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Natural Wealth Accounting

Natural Wealth Accounting

(Clicking any of the underlined text in blue will take you to a reference on it.)

My ancestors came to North America because it had abundant natural wealth – land, water, forests, minerals, wild game, beauty – with less competition for resources than in the old, crowded European societies they emigrated from. Those Europeans settled and took what they could, mostly farmland, and shaped the land and whatever came with it to survive and to prosper. Sometimes American laws have enforced limitations on an owner’s use of her own land, such as with complex water rights rules, with a variety of nuisance theories, and with zoning laws, but fundamentally the private property owner has been king of his own domain. My grandfather never worried about his tractor’s contribution to air pollution. Americans resist public limitations on private property use, consistent with our national DNA emphasizing individuality, personal freedom and entrepreneurship. An example of this can be seen in a Wisconsin town’s inability to enforce limits on air , water, and soil pollution coming from a nearby 4,000-cow feedlot ( see my earlier post on “Factory Farming” for additional information).

Traditional economics, capitalist, socialist and mixed, puts values on human effort and on scarcity, and the natural world is often assumed to be there just for the taking. Little or no values are attached to abundant “free goods” like good air and water, necessities brought to the consumer without human effort. In reality, market prices for goods and services omit significant ecosystem costs we all pay; global warming from burning hydrocarbons is one example of consumption where true costs exceed market prices. Gasoline prices, with no hefty carbon tax included, do not cover the public’s damages from greenhouse gases or toxic tailpipe emissions, and the unfortunate soul with emphysema cannot sue the world for polluting the air she breathed.

People are imaginative, and when something doesn’t work we come up with answers. Amory Lovins in “Natural Capitalism” proposed a new industrial revolution in which natural resources and ecosystem services are assigned monetary values, which he believes will lead to greater resource productivity and eventually zero waste. The book calls our existing “industrial capitalism” a “financially profitable, nonsustainable aberration in human development” which violates basic accounting principles by liquidating its essential stock of natural capital and treating the liquidation proceeds as income. Lovins and co-authors acknowledge that it is difficult to put dollar values on natural capital, but argue that treating natural, but limited, free goods as valueless has brought the world to the edge of disaster.

Ecological economics” is another departure from neoclassical economics. It treats Earth’s environmental “carrying capacity” as a central issue and deals with difficult-to-quantify issues like intergenerational equity and the overall flows of energy and materials that enter and leave economic systems. Its conceptual model explicitly acknowledges that the economy is totally dependent on flows into it of energy, materials and ecosystem services, and that those inputs should be watched and kept within sustainable ranges. Ecological economics rejects the neoclassical failure to distinguish between “economic growth” – quantative increases in economic output – and “development” – quality improvements in the quality of human lives. The impoverished 2012 political debates also ignore that distinction, and of course do not acknowledge that “economic growth” can lead to decline in the quality of human life.

Ecological economics is a long, good way from the economics I studied in college.

Image by NASA. Photo taken by either Harrison Schmitt or Ron Evans (of the Apollo 17 crew). [Public domain], via Wikimedia Commons


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