Imperial Death March: Assigning value to ecosystems

We’ve asked and attempted to answer this question may times: What’s the cost of a tree? This question inherently implies that there is a price tag on that tree, and that price is a reflection of what one party is willing to pay for the benefits of the tree, and what another party is willing to receive in exchange for giving up those benefits.

In the attempt to reconcile ecological “value” in the marketplace, economic imperialism only recognizes this “value” in economic terms. It seeks an exchange rate between nature and the dollar. Like foreign currency exchange rates, this can never be a defined constant. Speculative forces cause markets to fluctuate, increasing or decreasing “values” accordingly.
Unfortunately, the same speculation that causes market fluctuations would also be required to estimate the future economic values of degraded ecosystems as they relate to global economic forces. Speculating degraded ecosystem value in economic terms is incredibly difficult, if not outright impossible considering the vast unknowns of the climate crisis. As Daly and Farley point out (p.52),

“while a meteorologist cannot accurately predict the weather in a week, she can at least stick her head out the window and say ‘it’s raining.’ Economists, on the other hand, at the time of this writing are in the midst of a heated debate over whether or not the economy is in a recession right now.”

(this book was published in 2004)
Economists may predict future values and apply discount rates, but they never know anything for certain until they look backwards on a quarterly or annual basis. Economic imperialism suggests that the market has the ability to not only project a measurable financial value on ecosystems, but it would also properly compensate those who suffer losses from their depletion.
Thus we are left with a massive flaw in economic imperialism: it can not be known who suffers and how much (financially) they suffer until it has already happened. The inherent flaw in this theory makes it impossible to mitigate damage and protect the environment solely through the market because the true economic impact of degradation is unpredictable and speculatively immeasurable.
Josh Gelfand is a full time student slated to graduate in May of 2010. Prior to joining the Presidio community he was the General Manager of Flexcar in San Diego

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5 responses

  1. Doesn’t the same analysis also apply to the future economic value of the utilization/exploitation of ecosystems? You treat the difficulty of pricing negative externalities, but the same analysis should also apply to the benefits side. You could just as easily have said “it can not be known who [benefits] and how much (financially) they [gain] until it [i.e., economic growth through careful utilization of resources] has already happened. The inherent flaw in this theory makes it impossible to [wisely exploit resources and better the human condition through economic growth] because the true economic [benefit] of [resource use] is unpredictable and speculatively immeasurable.”
    In other words, we don’t know either the upsides or downsides. Doesn’t mean that we shouldn’t make our best guess, right?

  2. Is it fair to say that economic imperialism is defined as economic dominance? The US Dollar is the most powerful currency in the world. But, the author assumes that there is something wrong with assigning a dollar/value to a tree, and that it has anything to do with economic imperialism. Fact is, like it or not, trees are in fact bought and sold as commodities. Trees are ripped out and sold and trees are planted. The trees that are ripped out and sold have a value. Trees that are planted have a future value. Sure, it’s impossible to say if it’s an equitable formula at this time, but — so what?
    Author’s argument:
    it can not be known who suffers and how much (financially) they suffer until it has already happened.
    Is the author assuming that it is a constant negative value to the ecosystem to sell trees?
    What if there were a unique species of insect that lived in a region that in a relatively short period of time would ravish and destroy and kill trees, and by selling the trees before this could happen was a net positive effect.
    Sell trees. Make pulp. Make dollar bills. There’s a direct value you can calculate.

  3. For clarity:

    Economic Imperialism is defined as a strategy for integrating ecology and economics that seeks to expand the boundary of the economic subsystem until it encompasses the entire ecosystem (Daly and Farley, p. 50). So it is NOT, as “Ev” claims, “economic dominance. This is a theoretical component of ecological economics that seeks to define ecosystems through an economic paradigm.

    Economics establish price-to-product/service ratios. The problem with economic imperialism is that it would price natural capital – like air, water and trees – relative to a perceived market value rather than valuing these necessities outside an economic subsystem, basing their values on the intangible benefits they provide.

    Alternatives to economic imperialism include economic reductionism, which sets the economy as a subsystem of the natural ecosystem. It suggests, falsely, that human action is entirely reducible to the laws of nature, or that the naturalistic principles that apply to ecosystems also apply to the economic subsystem.

    The best alternative according to Daly and Farley, which is the foundation of the ecological economics argument, is the Steady-State subsystem. This concept does not try to erase the boundaries between the economic and the ecological subsystems, rather it enforces the boundaries by dictating that the “throughput by which the ecosystem maintains and replenishes the economic subsystem must be ecologically sustainable.”

    So in your “Sell trees. Make Pulp. Make dollar bills” argument, you fail to understand the boundary between extraction and replenishment. Exploiting a finite resource, and relying economically on that exploitation, will inevitably lead to an unsustainable economy. Unless you are a nihilist, this is not a viable option.

  4. I find this discussion very interesting–but more–I find it reassuring that economics is being studied in relation to sustainable ecosystems. I would like to know how engrained into the American system of capitalism this thinking has become. I know that’s probably hard to assess. But are there mainstream economists and corporate leaders that are using this model?
    In any case, I am reassured by this thinking and encourage its continuation, so that all of us non-nihilists and our children can continue…

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