Sunday, March 30, 2008

The dismal science

Almost through with Eric A. Davidson’s You Can’t Eat GNP, Economics As If Ecology Mattered (2000). Remembered a classmate’s iconoclastic question in a master's course on Upland Environmental Economics a few years ago: why do we need to study economics if we want to save the environment? Then came her notorious comment on the nature of the subject. I can’t remember her exact words now, but it went something like: economics is probably one of the most anti-ecological body of knowledge, teaching people to use up all natural resources instead of conserving it and leaving some for the future. The question, together with the unflinching remarks, earned her a failing grade in the homework on computing discounted values of forest stands and timber products. It also marked her in the eyes of the professor, who from that point on didn’t have second thoughts in branding her views as downright wrong. My classmate eventually dropped out from that course on economics and the masters program. Which was really unfortunate because she was a licensed forester by then and I knew that she could have passed with flying colors had her opinion about economics did not get in the way of her relationship with the teacher.

I had a similar view of economics then. But I wasn’t that vocal about it as my classmate. I simply had this unspoken presumption that economic thinking took the natural resource base for granted. Talk to me of economics, and I immediately form in my head a picture of Marx explaining how value was created by labor from the production process, or of a present-day nongovernment campaigner talking about the implications of international and regional trade agreements on local production and the country’s policy options. Both are silent about the state of the environment on which the continued viability of any economy would depend. Eric A. Davidson’s book confirmed both my preconceived notions and my classmates fearless observations. You Can’t Eat GNP takes apart some common economic decision-making tools, like cost-benefit assessments, marginal valuation and discount rates, and explains why these fail to give a realistic value to natural resources or the environmental services of the world’s remaining ecosystems. In many cases, it’s a case of undervaluing resources like soil and forest lands, or not giving any value at all to processes like the sequestration of atmospheric carbon by forests or the trapping of marine wastes by mangrove areas.

No wonder that the costs of clearing such habitats to give way to farms or fishponds do not enter cost-benefit equations. And one shouldn’t be surprised if the costs of polluting the environment are not included in a country’s economic accounts. Economics is blind to ecological concepts and principles. The economic assumption about the scarcity of resources should lead one to the problem of the most efficient use of such resources now. The question of leaving some resources intact for future generations however is hardly a problem for economics. If they do enter economic decision-making, future natural resources and ecological services are valued and assessed based on present-day costs. And that simply means they are valued less. It is really no wonder then that people like Malthus and Hardin who pursued this kind of economic thinking to its logical conclusion, ended up with such gloomy scenarios for the future. Malthus had his runaway human population growth, while Hardin added his “tragedy of the commons”. Did the term “dismal science” that was used to refer to economics come from such doomsday predisposition?

Davidson’s book indicates some hope in current efforts toward what he calls “ecological economics” that attempts precisely to take into account environmental and sustainability considerations in current economic analyses. I was particularly intrigued for instance at how economic thinking is now being brought to bear upon such questions as how much forest land need to be preserved for the continued viability of the economic system. Or with attempts by ecologically oriented economists to come out with realistic values for a clean atmosphere. Still, I probably have to finish the book before I am fully convinced of the usefulness of this body of knowledge in addressing the current ecological crisis.


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