Brother, Can You Spare Me a Planet

8/18/2019 Brother, Can You Spare Me a Planet

1/7

Robert Nadeau

Image : PHOTOGRAPH C OURTESY OF ROBERT NADEAU

ADVERTISEMENT

The causes of the environmental crisis may be hugely complex, but the most

effective way to deal with it in economic terms seems rather obvious. We must use

our best scientific understanding of how environmental problems can be resolved

as the basis for implementing scientifically viable economic policies and solutions.

If this could be accomplished within the framework of the economic theory that

we now use to coordinate economic activities in the global market system—

neoclassical economics—there would be no cause for concern. But as this

discussion will demonstrate, there is a large problem here that should be cause for

great concern: Neoclassical economic theory is predicated on unscientific

assumptions that massively frustrate or effectively undermine efforts to

implement scientifically viable economic policies and solutions.

These assumptions were first articulated by 18th-century moral philosophers

(Adam Smith, Thomas Malthus and David Ricardo) who embraced a new

understanding of God known as deism that resulted from attempts to understand

the metaphysical implications of Newtonian physics. Because this physics assumes

that the laws of gravity completely determine the future state of physical systems,

the deists concluded that the universe does not require, or even permit, active

intervention by God after the first moment of creation. They then imaged God as a

clock maker and the universe as a clockwork regulated and maintained after its

creation by physical laws. (1)

Smith, Malthus and Ricardo believed that the clock maker created a second set of

laws to govern the workings of the clockwork—the natural laws of economics.

Smith imaged the collective action of the forces associated with these laws as an

"invisible hand," and this construct became the central legitimating principle in

mainstream economic theory. Smith claimed that the invisible hand is analogous

to the invisible force that causes a pendulum to oscillate around its center and

move toward equilibrium or a liquid to flow between connecting chambers and

find its own level. Given that Smith's invisible hand has no physical content and is

an emblem for something postulated but completely unproved and unknown, why

did he believe that it actually exists? The answer is that Smith was a deist and his

belief in the existence of the invisible hand was an article of faith.

The Origins of Neoclassical Economic Theory

In economics textbooks, the 19th-century creators of the economic theory now

used by mainstream economists (Stanley Jevons, Leon Walras, Maria Edgeworth

and Vilfredo Pareto) are credited with transforming the study of economics into a

rigorously mathematical scientific discipline. There are, however, no mentions in

these textbooks, or in all but a few books on the history of economic thought, of a

rather salient fact: The progenitors of neoclassical economics, all of whom were

Permanent Address: http://www.scientificamerican.com/article.cfm?id=brother-can-you-spare-me-a-planet

Brother, Can You Spare Me a Planet? (Extended version)Mainstream Economics and the Environmental CrisisBy Robert Nadeau | Wednesday, March 19, 2008 | 18 comments

http://www.sciamdigital.com/cart_http.cfm?ARTICLEID_CHAR=0&sc=arti_fullhttp://www.sciamdigital.com/cart_http.cfm?ARTICLEID_CHAR=0&sc=arti_fullhttp://www.sciamdigital.com/cart_http.cfm?ARTICLEID_CHAR=0&sc=arti_fullhttp://www.sciamdigital.com/cart_http.cfm?ARTICLEID_CHAR=0&sc=arti_fullhttp://www.sciamdigital.com/cart_http.cfm?ARTICLEID_CHAR=0&sc=arti_fullhttp://www.sciamdigital.com/cart_http.cfm?ARTICLEID_CHAR=0&sc=arti_fullhttp://www.scientificamerican.com/article.cfm?id=brother-can-you-spare-me-a-planet&print=truehttp://www.scientificamerican.com/http://www.scientificamerican.com/http://www.scientificamerican.com/http://-/?-http://www.scientificamerican.com/author.cfm?id=1495http://www.scientificamerican.com/article.cfm?id=brother-can-you-spare-me-a-planet&print=truehttp://www.scientificamerican.com/article.cfm?id=brother-can-you-spare-me-a-planethttp://www.sciamdigital.com/cart_http.cfm?ARTICLEID_CHAR=0&sc=arti_full


2/7


3/7

under an increasingly complex maze of mathematical formalism.

This misalliance between economic thought and a 19th-century physical theory explains why the neoclassical economic paradigm is

predicated on the following unscientific assumptions:

Market systems exist in a domain of reality separate and distinct from other domains.

Capital circulates in these systems in a closed circular flow between production and consumption with no inlets or outlets.

The lawful dynamics of closed-market systems legislate over the behavior of economic actors, and the actors obey fixed decision-making rules.

The dynamics that operate within closed market systems, if they are not interfered with by the external or exogenous agencies such as government, willnecessarily result in the growth and expansion of these systems.

Market forces will resolve environmental problems via price mechanisms, along with more eff icient technologies and production processes.

The resources of nature are largely inexhaustible, and those that are not can be replaced by other resources or by technologies that minimize the use of

the exhaustible resources or rely on other resources.

The environmental costs of economic activities can only be determined by pricing mechanisms that operate within closed market systems.

There are no biological or physical limits to the growth and expansion of market systems.

One does not have to a scientist to realize that these assumptions make no sense at all in scientific terms. In these terms, markets ar

open systems that exist in embedded and interactive relationship with environmental systems. Natural resources are clearly

exhaustible, and our over-reliance on some of these resources, particularly fossil fuels, could soon result in irreversible large-scale

changes in the global climate system. The natural environment is not separate from economic processes, and wastes and pollutants

from these processes are already at levels that threaten the stability and sustainability of virtually all environmental subsystems. La

but not least, the limits to the growth of the global economy in biophysical terms are real and inescapable, and the assumption that

market systems can perpetually expand and consume more scarce and nonrenewable natural resources is utterly false. (3)

A Green Thumb on the Invisible Ha nd

When mainstream economists are confronted with the charge that there is no basis in neoclassical economic theory for realistically

assessing the environmental costs of economic activities and internalizing these costs in pricing systems, they typically deny that this

is the case by appealing to the work done by environmental economists. This orthodox approach to resolving environmental problem

is taught in universities and practiced in government agencies and development banks, and the solutions are almost invariably

embedded in the mathematical formalism of general equilibrium theory.

When environmental economists calculate the environmental costs of economic activities, they assume that the relative price of each

bundle of an environmental good, service, or amenity reveals the "real marginal values" of the consumer. The creators of neoclassica

economics conceived of the construct of marginal values after substituting utility for energy in the equations borrowed from the

theory in physics. In the resulting formalism, a marginal value essentially represents how much more a consumer is willing to pay to

acquire incrementally larger amounts of a good, service or commodity. Note what the writers of a textbook on environmental

economics have to say about the dynamics of this process:

"The power of a perfectly functioning market rests in its decentralized process of decision making and exchange; no omnipotent

planner is needed to allocate resources. Rather, prices ration resources to those that value them the most and, in doing so, individual

are swept along by Adam Smith's invisible hand to achieve what is best for society as a collective. Optimal private decisions based on

mutually advantageous exchange lead to optimal social outcomes." (4)

In environmental economics, the presumption that optimal private decisions "based on mutually advantageous exchange" lead to

optimal social outcomes for the state of the environment is a primary article of faith. The environmental economists also assume tha

the mechanisms of the market system will resolve environmental problems when "prices are right." The right price in neoclassical

economic theory is a function of the prices that economic actors have paid, or are willing to pay, to realize some marginal benefits of

environmental goods and services.

Environmental economists often use cost-benefit analyses to place a value on environmental externalities, or environmental goods

and services that are "external" to market systems in the sense that they are presumed to exist outside of the closed market system.

The problem that these accounting procedures are intended to resolve is that "real marginal values" can only be determined by


4/7

dynamics that operate within closed market systems. Given that the vast majority of the damage done to the natural environment by

economic activities cannot be valued in these terms, environmental economists have developed indirect methods designed to estima

the "use-value" of these resources. (5)

For example, contingent valuation methods are used to assess the economic value of recreation, scenic beauty, air quality, water

quality, species preservation, bequests to future generations and other nonmarket environmental resources. The methods are

intended to assess the willingness-to-pay function of economic actors who would prefer to preserve natural environments

(preservation or existence values), maintain the option of using natural resources (option values), and bequeath natural resources to

future generations (bequest values). (6) Most contingent valuation surveys seek to determine the maximal amount that individuals a

willing to pay for an increase in the quality of an environmental resource and the minimal amount they are wil ling to accept as

compensation to forgo this increase.

For the sake of argument, let us assume that contingent valuation studies are capable of revealing maximal social outcomes of

environmental policy decisions. Are we then to believe, as one such study showed, that reduction in chemical contaminants in drinki

water was not important in economic terms because the value of a statistical life associated with a reduction in risk of death in 30

years was only $181,000? (7) Is $26 a measure of the real marginal costs of pollution because this is the average price that a

household is willing to pay annually for a 10 percent improvement of visibility in eastern U.S. cities? (8) Is the value of a whooping

crane the $22-per-year average that one set of households was willing to pay to preserve this species (9) and that of the bald eagle th

$11-per-year average that another set of households would spend to preserve this apparently less valuable species? (10)

Mainstream Economics and International Treaties

One reason why the international community has not been successful in forging agreements that could resolve the environmental

crisis is that countries involved in the process of negotiating these agreements routinely invoke the legal principle of state sovereign

to protect their economic interests. There is, however, another major reason why these agreements have not been effective. The

economic interests that the representatives of nation-states are seeking to protect are based on unscientific assumptions about the

dynamics of market systems in neoclassical economic theory. Another related problem is that these assumptions are embedded in th

mathematical theories that serve as the basis for making cost-benefit analyses and the results of these analyses almost invariably

indicate that the costs of implementing scientifically viable economic policies and solutions are greater than the benefits. The

unfortunate result is that the scientifically viable economic policies and solutions are typically nothing more than distant memories

when the terms of a final agreement are approved.

This explains why the United Nations Framework Convention on Climate Change (1992) failed to protect the climate system, why th

Convention on Biological Diversity (1992) did not even begun to reduce losses in biodiversity, and why the U.N. Convention to Comb

Desertification (1994) did not slow, much less reverse, this process. The U.N. Convention on the Law of the Sea (1982) and a host of

other international agreements intended to reduce ocean pollution, prevent overfishing and protect endangered species failed to me

any of these objectives. Nonbinding principles that would promote more sustainable management of forests were agreed to at the

U.N.'s Earth Summit (1992) but negotiations broke down prior to the point where a general framework convention could be

articulated. A U.N. Convention on the Non-Navigable Uses of International Watercourses has been negotiated, but it has not gone in

effect because some sovereign nation-states perceived this agreement as a threat to their economic interests. (11)

Scientific evidence may play a supportive and enabling role in some negotiations, but only as a minimum condition for serious

consideration of an environmental issue. But what is not widely known is that these agreements made a mockery of the scientifically

based solutions. In the vast majority of negotiations on a great range of issues, such as commercial whaling, hazardous waste trade,

loss of biodiversity, conditions in the Antarctic, and ocean dumping of radioactive waste, the scientific evidence was not given seriou

consideration. When this evidence was perceived as a direct threat to the perceived economic interests of particular nation-states, it

was either systematically ignored or explicit ly rejected by the representatives of these states. (12)

Recent Developments in Mainstream Economic Theory

A fair number of economists over the past two decades, including such luminaries as Kenneth J. Arrow, have expressed doubts abou

the efficacy of neoclassical economic theory. However, the most direct challenges to axiomatic assumptions in this theory have been

made by the game theorists. For example, these theorists have challenged the assumption that economic actors are supremely

rational, obey fixed decision-making rules and are incapable of making bad decisions. In conventional neoclassical economic theory,


5/7

the natural laws of economics allegedly determine the optimal outcome of an economic process and economic actors are devoid of a

distinctly human characteristics. This theory also assumes that the realm of the economy is stable and unchanging and that economi

actors are supremely rational entities who do not talk back. In opening the box of human subjectivity, the game theorists have been

obliged to posit an increasing number of ad hoc variables to account for the decision-making of individual economic actors. And this

explains why the history of game theory is marked by a continual regression into the staggering complexities of language and culture

As the economist R. Sugden puts it:

"There was a time, not long ago, when the foundations of rational-choice theory appeared firm, and when the job of the economic

theorist seemed to be one of drawing out the often complex implications of a fairly simple and uncontroversial system of axioms. Bu

it is increasingly becoming clear that these foundations are less secure than we thought, and that they need to be examined and

perhaps rebuilt. Economic theorists may have to become as much philosophers as mathematicians." (13)

These criticisms and revisions of assumptions in neoclassical economic theory do not mean, however, that mainstream economists a

in the process of developing a new theory predicated on a different set of assumptions. Virtually all of the advanced theoretical work

in this discipline is premised on the assumptions that market systems are closed, self-correcting and self-sustaining. And the primar

impulse in these theories is to disclose the hidden dynamics that move market systems toward optimal states of equilibria with the

use of increasingly more sophisticated mathematical techniques.

The Two-Culture Problem

In my view the greatest obstacle to implementing scientifically viable economic solutions for global warming and other menacing

environmental problems is not the claim that neoclassical economic theory is scientific. It is the two-culture problem famously

described by British physicist and novelist C. P Snow in 1959. Snow was concerned that the single intellectual culture that existed

prior to World War II was splitting into two cultures with social scientists on one side of the divide and scientists on the other. As i

turned out, the two-culture problem was not resolved; each culture's members became increasingly isolated from the other's, and th

divide eventually became a yawning chasm.

The schism between the two cultures of mainstream economists and environmental scientists is painfully apparent in the institution

frameworks and processes we now use to develop and implement economic solutions for environmental problems. The members of

these cultures perform very different tasks and have virtually no contact with each other. This problem is further complicated by the

fact that the language used on one side of the divide is virtually incomprehensible to those on the other, and the cultural differences

are large. These differences range from alternate worldviews to disparate research methodologies and rules for gathering evidence.

The most expedient way to deal with this two-culture problem is also the most efficient way to begin the process of developing an

environmentally responsible economic theory. The solution is to create institutional frameworks and processes for developing

scientifically viable economic policies and solutions for environmental problems that require mainstream economists and

environmental scientists to work closely together during every stage of the process. This idea is not as radical as it may first appear

and there has already been some movement in this direction.

After Nicolas Stern, an internationally known development economist and former chief economist at the World Bank, was asked by

the British government to prepare a report on the economics of climate change, he did something that no other mainstream econom

with a similar reputation had ever done. He crossed over the divide and took an extended course on the science of global warming

from environmental scientists at the Hadley Center in London. The 700-page report that resulted from this collaboration contained

the first realistic assessment of the costs of reducing global emissions of greenhouse gases to levels where the most disastrous

consequences of global warming are unlikely to occur.

But in order to make this assessment, Stern and the other economists who worked on the report were obliged to use methodologies

that violate foundational assumptions in neoclassical economic theory. In a lecture that Stern gave to a group of economists a few

months before the "Stern Review on the Economics of Climate Change" was released on October 30, 2006, (14) he explained why it

was necessary to violate these assumptions. Stern began this lecture with a brief overview of the science of global warming with

particular emphasis on the fact that the interactions between human and environmental systems are nonlinear and cannot be

represented or described in the linear equations used by mainstream economists.

Stern then explained why global warming is not "a standard externality" problem and must be viewed as "international collective


6/7

action problem." He also explained why the methodologies used by mainstream economists to evaluate the costs of economic

activities are incapable of realistically assessing these costs. During the course of this lecture, Stern repeatedly told his fellow

economists that any viable economic solutions for the problem of global warming must be predicated on our best scientific

understanding of how this problem can be resolved. Equally remarkable, he also said that the resolution of this problem will require

the very active involvement of governments and that the ethical dimensions of this problems extend well beyond the framework of a

economic theory. (15)

If we do manage to create the institutional frameworks and processes required to develop an environmentally responsible economic

theory, many mainstream economists and environmental scientists may be reluctant to cross over the two-culture divide and work o

this project. But this resistance could be overcome if they realized that this is a once-in-all-human-lifetimes opportunity. The

opportunity is to protect the lives of the 6.6 billion members of the extended human family and the future existence of their

descendents by resolving the crisis in the global environment. If the opportunity to work on this project is understood in these terms

perhaps mainstream economists and environmental scientists will realize that there is no other work they could possibly do in their

lifetimes that serves a greater good or answers to a higher calling.

Robert Nadeau is a professor at George Mason University. His most recently published bo oks are The Wealth of Nature (Columbia

University Press, 2003) and The Environmental Endgame (Rutgers University Press, 2006).

---

(1) Bruno Ingrao and Georgio Israel, The Invisible Hand: Economic Equilibrium in the History of Science, tr. Ian MacGilvray

(Cambridge, Mass.: MIT Press, 1990).

(2) Philip Mirowski, Against Mechanism: Protecting Economics From Science (Lanham, Md.: Rowan and Littlefield, 1988); Mirowsk

More Heat Than Light (New York: Cambridge University Press, 2003); Robert L. Nadeau, The Wealth of Nature: How Mainstream

Economics Has Failed the Environment (New York: Columbia University Press, 2002); Nadeau, The Environmental Endgame:

Mainstream Economics, Ecological Disaster, and Human Survival (Piscataway, N.J.: Rutgers University Press, 2006).

(3) Robert Nadeau, The Environmental Endgame; pages 81–145.

(4) Nick Hanley, Jason E. Schrogren, and Ben White, Environmental Economics in Theory and Practice (New York: Oxford Universit

Press, 1997); page 358.

(5) W. Michael Hanneman, "Valuing the Environment through Contingent Value," Journal of Economic Perspectives 8 (Fall 1994);

page 19.

(6) Mark Sagoff, "Some Problems with Environmental Economics," Environmental Ethics 10 (Spring 1988); page 55.

(7) Robert C. Mitchell and Richard T. Carson, "Valuing Drinking Water Risk Reduction Using Contingent Evaluation Methods," pape

prepared for Resources for the Future, (Washington, D.C.: U.S. Government Printing Office, 1986).

(8 ) George Tolley et al., "Establishing and Valuing the Effects of Improved Visibility in the Eastern United States," paper presentedfor Environmental Protection Agency (Washington. D.C., 1986).

(9) James Bowker and John R. Stoll, "Use of Dichotomous Choice Nonmarket Methods to Value the Whooping Crane Resource,"

American Journal of Agricultural Economy 23, No. 5 (1987); pages 943–950.

(10) Kevin J. Boyle and Richard C. Bishop, "Valuing Wildlife in Benefit-Cost Analyses: A Case Study for Endangered Species," Water

Resources Research 23, No. 5 (1987); pages 943–950.

(11) James Gustave Speth, Red Sky at Morning: America and the Crisis in the Global Environment (New Haven: Yale University Pres

2004); pages 77–98.

X


7/7

(12) Gareth Porter, Janet Welsh Brown, and Pamela S. Chasek, Global Environmental Politics, 3rd edition (Boulder: Westview Press

2000).

(13) R. Sugden, "Rational Choice: A Survey of Contributions from Economics and Philosophy," Economic Journal 101 (1991); page 78

(14) "Stern Review on the Economics of Climate Change," www.sternreview.org.uk

(15) www.wbcsd.org/plugins/DocSearch/details.asp?

MenuId=MTY5&ClickMenu=LeftMenu&doOpen=1&type=DocDet&ObjectId=MTgyNDE

YES! Send me a free issue of Scientific American with

no obligation to continue the subscription. If I like it, I

will be billed for the one-year subscription.

Email Address

Name

Continue

Give a Gift& Get aGift - Free!

Give a 1 year subscription aslow as $14.99

Subscribe Now >>
https://w1.buysub.com/servlet/ConvertibleGateway?cds_mag_code=SCA&cds_page_id=146797&cds_response_key=I3S08X000

Brother, Can You Spare Me a Planet

Documents

Transcript of Brother, Can You Spare Me a Planet