How Sex, Politics, Money and Religion are Killing Planet Earth

Monday, August 24, 2009

Notes on the Economy - Part I

In 1776, two events occurred that would change the course of history. On one side of the Atlantic, a growing colony of thirteen territories rose up and declared their independence from the powerful British Empire. That colony became the United States of America and formed a democracy that would become the model for all future democratic governments as they spread across the globe.

On the other side of the Atlantic, a Scottish philosopher named Adam Smith published The Wealth of Nations, a work that is often cited as the bible of modern capitalism. Among his many premises, Smith contended that governments should allow the market to expand and operate without the encumbrances of regulation and that the self interest of the participants will be a positive driving force in the economy. Rather than a market place bogged down in selfishness and greed, Smith believed that the self interests of the participants would be guided by an ‘invisible hand’ that would direct them towards a greater good.

Our home grown democracy, coupled with Smith’s capitalist vision, has formed the framework of the political and economic development of our country. With globalization, American capitalism (if not democracy) has spread across the entire face of the planet. Unfortunately, when Adam Smith was writing two-hundred and thirty-three years ago, he could not have envisioned the monster he created. A great New World of seemingly endless resources had just been discovered to fuel capitalism’s greed for infinite growth. The world human population during Smith’s time was less than 800 million. Today it is almost 7 billion. Smith’s vision of an ever expanding economy that rained its wealth upon everybody neglected to take into account a finite earth with limited resources and an exploding population competing for those same resources.

Smith’s once revolutionary vision for economic growth is now a scourge upon the planet. Resources are being depleted faster than they can be replaced, unregulated industry has contaminated our water supply, land and air, species are becoming extinct at the fastest rate since the annihilation of the dinosaurs, the planet is warming at a rate that threatens to make the planet uninhabitable and rather than spreading wealth to all, modern capitalism has concentrated wealth (and power) into the hands of a few individuals.

While those who are benefitting the most from our current economic model will continue to sing the praises of the free market consoling us that the market will adjust and take care of all the woes of the world, reality is painting a painfully different picture. Adam Smith’s invisible hand has actually never shown up to play its regulatory role.

If Smith had been a student of nature rather than invisible forces he would have seen that his philosophy was destined for failure. Nature shows us what happens when an organism expands without restraint. Populations that grow unchecked eventually consume all of the resources needed to sustain life and collapse. When business is allowed to grow without restriction, it sucks the resources out of the whole system to fuel its own growth until the resources become scarce and like an unchecked population, business will crash down on to the skeletal remains of its own greed. Adam Smith thought his economic theory could defy the laws of nature. As the world’s economy and the earth’s delicate natural systems begin to implode, we can see that he was wrong.

What can be done?

Over the past several decades, new economic theories based on the laws of nature have been emerging and may represent our only hope for a sustainable future. Nature’s economy is cyclical not linear. The sun shines down on plants (producers) giving them energy to generate biomass that is then used by animals (consumers). The consumers poop and die and the biomass is then recycled back to the beginning of the cycle to be reorganized by the producers into useful products again.

Our current economic consumption follows a linear path. We take raw materials from the environment, mutate the materials into goods that we as humans find useful and when we are done with them, we throw them away in a landfill or sewer. Simple math should tell us that if we are withdrawing from the natural resource bank and not making any deposits, we will eventually bankrupt ourselves, and this is exactly what is happening.

Many of the resources we covet like crude oil and titanium are finite and will never be available again once we use them up or throw them away. Humans have a disastrous record when it comes to consuming non-renewable resources.

In some cases, we can get away with our faulty math. Nature regenerates herself in spite of our meddling as long as we don’t use natural, sustainable, resources like wood and fish faster than they can be regenerated. Unfortunately, as alarming decreases fisheries stocks show, we have not been very restrained in managing the earth’s renewable resources either.
Herman E. Daly, a leading environmental economist, suggests a threefold approach to achieve true environmental sustainability*:

All resources need to be consumed at a rate and in a fashion that does not exceed nature’s ability to absorb the waste and pollutants associated with consumption.
Renewable resource consumption must not exceed the rate at which nature can replenish itself.
Consumption of non-renewable resources cannot exceed the rate that technological advancements can find renewable alternatives for the same resources.

Surprisingly, this seemingly logical approach to economic management is disputed by conventional, neoclassical economists who in spite of all evidence to the contrary, continue to insist that the free market system will resolve all the world’s woes.

To be continued…

*For further reading on the subject see Daly, H., 2007. Ecological Economics and Sustainable Development – Selected Essays of Herman Daly, Edward Elgar Publishers.

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