Tuesday, June 10, 2014

Econ 101: the economy versus the environment

     We often hear that environmental concerns are in conflict with economic ones. For example, regulations to reduce CO2 emissions are said to be a drag on “the economy”. Let’s take that claim apart.
     What about the “drag on the economy”? There’s no question that reducing CO2 emissions will cost someone something, and that these costs will affect other people as well. Money spent on X can’t be spent on Y. But money spent on X will eventually be spent on Z. Money doesn’t disappear when it’s spent. Someone received it, and that someone will spend it. That’s how money works in a monetised economy. The claim that money spent on one thing rather than another thing is cost is code for “I’m going to have to spend money on something I don’t want to spend money on”.
     Consider now the terms “environment” and “economy”. What are the concepts behind these terms? It’s pretty obvious that “environment” means the habitat, natural and artificial, within which humans operate. Like all other living creatures we are utterly and completely dependent on our habitat. Anything that damages our habitat damages us. We may not notice the damage immediately, we may not be able to see the cause-effect webs that result in damage, and mild damage may be healed by the processes that maintain our habitat. But whatever happens, or whatever we figure out, habitat keeps us alive.
     So in what sense can concern for the environment conflict with economic considerations? There are two such conflicts.
     First, making a human living means creating habitat to suit ourselves. This will change and even destroy the existing environment. We aren’t the only creatures that do this, for example beavers are notorious for their effects on their environment. But we humans have done that more effectively than any other creatures. Human history is the history of a creature that has reconstructed the natural environment more than any other. Some say we humans the tool-using animals. I call us the habitat-building animal. We grow our food, we create transportation systems, we build settlements. No part of the Earth is free of traces of our work. Archeology and history show that we have repeatedly destroyed our habitat by building without limit because our built habitats promote population growth, and in the short run, the damage to the environment seems a small price to pay for this.
     But our built habitats need not destroy or damage the environment. We can build so that the altered ecology continues to sustain us. We can refrain from polluting the air, the water, the soil. This insight, and the realisation that doing so means allocating some resources to achieve these goals, crosses into the other conflict. In our monetised economy, allocating resources means spending money.
     The second conflict is between spending money as we wish and spending money as we have to. It’s about limits, constraints, and duties. It is felt as a conflict not because people don’t recognise and understand the need for limits, constraints, and duties. It’s a conflict because for many people “the economy” is about making money. The purpose and function of business is to make a profit. “Gross Domestic Product” is the sum total of all money transactions. “Economic growth” is measured in terms of money flow. If more money was spent this year than last year, the economy has grown. Money is obviously not environment. So anything that threatens to reduce profit is a drag on the economy.
     The trouble with spending money on the environment is that there is no profit in it. A forest can be converted into money if you cut down the trees and sell the wood. For the money-maker, a forest that just stands there is a resource that hasn’t been used to make money.
     A forest standing there absorbing CO2 and water and producing oxygen and absorbing pollutants makes our habitat a nicer place to live in. But it doesn’t make money. It improves human health. But it doesn’t make money. It makes people feel better. But it doesn’t make money. It provides a place for walking. But it doesn’t make money. It’s a place that gives you all kinds of opportunities to enjoy yourself. But it doesn’t make money. Not unless you own it, and make other people pay for all those pleasant, health giving, and nurturing experiences.
     And of course if some company has to spend money to maintain the forest, whatever that company makes will cost more. So saving the forest will cost money. And since the purpose of the economy is to increase the amount of money, that will never do.
     Identifying the economy with money flow is absurd. Thinking of money as wealth is not only absurd, it’s stupid. It so badly misunderstands what money is and how we use it that it’s not even wrong.
     The economy is the sum-total of all the ways we use to produce and distribute the goods and services we need and want. Money is just a way of making these transactions easier. Money flows one way, wealth flows the opposite way. Tracking money tells us something about the creation and distribution of wealth. But it doesn’t tell the whole story. It doesn’t tell us that a standing forest is wealth, nor that a cutting down the forest transforms wealth from one form to another. Neither does it tell us whether that transformation is a gain or loss of wealth.
     I think that seeing the environment and the economy as conflicting is not only stupid, it’s insane.
     St. Paul said that the love of money is the root of all evil. He was right.
2014-06-07

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