Ecological Macro-economics:

GNP

Policy paper

● Comments on all proposals will be done today (sorry for delay)

● 1000 word introduction to problem due on 9/26 Begin with relevant chapters from textbook. I

provided additional suggestions for most of you.

Headlines● Wall St. Exploits Ethanol Credits, and Prices

Spike● Why Janet Yellen, Not Larry Summers,

Should Lead the Fed● Inequality in America - The Data Is Sobering● Can the Government Actually Do Anything

About Inequality

Questions for Next Few Classes● Why is macroeconomics important, and how

is it different from microeconomics?● What is ecological macroeconomics?● Is GNP a measure of value? (brief)● What is money and how does it work?● What is the role of speculation, and how has

it contributed to the current crisis?● What can we do about the current ‘crisis’? (a

question for the next several weeks) Read about the crisis daily! We have done

nothing to solve it. It has not gone away.

Microeconomics

What is Macroeconomics?

● Focus on economy as whole Aggregate demand, GDP Unemployment Growth rate Price levels (inflation)

Goals of Conventional Macroeconomics● Continual economic growth

To provide for ever-increasing numbers of people

To improve the environment● Environmental Kuznets Curve

To end poverty and distribution problems● Conventional Kuznets Curve

To provide enough jobs

Goals of Conventional Macroeconomics● Stabilize prices

Why do we want stable prices?● Provide full employment

What is full employment?

What Does Microeconomics Say about the Macroeconomy?● The invisible hand

Allocative function of prices● Say's law

Supply creates it's own demand

Why Do we Need Macroeconomics?● Great depression

What happened?● What happens when there's too much

aggregate demand? Inflation Ecological degradation (ignored by conventional

macro)

Emergence of Macroeconomics

● Response to crisis● Created new indicators

GNP Unemployment Inflation

● New policy tools (or at least new understanding) Monetary policy Fiscal policy

Emergence of Macroeconomics

● New Institutions New activism of fed Social security Social welfare IMF World Bank ITO--> GATT -->WTO

● How does this relate to emergence of ecological economics?

Ecological Macroeconomics• An end to growth

• 'optimal stopping rule' for the economy Efficient allocation between market and non-

market goods● Fair distribution

Fair distribution of the commons Fair return to labor and capital

● Job and income stability● Price stability means to above ends

The Real(?) Economy: GDP

What is GNP?

● Market value of final goods and services purchased by households, government and foreigners (net) in a given year

● Returns to labor (wages), capital (interest), and natural resources (rent)

● GNP: based on ownership● GDP: based on physical location● Real vs. nominal● What is opportunity cost of increasing GNP?

What are flaws with GNP?

● Depends on what it is intended to measure● Defensive expenditures● Depletion of natural capital● Changing costs, e.g. computers

Uneconomic Growth: Essential Resources and GNP

How do we maximize contribution of food to GNP?. i.e. who should get it?

What are alternatives to GNP?

● Income based MEW ISEW GPI

● Ends based GNH Quality of life

GNP: Benefit or cost?

● US healthcare system● Technological advance (e.g. computers) ● Defensive expenditures