You Can't Eat GNP: Economics as Though Ecology Mattered

Rating:
Summary: Economics as a Life Science
Review: Both ecology and economics share the same Greek root, oikos, meaning, literally, "house." Linked with nomics it means management of the house. Linked with logy it means study or knowledge of the house. Obviously, study and knowledge should go hand in hand with management, and good ecology should be a basic ingredient in good economics. Unfortunately, in the recent past, ideas about management of our world as encoded in conventional economic theory, in biologist E. O. Wilson's words, "can be summarized in two labels: Newtonian and hermetic. Newtonian, because economic theorists aspire to find simple, general laws that cover all possible economic arrangements. ... hermetic - that is sealed off from the complexities of human behavior and the constraints imposed by the environment." Eric Davidson's book is a readable summary of many of the main ideas of ecological economics. He begins by describing three basic fallacies of the mainstream economic model. The first he calls the "Marie Antoinette" fallacy. The mainstream model assumes near perfect substitutability between land (natural resources), labor, and capital. If we deplete all our natural resources, "no problem" claims the mainstream model, we simply substitute more labor or capital - or as Marie Antoinette reportedly said when the French peasants were complaining about not having any bread - "well, let them eat cake!" The truth is that manufactured capital, human capital, social capital, and natural capital function more like compliments than substitutes and a sustainable economic system requires a safe minimum of each of these four types of capital. The second fallacy Davidson calls "Custer's folly" - the assumption that the technological cavalry will come over the hill to save us from ecological disaster just in time. The problem is that while technology might come up with solutions, it is foolhardy to assume that it will, especially when the stakes are so high. It is much more rational to assume that technology will not come to the rescue at the last minute and take a more precautionary approach that assures our sustainability regardless of hoped for technological changes. The third fallacy is "False complacency from partial success." If we can solve some environmental problems, we can, by extension solve all environmental problems. Davidson likens this line of argument to a claim by a spouse abuser that he is a good person because he no longer beats his spouse as much as he used to. The truth is that many environmental problems that have appeared to be "solved" have actually just been moved to other regions or countries or social groups, often as a consequence of more open trade. Also, in the crowed world in which we now live, many new technologies have unintended consequences that may completely undermine and outweigh their initial, positive effects (i.e. DDT, chloroflorocarbons).

Rating:
Summary: Economics as a Life Science
Review: Both ecology and economics share the same Greek root, oikos, meaning, literally, "house." Linked with nomics it means management of the house. Linked with logy it means study or knowledge of the house. Obviously, study and knowledge should go hand in hand with management, and good ecology should be a basic ingredient in good economics. Unfortunately, in the recent past, ideas about management of our world as encoded in conventional economic theory, in biologist E. O. Wilson's words, "can be summarized in two labels: Newtonian and hermetic. Newtonian, because economic theorists aspire to find simple, general laws that cover all possible economic arrangements. ... hermetic - that is sealed off from the complexities of human behavior and the constraints imposed by the environment." Eric Davidson's book is a readable summary of many of the main ideas of ecological economics. He begins by describing three basic fallacies of the mainstream economic model. The first he calls the "Marie Antoinette" fallacy. The mainstream model assumes near perfect substitutability between land (natural resources), labor, and capital. If we deplete all our natural resources, "no problem" claims the mainstream model, we simply substitute more labor or capital - or as Marie Antoinette reportedly said when the French peasants were complaining about not having any bread - "well, let them eat cake!" The truth is that manufactured capital, human capital, social capital, and natural capital function more like compliments than substitutes and a sustainable economic system requires a safe minimum of each of these four types of capital. The second fallacy Davidson calls "Custer's folly" - the assumption that the technological cavalry will come over the hill to save us from ecological disaster just in time. The problem is that while technology might come up with solutions, it is foolhardy to assume that it will, especially when the stakes are so high. It is much more rational to assume that technology will not come to the rescue at the last minute and take a more precautionary approach that assures our sustainability regardless of hoped for technological changes. The third fallacy is "False complacency from partial success." If we can solve some environmental problems, we can, by extension solve all environmental problems. Davidson likens this line of argument to a claim by a spouse abuser that he is a good person because he no longer beats his spouse as much as he used to. The truth is that many environmental problems that have appeared to be "solved" have actually just been moved to other regions or countries or social groups, often as a consequence of more open trade. Also, in the crowed world in which we now live, many new technologies have unintended consequences that may completely undermine and outweigh their initial, positive effects (i.e. DDT, chloroflorocarbons).

Rating:
Summary: Not what I expected
Review: I wanted to write an enthusiastic review of this book because of its provocative title which suggests economic solutions for ecology. Unfortunately, the book emphasizes ecological problems more than economic solutions. It also doesn't look enough into the economics of sustainable development, but author Eric Davidson does offer sound ideas on environmental regulation.

The author starts his thesis with the idea that soil is the building block for our survival as human beings. I agree that soil is critical and appreciate the details of soil erosion. However, I was looking for thought on the larger picture: sustainable development and the corresponding economic/ecologic conflict. Likewise, I tired of reading about the green house effect, forest depletion, and the exhaustion of water resources without thought devoted to how we might address general reduction of natural resources, i.e., apply potential eco-economic solutions.

Mr. Davidson clearly demonstrates that sustainable development must reconcile ecology and economy. One of the strong points of the book is a pyramid graphic that contains economy within ecology. He mentions a similar concept: the "Precautionary Principle" as a way to plan for the future. Yet, aside from mentioning cost benefit analysis and discounting, Mr. Davidson only scratches the surface on how to approach sustainable development from an economic perspective. Eco-economics is mentioned but not elaborated on as the author doesn't claim this as an area of expertise.

Some strong regulatory ideas are presented such as limiting road construction and other governmental intervention. He suggests pollution permits, which have become a reality (see The Wall Street Journal 11/8/04). These and other regulatory ideas aren't listed until the end of the book. I would have liked to see the book begin with these ideas and made more central to the argument.

For a book focusing on eco-economics, I recommend "Beyond Growth" by Herman Daly.


Rating:
Summary: Lend this book!
Review: If the fundamental concept in economics is scarcity, why has it proven so impotent, if not downright counterproductive, when it comes to addressing environmental issues? This question is of central importance to those, like Eric Davidson, would like to see "ecological economics" enter public discourse and the policy-making arena.

This is an informative book written in a very engaging, if polemical style. As the subtitle (Economics as if Ecology Mattered) suggests, the general approach is to contrast the ways ecologists and economists look at the natural environment and to show how traditional economic theory encourages resource depletion and pollution. That may sound like a mouthful, but Davidson's approach is to introduce, illustrate, and even popularize economic concepts (pricing, cost-benefit analysis, marginal analysis, discount rates, and externalities) from the critical perspective of an ecologist. Along the way, he invents some "fallacies" (which, arguably, he also succumbs to), provides graphic visualization aids to contrast the different ways ecologists' and economists' view natural resources, and he explores some interesting case studies and possibilities based on his own work in the Brazilian rainforest. As an introduction to both environmental studies and basic concepts in (micro)economics, the book succeeds on two levels. (As an introduction to macroeconomics and sustainability, it probably succeeds on only one - environmental studies.)

Unfortunately, the strengths of the book, namely, its simplicity, also point to its weaknesses. For anyone who, like Davidson, has been struggling along this same path (me, for instance), it seems clear that Davidson's book cannot hope to convince professional economists or policy-makers who, to give them credit, possess far more theoretical virtuosity than Davidson's arguments might suggest. To make matters worse, popular works of (micro)economics are often written by economists who are staunch libertarians, and their counterarguments would be...well, it wouldn't be pretty. They inhabit a theoretical universe which does not recognize a "precautionary principle" higher than free choice, and they abhor the kinds of government intervention and regulation that Davidson's brand of environmental economics suggests. Indeed, most of the time Davidson is arguing for a normative (what should be), rather than a positive (what is) brand of ecological economics that is never made explicit (enough). Ultimately these kinds of theoretical differences boil down to questions about human nature, and the darker, greedier view of humans, who blindly follow their self-interest and `trash the commons', has a proven, if hardly illustrious, record in both theory and practice. Davidson's critique notwithstanding, one can't help but fear for the fate of homo ecologicus who pursues long-term sustainability, but is forced to compete with homo economicus who sees only short-term gains.

In his conclusion, Davidson makes some suggestions about what kinds of constructive steps individuals can make on their own. Foremost among them is to `lend this book to someone who is unlikely to buy literature on science, economics, and the environment.' Frankly, since he is preaching to the converted when it comes to me, I will follow his suggestion and lend the book out. But I also intend to follow his recommendation regarding audience - which underscores my only caveat.

Rating:
Summary: Lend this book!
Review: If the fundamental concept in economics is scarcity, why has it proven so impotent, if not downright counterproductive, when it comes to addressing environmental issues? This question is of central importance to those, like Eric Davidson, would like to see "ecological economics" enter public discourse and the policy-making arena.

This is an informative book written in a very engaging, if polemical style. As the subtitle (Economics as if Ecology Mattered) suggests, the general approach is to contrast the ways ecologists and economists look at the natural environment and to show how traditional economic theory encourages resource depletion and pollution. That may sound like a mouthful, but Davidson's approach is to introduce, illustrate, and even popularize economic concepts (pricing, cost-benefit analysis, marginal analysis, discount rates, and externalities) from the critical perspective of an ecologist. Along the way, he invents some "fallacies" (which, arguably, he also succumbs to), provides graphic visualization aids to contrast the different ways ecologists' and economists' view natural resources, and he explores some interesting case studies and possibilities based on his own work in the Brazilian rainforest. As an introduction to both environmental studies and basic concepts in (micro)economics, the book succeeds on two levels. (As an introduction to macroeconomics and sustainability, it probably succeeds on only one - environmental studies.)

Unfortunately, the strengths of the book, namely, its simplicity, also point to its weaknesses. For anyone who, like Davidson, has been struggling along this same path (me, for instance), it seems clear that Davidson's book cannot hope to convince professional economists or policy-makers who, to give them credit, possess far more theoretical virtuosity than Davidson's arguments might suggest. To make matters worse, popular works of (micro)economics are often written by economists who are staunch libertarians, and their counterarguments would be...well, it wouldn't be pretty. They inhabit a theoretical universe which does not recognize a "precautionary principle" higher than free choice, and they abhor the kinds of government intervention and regulation that Davidson's brand of environmental economics suggests. Indeed, most of the time Davidson is arguing for a normative (what should be), rather than a positive (what is) brand of ecological economics that is never made explicit (enough). Ultimately these kinds of theoretical differences boil down to questions about human nature, and the darker, greedier view of humans, who blindly follow their self-interest and 'trash the commons', has a proven, if hardly illustrious, record in both theory and practice. Davidson's critique notwithstanding, one can't help but fear for the fate of homo ecologicus who pursues long-term sustainability, but is forced to compete with homo economicus who sees only short-term gains.

In his conclusion, Davidson makes some suggestions about what kinds of constructive steps individuals can make on their own. Foremost among them is to 'lend this book to someone who is unlikely to buy literature on science, economics, and the environment.' Frankly, since he is preaching to the converted when it comes to me, I will follow his suggestion and lend the book out. But I also intend to follow his recommendation regarding audience - which underscores my only caveat.

Rating:
Summary: Quick, straight forward, engaging
Review: Over the Thanksgiving break I read You Can't Eat GNP: Economics as if Ecology Mattered by Eric Davidson (Perseus Publishing, 2000). The economics aspects would probably be way too basic for most economists, and the ecology aspects too basic for environmentalists, but I was extremely pleased with its straightforward explanations of the interaction of economics and ecology. A book like this might get these two groups to begin to understand each other's language.

Rating:
Summary: Quick, straight forward, engaging
Review: Over the Thanksgiving break I read You Can't Eat GNP: Economics as if Ecology Mattered by Eric Davidson (Perseus Publishing, 2000). The economics aspects would probably be way too basic for most economists, and the ecology aspects too basic for environmentalists, but I was extremely pleased with its straightforward explanations of the interaction of economics and ecology. A book like this might get these two groups to begin to understand each other's language.

Rating:
Summary: Linking economics and ecology is key to our prosperity.
Review: People take notice when an issue affects their pocketbooks, but do we really understand where our wealth comes from? Common everyday expressions, like "dirt cheap" and "buying a bunch of blue sky," suggest that we usually undervalue natural resources like the soil and the atmosphere. Indeed, forest area is shrinking, soils are eroding, and the groundwater, oceans, and atmosphere are becoming polluted at unprecedented rates globally. The premise of this book is that the economic system will fail if the ecological system is not carefully managed. The flip side, which is also true, is that a failed economic system creates desperate people who will destroy the ecological system.

When money changes hands, as it would if you decide to put this book in your Amazon.com shopping basket, the gross national product (GNP) of a nation increases. Economists use GNP as one of the most common measures of our well being - the more we spend, the better off we are. Indeed, this GNP gage of affluence has some legitimate basis. My former Peace Corp village hosts in an African country with a very small GNP still live so close to nature that practically every bite of food, every scrap of wood, and every drop of water that they consume comes from their own hard labor. They must work most of the waking day to extract these resources from the forests, fields, and streams. In contrast, our complex industrialized society, with its cushy lifestyle and large GNP, allows most of us to not worry about tilling the fields, fishing the seas, logging the forests, or disposing of the garbage. Other people do those jobs, they get paid for it, and it all contributes to the GNP. It would appear that we could ignore where the goods that we consume come from in the first place or what the consequences are of consuming those goods. If only that were true! It is not, and GNP alone fails to reveal how our prosperity can be sustained.

We may not need to think about tilling the fields every day, but nevertheless, our wealth and our comfort are still derived from a combination of natural resources - soil, water, air, forests, oceans, mineral deposits, climate - and the skill and ingenuity with which we utilize and manage those resources. Neglect or abuse those natural resources, and we undermine our own prosperity.

An economist once argued, in all seriousness, that we need not worry much about the effects of global warming on the economy, because the only sector of the economy that he considered strongly influenced by the climate is agriculture, which contributes only 3% of the United States' GNP. Like Marie Antoinette's suggestion that French peasants without bread could eat cake, this view of how the world works seems to suggest that if the crops fail, the people can still eat the 97% of the GNP that remains. The role of forests in providing clean water and habitat for plants and animals and for regulating the climate is another example of how GNP fails to count the true value of natural resources to humanity.

Fortunately, economists and ecologists are now starting to communicate across disciplines in a new field called ecological economics. Although there are several textbooks and scholarly journals on ecological economics, few books explain the interdependence of ecology and economics to a general audience, which was my motive for writing You Can't Eat GNP.

Linkages between economics and ecology are examined in examples ranging from the present legacy of a 19th century cotton farmer in North Carolina to the future impacts of a modern day rancher's decisions in the Amazon Basin. I am not an economist by training, which helps me, I think, to explain economics in nontechnical terms. I emphasize that we already have the knowledge and technological capability to solve most of today's environmental problems, thus shunning a gloom-and-doom tone and offering justification for cautious optimism.

It may be obvious that one can't eat GNP, but the underlying and inescapable reasons why a healthy environment is needed for a healthy economy are not widely appreciated, and it is this link, I believe, that is the key to energizing concern about the environment.

Rating:
Summary: beyond gnp
Review: The premise of Davidson's book is that if you look at the gross national product abstractly, it's easy to lose sight of the impact that a non-environmental approach to business takes. An economist's traditional tools don't take into account such stuff as soil, forests, garbage, and produce. Only when they do, will the affect of environmentalism be understood. Good book, well argued.

Rating:
Summary: Redefining Global Priorities
Review: The title is explained in Chapter 1 when Davidson examines three fallacies of the current mainstream economic and technological model. At least one economist has argued that there is no need to worry about global warning because the only sector of the economy affected by it -- agriculture -- contributes only 3% of the United States' GNP. Davidson observes: "Like Marie Antoinette's suggestion that the French peasants without bread could eat cake [more accurately, crumbs from a bread pan], this view of how the world works seems to suggest that if the crops fail, the people could eat the 97% of the GNP which remains." This is Fallacy #1: "Marie Antoinette Economics."

The second fallacy naively asserts that the technological "cavalry" will come over the hill in time to save us from economic disaster; the third fallacy incorrectly assumes that, because of certain modest improvements of the quality of air and water, environmental pollution is no longer a serious problem. Davidson's purpose is to examine the implications and consequences of these fallacies. He believes (and I wholeheartedly agree) that economic realities and environmental imperatives are NOT mutually exclusive; on the contrary, they are interdependent.

One bestselling tee-shirt proclaims "We're Having a Great Time Spending Our Children's Inheritance!" In a sense, that is what Davidson has in mind when lamenting the relentless depletion of the earth's natural resources to achieve short-term financial objectives. To illustrate his key points, he introduces two pyramids in Chapter 2. One shows how dependent we are on a stable resource as our base; the second (inverted) pyramid shows how the principle of supply and demand results in a relentless reduction of that base. According to Davidson, the priorities of ecology and economics can be accommodated if certain prudent national and international measures are initiated and then sustained. These he proposes in Chapter 9:

1. Stop building new roads.

2. Eliminate tax reductions for more than two children in countries that have income taxes.

3. Reduce taxes on income and increase taxes on consumption.

4. Eliminate governmental subsidies, such as water projects that hinder the market forces that would otherwise promote water conservation, more prudent use of groundwater, and prevent soil salinization.

5. Support governmental and nongovernmental extension efforts to encourage farmers in both industrialized and developing countries to make more efficient use of their land while conserving soil and using only essential quantities of fertilizers and pesticides.

6. Eliminate governmental subsidies for industrial fisheries and foster agreements among nations and among and within communities to protect the fisheries commons. 7. Ratify and enforce the binding international agreement reached in Kyoto, Japan, in 1997 reducing greenhouse gas emissions.

8. Negotiate international agreements on maintaining forest cover and managing forests to maximize genetic diversity of plants and animals.

What if we don't take these and other initiatives? Davidson has written this book in direct response to that question. In ways and to an extent many of us do not realize, there has been an on-going process of discounting, devaluing, and degrading the earth's environment. Davidson is somewhat encouraged by certain developments (albeit isolated and inadequate) which suggest that there is at least some increased awareness of the various problems. He is fully aware of the great difficulty of changing the minds of policymakers, business leaders, voters, and consumers by helping them to understand -- and properly value -- the "essential links" between ecology and economics. Davidson makes a substantial contribution to the achievement of that objective.

If you share my high regard for this book, I suggest that you check out Natural Capitalism, The Lexus and the Olive Tree, and Holding On to Reality..