Thursday, April 22, 2010

Eco-nomics: Ecological Economics

Couldn't let Earth Day pass without an Eco-nomics post, now could I?

PSU recently announced that Robert Costanza would become the new Director of the Center for Sustainable Processes and Practices, or CSP2 apparently.  Costanza is a well known scholar in the field of 'ecological economics' and I thought that this moniker might confuse people who only focus on the word 'economics.'  In fact ecological economics is a distinct field from economics and has a host of criticisms about the way that neo-classical (read modern) economics deals with the environment and natural resources.  Dr. Costanza is an ecologist, not an economist, and the field of ecological economics has more to do with ecology than economics (as opposed to environmental and natural resource economics which takes a neo-classical economics approach to these issues).  I am not an expert on ecological economics by any means but I have studied it a little as a grad student and have participated in a sort of debate in Corvallis with a follower of the ideology so I know a little.  The Wikipedia entry on ecological economics appears to be reasonably well written and balanced:

Ecological economics is a transdisciplinary field of academic research that aims to address the interdependence and coevolution of human economies and natural ecosystems over time and space. It is distinguished from environmental economics, which is the mainstream economic analysis of the environment, by its treatment of the economy as a subsystem of the ecosystem and its emphasis upon preserving natural capital.
The identity of ecological economics as a field has been described as fragile, with no generally accepted theoretical framework and a knowledge structure which is not clearly defined. According to ecological economist Malte Faber, ecological economics is defined by its focus on nature, justice, and time. Issues of intergenerational equity, irreversibility of environmental change, uncertainty of long-term outcomes, and sustainable development guide ecological economic analysis and valuation. Ecological economists have questioned fundamental mainstream economic approaches such as cost-benefit analysis, and the separability of economic values from scientific research, contending that economics is unavoidably normative rather than positive (empirical).
Ecological economics includes the study of the metabolism of society, that is, the study of the flows of energy and materials that enter and exit the economic system. This subfield is also called biophysical economics, sometimes referred to also as bioeconomics. It is based on a conceptual model of the economy connected to, and sustained by, a flow of energy, materials, and ecosystem services.

So one key distinction from the outset is the foundation of ecological economics is moral and philosophical with a host of research attempting to promote the viewpoint.  This is absolutely and fundamentally different from economics which applies scientific principles (and is often criticized for doing so) to economics research.  Economists are interested in uncovering the mechanisms that govern the economy and human interaction, including the interaction with the environment.  We propose theories and attempt to falsify them using data. We are not averse to making normative claims when research shows clearly preferred outcomes, but are otherwise generally interested in the positive.

At the risk of being too reductionist, take the example of the value of biodiversity.  An economist looks at this and wonders if there is a market mechanism to provide this value (there isn't entirely, but if biodiversity matters for market goods like drugs, then it can in some cases).  We then have to think about the societal benefit of diversity and think of mechanisms that one could create to try and equate the cost of destroying biodiversity to its benefits.  If successful than the optimal amount of biodiversity will result.  In this is an appreciation that everything represents a trade off, that preserving biodiversity means that we may have to do without other things.

An ecological economics take on biodiversity would start with a statement of its fundamental value - something different than the value individuals would place on the benefits it can confer.  They also reject the idea that its value is relative - that we can substitute scientific discovery for natural biodiversity for instance - which is a fundamental concept in economics most generally captured by opportunity cost. With these assertions the trade off mentioned above in the standard economic paradigm is rejected and the idea of an 'optimal' level of biodiversity is similarly rejected in favor of a value statement on its necessity.

Why I don't personally subscribe to this line of thought can be seen in a thought experiment.  Suppose there are starving people (never mind why or how they got to this state) living in a forest.  Their only means of survival is to cut down the forest and destroy some biodiversity.  Should they be allowed to do it?  You either answer no to this question or you accept that humans inhabit a world where scarcity forces us to make difficult choices.  The economists' answer to this general question is that we have to make these choices and so let's try and do it so that we make the most people as well off as possible both now and in the future.

Finally, I think that the general view of ecological economists' toward economics is one of the belief that following standard economic principles will lead us to our own destruction.  I believe this is misguided.  Humans may be myopic and it may be hard to tell the future, but as fossil fuels become scarce for example, and the costs of environmental degradation become more severe, the price system will start to encourage the development of the very technologies that we need so badly.  I don't think a philosophy, no matter how persuasive, will ever have that kind of transformative power. Which doesn't mean it is a worthless endeavor or shouldn't be tried - quite the opposite, anything that can be done to promote a reduction in our myopia helps.  But it is not an answer.

So, I think this is a great hire for PSU: Dr. Costanza appears to be a leader in the field, has a lot of outside contacts, will be embraced by the environmental community and will immediately create a distinct identity for the center and will probably be great at external relations which, one imagines, will be his primary task.

On the other hand, I am more skeptical that this hire will be great for the community at large - especially Portland - given the momentum Portland has already established in trying to build a green energy economy.  There are some very hard and pressing questions surrounding the future of green energy technologies and their role in the future development of the world economy - what will the price of fossil fuel based energy materials do in the future, how will the economy evolve with the onset of green technology, what are the potential rewards from investing in green technology, what will global climate change do the the economy, prices and the well being of future generations?  These are all questions that economics tackles head on and that matter crucially to anyone serious about building a sustainable economy.  But this is my bias about what I would like to see the center focus on and it comes from my economists belief that fundamental change comes from incentives not philosophy.

To have a competing voice is very welcome, however, and one hopes that Dr. Costanza will welcome perspectives from economics as well as other fields and that this center will focus on real, implementable strategies and solutions to the challenges that lie ahead.

Happy Earth Day.

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