinking we will need to use if we – and Gaia – are to come through the 21st century in reasonable shape.

The full paper is available for free download from the Royal Society and I warmly recommend it. As the Guardian says, this lucid and authoritative work shows how

“In nearly all their earlier calculations and prescriptions, economists have taken the earth for granted.”

Professor Dasgupta ranges widely in his argument, covering the importance of natural capital in issues such as de-forestation, PES ( Payment for Ecologicial Services),  social well-being,, property rights, and comprehensive wealth.

Just a few quotes give the flavour:

… most economists would appear to be convinced that scientific and technological advances, the accumulation of reproducible capital (machinery, equipments, buildings and roads), growth in human capital (health, education and skills) and improvements in the economy’s institutions (which are also capital assets) can overcome diminutions in natural capital.

Otherwise, it is hard to explain why twentieth-century economics has been so detached from the environmental sciences. Judging by the profession’s writings, we economists see nature, when we see it at all, as a backdrop from which resources and services can be drawn in isolation.

A lack of property rights to natural capital

Why do not market prices reflect nature’s scarcity value? If natural capital really is becoming scarcer, would not their prices have risen, signalling that all is not well?

The problem is that if prices are to reveal social scarcities, markets must function well. For many types of natural capital, though, most especially ecological resources, markets not only do not function well, often they do not even exist. In some cases, they do not exist because relevant economic interactions take place over large distances, making the costs of negotiation too high (e.g. the effects of upland deforestation on downstream farming and fishing activities; §4); in other cases, they do not exist because the interactions are separated by large temporal distances (e.g. the effect of carbon emission on climate in the distant future, in a world where forward markets do not exist because future generations are not present today to negotiate with us). Then there are cases (the atmosphere, aquifers, the open seas) where the migratory nature of the resource keeps markets from existing—they are called ‘open-access resources’, and they experience the tragedy of the commons.

Whenever economists have probed the matter, they have found that all economies subsidize large numbers of economic transactions with nature. Some of those transactions are large  (construction of large dams that alter ecosystems), but mostly they are small. How do those subsidies affect overall economic performance? More fundamentally, how should economic  performance be measured?

Most methods that are currently deployed to estimate the shadow prices of  ecosystem services are crude, but deploying them is a lot better than doing nothing to value them.

Professor Dasgupta ends his paper by saying that the overarching moral that emerges from (the admittedly rough and ready data) is salutary:

Development policies that ignore our reliance on natural capital are seriously harmful—they do not pass the mildest test for equity among contemporaries, nor among people separated by time and uncertain contingencies.

Its not going to be easy to take all this into account in preparing for when Obama cashes in, but now’s the time to start to develop the profound multi-disciplinary understanding out of which comes the confidence to act in the way  that the hugely-complex challenges require.