"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*
by Dave Iverson

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.

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:

  1. Decision-making
  2. Sustainability
  3. Scale
  4. Technology
  5. Uncertainty, Risk, and Contingency
  6. Income and Wealth
  7. Value
  8. Welfare and Quality of Life
  9. Trade
  10. Efficiency

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:


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:


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:


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:

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:

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:


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:

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:


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 myth.

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:


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 include:

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.

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 10. In 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.

Literature Cited

  1. Maser, C. 1994. Sustainable Forestry: Philosophy, Science, and Economics. St. Lucie Press, Delray Beach, FL.
  2. Maser, C. 1992. Global Imperative: Harmonizing Culture and Nature. Stillpoint Publishing, Walpole, NH. (pp. 190-191)
  3. Nadler, G. and S. Hibino. 1990. Breakthrough Thinking. Prima Publishing and Communications. Rocklin, CA.
  4. Orr, D.W. 1992. Ecological Literacy: Education and the Transition to a Postmodern World. State University of New York Press, Albany.
  5. Costanza, R., B.G. Norton, and B.D. Haskell, eds. 1992. Ecosystem Health. Island Press, Washington, D.C.
  6. Schumacher, E.F. 1973. Small Is Beautiful: Economics as if People Mattered. Harper and Row. New York.
  7. Gould, S.J. 1992. Life in a punctuation. Natural History. October, 1992.
  8. 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.
  9. 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 Press, Boston.
  10. Gilman, R. 1992. Design for a Sustainable Economics. In Context 32, Summer 1992. Context Institute, Banbridge Island, WA.
  11. Brennen, A. 1992. Moral Pluralism and the Environment. Environmental Values 1(1):15-33.
  12. Bengston, D.N. 1994. Changing Forest Values and Ecosystem Management, Society and Natural Resources 7(6):515-533
  13. Norton, B.G. 1992. Thoreau's Insect Analogies: Or Why Environmentalists Hate Mainstream Economists. Environmental Ethics 13(3): 235-251.
  14. Bellah, Robert N., Richard Madsen, William M. Sullivan, Ann Swidler, and Steven M. Tipton. 1992. The Good Society. Vintage Books, New York.
  15. Hawken, P. 1993. The Ecology of Commerce: A Declaration of Sustainability. HarperBusiness, New York.
  16. Norton, B.G. 1991. Toward Unity Among Environmentalists. Oxford University Press, New York.
  17. Tickell, C. 1992. The Quality of Life: What Quality? Whose Life? Environmental Values 1(1):65-76.
  18. Sagoff, M. 1988. The Economy of the Earth. Cambridge University Press, New York.
  19. Iverson, D.C. and R.M. Alston. 1993. Ecosystem-based Forestry Requires a Broader Economic Focus. Journal of Sustainable Forestry 1(2):97-106.
  20. 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.