Economics for a Finite and Unequal Planet Joshua Farley Community Development and Applied Economics Gund Institute for Ecological Economics University of Vermont Doran Lecture on Population, Resources and Development Hebrew University of Jerusalem

Economies as Evolutionary Systems Hunter gatherer economies (Pleistocene) Hunter gatherer economies (Pleistocene) “Limited wants, unlimited means” “Limited wants, unlimited means” Accumulation = death Accumulation = death Agricultural economies (Holocene) Agricultural economies (Holocene) Property rights, division of labor, political hierarchy Property rights, division of labor, political hierarchy Population density, knowledge, and rate of change Population density, knowledge, and rate of change Industrial economics (Dawn of Anthropocene) Industrial economics (Dawn of Anthropocene) Fossil fuels, non-renewables Fossil fuels, non-renewables Competitive self-interest, capitalism and growth Competitive self-interest, capitalism and growth Great acceleration (population etc., 1950 on) Great acceleration (population etc., 1950 on)

Economies as Evolutionary Systems Financial economics (now) Financial economics (now) Profound change in our lifetimes Profound change in our lifetimes Price from negative to positive feedback loops Price from negative to positive feedback loops From growth to unequitable redistribution From growth to unequitable redistribution Information economy and Ecological Economy (emerging) Information economy and Ecological Economy (emerging) Degrowth and equitable distribution (contraction and convergence) essential Degrowth and equitable distribution (contraction and convergence) essential Cooperation and altruism necessary and more efficient Cooperation and altruism necessary and more efficient

Economy as a physical system: Laws of Physics Can’t make something from nothing or vice versa Can’t make something from nothing or vice versa Can’t do work without energy Can’t do work without energy Disorder increases Disorder increases

Laws of ecology Conversion of ecosystem structure into economic products degrades and destroys ecosystem functions  e.g. water purification, habitat Conversion of ecosystem structure into economic products degrades and destroys ecosystem functions  e.g. water purification, habitat Waste emissions degrade and destroy ecosystem services  e.g. climate stability Waste emissions degrade and destroy ecosystem services  e.g. climate stability

Laws of Economics When marginal costs exceed marginal benefits, stopWhen marginal costs exceed marginal benefits, stop 4x increase in population, 9x increase in per capita consumption in 100 years4x increase in population, 9x increase in per capita consumption in 100 years Uneconomic growthUneconomic growth

Societal Challenges on a Finite Planet demands just and sustainable degrowth Planetary BoundariesSocial Foundations

Ecological thresholds and the economic supply curve Must sum together all costs: labor, capital, biodiversity loss, nitrogen, climate change, etc. (marginal cost) Economic output (fossil fuel economy) Degrowth essential Marginal value (cost)

Physiological boundaries/thresholds and the demand curve Value: low and stable Trade-offs: relatively unimportant benefits Value: shift from marginal to total value (e.g. diamond-water paradox) Trade-offs: Life sustaining benefits Value: Increasing rapidly with decreasing quantity. Trade-offs: Resilience, increasingly important benefits physiological threshold: e.g. starvation food security, household security Marginal value (benefit) Essential resources (social foundation), e.g. calories/day

Societal Challenges on a Finite Planet

Market Solutions Competition, self-interest and choice Competition, self-interest and choice Preference satisfaction Preference satisfaction Internalize externalities Internalize externalities Make prices reflect full costs Make prices reflect full costs Creates incentives for innovation and substitution Creates incentives for innovation and substitution Preferences weighted by purchasing power Preferences weighted by purchasing power Americans spend 6% of income on food for home consumption; ~1% on raw food Americans spend 6% of income on food for home consumption; ~1% on raw food Many Africans spend 75%; ~ 50% on raw food Many Africans spend 75%; ~ 50% on raw food What happens when prices double? What happens when prices double? Preferences prioritized over physiological need Preferences prioritized over physiological need

Market Demand curve for essential resources Poor Middle class Rich physiological threshold: e.g. starvation food security, household security Price Food production (in calories/day/capita)

Markets in Action Marginal market costs (Market supply curve) Ignore needs of the poor Ignore ecological costs

Why markets fail Non-excludability (ecosystems) Non-excludability (ecosystems) Lack of laws and institutions, e.g. oceanic fisheries, waste absorption capacity, population Lack of laws and institutions, e.g. oceanic fisheries, waste absorption capacity, population Inherently non-excludable, e.g. climate regulation, protection from storm surges, etc. Inherently non-excludable, e.g. climate regulation, protection from storm surges, etc. Only collective ownership is possible Only collective ownership is possible Non-rivalry (e.g. information and green technology) Non-rivalry (e.g. information and green technology) Physical characteristic Physical characteristic Resources not depleted through use; prices create artificial scarcity Resources not depleted through use; prices create artificial scarcity Optimal price is zero Optimal price is zero Collective provision with no ownership is optimal Collective provision with no ownership is optimal

Why markets fail Essential Resources Essential Resources Demand insensitive to price Demand insensitive to price Gross inequality Gross inequality Preferences of the rich trump needs of the poor Preferences of the rich trump needs of the poor

Prisoner’s Dilemmas Global Climate Change Global Climate Change Population growth Population growth Natural resource depletion/biodiversity loss (finite raw material sources, finite services) Natural resource depletion/biodiversity loss (finite raw material sources, finite services) Innovation in the information age Innovation in the information age E.g. green technology E.g. green technology Cooperation is best solution Cooperation is best solution Collective ownership Collective ownership Collective production/protection Collective production/protection

Can People Cooperate? Stupid question? Stupid question? Are people good or evil? Are people good or evil? Characteristics of an evil person Characteristics of an evil person Characteristics of a good person Characteristics of a good person

Evolution of Cooperation Genetic Genetic Multi-level selection Multi-level selection Distribution of pro-social behavior Distribution of pro-social behavior Good person puts group ahead of individual Good person puts group ahead of individual Bacteria, slime-molds, social insects, humans (super cooperators) Bacteria, slime-molds, social insects, humans (super cooperators) Oxytocin Oxytocin Cultural Cultural Altruistic punishment (public good game; ultimatum game) Altruistic punishment (public good game; ultimatum game) Punishing non-punishers Punishing non-punishers Group identity Group identity Reciprocity and indirect reciprocity Reciprocity and indirect reciprocity

Economics of Cooperation Alternative energy, sustainable food system technologies Alternative energy, sustainable food system technologies Values maximized at price of zero Values maximized at price of zero Competitive markets create scarcity (production and consumption) Competitive markets create scarcity (production and consumption) “Energy transitions produce cultural transitions” “Energy transitions produce cultural transitions” Myxococcus xanthus, Dictyostelium discoideum and the human predicament Myxococcus xanthus, Dictyostelium discoideum and the human predicament “Struggle for energy causes violent conflict” “Struggle for energy causes violent conflict” Cooperation for energy ends violent conflict Cooperation for energy ends violent conflict

Institutions for Cooperation Institutions can make generous people act selfishly, or selfish people act generously Institutions can make generous people act selfishly, or selfish people act generously Economics, money and cooperation Bauman Y, Rose E. Selection or indoctrination: Why do economics students donate less than the rest? Journal of Economic Behavior & Organization. 2011;79(3): Frank RH, Gilovich T, Regan DT. Does Studying Economics Inhibit Cooperation? Journal of Economic Perspectives. 1993;7(2): ; Kirchgässner G. (Why) are economists different? European Journal of Political Economy. 2005;21(3): ; Vohs KD, Mead NL, Goode MR. The Psychological Consequences of Money. Science November 17, 2006;314(5802): Economics, money and cooperation Bauman Y, Rose E. Selection or indoctrination: Why do economics students donate less than the rest? Journal of Economic Behavior & Organization. 2011;79(3): Frank RH, Gilovich T, Regan DT. Does Studying Economics Inhibit Cooperation? Journal of Economic Perspectives. 1993;7(2): ; Kirchgässner G. (Why) are economists different? European Journal of Political Economy. 2005;21(3): ; Vohs KD, Mead NL, Goode MR. The Psychological Consequences of Money. Science November 17, 2006;314(5802): Reciprocity, altruistic punishment, social norms Reciprocity, altruistic punishment, social norms Intrinsic vs. extrinsic motivation Intrinsic vs. extrinsic motivation

From Markets to Commons Essential ecosystem functions cannot be made into private property Essential ecosystem functions cannot be made into private property Collective decision making, protection is necessary Collective decision making, protection is necessary No one owns waste absorption capacity No one owns waste absorption capacity Green technologies should not be private property Green technologies should not be private property Collective provision, open access is most efficient Collective provision, open access is most efficient Unilateral action is possible Unilateral action is possible Redefining the group Redefining the group Altruistic behavior towards group Altruistic behavior towards group Monitoring and enforcement: altruistic punishment Monitoring and enforcement: altruistic punishment

Changing Complex Systems Change the paradigm Change the paradigm What is biophysically possible What is biophysically possible Human nature Human nature Change the goals Change the goals From growth and maximizing monetary value to sustainability, justice and basic needs From growth and maximizing monetary value to sustainability, justice and basic needs Change the rules/institutions Change the rules/institutions Depends on what is possible and desirable Depends on what is possible and desirable Based on science, not ideology Based on science, not ideology

Conclusions Markets emerged simultaneously with fossil fuels Markets emerged simultaneously with fossil fuels Nature of ‘scarce’ resources has changed from rival, excludable to non-rival and/or non-excludable Nature of ‘scarce’ resources has changed from rival, excludable to non-rival and/or non-excludable Cannot transform physical characteristics of resources to fit market model Cannot transform physical characteristics of resources to fit market model Must transform economic system to resource characteristics, human behavior Must transform economic system to resource characteristics, human behavior Prisoner’s dilemmas Prisoner’s dilemmas Physiological necessities Physiological necessities Cooperation and common ownership for most pressing problems Cooperation and common ownership for most pressing problems Naïve and utopian? Naïve and utopian?