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Chapter 7: A Green Thumb on the Invisible Hand: Environmental Economics and Ecological Economics
- Rutgers University Press
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7 7 A G R E E N TH U M B O N TH E I N V I S I B L E H A N D Environmental Economics a n d Ecologic al E c onomics In the end, our society will be defined not only by what we create, but by what we refuse to destroy. — J O H N C. S A W H I L L The prospects of displacing neoclassical economics with an environmentally responsible economic theory would be greatly enhanced if mainstream economists were willing to recognize and come to terms with a scientifically valid truth—there is no basis in the neoclassical economic paradigm for realistically assessing the environmental costs of economic activities and internalizing these costs in pricing systems. The most expedient way to demonstrate that this is the case is to examine the manner in which neoclassical economists have attempted to graft a green thumb on the invisible hand in a subfield called environmental economics. Virtually all the economic solutions to environmental problems proposed by environmental economists are based on the mathematical formalism of general equilibrium theory. These economists, like other mainstream economists, rarely talk openly about the natural laws of economics that are foundational to this formalism, but they often make references to assumptions about economic actors implicit in the formalism. Economic actors are typically described as completely rational decision makers who invariably make choices that maximize their utility, or their economic satisfaction or well-being. But when we examine the manner in which these actors are actually described in the mathematical formalism appropriated from mid-nineteenth-century physics, these assumptions become more than a little problematic. In this formalism, the actors are depicted as point particles that move about and interact in an immaterial field of utility, and economic decisions are allegedly predetermined, or massively conditioned by, mechanisms associated with the natural laws of economics. This mathematical formalism obliges the environmental economists to assume that production and consumption do not alter the material substances out of which goods and commodities are made. Recall why the creators of neoclassical economists made this assumption—they did so to make the case that there is a symmetry between production and consumption in an immaterial field of utility in which lawful or lawlike mechanisms govern and control decisions made by economic actors and determine the value of goods and commodities. This explains why there is no basis in the mathematical formalism used by environmental economists for representing economic activities as physical processes embedded in and interactive with natural processes in the global environment. The environment in this formalism has value only as environmental goods, services, and amenities that can be bought, sold, traded, saved, or invested , like any other commodity, in a closed market system that must, if it is functioning properly, grow or expand. When environmental economists calculate environmental costs, they assume that the relative price of each bundle of an environmental good, service, or amenity reveals the “real marginal values” of the consumer. In the mathematical theories used by these economists, a marginal value essentially represents how much more a consumer is willing to pay to acquire a little bit more of something. Note what the writers of a standard textbook on environmental economics have to say about the dynamics of this process: “The power of a perfectly functioning market rests in its decentralized process of decision making and exchange; no omnipotent planner is needed to allocate resources. Rather, prices ration resources to those that value them the most and, in doing so, individuals are swept along by Adam Smith’s invisible hand to achieve what is best for society as a collective . Optimal private decisions based on mutually advantageous exchange lead to optimal social outcomes.”1 In environmental economics, the presumption that optimal private decisions “based on mutually advantageous exchange” in an amorphous field of utility lead to optimal social outcomes for the state of the environment is a primary article of faith. But according to these economists, this will not occur unless the following conditions apply—the market system in which economic actors make optimal private decisions must operate more or less perfectly, and the prices, or values, of environmental goods and services must be represented as a function of those decisions. But if these conditions are met, environmental economists assume that the lawful or A Green Thumb on the Invisible Hand 125 [18.208.172.3] Project MUSE (2024-03-28 18:24 GMT) lawlike mechanisms...