Economics and the Environment

I. Economics Basics An economic system is a social institution through which goods and services are produced, distributed, and consumed to satisfy people’s needs and wants, ideally in the most efficient possible way. In a market-based economic system, buyers and sellers interact competitively in markets to make economic decisions about which goods and services are produced, distributed, and consumed.

I. Economics Basics C. In a pure vision of this system, all economic decisions are governed solely by the competitive interactions of demand, supply, and price. D. The price at which supply and demand curves intersect is called the market price equilibrium point.

I. Economics Basics E. Protecting the environment via economic systems has various different views depending on the type of economic viewpoint that is held. Free-market economists Ecological and Environmental Economists

F. Free-market economists – Believe that an economic system based on private ownership of all resources and operating without government interference is the best system for solving environmental problems because: 1) The true value of resources are determined best though unregulated market interactions based only on supply and demand. 2) When resources are owned privately, their owners are more likely to cherish them and to want to protect them.

I. Economics Basics G. A truly free-market system, operating without government interference requires that buyers and sellers are honest with each other, and that the prices of all goods and services include all of the direct and indirect costs (full-cost pricing). 1. This rarely happens – to increase profits, businesses seek to exert complete control over prices, lobby to get tax-breaks and subsidies, and withhold information about health and toxicology issues of their products.

I. Economics Basics H. A truly free market system often works well in guiding the efficient production of private goods, but experience has shown that they cannot be relied upon to provide adequate levels of public services such as environmental protection. Markets also cannot prevent the degradation of open-access resources such as clean air or open ocean.

I. Economics Basics Therefore, government intervenes to protect these market failures through laws, regulations, tax-breaks, taxes, or subsidies. J. Free-market economists view the earth’s natural capital (natural capital = resources and services produced by the earth’s natural processes, which support all economies and life) as a subset or part of a human economic system and assume that the potential for economic growth is unlimited).

I. Economics Basics K. This economic view leads to a high-throughput economies, which attempt to boost economic growth by increasing the flow of energy and matter extracted from the environment through the economic system to boost goods and services.

Inputs Outputs (from the environment) (into environment) High-Quality Low-Quality Energy Energy (heat) High-Quality Waste and Matter Pollution High-Waste Economy

I. Economics Basics L. Ecological and environmental economists disagree with the free-market model – they view economic systems as subsystems of the biosphere that depend heavily on the earth’s irreplaceable natural resources. M. Models of ecological economists are based on three major assumptions: 1. Resources are limited and should not be wasted, and there are no substitutes for most types of natural capital.

2. We should encourage environmentally beneficial and sustainable forms of economic development and discourage environmentally harmful and unsustainable forms of economic growth. 3. The harmful environmental and health effects of producing economic goods and services should be included in their market prices (full-cost pricing) so that consumers have accurate information about the harmful effects of the goods and services they buy.

N. Strategies for implementation of Environmental Economic Policies Use and publicize indicators that monitor environmental and economic health. Use eco-labeling and certification to identify items produced with environmentally-sound methods. Phase out environmentally harmful subsidies and tax-breaks while phasing in environmentally-friendly subsidies and tax-breaks (subsidy shifting)

4. Decrease taxes on wages, income, and wealth while increasing taxes on pollution, resource waste, and environmentally harmful goods and services (tax shifting). 5. Use laws and regulations to help prevent pollution and resource depletion. 6. Use tradable permits or rights to pollute or to use resources, in order to limit overall pollution and resource use (Cap-and- Trade). 7. Sell services instead of things. 8. Reduce poverty, one of the basic causes of environmental degradation, pollution, poor health, and premature death.

II. Ranking Countries by GDP A. GDP – Gross domestic product – designed to measure the annual economic value of all goods and services produced within a country. Can also be measured as per-capita GDP. B. Countries are ranked solely by economics of goods and services. C. Most common ways of comparing how successful countries are in relation to another.

GDP Rankings, 2009, 143 countries   Country Rank United States 1 China 2 India 3 Japan 4 Germany 5

III. Ranking Countries by Sustainability HPI – Happy Planet Index Looks at overall life satisfaction, life expectancy, and ecological footprint. The Index doesn’t reveal the ‘happiest’ country in the world. It shows the relative efficiency with which nations convert the planet’s natural resources into long and happy lives for their citizens

III. Ranking Countries by Sustainability To calculate life satisfaction, they ask "All things considered, how satisfied are you with your life as a whole these days?” and have people rank on a scale of 1-10. E. Subjective as to how individual responds, but allows comparisons of data between countries.

III. Ranking Countries by Sustainability F. According to HPI, the ecological footprint of an individual is a measure of the amount of land required to provide for all their resource requirements.

HPI Rankings, 2009, 143 countries   Country Rank Costa Rica 1 Dominican Republic 2 Jamaica 3 Guatemala 4 Vietnam 5 United States 114 Zimbabwe 143 (last)

G. EPI = Environmental Performance Index G. EPI = Environmental Performance Index. All data driven, looking at environmental health and ecosystem vitality. H. Examples: particulate matter, nutrient water pollution levels, childhood mortality, protected areas

Ranks 132 countries, done by Yale University. Country Rank Switzerland 1 Latvia 2 Norway 3 Luxembourg 4 Costa Rica 5 United States 49 Iraq 132 (last)

IV. Ranking Countries by “Happiness” A. GNH – Gross National Happiness – Used by Bhutan informally since 1972, and as a formal index since 2006, as a measure of its efforts toward sustainable economic development – a measure of the country’s conservation of its natural environment, preservation of cultural values, fairness in access to wealth (equity) and good governance.

B. “The essence of Gross National Happiness is the peace and happiness of our people and the security and sovereignty of our nation.” C. 9 domains – Psychological well being, standard of living, good governance, health, education, community vitality, cultural diversity and resilience, and time use. D. Very advanced statistical and psychological tools and evaluations.

How do they measure… Economic Wellness: Indicated via direct survey and statistical measurement of economic metrics such as consumer debt, average income to consumer price index ratio and income distribution Environmental Wellness: Indicated via direct survey and statistical measurement of environmental metrics such as pollution, noise and traffic

How do they measure… Physical Wellness: Indicated via statistical measurement of physical health metrics such as severe illnesses Mental Wellness: Indicated via direct survey and statistical measurement of mental health metrics such as usage of antidepressants and rise or decline of psychotherapy patients

How do they measure… Workplace Wellness: Indicated via direct survey and statistical measurement of labor metrics such as jobless claims, job change, workplace complaints and lawsuits

How do they measure… Social Wellness: Indicated via direct survey and statistical measurement of social metrics such as discrimination, safety, divorce rates, complaints of domestic conflicts and family lawsuits, public lawsuits, crime rates Political Wellness: Indicated via direct survey and statistical measurement of political metrics such as the quality of local democracy, individual freedom, and foreign conflicts

And the results indicate…. Men are happier than women on average. In urban areas, 50% of people are happy; in rural areas it is 37%. Urban areas do better in health, living standards and education. Rural areas do better in community vitality, cultural resilience, and good governance. Unmarried people and young people are among the happiest.