Green Economics
John Ikerd
One priority of the new economic stimulus program is to create a new “green economy.” The proposal is to use government spending to promote new “green jobs” in renewable energy, energy conservation, and mitigation of global climate change. Various environmental advocates and organizations have provide long lists of environmentally friendly technologies with cost savings that would repay initial investments within twenty, ten, or even five years. It might appear that environmental problems such as fossil energy depletion and global climate change could be solved by providing industry leaders with appropriate technical information and modest government incentives to adopt “greener” economic alternatives.
The economy is ultimately dependent on the health and productivity of nature and society. So, a new green economy might seem to make good economic sense. It’s also true than many “green technologies” might pay for themselves in twenty, ten, five, or even fewer years. However, long term ecological problems, such as fossil energy dependence or global warming, simply cannot be solved through good economics.
The economy places a significant premium on the present relative to the future. Market interest rates and internal rates of return for businesses are economic values. At a market interest rate of seven percent, a dollar ten years from now is only worth fifty-cents today, because fifty-cents invested at an interest rate seven-percent would be worth a dollar ten years from now. A business that generates a fifteen-percent internal rate of return doubles its initial investment in five years. It simply doesn’t make economic sense to invest in something that will only repay the initial investment within five or ten years when you have investment opportunities that will double initial investments in the same amount of time. This is the economic reality.
That said; many
Government incentives might prove beneficial in encouraging corporate American to develop new green technologies and to explore current green economic opportunities. However, such programs will only “get the low hanging fruit.” Even the best of economic decisions cannot solve the long run challenges of ecological sustainability. The world is a living ecosystem. When living things are allowed to become sick, they may not recover, no matter how great the economic incentive to find a cure. If people are misled into believing that free markets can somehow meet today’s ecological challenges, the avocation of “green economics” becomes an obstacle to good public policy.
Ecological economists admit that the economy provides inadequate incentives for addressing many ecological problems. Businesses have no incentive to consider many environmental costs because they have little or no effect on their economic returns on investment. If public policies were designed to effectively “internalize” these “external costs,” the costs would have to be considered in making economic decisions. Ecological economists contend that if all relevant ecological and social costs and benefits were internalized, including those expected to accrue to future generations, markets would ensure long run ecological sustainability.
Ecological economics is a vast improvement over a blind faith in free markets. The contributions of nature to the economy are at least recognized as having economic value. However, some important values are simply not economic in nature and thus cannot be measured in dollars and cents. Personal relationships have purely social value, in addition to any economic value we may derive from them. We are social beings – people need people. Ethical behavior has purely moral value, in addition to any economic value we may derive from such acts. We are spiritual beings –we need to feel worthy and worthwhile. When we attempt to internalize the economic value of such things, we ignore the social or moral values, which may far exceed their economic value.
Even if we could accurately access social and moral values, bringing them into the economy would not ensure ecological sustainability. Once they were assigned an economic value, the use or misuse of nature would be at the discretion of those who had enough money to pay the assigned economic costs. It would acceptable to pollute and exploit the resources of nature, as long as the polluters and exploiters were willing and able to pay the dollar and cent costs. Toxins would be dumped in the backyards of those couldn’t afford environmental protection. The rights of future generations to a healthy and productive environment would be for sale to today’s highest bidder.
This kind of society simply would not be sustainable. In a democracy, values that are purely social or relational in nature, such as environmental justice, are determined by a vote of the people, not by buying and selling. In a democracy, everyone has an equal vote, regardless of how much money they may have. Ethical or moral values, such as the rights of future generations, must be determined through a process of consensus. If something is ethically and morally wrong, we can’t make it right by paying for it – or voting for it. Consensus is the best process we have for deciding what is right and wrong. If we reach a consensus that something is wrong, we just don’t allow people to do it.
Economics will be important in addressing emerging environmental issues; rising prices will ration ecological resources as they become scarcer. In those situations where economic incentives are inadequate or non-existent, such as fossil energy depletion and global climate change, we must work together, through government, to ensure the long-run well-being of our society and of humanity. Government programs designed to create a new green economy should not just be a short-run economic stimulus but instead a permanent government responsibility.