Biophysical economics and the goose that laid the golden egg
December 15th, 2008 by Jim JustKurt Cobb at Resource Insights says our current financial crisis is rooted in our “growth” economy itself, which is nothing more than a Ponzi scheme: each new wave of lending is made based on the faith that future flows of energy will increase sufficiently to create enough economic growth to pay off the new loans. And you can’t bail out a Ponzi scheme, no matter how infatuated we are with the promised returns. The more we continue to invest, the greater the inevitable crash.
Cobb’s analysis draws on the work of systems ecologist and energy researcher Charlie Hall. Hall’s paper “The Need for a New, Biophysical-based Paradigm in Economics for the Second Half of the Age of Oil” explored what a more reality-based economics might look like and its place within the history of the economic discipline.
The major failing of “mainstream” economics is that it fails to recognize that energy does the work of producing and distributing wealth. Wealth is generated by the application of energy by human society to the exploitation of natural resources. Nature generates the raw materials with solar and geological energies, and human-directed “work processes” are used to bring those materials into the economy as goods and services.
Biophysical economics begins with the recognition that an economy must live within, and is completely dependent upon, the resources and constraints of the local and ultimately global ecosystem. Unlike most of ecological economics, biophysical economics does not merely attach a dollar value to nature, moving nature within the boundaries of the economic system, but insists that economies be thought of as living within the global ecosystem, as that is the necessity and the reality. Biophysical economics says “start with the essential process, value it on its own terms and on its contribution to the welfare of all creatures on this planet (including humans) and think about money only much later”.
Hall’s article includes this indictment of market economics:
. . . which marginalizes the most important parts of our economy using a value system that has little to do with real value to our children, which uses positive discount rates when we should be insisting upon negative ones, also in deference to our children, which worships the false god of growth as providing solutions to the very problems that growth generates, and which assumes the worse in us as a basis for guiding us along the road to the future. If there ever was a recipe for disaster this is it. Future economists will not forgive us.
Cobb’s great insight is this that we have confused wealth with money. The source of wealth is not the financial markets or the banks, but rather the very earth, air and sea around us. The tragedy of our times is that while we strive to turn Earth’s resources into money, we are destroying the Earth itself.
Aesop millennia ago wrote the fable The Goose That Laid the Golden Eggs. Have we, and economists, learned so little?