Ecological economics in the stomach #1 Alarmbell

World map of countries by ecological footprint

World map of countries shaded according to their ecological footprint in 2006 (published on 25 November 2009 by the Global Footprint Network). It is measured by the amount of global hectares that are affected by humans per capita of the country. Lighter shades denote countries with a lower ecological footprint per capita and darker shaded for countries with a higher ecological footprint per capita. The total ecological footprint (global hectares affected by humans) is measured as a total of six factors: cropland footprint, grazing footprint, forest footprint, fishing ground footprint, carbon footprint and built-up land.


Halt in growth

Europe has enjoyed many decades of growth in wealth and well-being, based on intensive use of resources. But today it faces the dual challenge of stimulating the growth needed to provide jobs and well-being to its citizens, and of ensuring that the quality of this growth leads to a sustainable future.

The alarmbells rang already several times but lots of people do not hear them. Though  beginning of 2008 the world became confronted with serious economical problems. Following the break out of this financial crisis that originated in the most advanced countries, and then spread over to the emerging economies and less developed countries, the President of the United Nations General Assembly convened a panel of experts to discuss the large array of issues related to it. The American economist and a professor at Columbia University Joseph E. Stiglitz as Chairman had founded already the founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University in 2000. Also with the Collegium International, an organization of leaders with political, scientific, and ethical expertise he tryed to come to the goal to provide new approaches in overcoming the obstacles in the way of a peaceful, socially just and an economically sustainable world. Stiglitz also did research on efficiency wages, and helped create what became known as the Shapiro-Stiglitz model to explain why there is unemployment even in equilibrium, why wages are not bid down sufficiently by job seekers (in the absence of minimum wages) so that everyone who wants a job finds one, and to question whether the neoclassical paradigm could explain involuntary unemployment. (SHAPIRO, Carl and STIGLITZ, Joseph E. Equilibrium Unemployment as a Worker Discipline Device. The American Economic Review, Vol. 74, No. 3 (Jun., 1984), pp. 433-444.)
At the Stiglitz-Sen-Fitoussi Commission, initiated by President Sarkozy of France, a broad range of specialisations, from national accounting to the economics of climate change came together to conduct research on social capital, happiness, and health and mental well-being. They share the belief that it is important to build bridges between different communities – between the producers and users of statistical information, whatever their discipline – that have become increasingly distant in recent years. The report distinguishes between an assessment of current well-being and an assessment of sustainability, whether this can last over time. Current well-being has to do with both economic resources, such as income, and with non-economic aspects of peoples’ life (what they do and what they can do, how they feel, and the natural environment they live in). Whether these levels of well-being can be sustained over time depends on whether stocks of capital that matter for our lives (natural, physical, human, social) are passed on to future generations.

Since World War II collective services to citizens’ living standards, individual services, particularly education, medical services, public housing or public sports facilities have progressed in the positive sense. Here in the west people got much more on their plate (literally and figuratively.)

Grown emphasis on well-being

There has grown an emphasising on well-being which is important because there appears to be an increasing gap between the information contained in aggregate GDP data and what counts for common people’s well-being. The issue of aggregation across dimensions (that is to say, how we add up, for example, a measure of health with a measure of consumption of conventional goods), while important, is subordinate to the establishment of a broad  statistical system that captures as many of the relevant dimensions as possible. GDP which mainly measures market production – expressed in money units – mostly is been taken to denote the measure of economic well-being. Conflating the two can lead to misleading indications about how well-off people are and entail the wrong policy decisions. Material living standards are more closely associated with measures of net national income, real household income and consumption – production can expand while income decreases or vice versa when account is taken of depreciation, income flows into and out of a country, and differences between the prices of output and the prices of consumer products.

With people growing older and living longer not always in good healthy positions in today’s economies, services take up to two-thirds of total production and employment, yet  measuring the prices and volumes of services is more difficult than for goods. Traditionally, for government-provided non-market services, measures have been based on the inputs used to produce these services rather than on the actual outputs produced. An immediate consequence of this procedure is that productivity change for government-provided  services is ignored, because outputs are taken to move at the same rhythm as inputs.
From the perspective of living standards, what matters is that the distribution of income, consumption and wealth determines who enjoys access to the goods and services produced within a society.

The available national accounts data shows that in a number of OECD countries real household income has grown quite differently from real GDP per capita, and typically at a lower rate. The household perspective entails taking account of payments between sectors, such as taxes going to government, social benefits coming from government, and interest payments on household loans going to financial corporations.

Crucial assets for assessing living standards

Chomage-oecd-t3-2009

Unemployement rates in OECD countries and in France, until Q3 2009

As I already tried to prove in my series on the Poverty in Flanders, income and  consumption are crucial for assessing living standards, but in the end they can only be gauged in conjunction with information on wealth.

A household that spends its wealth on consumption goods increases its current well-being but at the expense of its future well-being. The Stiglitz Report also note that the consequences of such behaviour would be captured in a household’s balance sheet, and the same holds for other sectors of the economy, and for the economy as a whole. To construct balance sheets, we need comprehensive accounts of assets and liabilities. Balance sheets for countries are not novel in concept, but their availability is still limited and their construction should be promoted. Measures of wealth are central to measuring sustainability. What is carried over into the future necessarily has to be expressed as stocks – of physical, natural, human and social capital. The right valuation of these stocks plays a crucial role, and is often problematic. There is also a need to “stress test” balance sheets with alternative valuations when market prices for assets are not available or are subject to bubbles and bursts. Some more direct non-monetary indicators may be preferable when the monetary valuation is very uncertain or difficult to derive.

As the Report points out average income, consumption and wealth are meaningful statistics, but they do not tell the whole story about living standards. The last previous years we have seen enough cases were we could find a rise in average income, unequally shared across groups, leaving some households relatively worse-off than others. In Belgium we even noticed that sometimes an increase of a few cents  could leave the person with a loss of many Euros because he came in a higher tax scale.

Consumption and distribution

It is important that average measures of income, consumption and wealth should be
accompanied by indicators that reflect their distribution. Median consumption (income, wealth) provides a better measure of what is happening to the “typical” individual or
household than average consumption (income or wealth). But for many purposes, it is
also important to know what is happening at the bottom of the income/wealth distribution
(captured in poverty statistics), or at the top.

We got after the golden sixties a change in the services people received from other family members in the past to the purchase on the market. The way leisurement was filled in changed also a lot. A totally different life became chosen as a nice way to grow old. A consensus was found that quality of life depends on people’s health and education, their everyday activities (which include the right to a decent job and housing), their participation in the political process, the social and natural environment in which they live, and the  factors shaping their personal and economic security.

Importance of environment

We should be aware that it is not only the economical aspect and amusement possibilities that shall keep the people happy and healthy alive. The changes in the environment shall play a very important role in how a person shall be feeling. Climate change (due to increases in atmospheric concentrations of greenhouse gases) is also special in that it constitutes a truly global issue that cannot be measured with regard to national boundaries. The world has gone into “ecological debt“, having used up more resources and produced more waste in 2011 than the planet can cope with, and this demands its toll.

Humans have exhausted nature’s supplies such as land, trees and fish for the year and its capacity to absorb waste products including carbon dioxide, and are now “eating into savings”, the Global Footprint Network said. Despite the global economic crisis, humanity’s demands on natural resources continue to rise, although more slowly than before the credit crunch.

Andrew Simms, from the network’s partner organisation the New Economics Foundation (NEF), said: “At a time when the global economy is reeling due to the poor risk management and financial accounting of the banks, a potentially bigger crisis is growing due to our faulty accounting of the biosphere.

“Where finance is concerned, orderly bankruptcy is an option. But the consequences of ecological debt leading to failed ecosystems are likely to be beyond our control.”

The European Commission is aware of the bad situation ans wants to  tackle these challenges we are facing at. To turn them into opportunities our economy will require a fundamental transformation within a generation – in energy, industry, agriculture, fisheries and transport systems, and in producer and consumer behaviour.
Preparing that transformation in a timely, predictable and controlled manner will allow us to further develop our wealth and well-being, whilst reducing the levels and impact of our
resource use.

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Continues with: Ecological economics in the stomach #2 Resources

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  • Government stimulus measures too feeble: Stiglitz (theglobeandmail.com)
    An ardent faith in austerity spending by governments around the globe is “effectively a suicide pact” for the international economy, Nobel Prize-winning economist Joseph Stiglitz warned Tuesday.
  • Austerity is ‘suicide pact’ for major economies: Stiglitz(business.financialpost.com)
    Bloomberg

    Austerity programs adopted by the United States and Europe are “effectively a suicide pact for our economies,” said Nobel laureate Joseph Stiglitz.Cuts to government spending only lead to more job losses, resulting in further slowing of demand, Mr. Stiglitz told business leaders in Toronto.

    “It’s a vicious circle,” he said.

  • Happy Planet Index (theneteconomy.wordpress.com)
    Some countries use an awful lot of resources per each year of happy life whereas others do a better job of turning resources into happy, productive lives. more> http://twurl.nl/m2zxzo
  • JOSEPH STIGLITZ’S SWITCH IN TIME: Speaking before a group of protesters in Zuccotti Park, Nobel e… (pajamasmedia.com)
    … there was a time where some could be forgiven for not really understanding the nature of Fannie and Freddie, but this was published after Freddie’s accounting scandals came to light and while Fannie itself was being investigated.
  • World goes into ‘ecological debt’ (mirror.co.uk)
    The world has gone into “ecological debt”, having used up more resources and produced more waste this year than the planet can cope with, campaigners have warned.Humans have exhausted nature’s supplies such as land, trees and fish for the year and its capacity to absorb waste products including carbon dioxide, and are now “eating into savings”, the Global Footprint Network said.

    As a result natural resources are shrinking and carbon dioxide is accumulating.

  • Stiglitz: “President wasn’t willing to fight… for the kind of stimulus that the economy really needed” (americablog.com)
    John Aravosis in an interview with Chris and Nobel economist Joe Stiglitz
  • Stiglitz: A Contagion of Bad Ideas (economistsview.typepad.com)
    There has been much concern about financial contagion between Europe and America. After all, America’s financial mismanagement played an important role in triggering Europe’s problems, and financial turmoil in Europe would not be good for the US – especially given the fragility of the US banking system and the continuing role it plays in non-transparent CDSs.

About Marcus Ampe

Retired dancer, choreographer, choreologist Founder of the Dance impresario office and archive: Danscontact-Dansarchief plus the Association for Bible scholars, the Lifestyle magazines "Stepping Toes" and "From Guestwriters" and creator of the site "Messiah for all". - Gepensioneerd danser, choreograaf, choreoloog. Stichter van Danscontact-Dansarchief plus van de Vereniging voor Bijbelvorsers, de Lifestyle magazines "Stepping Toes" en "From Guestwriters" en maker van de site "Messiah for all".
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