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Rethinking ECONOMICS 101 Maggie Winslow, Ph.D.

Rethinking Econ 101

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Slides for a talk I will be giving on rethinking neo-classical economics education

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Page 1: Rethinking Econ 101

Rethinking ECONOMICS 101

Maggie Winslow, Ph.D.

Page 2: Rethinking Econ 101

• We the undersigned, senior members of the world’s scientific community, hereby warn all humanity of what lies ahead. A great change in our stewardship of the Earth and the life on it is required if vast human misery is to be avoided and our global home on this planet to be irretrievably mutilated. – UCS 1992

• Human activity is putting such a strain on the natural functions of the Earth that the ability of the planet’s ecosystems to sustain future generations can no longer be taken for granted. – MEA 2005

Page 3: Rethinking Econ 101

What is the Point of SUSTAINABILITY?Human survival/quality of life

Page 4: Rethinking Econ 101

What is the problem with Econ 101?

• Approximately 1 million U.S. college students per year take economics.

• They are being taught a model that is incorrect and that leads to misperceptions about the world and the market.

• This has repercussions for understanding of and attitudes towards environmental sustainability.

Page 5: Rethinking Econ 101

Socially Constructed Vision

• Unlimited economic expansion is possible through free markets and free trade.

Page 6: Rethinking Econ 101

Classic Diagram From MicroeconomicsAllocate resources based on market price

Facilitate free trading to achieve optimal outcome

S

D

Q

P

P*

Q*

Page 7: Rethinking Econ 101

PROBLEMS:• Consumers are irrational – cognitive science

• Individual consumption decisions ≠ society flourishing

• Requires perfect information

• Prices based on current generation’s valuation • No upward sloping supply curves – original concept based on

agricultural land quality

• Most goods priced based on mark-up on cost or with a pricing strategy

Page 8: Rethinking Econ 101

Externalities andPublic Goods

Page 9: Rethinking Econ 101

Firms Households

$

Goods and Services

Labor

$Environment

Classic Diagram From Macroeconomics

Savings/Investment

Taxes/ Government Spending

Imports/Exports

Page 10: Rethinking Econ 101

Firms Households

$

Goods and Services

Labor

$

Ecosystem

Classic Diagram From Macroeconomics

Page 11: Rethinking Econ 101

SolarEnergy

Ecosystem

Degraded matter

Wasteheat

Matter

Renewable,Fossil,Atomic energy

recycling

EconomicSystem

Low grade thermal energy

Page 12: Rethinking Econ 101

Limits to Economic Growth

Ecosystem’s capacity to 1. Regenerate renewable resources2. Restore ecosystem services

Technological capacity to3. Recycle and/or substitute non-renewable resources

Page 13: Rethinking Econ 101

1. Within the regenerative and 2. Re-absorptive capacity of the

environment and 3. Within our capacity to recycle or

replace non-renewables.

If we are using resources faster then this, we are drawing down capital. It isn’t income, it is capital spending.

Economic growth rate has to be:

Page 14: Rethinking Econ 101
Page 15: Rethinking Econ 101
Page 16: Rethinking Econ 101

The Great Acceleration

From William Rees

Page 17: Rethinking Econ 101

EROI of Global Energy Resources: Preliminary Status and Trends, Charles Hall et al. 2012

Page 18: Rethinking Econ 101

Image from Energy and the Wealth of Nations, Hall and Klitgaard, 2012

Page 19: Rethinking Econ 101
Page 20: Rethinking Econ 101

Image from Energy and the Wealth of Nations, Hall and Klitgaard, 2012

Page 21: Rethinking Econ 101

Econ

101

?

Page 22: Rethinking Econ 101

Human Capital EconomicProduction Process

GoodsandServices

EvolvingCulturalNorms andPolicy

Well Being(Individual andCommunity)

Consumption(based on changing,adapting preferences)

Education, training,research.

Building

Investment(decisions about, taxescommunity spending,education, science andtechnology policy, etc., basedon complex propertyrights regimes)

Individual Public

GDP

Wastes

Common

Ecologicalservices/amenities

having, being

- having,- being

negative impacts on all forms of capital

being, doing, relating

Restoration,

Conservation

Natural Capital

ManufacturedCapital

having

positive impacts on human capital capacity

doing, relatingComplex propertyrights regimes

SolarEnergy

Social Capital

Lim

ited

Su

bst

ituta

bili

tyB

etw

ee

n C

ap

ital F

orm

s

Simple Model of the Economic System

Waste heat

Institutionalrules, norms, etc.

From: Costanza, R., J. C. Cumberland, H. E. Daly, R. Goodland, and R. Norgaard. 1997. An Introduction to Ecological Economics. St. Lucie Press, Boca Raton, 275 pp.

recycling

LimitedEnergy

GDP

Page 23: Rethinking Econ 101

What Should Be Taught in Econ 101?• Inexpensive fossil fuels have allowed unprecedented

expansion in the past 100 years• There are ecosystem-based limits to growth• Ecosystem services are vital for human well-being and

the production process• As we use up resources, we decrease what is available

for future generations.• If continued growth is not possible, consumption by

wealthy is decreasing ability of poor to exist.• Before we talk about efficient allocation of resources,

we need to talk about scale of the economy and distribution of wealth/resources