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Economics, Politics, Ethics and Sustainability

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Miller Chapter 2 - Economics, Politics, Ethics, Sustainability(v.2 Jan 2003)Reality is that most economic systems are mixed –Miller Chapter 2 - Economics, Politics, Ethics, Sustainability (v.2 Jan 2003)Ch 2 leads off with Biosphere 2 - Lesson in Humility2-1 – Economic Systems and Envir ProblemsStart with some definitions of an “economic system”: System of production, distribution, and consumption of economic goods and services.Decisions are made about what goods and services are produced, and how to produce and distribute them.Miller indicates that economic resources (known as capital) required to power an economy fall into three groups:1. Natural capital – Earth resources2. Manufactured capital – tools, machinery, equipment, buildings, etc3. Human capital – physical and mental talentsThese three sources are used to create goods and services.- Major economic systems: Miller describes two end members –1. Pure command – government makes all economic decisions (classic communism)2. Pure market – market makes all economic decisions, with no government interferenceReality is that most economic systems are mixed – China and North Korea are toward the command end of spectrumU.S. and Canada are toward market end2-2 Monitoring ProgressDiscuss diffs between economic growth and sustainability:Econ growth: “increase in capacity of economy to provide goods and services”This is typically measured by Gross National Product (GNP), defined as the market value (current dollars) of all goods and services produced by acountry (or a country’s businesses) during one year.Big debate occurring over the level of economic growth that world currently experiences. Miller stakes out one side as those who wish for unlimited economic growth. He implies that these people (“most economists, investors, and business leaders") are shortsighted and believe that Earth has plenty of resources, and man is capable of overcoming resource shortage and environmental problems.The other side he stakes out are those who believe that the concept of sustainable economic growth is “nonsense”. They base this belief primarily on their presumption that natural capital will run out in the long run, and nothing will be able to be produced without this natural capital.So where is the middle ground? According to D. Meadows, one possibilityis to engage in “smart development”, not “dumb growth”. This makes some sense to me…..Next, Miller criticizes GNP and GDP as poor indicators of human welfare. Remember, these indicators are recognized throughout the world as standards for measurement of economic growth; Miller is arguing that economic growth = human welfareHe is on really thin ice here…millions of people all over the planet aspire to have the kinds of lives that US citizens enjoy, life that has been built upon economic growth. Miller is suggesting this all needs to be re-thought, very carefully.He has some complaints about certain costs to the environment that are not factored into economic growth calculations. Specifically:- Negative environmental effects from producing goods and services- Loss of natural capital- No benefit shown for energy efficiency- Doesn’t show economic justice statisticsMiller argues for new indices for growth, that subtract costs and effects associated with pollution, etc from the GNP. He gives several examples:- NEW – Nordhaus and Tobin- NNP – Repetto et al- ISEW – Daly et al- GPI – no source cited – Fig 2-5Miller states that “many economists agree” that these indices are more accurate measures of life quality and environmental quality than GNP & GDPMy advice here – be careful to just believe what some textbook author tells you to believe. Assignment 1 - Choose any one of the above 4, find the original work, research it, write about it (250 words). Due in one week.- Are these really better indices for measuring human welfare than GNP? - Why or why not?2-3 Solutions: Using economics to improve environmental qualityMiller introduces the concept of “full-cost pricing”. Here, he suggests a scenario where producers are “encouraged or forced” to include all costs, both internal and external, of goods and services. The idea here isto make it more economic to prevent pollution and hazardous working conditions than to just let the status quo remain in effect.Over the course of several decades, Miller believes this new economic system, more suited to sustaining natural capital, could take root and develop. Interesting concept……. On to cost-benefit analyses – Miller suggests that traditional cost-benefit analyses do not adequately factor in hidden environmental costs that ultimately cost all people one way or another (eg, money or good health), and are thus misleading. Spotlight article makes good point about discount rate. Many things, due to inflation, tend to depreciate in terms of today’s dollars, so discount rate is designed to compensate for that. But problems arise when trying to weigh the costs, for example, of cutting down Redwoods for timber. These trees could be worth MORE in the future, not less. What about Regulations vs Market Forces to promote change?Regulation is primary mechanism today to enact environmental protection, but also some studies indicate that companies can improve profitability through increased innovation and efficiency in environmental management.Miller suggests that market forces can certainly be tweaked in order to get more desirable environmental outcomes. Example: utilize government subsidies to encourage “earth-sustaining” behavior, rather than “earth-degrading” behavior.Another concept: tradable pollution rights. Set a maximum limit, dole out permits, those who can pollute less can sell their credits to those who pollute more. So those who pollute less make more money.Another concept: “green” or “effluent” taxes, which would prod manufacturers to be more green or pay more taxes. Where do we put our emphasis… pollution control or pollution prevention?Ideal goal of zero pollution is very unrealistic, and perhaps not entirely necessary…natural environment can handle SOME pollution, just not the massive amounts getting tossed in right now.Also, cleanup costs to get to zero (“non-detect”) are prohibitively high (Fig 2-6)2-4 Solutions: Reducing PovertyThere is an unequal distribution of income among people. Richest 20% of people (including many Americans)


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