"Learning to Practice Economics In Context" is the second in our three-part
series on economics. It represents my attempt to formulate some questions to
help guide our inquiries. The questions are a sample of questions we might ask
ourselves in areas of: Decision-making, Sustainability, Scale, Technology,
Uncertainty/Risk/Contingency, Wealth/Income, Value, Welfare/Quality of life,
Trade, and Efficiency. The topic areas are covered superficially, with pointers
to a sampling of the literature on each.--- 6 pages. -- Dave.
Learning to Practice Economics In Context*
Chris Maser's most recent book Sustainable Forestry: Philosophy, Science, and
Economics 1 punctuates the need to practice economics
(and other disciplines) in context. Maser also believes that reliance on old questions and answers has
"led us to the mess we are in today and are leading us toward the even greater
mess we will be in tomorrow. ... Only when we are willing to risk asking new
questions can we expect to find new answers" 2.
by Dave Iverson
For some years I have been wondering what questions might set the stage for a
new agenda in natural resource economics. In what follows I offer up a few
questions, gathered from here and there, as first impressions of where natural
resource economics, which some now prefer to call ecological economics, might
go. Several categories come to mind:
- Uncertainty, Risk, and Contingency
- Income and Wealth
- Welfare and Quality of Life
Decision-making is listed first. If we fail in understanding appropriate
contexts for decision-making, and/or fail in understanding incentives faced by
those who hold a stake in decisions, then it matters little what other questions
we might ask. As analysts and decision-makers we have a responsibility to help
one another understand the importance of establishing appropriate context for
decisions. Just as Chris Maser's books are useful to help us establish context
generally, Breakthrough Thinking 3 is a good place to begin to understand why
context is so important in decision-making -- including principles, purpose,
practice, incentives and rewards, systems, hierarchy, scale, relationships, etc.
Since the future is contingent on many events (some foreseeable with attendant
risks known, some reasonably foreseeable but with unknown risks, and some
unforeseeable) it is puzzling why we stick to a decision-making model that
ignores contingency, risk, and uncertainty. But we do. At least we have for
most federal forest management decisions in the United States. In practice, we
have operated mainly by evaluating each project or program piecemeal, largely
ignoring future risk, uncertainty, and contingencies of life in nature and
society. We have also largely neglected the fact that each problem is embedded
in problems that have larger scope and broader purposes. Even forest planning
efforts suffer from these criticisms -- piecemeal efforts at a slightly larger
scale. Finally, we have failed to realize that many problems need never arise
if we pursue strategies of prevention rather than clean-up.
These failings are symptomatic of our collective denial that we now live in a
post-frontier world, or a postmodern world as some writers now refer to it 4.
In a frontier world, each project can safely be considered in isolation since
the scale of human endeavor is such that cumulative impacts can be safely
ignored. In our post-frontier world, many scientists and managers continue to
assume away the dynamic, contextual realities that many now believe can no
longer safely be ignored.
In addressing the other categories I will focus discussion on the relevance for
decision-making in each case. For decision-making, we should be asking:
- Who ought to be making decisions? In particular, how should those who
hold a stake in decisions be represented? What ought to be the role for
'specialists' vs. 'generalists' in decision-making?
- What are the incentives (disincentives) faced by decision-makers and
others who hold a stake in outcomes?
- Under what conditions should we be trying to "maximize (or minimize)
something?" Alternatively, under what conditions should we be more
concerned with maintaining options?
If one starts with a primary goal of working toward ecosystem health and
sustaining ecological integrity wherever possible -- and only in that context
work toward satisfying demand now and in the future for products, services, and
experiences -- the path will lead to a different outcome than that found in many
contemporary planning efforts. If we reorder our thinking to focus first on
learning how to live sustainably in an environment, and only then focus on how
to make a living in the environment, we end up in different place than if we had
approached it the other way around. Ecological, political, and social reasoning
help us learn how to live, and only within bounds set by these do we use
economic reasoning to help align means with desired ends in the short term.
Economic reasoning becomes a particularistic focus in the broader ecological and
social framing for ecosystem management. A good source reference for this
approach is Ecosystem Health: New Goals for Environmental Management 5.
Regarding sustainability, we should be asking:
- Are proposed actions sustainable over many generations?,
- Are there incentives to violate basic sustainability and other shared
concerns that may span many generations and affect humans and/or other
species in the future?
- What are the cumulative effects of proposed actions relative to ongoing
deliberations for broader, sometimes even global, concerns?,
- Are proposed actions compatible with agreements reached in prior
deliberations for relevant broader concerns? What precedents might be set
for future deliberations?
Scale is important not only to delineate bounds for various systems under
consideration, and to define the membranes through which inputs and outputs are
shared and fed back between systems, but to define the interrelationships
between decisions for interrelated problems. Scale is defined in terms of both
space and time. The time scale must be defined differently for economic systems
(noted for relatively faster speed in adaptation) and for ecosystems that
support economic production (noted for relatively slower adaptations under many
conditions, but also noted for rapid deterioration or degeneration under
stress). Questions we should be asking about scale include:
- Is the scale of proposed action(s) such that thresholds may be approached
which might alter the dynamics of interrelated systems?
- Are decision contexts framed so that what is done at any scale depends on
what is known across a gradient of scales, spatial and temporal?
Technology must be designed with scale in mind. If, for example, we were to
model world-wide transportation after the contemporary American model -- two
gasoline driven autos per household as a goal -- the scale of the endeavor would
point to the need to rethink many things, not the least of which would be the
goal itself. Working toward that goal using current technology would set in
motion certain dynamics where we would rapidly pollute ourselves out of
existence. Technology must be designed to be appropriate to the needs of people
both in the context of their local conditions and in the context of ever-broader
systematic concerns up to the ecosphere 6. Technology questions include:
- Is proposed technology appropriate in the context of local conditions, and
in the context of broader and broader concerns?
Uncertainty, Risk, and Contingency
In moving from a mechanical model for science to a biological/evolutionary model
we see that the notion of "steady-state equilibrium," so popular in forestry and
wildlife, gives way to "punctuated equilibria" where we can manage for
sustainability only in certain windows of time and space 7. Furthermore, we
must begin to recognize contingent possibilities that may destabilize any given
equilibrium. Some contingencies are "natural," whereas some are human-caused,
and come about through our ignorance or our failure to look beyond the immediate
or the proximate. Punctuated equilibria, with chaotic moments in between,
strikes at the deepest foundations of our knowledge of the world: namely the
conviction that change is always a matter of smooth little increments at the
margin. By embracing contingency we offer ourselves a chance to learn to
develop contingency plans and to adapt to events as they unfold. Questions
related to risk, uncertainty, and contingency include:
- Does any proposed action have irreversible consequences?
- How have uncertainty and risk been factored into decisions?
- Are contingency plans in place?
- Does our approach to decision-making allow for social learning now and
continuing into the future as we watch events unfold?
Wealth and Income
Wealth is equated to the affluence afforded from prudent use of the earth's
resources. Earth's capital might be thought of as the stock of materials from
which we derive sustenance. Through time this stock changes as we learn more
and apply changing technology. In this latter sense wealth is derived from
informational gains from sustainable use of the so-called renewable resources
plus informational gains derived from mining the so-called nonrenewable
resources. Much of our technological "progress" in the past few hundred years
is directly attributable to mining nonrenewable resources during the industrial
and chemical revolutions. Some people discount capital stock gains derived from
the nonrenewable resources, though, claiming instead that we have only speeded
our journey down the path toward oblivion. These technological pessimists
believe that we will but build our numbers on the basis of false expectations
and guarantee a much bigger day of reckoning than would happen in the absence of
mineable resources. Others disagree. For our purposes it is sufficient to
begin to understand the linkage between earth's capital and what we call
wealth. Income might be described as the annual flow of ecological surplus from
earth's capital. Although some economists continue to argue for the
substitutability of man-made capital and earth's capital, such arguments are
increasingly seen only from technological optimists -- those who believe that
technology and human ingenuity can overcome all, even a world increasingly
threatened with ecological systems collapse. Such optimism has been on the wane
for a decade or more. Those who take a more conservative tack argue that
man-made capital and earth's capital are compliments, not substitutes, and as
such only augment our informational gains as we care for the earth's ecosystems
8,9,10. Income and Wealth questions include:
- How are we measuring income and wealth? Do our measurements lead us
toward or away from sustainability?
Philosophers have been discussing value since the dawn of civilization.
Recently, environmental philosophers have continued this discussion, breaking
value first into two main subcategories: instrumental and intrinsic.
Instrumental values are often further subdivided into: demand values versus
transformative and other non-demand values. Intrinsic values are further
subdivided into anthropocentric and non-anthropocentric, each area being
subdivided even further. This values taxonomy 11
is useful if only to help us
to think beyond price for value. Regarding value, as a beginning we might ask:
- In what ways do we value forests? 12 Rangelands? Estuaries? Things we buy?
- How have our values changed over time? 13
- How do various values interrelate in making decisions and establishing
institutional frameworks? (Try: The Good Society 14, The Ecology of Commerce 15, and Toward Unity Among Environmentalists 16)
Welfare and Quality of Life
We should approach the subject of welfare with "quality of life" in the
forefront of our thoughts. Two questions are immediately relevant for quality
of life discussions: Whose quality? And what Life? 17
These questions open
up a Pandora's Box since intergenerational, as well as distributional, questions
are embedded in both. The "population problem," so effectively swept under the
rug by the moral majority during the 1980s, is back on the table. The second
question, "What life," opens the door wide to entertain questions about
desirability of various species mixes locally and globally now and in the
future. Questions include, at root:
- Whose quality?
- What life?
In their book For the Common Good 18, Herman Daly
and John Cobb argue that
there is a legitimate case to be made against free trade. That said, they argue
that nine out of ten arguments from those who favor tariffs, quotas, or other
trade restrictions can be exposed as self-serving and against the public
interest. Daly and Cobb argue for balanced trade instead of free trade. They
base their argument on the idea that the playing field for trade agreements is
not level across the world--in terms of human rights (of workers in particular)
and environmental protection. They argue that we ought not enter into trade
agreements that exploit workers or the environment. A nagging question is, "How
do we get from where we not stand to where Daly and Cobb would like us to be."
But pointing out where we want to go is certainly a first step in getting there.
Under our current system, we find that when capital moves toward "best buys for
labor" in the short-term a dynamic for ever-worsening trends for laborers and
the environment is set in motion. Each round of short-term gain for those who
underwrite the ventures exploits both laborers and the environment. In the
longer-term, nearly all will lose as capital is concentrated into fewer and
fewer hands. Ultimately financial capital becomes useless if natural capital is
squandered. Daly and Cobb have little respect for the argument that we can grow
our way out of the problem and spend considerable time debunking this popular
Daly and Cobb's proposed "balanced trade" is meant to "build and strengthen the
weakening bonds of national community first, and then expand community by
federation into larger trading blocs among national communities that have
similar community standards regarding wages, welfare, population control,
environmental protection, and conservation". Regarding trade, we might ask:
- What are the impacts (long term, short term) of trade agreements on the
environment? What are the impacts on human rights? What obligations do
we have to non-humans; e.g other species, ecosystems?
- Are we working toward 'balanced' trade? Should we be?
Efficiency is a relative concept, transformed into a seemingly absolute concept
when neo-classical rational planning economists made what philosophers call a
"category mistake." Simply put, these economists took a concept that could only
be used to help align means with ends, and made it an end in itself 18,19.
Instead of focusing simply on efficiency indices like present net value and
benefit-cost index numbers, economists and decision-makers should be asking
indepth questions about the efficiency of projects and programs. Questions
Finally, dynamics should always be drawn into discussions on efficiency and
other topics. A good introduction is gained by asking: And then what? Garrett
Hardin in his book Filters Against Folly 20 suggests that we ask "And then what?" repeatedly. By doing so we are able to discover the long term effect of
schemes proposed by those who might be guided by tunnel vision.
- Efficient at what?
- Efficient for whom?
- Efficient for how long?
- Efficient by what standard?
It is time to design a new approach to what has been traditionally
called natural resource economics. For me, that approach must recognize the
interdependence between economic systems, social systems, and natural systems.
It would also have to discuss the history of development of economic thought and
the relevance of the discipline in today's and tomorrow's world, recognizing
that tomorrow's world is as likely to surprise us in its form and conduct as our
world would have surprised our ancestors. In this transition, we must not only
develop a new and holistic world view as a foundation upon which to build, but
we need to transcend methods developed for a perceived frontier-world
particular, we in government must set aside our various government economics
manuals and handbooks and begin anew. Our new-found interest in ecosystem
management gives us a perfect opportunity to refashion the economics
discipline. Reframing the questions that define programs for research and
practice is a beginning.
- Maser, C. 1994. Sustainable Forestry: Philosophy, Science, and Economics. St. Lucie Press, Delray Beach, FL.
- Maser, C. 1992. Global Imperative: Harmonizing Culture and Nature.
Stillpoint Publishing, Walpole, NH. (pp. 190-191)
- Nadler, G. and S. Hibino. 1990. Breakthrough Thinking. Prima Publishing and Communications. Rocklin, CA.
- Orr, D.W. 1992. Ecological Literacy: Education and the Transition to a
Postmodern World. State University of New York Press, Albany.
- Costanza, R., B.G. Norton, and B.D. Haskell, eds. 1992. Ecosystem Health. Island Press, Washington, D.C.
- Schumacher, E.F. 1973. Small Is Beautiful: Economics as if People Mattered.
Harper and Row. New York.
- Gould, S.J. 1992. Life in a punctuation. Natural History. October, 1992.
- Daly, H.E. 1992. From Empty-World Economics to Full-World Economics:
Recognizing an Historical Turning Point in Economic Development. pp. 23-37.
In R. Goodland, H.E. Daly, and S. El Serafy eds. Population, Technology, and
Lifestyle: The Transition to Sustainability. Island Press, Washington, D.C.
- Daly, H.E. and J.B. Cobb, Jr. 1989. For the Common Good: Restructuring the Economy Toward Community, the Environment, and a Sustainable Future. Beacon
- Gilman, R. 1992. Design for a Sustainable Economics. In Context 32, Summer 1992. Context Institute, Banbridge Island, WA.
- Brennen, A. 1992. Moral Pluralism and the Environment. Environmental Values
- Bengston, D.N. 1994. Changing Forest Values and Ecosystem Management, Society and Natural Resources 7(6):515-533
- Norton, B.G. 1992. Thoreau's Insect Analogies: Or Why Environmentalists
Hate Mainstream Economists. Environmental Ethics 13(3): 235-251.
- Bellah, Robert N., Richard Madsen, William M. Sullivan, Ann Swidler, and
Steven M. Tipton. 1992. The Good Society. Vintage Books, New York.
- Hawken, P. 1993. The Ecology of Commerce: A Declaration of Sustainability.
HarperBusiness, New York.
- Norton, B.G. 1991. Toward Unity Among Environmentalists. Oxford University Press, New York.
- Tickell, C. 1992. The Quality of Life: What Quality? Whose Life?
Environmental Values 1(1):65-76.
- Sagoff, M. 1988. The Economy of the Earth. Cambridge University Press,
- Iverson, D.C. and R.M. Alston. 1993. Ecosystem-based Forestry Requires a
Broader Economic Focus. Journal of Sustainable Forestry 1(2):97-106.
- Hardin, G. 1986. Filters Against Folly. Penguin Books, New York.
* A slightly condensed version appeared in Analysis Notes 4(2):16-18, August 18, 1994, WO/Ecosystem Management Analysis Center, US Forest Service, Ft. Collins,
CO. Dave Iverson is Regional Economist, Intermountain Region, USFS.