Economics for the Anthropocene Joshua Farley Community Development and Applied Economics Gund Institute for Ecological Economics University of Vermont

Economies as Evolutionary Systems Hunter gatherer economies (Pleistocene) Hunter gatherer economies (Pleistocene) Accumulation = death Accumulation = death Agricultural economies (Holocene) Agricultural economies (Holocene) Emerged simultaneously around the world when climate stabilized Emerged simultaneously around the world when climate stabilized 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

Economies as Evolutionary Systems Industrial economics (Dawn of Anthropocene) Industrial economics (Dawn of Anthropocene) Fossil fuels, non-renewables Fossil fuels, non-renewables Competition Competition Growth Growth 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 Redistribution Redistribution Information economy and Ecological Economy (emerging) Information economy and Ecological Economy (emerging) Cooperation and altruism necessary and more efficient Cooperation and altruism necessary and more efficient

Economies as physical systems Laws of physics Laws of physics Can’t make something from nothing Can’t make something from nothing Energy required to do work Energy required to do work Can’t make nothing from something Can’t make nothing from something Laws of ecology Laws of ecology Raw material inputs into economic production alternatively serve as structural building blocks of ecosystems Raw material inputs into economic production alternatively serve as structural building blocks of ecosystems Removing structure, emitting waste degrades ecosystems Removing structure, emitting waste degrades ecosystems Essential life support functions Essential life support functions Laws of economics Laws of economics When marginal costs exceed marginal benefits, stop When marginal costs exceed marginal benefits, stop

Societal Challenges in the Anthropocene Just and sustainable degrowth

Ecological Thresholds and the Supply Curve Must sum together all costs: labor, capital, biodiversity loss, nitrogen, climate change, etc. (marginal cost) Economic output (fossil fuel economy)

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 Opportunity cost Essential resources (social foundation), e.g. calories/day

Societal Challenges in the Anthropocene

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? Prioritize preferences or physiological need? Prioritize preferences or physiological need?

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

Market Solutions Marginal market costs (Market supply curve) Poor people have no demand

Why markets fail Non-excludability (ecosystems) Non-excludability (ecosystems) Lack of laws and institutions, e.g. oceanic fisheries, waste absorption capacity Lack of laws and institutions, e.g. oceanic fisheries, waste absorption capacity 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 (information and green technology) Non-rivalry (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 is optimal, no ownership Collective provision is optimal, no ownership Natural monopoly: high fixed cost, low marginal cost Natural monopoly: high fixed cost, low marginal cost

Supply Curve for Natural Monopoly What’s the optimal number of firms per industry in an information economy?

Prisoner’s Dilemmas Global Climate Change Global Climate Change 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 Cooperation is best solution Cooperation is best solution Collective production/protection Collective production/protection Collective ownership Collective ownership Counter example? Counter example?

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 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):

Evolution of Cooperation Genetic Genetic Multi-level selection Multi-level selection Distribution of pro-social behavior Distribution of pro-social behavior Bacteria, slime-molds, insects, fish, humans (super cooperators) Bacteria, slime-molds, insects, fish, humans (super cooperators) Oxytocin Oxytocin Detecting cheaters Detecting cheaters Cultural Cultural Altruistic punishment Altruistic punishment Punishing non-punishers Punishing non-punishers Group identity Group identity Reciprocity and indirect reciprocity Reciprocity and indirect reciprocity

Economics of Cooperation Alternative energy, cures for pandemics, sustainable food system technologies Alternative energy, cures for pandemics, 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 Reciprocity or payments? Reciprocity or payments? Intrinsic vs. extrinsic motivation Intrinsic vs. extrinsic motivation Social norms: glorify greed or punish it? Social norms: glorify greed or punish it?

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 Cooperation and common ownership