Chapter 5: Economics, Prosperity, and Sustainability 5 Economics, Prosperity, and Sustainability C H A P T E R

Learning Outcomes Understand how economics relates to every aspect of modern life. Explain how environmental problems are derived from economic activity. Explain the different economic paradigms. Explain differences between standard of living and quality of life. Understand why quality of life is more desirable. Understand how to better measure progress.

Economics Exchange of materials in limited supply; driven by the supply–demand paradigm Adam Smith (1700s) – father of economics –“... no society can be surely flourishing and happy, of which the greater part of the members are poor and miserable.” Neoclassical economics – early 20 th century –Wealth = happiness (not the same for peasants of this time)

Industrialization Standard of living increased and community benefits decreased. People became dependent on factories for their livelihoods. Pyramid hierarchy – Multiple workers, foreman, worker, head boss. Environmental problems increased.

Types of Economics Subsistence Capitalist market economy Centrally planned economy Hybrid capitalist and legislative oversight

Current Standard of Living Global economy driven by two sources: –Technological innovations –Deregulations, privatization, and global trade People are currently using natural resources twice as fast as they can recover. People have become apathetic to national- level decisions.

Assumptions of the Current Economic Model Resources are infinite or substitutable. Future effects of current decisions do not matter. –Live for today Costs and benefits are internalized to the individuals in the transaction. –No external costs are included

Globalization Increased unification of the world’s economic systems through open, unrestricted trade. Allows for more people to have access to cheap goods and services, resulting in increased standard of living. –Does increased standard of living always equal increased quality of life? Lacks real accounting.

Public Goods, Commons, and Externalities Taxes –Serve the greater population with services to improve quality of life Subsidies –Government financial assistance to a business or economic sector Taxes versus subsidies

Gross Domestic Product (GDP) Total amount of money moved during a nation’s production in a given year (economic growth) –Fails to measure quality of life and general well-being –Only measure of prosperity Net wealth according to modern economics –Personal property –Monetary savings –Capital wealth from investments

High Costs of Current Standard of Living Economy undermines community. Monopolies emerge. The PP-CC game − Profits are privatized and costs (losses) are communalized. (continued)

High Costs of Current Standard of Living (continued) The time frame problem –Need to stop looking at short-term gain and start looking at long-term benefit. Quad stack model The commons –Common resources belong to everyone. –Overuse by one group results in the tragedy of the commons.

Consumer Society Buy now, pay later. –Allowed Americans to reach a high standard of living –Supported by credit cards Average U.S. citizen spends $8,000 more than they earn annually. In 2010, U.S. credit card debt was about $1.95 trillion.

Living More Sustainably Avoid debt. –Leaves you less stressed –Time to focus on quality of life issues Use quad stack thinking to attain a sustainable economy. –Emphasizes all aspects of living, not just the monetary component

Human Beings as Social Creatures Current economic ideas value the individual and not the community. Need to recognize that humans are social creatures and economics is meant to serve that social need. –Once recognized we can develop a new economic paradigm.

Ecological Economics Current economics fails to consider ecological constraints. Ecological economics states that human systems include natural systems. –Natural systems operate in self-renewable cycles to give a steady-state system.

New Consumerism Reassess what people need to consume to create a healthy and natural ecosystem. Criteria for luxuries and comforts need to be reexamined to be sure all people are included. An increased number of communities are developing new measures of economic success.

New Measure of Prosperity Index of Sustainable Economic Welfare (ISEW) Genuine Progress Indicator (GPI) –Both include quad stack thinking.

ISEW Includes costs for environmental services Defined by the following formula: ISEW = personal consumption spending (public non-defensive expenditures – private defensive expenditures) + capital formation (services from domestic labor – costs of environmental degradation – depreciation of natural capital)

GPI Measures when economic activity is a benefit to society or when it is negative. –Ten indices include the positives of value of household and volunteer work and subtracted costs from factors such as crime and pollution.

Feed-In Tariffs and LETS Feed-in tariffs –Built-in incentives to use and produce renewable energy. LETS –Communities print their own money. –Monies are spent within the community. –Promotes local economic growth and community development.

Creating Change Cooperative movement –Shared membership-owned enterprises –Example: Toad Lane coop Relocalization –Building resilient communities with a localized economy (continued)

Creating Change (continued) Need to improve the quality of life in developing countries Human population factor –Impact on the environment (I) = P × A × T P = population A = affluence T = technology

Creating Change (continued) Demographic transition: Relationship of the birth and death rates into technological advancement over time. (continued)

Creating Change (continued)

Esperanza What factors, other than simply knowing it was the right thing to do, needed to be present in order to attain the sustainable way of life that Espe lives? Which of these factors, if any, do you see in place today? Describe a day in the life of someone (5 years old, 17 years old, and 45 years old) living in 2099.