When people think about the economy, they most often think in terms of jobs and income but there’s much, much more to economies than that. Almost every decision by every person in every capacity has an economic impact; humans are constantly making economic decisions. There are the obvious personal purchasing, career and education decisions; and then simple time allotment decisions also have economic impact - if only to choose an income generating activity (overtime work, money earning hobby, etc.) or not. On the business side, all decisions have economic consequences: personnel, sourcing raw materials, outsourcing labor, business expansion, waste disposal, product concentration, charitable donations, etc. And every institution, especially and including all levels of governments affect economies; consider how budgets and allocation limit research and social spending; regulation and policy affect business decision which affects jobs and income, closing the loop.
But even this perspective offers only a two dimensional view of economics. For a broader, three dimensional, view, it will be necessary to venture into the realm of externalities and how they feed back to economies. This discussion, in particular, will focus on an often disregarded aspect of the relationship between economies and the environment.
[This is the supplementary subtext to an earlier diary:
Part 1a: It's not the economy, Stupid; it's economics
It has since morphed into a series of essays describing economies from a different perspective.]
Given that ‘an economy or economic system consists of the production, distribution or trade, and consumption of limited goods and services by different agents in a given geographical location’ the material flow of an economy can be represented as its transition from raw natural form to finished product ready for consumption before being discarded as waste (Figure1).
And prior to the
industrial revolution, those interested in esoteric economics had no need to extend their study beyond the red arrowed processes of this simple diagram. The environment supplied the raw materials with such abundance and dispelled waste with such efficiency that economists could safely assume these services to be ubiquitous and could be disregarded in economic accounting. In reality, everything on this planet, (economic) raw materials, organic biomass and all inorganic material are subject to elemental
biogeochemical and
geochemical forces (Figure 2). As nature’s ultimate recycling ‘factories’, these forces continuously cycle matter into different forms.
In keeping with the factory metaphor, for most of civilization, the environment was able to absorb the discarded economic waste and convert it back into raw organic/inorganic materials. Implements composed of organic materials such as wood, leather and edibles were broken down by
decomposers and re-entered the food chain; metallic objects
corroded over time and dissipated back into the environment. When the volume of economic waste was within the capacity of the the environmental factory to process, all planetary matter was in flux, transitioning through stages of formation, degradation and re-formation. So long as the environment was capable of servicing the economy by recycling its discarded products back into raw material input for economic production, the economy could run indefinitely.
This gave rise to the assumption that environmental resources are limitless and therefore could be externalized and set outside of economic accounting (Figure 3).
But the transformation of the global economy in the two hundred and fifty years since the advent of the
industrial revolution has put additional pressure on the environment (Figure 4). Advances in
mechanization, power use and science and technology, have scaled raw material extraction, manufacturing capacity and inventions of new synthetic materials to levels beyond what had ever been achieved in the past. With seemingly unlimited power to be had in the seemingly unlimited supply of fossil fuel, business leaders took advantage of every opportunity to profit from exploiting the environment to feed a
material economy. One byproduct of this frenetic economic activity is the reversal of the balance between human activity and environmental recycling ‘factories’.
This boom in economic activity has affected the environment in three major areas: (1) The extraction of raw materials can be highly detrimental to ecosystems and wildlife habitats (see
here and
here). (2) Materials economies based on high volume consumption and rapid turnover produce high volumes of waste (see
here and
here). (3) Commercial volume production of synthetic materials (plastics are a good example) adds novel compounds to the waste stream that natural systems are not evolved to break down (see
here and
here). The long term negative consequence on the environment eventually adversely feeds back to the economy.
By externalizing the environment, economies are treating the environment like a neglected sewage treatment facility. Commercial extraction of resources is equivalent to the destruction of processing equipment. This while constantly increasing the rate of influx of raw sewage, placing an ever growing demand to increase capacity. Then incoming sewage gradually shifts to contain higher and higher levels of materials the facility was not designed to process and is toxic to current processing methods. The result is an enormous backlog of industrial waste polluting the environment. This is the impact of advanced economies on not individual economic zones but the entire planet.
The planet and its resources are finite (Earth has a finite mass). By externalizing environmental resources and assuming they are infinite to support the production and consumption of disposable consumer goods, economies have created a imbalance between consumption and environmental resources. As this imbalance is the product of the economic activity, their resolution lies in economic decision making (this is a good information resource). That is not to say the solution is to deindustrialize modern economies but rather, a call for economists to incorporate long term environmental sustainability into their economic models.
This would be in keeping with economics as defined in my earlier post: the study of self-organizing, self-sustaining economies to facilitate the production and exchange of surplus goods and services to promote the survival and well-being of workers. Pixar’s WALL-E should be a fictional depiction of future Earth, not a future projection of current Earth.
Go to Part 2.