Natural vs Man-Made Capital

As we continue to fuel our all-important economic growth we begin to realize more and more that it has done all the good it can for us. In fact, it has started to become uneconomic growth; a growth that actually costs us natural capital (resources) and man-made capital (products). The costs of growth now outweigh the benefits.

Today’s neoclassical economists will have you believe that reduction of natural capital (resources) can be replaced with man-made capital. However, this is not true because in order to create man-made capital you require natural capital. Therefore, natural capital should be maintained as it is the limiting factor for man-made capital.

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Steady State Economy: An Overview

The Steady State Economy requires a shift in our focus as a culture, but what policies are actually developed and what are the fundamentals of this new paradigm? There are three main parts to a steady state economy: sustainable scale, fair distribution, and efficient allocation. The following are the definitions given by the Center for the Advancement of the Steady State Economy (CASSE):

Sustainable Scale

“The most important characteristic of a steady state economy, sustainable scale is achieved when the economy fits within the capacity of the Earth’s ecosystems.  Economic activity degrades ecosystems, interfering with natural processes that are critical to various life support services.  The unprecedented growth of economic activity has significantly shifted the balance with potentially disastrous consequences.  This is why getting the scale of the economy right (technically the point at which the marginal costs of growth equal the marginal benefits) is the highest priority for a steady state economy.”

Fair Distribution

“Since continuous growth and sustainable scale are incompatible, growth cannot be relied upon to alleviate poverty, as has been done (ineffectively) in the past.  If the pie isn’t getting any bigger, we need to cut and distribute the pieces in a fair way.  In addition, poor people who have trouble meeting basic needs tend not to care about sustainability, and excessively rich people tend to consume unsustainable quantities of resources.  Fair distribution of wealth, therefore, is a critical part of sustainability and the steady state economy.” (sometimes referred to as “Just Distribution”)

Efficient Allocation

“The conventional neoclassical school of economic thought focuses almost exclusively on efficient allocation of scarce resources.  The dominant thinking is that free and competitive markets, along with prices driven by supply and demand, result in efficient allocation of goods and services (in the absence of pesky, omnipresent externalities).  Efficient allocation is also important in a steady state economy – ecological economists support many market strategies to accomplish efficient allocation of resources – but only after achieving sustainable scale and fair distribution.  Efficient allocation, although a valid criterion for managing and using resources, means very little in an unsustainable or unjust economic system. ”

Steady State Economy Discussion

I will be going into more detail about the basics of the steady state economy as well as discussing the many other aspects of a steady state (i.e. what does this mean to our monetary system? how do we move from a growth economy to a steady state economy? what policies must we institute to provide a sustainable economy to our children?).

Please feel free to interject with opinions, ideas, and feedback as we take a look into the details of steady state economy!