Ecological Economics


Below, Saleem Ali answers our final question.

The most productive interface between disciplines in the environmental sciences has occurred in understanding the value of ecosystem services. There has been a remarkable growth in the last five years in mainstream research within economics, physics, and ecology that shows how natural systems provide benefits that can be tangibly "valued." While some environmental ethicists, such as Mark Sagoff, have resisted the call to put numeric values on nature, there is little doubt that without having such clear numerical information, natural value will simply be ignored. The kind of Kantian rhetoric that such well-intentioned ethicists propose is perhaps an example of negative "inter-disciplinarity." Belief systems from the humanities should remain important at an individual level but environmental policy needs to be more pragmatically considered on the basis of science and regulatory efficacy in the context of pluralistic societies.

Until recently, if you asked a conventional economist about "pricing nature" you risked being ridiculed as a green hippie or a neo-Marxist. Professional economic associations and journals marginalized any dissent from conventional pricing etiquette, which could only be determined under strict market conditions. The most accommodation economists could grant was trading of emission permits for air pollution, and that too was considered a sideshow within the halls of dominant economics programs. Given this strong ostracization, a parallel field of ecological economics had to develop, led by a few rebellious researchers. Most notably, the Romanian- American economist Nicholas Georgescu-Roegen, who had been a protégé of Joseph Schumpeter at Harvard, dared to embrace other physical sciences such as physics and biology in his analysis. His seminal book The Entropy Law and the Economic Process (1971) was the first treatise to consider physical constraints on capitalism described by his mentor, Schumpeter, as "a process of creative destruction." Since then the field of "ecological economics" has evolved beyond utopianism and moved toward a pragmatic approach to addressing environmental concerns. While they might not have the prices right at this stage, at least they are trying to delineate monetary indicators in tangible terms rather than using the polemics of priceless value.

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Economic value is marginal; most transactions presume that there will continue to be an economy, regardless of the choice made in the transaction.

As the existence of extinction demonstrates, that can be an oversimplifying approximation at some edge cases.

There is still considerable disagreement within ecological economics about monetary valuation. Most valuation methods are based on estimating demand curves, which are determined by preferences weighted by purchasing power--one dollar, one vote. Many believe that decisions concerning our shared inheritance of nature's wealth should be more democratic. For those comfortable with a plutocratic approach, when resources are essential and non-substitutable, which includes life supporting ecosystem services, a small change in quantity leads to a huge change in price, so valuation has a limited lifespan. Furthermore, the total value of a resource (price times quantity) goes up as quantity goes down, providing a misleading signal. Look at what happened to food and energy as a share of GNP in 2008. Curiously, however, while many people criticize monetary valuation of ecosystem services, they rarely criticize monetary valuation of critical market goods and services, such as food. Agriculture accounts for less than 1% of GNP in the US, which has led several economists to state that climate change will have minimal economic impacts because it only affects our food supply. If we measure everything in dollars, then a dollar's worth of food or water is no different from a dollar's worth of anything else. It is of course ridiculous from an economic perspective to multiply marginal value times total quantity to get total value, yet this is precisely what the GNP does. Yet many economists criticize ecological economists when they do the same thing with ecosystem services. The least we can ask for is consistency.
In the end, economic values are marginal, yet human impacts on the environment are not. Marginal analysis can be very useful, but we need to recognize when it ceases to be appropriate.

By Joshua Farley (not verified) on 16 Oct 2009 #permalink