Living Within the Bounds of the Natural World Joshua Farley Community Development and Applied Economics Gund Institute for Ecological Economics University of Vermont

Ecological Boundaries and Agriculture

Market Solutions? Negative externalities Negative externalities Must be internalized for efficient allocation Must be internalized for efficient allocation Monetary valuation (implies substitutability) Monetary valuation (implies substitutability) How do we account for changing values? How do we account for changing values? Army of technocrats providing data to politicians? Army of technocrats providing data to politicians? $ $

Essential and Non-substitutable Resources Food, water, energy, ecosystem services Food, water, energy, ecosystem services Essential to human survival with no adequate substitutes Essential to human survival with no adequate substitutes Critical thresholds Critical thresholds Ecological Ecological Physiological Physiological Inelastic demand Inelastic demand Large changes in marginal value with small changes in quantity Large changes in marginal value with small changes in quantity

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

Social/Physiological Boundaries

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 Economic output (fossil fuel economy)

Irreconcilable Thresholds? Economic output (fossil fuel economy)

Market demand in an unequal world Competition and self interest Competition and self interest Americans spend 6.7% of income on food for home consumption Americans spend 6.7% of income on food for home consumption 11.6% of food dollar goes to farmers 11.6% of food dollar goes to farmers <1% of income spend on raw food <1% of income spend on raw food How did you react when wheat prices tripled? How did you react when wheat prices tripled? Elasticity of demand to retail prices ~.08 Elasticity of demand to retail prices ~.08 Implies ~.001 elasticity of demand to raw food prices Implies ~.001 elasticity of demand to raw food prices

Market demand in an unequal world Many poor countries spend >70% of income on food for home consumption Many poor countries spend >70% of income on food for home consumption Perhaps 50% spent on raw food? Perhaps 50% spent on raw food? How do poorer countries react when wheat prices triple? How do poorer countries react when wheat prices triple? Arab spring Arab spring Elasticity of demand ~.7 Elasticity of demand ~.7 Budget share and elasticity Budget share and elasticity

Market Demand, Unequal World 2700 Physio thresh w/ equal distribution Eco thresh nitrogen Eco thresh carbon Trade-offs: Starvation now or in future Sustainability and justice vs. preferences

Market Supply and Demand Marginal market costs (Market supply curve)) Poor people have no demand Physiological boundaries for rich Price

Market Allocation of Essential Resources on an Unequal Planet Does it maximize utility? Does it maximize utility? The perversion of utility The perversion of utility Is it efficient (Pareto efficiency)? Is it efficient (Pareto efficiency)? Would it be possible to re-allocate food from obese people to malnourished people without making anyone worse off? Would it be possible to re-allocate food from obese people to malnourished people without making anyone worse off? Do we need to make subjective value judgments to answer this? Do we need to make subjective value judgments to answer this? Do we want to apply this logic to non-marketed ES? Do we want to apply this logic to non-marketed ES? Objective needs should take priority over subjective preferences weighted by purchasing power Objective needs should take priority over subjective preferences weighted by purchasing power

Market Equilibrium on a Full and Unequal Planet? Equilibrium result of negative feedback loops Equilibrium result of negative feedback loops Scarcity  price increase  decrease in demand; increase in supply  equilibrium Scarcity  price increase  decrease in demand; increase in supply  equilibrium No prices for non-market goods No prices for non-market goods Essential resources Essential resources Price increase  decrease in demand Price increase  decrease in demand Finite resources on full planet (food, energy, land, stocks) Finite resources on full planet (food, energy, land, stocks) Price increase  increase in supply (or only at cost of future supply) Price increase  increase in supply (or only at cost of future supply) Speculation Speculation Price increase  increase in demand Price increase  increase in demand Dis-equilbrium, redistribution from positive feedback loops Dis-equilbrium, redistribution from positive feedback loops  

Market Equilibrium on a Full and Unequal Planet? Growing concentration of wealth stimulates speculation Growing concentration of wealth stimulates speculation Speculation  breakdown of market mechanism Speculation  breakdown of market mechanism Inequality Inequality Instability Instability Complex system Complex system Negative and positive feedback loops, non- linearity, surprises, etc. Negative and positive feedback loops, non- linearity, surprises, etc.

Who benefits from speculation? HEADLINE: Despite Drop in Commodity Prices, Farmland Values Rise HEADLINE: Despite Drop in Commodity Prices, Farmland Values Rise

Solutions

Redefining Goals: Efficiency What is efficiency? What is efficiency? Ratio of benefits/costs Ratio of benefits/costs Agriculture Agriculture Food production/land; food/labor Food production/land; food/labor Most efficient system ever? Most efficient system ever? Energy in, energy out? Energy in, energy out? Economics Economics diminishing MB, rising MC. MC=MB diminishing MB, rising MC. MC=MB Pareto efficiency Pareto efficiency Maximizing monetary value Maximizing monetary value How do we do this for food? How do we do this for food?

Ecological Economic Efficiency What is the desirable end? What is the desirable end? Normative judgement Normative judgement What are the costs? What are the costs? economic technical ecological economic technical ecological efficiency efficiency efficiency efficiency efficiency efficiency

Allocative efficiency Producing the right foods with the right resources on the right land Taxes and subsidies? Land use inherently competitive Distributive efficiency Ensuring these foods go to those with the greatest physiological need More equitable distribution of wealth? Alternatives to price rationing? Competition for food Brazil, India, small farmers Food Security

Throughput broadly defined Water, energy, fertilizers, labor, capital, land Cannot rely on non-renewables Requires major investments in R&D, extension How do we minimize costs of developing new technologies, maximize benefits? Economics of information Land grant universities Markets fail to account for future generations, negative externalities, public goods Competition and price rationing inherently inefficient Cooperation required Agroecology and on farm throughput

Minimizing impact of throughput on ES Minimizing agrotoxins, fossil fuels, erosion Non-market benefits Open access and public goods Cooperation required Perennial polyculture, agroecology Restoring ecosystem services

Sustainable Money: Vertical money, 100% fractional reserve, green taxes

Summary & Conclusions Markets fail to account for ecological degradation Markets fail to account for ecological degradation Markets fail to distinguish between needs and wants Markets fail to distinguish between needs and wants Bad idea to extend them to ecosystem services Bad idea to extend them to ecosystem services Markets promote unsustainable, unjust and inefficient agricultural systems Markets promote unsustainable, unjust and inefficient agricultural systems Markets increasingly dominated by destabilizing, inequality inducing speculation Markets increasingly dominated by destabilizing, inequality inducing speculation Changes over last 40 years Changes over last 40 years

Summary & Conclusions Must define appropriate goals for economic system on crowded, finite planet Must define appropriate goals for economic system on crowded, finite planet Must understand resource characteristics Must understand resource characteristics Non-rival, non-excludable, interdependent Non-rival, non-excludable, interdependent Appropriate economic institutions based on resource characteristics and goals Appropriate economic institutions based on resource characteristics and goals Cooperation required to solve ecological problems, achieve just distribution, produce required technologies Cooperation required to solve ecological problems, achieve just distribution, produce required technologies

Current System: Vertical money

Current System: Horizontal Money What if there’s a great lending opportunity, and bank has already lent 19$? What if there’s a great lending opportunity, and bank has already lent 19$? Where do i (interest) and p (profit) come from? Where do i (interest) and p (profit) come from? More loans or more vertical money required. ECONOMIC GROWTH (physics and ecology) More loans or more vertical money required. ECONOMIC GROWTH (physics and ecology) What if p<i? What if p<i? Procyclical monetary system (positive feedback loops) Procyclical monetary system (positive feedback loops) Inherently unstable Inherently unstable