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Unusual Economics: Time for an Ecological Approach

3p Contributor | Monday July 27th, 2009 | 1 Comment

ecological%20economics.jpgBy: Matthew Marichiba
Unusual economic times call for unusual economics book reviews, right? To this end, I am writing a review of an economics textbook. Yes, a textbook, named Ecological Economics, Principles and Applications by Herman E. Daly and Joshua Farley.

As society navigates through our global economic meltdown, I keep noticing that a lot of what I read in the media is fundamentally based on the assumption of an economic return to the good times. Maybe there will be more regulations; maybe GAAP rules will be stricter; maybe we’ll have fewer or more or different automobile manufacturers. But surely we’ll get back to good ol’ growth of the economy (and how to do it forever), won’t we? Far too few writers challenge our fundamental assumptions about the economy itself– those same assumptions we used to dig ourselves into the present financial mess, not to mention the assumptions at the root of the ecological and human-rights crises that are now a daily fixture in the news.

What if some of our assumptions about the fundamental purpose and functioning of the economy were wrong? Shouldn’t we fix those old assumptions before we recreate the same “good times” that resulted in our present bad times? If the planet were unable to sustain our civilization unless we get the economy right this time, wouldn’t we have an ethical duty to reconsider some of those assumptions?

Enter Ecological Economics. Ecological economics (EE), as a field of study, uses the best science available about how the universe behaves, in order to envision an economy that works within the constraints of nature. Three fundamental issues are the core of EE: optimal scale of the economy, just distribution of resources, and efficient allocation. Compare this to traditional, neo-classical economics, which focuses singularly on efficient allocation via market mechanisms.

EE breaks down traditional academic silos. If there were laws of physics which scientists believed to be true under all circumstances– say, the laws of thermodynamics –then wouldn’t you expect economists to avoid negating those laws in their model of the economy? And let’s say social scientists found that people do not always make rational, self-motivated decisions to maximize their happiness. Wouldn’t you want economists to not assume the opposite in their model of how markets operate? EE also rightfully recognizes the economy as a subsystem within the larger ecology of the earth. This ecology certainly provides for the economy, but it also does a lot of other neat stuff. Take, for example, regulating climate and providing clean air and fresh water, for which there are no manufactured substitutes. As it turns out, much of that “other neat stuff” is not historically encompassed by the economy, nor is it amenable to efficient allocation on a market.

Ecological Economics, as a book, does a fantastic job of outlining the principles of EE. It explains the failings of old economic assumptions, and lays out a different set of assumptions grounded in science or rooted in principles of justice. The book covers its subject with appropriate humility for a new social science, an uncommon virtue among economic pontificators. It doesn’t claim to have the territory fully mapped, but it is exploring in the right direction. By this time you’ve gathered that the book is not fiction (we’ll leave the fiction writing to neo-classical economists), but it is an enjoyable read. The easy, lucid writing style belies the authors’ status as professors of economics. While the book might not be the optimal read for laying on the beach, it is fine for lay-people. The book is full of examples relating the material to the real world, and I find many of the concepts immediately relevant to how I perceive reality. The content is nicely structured so you can skip over anything that gets too dense for your taste.

Finally, the book is an efficient read. It is chock full of economic principles which would have taken me years of fumbling self-study to pick up on my own. The high-level sections are: An Introduction to Ecological Economics, The Containing and Sustaining Ecosystem: The Whole, Microeconomics, Macroeconomics, International Trade, and Policy.

I have heard it said that not all of the book’s assertions are grounded in science or research, which is criticism I assume the authors would strive to address in future editions. On the whole, however, I find the book to be well grounded. I’ll take Daly & Farley any day, compared to neo-classical economists who accept as fact the words of an 18th century moral philosopher. I have also heard the critique that Ecological Economics doesn’t adequately cover the fundamentals of economics, which means a “real” student of economics would have to go back to a traditional economics text to fill in the gaps. I would reframe this critique as a misguided assumption about what students of economics must learn first.

What do you imagine would happen if all budding economists were first grounded in what science knows of ecology, before internalizing the historic account of economic thinking which has brought society to our present global break-down? One book does not an economist make. But if it did, this is the book I would recommend. For the rest of us, Ecological Economics is a clear, useful, and enjoyable guide to turning over those old assumptions about what the economy is for and how it works.

Matthew Marichiba is a writer, engineer, community organizer, and MBA in sustainable management living in Santa Cruz, CA. He helps organizations develop profitable strategies to bring forth a world that is environmentally sustainable, socially just, and spiritually fulfilling. He can be reached at matthew at marichiba dot com.


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  • Sirid Kellermann

    Reading Daly & Farley and realizing that all of Economics is ultimately governed by the 2nd Law of Thermodynamics blew my mind, in part because of the beautiful obviousness and logic of the connection – and also the disturbing fact that most economists don’t realize this simple and critical principle.