Download Economics for the Anthropocene

Economics for the
Anthropocene
Joshua Farley
Community Development and Applied Economics
Gund Institute for Ecological Economics
University of Vermont
Economies as Evolutionary Systems
 Hunter gatherer economies (Pleistocene)
 Accumulation = death
 Agricultural economies (Holocene)
 Emerged simultaneously around the world when climate
stabilized
 Property rights, division of labor, political hierarchy
 Population density, knowledge, and rate of change
Economies as Evolutionary Systems
 Industrial economics (Dawn of Anthropocene)
 Fossil fuels, non-renewables
 Competition
 Growth
 Financial economics (now)
 Profound change in our lifetimes
 Price from negative to positive feedback loops
 Redistribution
 Information economy and Ecological Economy (emerging)
 Cooperation and altruism necessary and more efficient
Economies as physical systems
 Laws of physics
 Can’t make something from nothing
 Energy required to do work
 Can’t make nothing from something
 Laws of ecology
 Raw material inputs into economic production alternatively serve
as structural building blocks of ecosystems
 Removing structure, emitting waste degrades ecosystems
 Essential life support functions
 Laws of economics
 When marginal costs exceed marginal benefits, stop
Societal Challenges in the
Anthropocene
Just and sustainable degrowth
Ecological Thresholds and the
Supply Curve
Must sum together all costs: labor,
capital, biodiversity loss, nitrogen,
climate change, etc.
(marginal cost)
Economic output (fossil fuel economy)
Trade-offs: Life
sustaining
benefits
Value:
Increasing
rapidly with
decreasing
quantity.
Trade-offs:
Resilience,
increasingly
important
benefits
food security, household security
Value: shift from
marginal to total
value (e.g.
diamond-water
paradox)
physiological threshold: e.g. starvation
Opportunity cost
Physiological Boundaries/Thresholds and the
Demand curve
Value: low and stable
Trade-offs: relatively
unimportant benefits
Essential resources (social foundation), e.g. calories/day
Societal Challenges in the
Anthropocene
Market Solutions
 Competition, self-interest and choice
 Preference satisfaction
 Internalize externalities
 Make prices reflect full costs
 Creates incentives for innovation and substitution
 Preferences weighted by purchasing power
 Americans spend 6% of income on food for home consumption;
~1% on raw food
 Many Africans spend 75%; ~ 50% on raw food
 What happens when prices double?
 Prioritize preferences or physiological need?
Middle class
food security, household security
Price
Rich
physiological threshold: e.g. starvation
Market Demand curve for essential resources
Poor
Food production (in calories/day/capita)
Market Solutions
Marginal market costs
(Market supply curve)
Poor people have no
demand
Why markets fail
 Non-excludability (ecosystems)
 Lack of laws and institutions, e.g. oceanic fisheries, waste
absorption capacity
 Inherently non-excludable, e.g. climate regulation, protection from
storm surges, etc.
 Only collective ownership is possible
 Non-rivalry (information and green technology)
 Physical characteristic
 Resources not depleted through use; prices create artificial scarcity
 Optimal price is zero
 Collective provision is optimal, no ownership
 Natural monopoly: high fixed cost, low marginal cost
Supply Curve for Natural
Monopoly
What’s the optimal number of firms per
industry in an information economy?
Prisoner’s Dilemmas
 Global Climate Change
 Natural resource depletion/biodiversity loss
(finite raw material sources, finite services)
 Innovation in the information age
 Cooperation is best solution
 Collective production/protection
 Collective ownership
 Counter example?
Can People Cooperate?
 Stupid question
 Are people good or evil?
 Characteristics of an evil person
 Characteristics of a good person
 Economics, money and cooperation
Bauman Y, Rose E. Selection or indoctrination: Why do economics students donate less than the rest? Journal of Economic
Behavior & Organization. 2011;79(3):318-327.; Frank RH, Gilovich T, Regan DT. Does Studying Economics Inhibit Cooperation?
Journal of Economic Perspectives. 1993;7(2):159-171.; Kirchgässner G. (Why) are economists different? European Journal of
Political Economy. 2005;21(3):543-562; Vohs KD, Mead NL, Goode MR. The Psychological Consequences of Money. Science.
2006 November 17, 2006;314(5802):1154-1156.
Evolution of Cooperation
 Genetic
 Multi-level selection
 Distribution of pro-social behavior
 Bacteria, slime-molds, insects, fish, humans (super cooperators)
 Oxytocin
 Detecting cheaters
 Cultural
 Altruistic punishment
 Punishing non-punishers
 Group identity
 Reciprocity and indirect reciprocity
Economics of Cooperation
 Alternative energy, cures for pandemics, sustainable food
system technologies
 Values maximized at price of zero
 Competitive markets create scarcity (production and
consumption)
 “Energy transitions produce cultural transitions”
 Myxococcus xanthus, Dictyostelium discoideum and the
human predicament
 “Struggle for energy causes violent conflict”
 Cooperation for energy ends violent conflict
Institutions for Cooperation
 Institutions can make generous people act
selfishly, or selfish people act generously
 Reciprocity or payments?
 Intrinsic vs. extrinsic motivation
 Social norms: glorify greed or punish it?
Conclusions
 Markets emerged simultaneously with fossil fuels
 Nature of ‘scarce’ resources has changed from rival,
excludable to non-rival and/or non-excludable
 Cannot transform physical characteristics of resources to
fit market model
 Must transform economic system to resource
characteristics, human behavior
 Prisoner’s dilemmas
 Physiological necessities
 Cooperation and common ownership