Lecture 13

Ecological Economics

Diminishing Marginal Returns & Uneconomic Growth

The preanalytic vision of Ecological Economics is expressed in the figure to the right. Stanley

Jevons asked the question: ‘When does the effort of working begin to exceed the value of the

wage to the worker?’An Ecol Econ analogous question:

‘When does the cost to all of us displacing the Earth’s ecosystems begin to exceed the value of the

extra wealth produced?’‘b’ – where we want to be

‘e’ – grim life at carrying capacity‘d’ – the end of the world as we

know it and we feel fine.

The greatest good for the greatest number problem – See Garret Hardin Paper

A Paradigm ShiftWhy do Neoclassical economists not see the problems associated with ideas of the ‘Full World’, diminishing marginal returns, and uneconomic growth?

1) They believe we are still in the ‘Empty World’ thus, MU is still very large relative to MDU.

2) Technology will save the day preventing MDU from ever becoming too large relative to MU.

3) The Paradigm problem – The Economy is simply not seen as a subsystem of a larger ecosystem. The Economy is an isolated system that can grow

indefinitely.

Where conventional economics espouses growth forever, ecological economics envisions a steady-state economy at optimal scale. Each is logical within its own preanalytic vision, and each is absurd from the viewpoint of

the other. The difference could not be more basic, more elementary, or more irreconcilable.

Assumptions of Circular Flow Diagram

Say’s Law: Supply creates its own Demand

‘If you build it they will come’ …well, not necessarily. For a long time, economists believed Say’s Law ruled out any

possibility of long-term and substantial unemployment. The Great Depression put a damper on that fantasy. The depression did

convince a few of these economists to change their mind about the comforting ideas implicit in the circular flow diagram (among

these economists was John Maynard Keynes)

It is increasingly recognized that the circular flow diagram is an oversimplification that fails to account for significant ‘leakages’ and

‘injections’ that do not necessarily balance one another.

Leakages & InjectionsExample of Leakage

Taxes Paid to Government

Example of InjectionGovernment Spending on Roads,

Satellites, Military, Fish and Wildlife, Police, Education,

National Parks, etc.

Things like imports, exports, savings, borrowing, taxes, and

government spending complicate the simplicity of the original circular flow diagram.

Question: By including leakages and

injections have we saved the preanalytic vision?

What is really ‘flowing’ in the Circular Flow Diagram?

Is it physical goods and services and physical laborers and land and resources? Is it ‘Money’? Actually, because the preanalytic vision of traditional economics is such that the economy is modeled as an isolated system, the ‘flow’ must be called ‘Abstract Exchange Value’ because

even physical money is subject to the laws of thermodynamics. When goods arrive to the households, the “soul’ of exchange value jumps out of its

embodiment in goods and takes on the body of factors for its return trip to the firms, whereupon it jumps out of the body of factors and reincorporates itself once again into

goods, and so on. What happens to all the discarded bodies of goods and factors as the ‘soul’ of exchange

value transmigrates from firms to households and back ad infinitum?Does the system generate wastes?

Does the system require new inputs of matter and energy?If not, then the system is a perpetual motion machine. Ain’t no such thang.

The Laws of Thermodynamics

Paul’s Version of the laws of Thermodynamics

1) You can’t win. You can only break even.2) You can only break even at absolute zero.3) Absolute zero is impossible to obtain.

Has anyone heard of“Maxwell’s Demon”?

Thermodynamics Concepts Inventory

Image taken from “Thinking Physics” be Lewis Carroll Epstein (super brilliant book)

Those pesky 2nd Law guys…..

Question: A room has a refrigerator in it. Can you cool the room by leaving the fridge door open?

Can we put the ‘Circular Flow’ diagram in its place?

“The circular flow vision is analogous to a biologist describing an animal only in terms of its circulatory system, without ever mentioning its

digestive tract. Surely the circulatory system is important, but unless the animal also has a digestive tract that connects it to its environment at both ends, it will soon die either of starvation or constipation. Animals live from a metabolic flow – an entropic throughput from and back to their environment. The law of entropy states that energy and matter in the universe move inexorably toward a less ordered (less useful) state. An entropic flow is simply a flow in which matter and energy become less useful; for example, an animal eats food and secretes waste, and

cannot ingest its own waste products. The same is true for economies. Biologists, in studying the circulatory system, have not forgotten the

digestive tract. Economists, in focusing on the circular flow of exchange value, have entirely ignored the metabolic throughput. This is because

economists have assumed that the economy is the whole, while biologists have never imagined that an animal was the whole, or was a perpetual

motion machine.”

The Fallacy of Misplaced Concreteness

Alfred North Whitehead - “Do not mistake the map for the territory”

We cannot think without abstraction. All the more important, therefore, to be aware of the limits of our abstractions. Thepower of abstract thought comes at a cost. The fallacy ofmisplaced concreteness is to forget that cost.

Pertinent Joke:

An economist, a chemist, and a physicist are stranded on adesert island with no food. A palate of canned food washes ashore……

The Hourglass Analogy linking the laws of Thermodynamics to both renewable and non-renewable

Energy sources Sunlight – Renewable EnergyInfinite quantityFixed Flow

Fossil Fuels –Non-renewable EnergyFinite QuantityVariable Flow

Today, Humanity burns400 years of Ancient sunlight every 1 year.