Post-Growth, Credit, Interest and Money

As impressively (though unwittingly) shown by Francis Fukuyama, attempts to imagine the future of societies are likely to go wrong. Extrapolation of trends can well be a bad idea. On the other hand, some idea about what the future is to look like is needed when a major transformation of the society is to be attempted. The transformation towards a post-growth society is no exception here. It would be naive to expect an exacting outline of how a post-growth society is supposed to work, but it is important that those advocating it at least try to give answers to some inconvenient questions: what about productivity growth? Can universal basic income, supported by many in the degrowth movement, work? And what about the monetary and financial systems? The latter question has gained some attention recently, and some argue that monetary factors might be a main obstacle for a post-growth society. Their arguments should get proper consideration if we do not want to choose the wrong transition “trajectory”, given path dependencies so common in socio-economic systems. Continue reading

What Do We Need Homo Oeconomicus For?

A few days ago, the celebrity among German economists, Hans Werner Sinn, published a short piece in the Süddeutsche Zeitung in which he defends economics against common and, according to him, mistaken criticisms. I won’t take issue with all 6 points he raised (invisible hand, ecology vs economics, Keynesianism vs neoclassical economics, competition, neoliberalism and homo oeconomicus), instead focusing on the last one. I had started writing a post on this anyway, so Sinn’s commentary comes just-in-time. The main question behind my criticism of Sinn’s presentation of the problem is: what do we need homo oeconomicus for? Continue reading

On Grasses, Transects and Statistics or Science Is a Mess

As an environmental economist, I in a sense build my work upon the work of others. So, its foundations are provided mainly by ecology and related (sub-)disciplines such as conservation biology. However, while diving into some aspects of these disciplines and interacting with biologists who actually work in the field, I have realised that in many cases, reality is much more messy than a superficial look into the respective literature might suggest. Continue reading

Is Economics a Science? Dogmatic Economics Vs. Reflective Economics

A thought-provoking text that is somewhat complementary to my last post on the “monolith of economic theory“.

Fixing the Economists

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The question asked in the title of this post is actually somewhat of a trick. It is a trick because it all depends upon how you define ‘science’. Often when people say that economics is a science what they are doing is defining ‘science’ in such a way that economics fits the bill. They can do this because there is no real, firm definition of ‘science’ that is widely held among philosophers of science, scientists or, most certainly, among economists (who are the most anti-intellectual of the three groups by far).

If we look at Wikipedia, for example, it gives a definition of science that is Popperian — despite the fact that Popper’s falsifiability criteria have been called into question since the 1960s.

Science (from Latin scientia, meaning “knowledge”) is a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the…

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The Seeming Monolith of Economic Theory As Taught at a Typical Economics Department

It is not only the world economy that is in crisis. The teaching of economics is in crisis too, and this crisis has consequences far beyond the university walls.

Thus begins the open letter of the International Student Initiative for Pluralism in Economics. As a former student of economics, I can only subscribe to that statement. Economics as a discipline (seemingly) does not offer much diversity of approaches. But economics curricula at most universities are even worse: they do not display even this bit of diversity that does exist. Indeed, this is one of the reasons why I started writing The Sceptical Economist more than four years ago. Continue reading

The Not-So-New Climate Economy Report

An alliance of the most influential global institutions, including the UN, World Bank, IMF and OECD, just issued a report of the Global Commission on the Economy and Climate, chaired by Felipe Calderón and Nicholas Stern. The report’s title is Better Growth, Better Climate: The New Climate Economy. In a nutshell, it says that not only is climate action compatible with economic growth, but the two may actually work as a positive feedback loop: more climate action leading to more growth, “smart” growth-spurring policies reducing emissions of greenhouse gases. By and large, the report does not contain any new arguments, as it is more of a synthesis of existing research. Alas, it is a synthesis of only a part of existing research, which can be already seen in the title: economic growth is a main objective along with the mitigation of climate change. You’ll vainly look for any reference to the degrowth and a-growth debates, and so the report, while valuable in some respects, reproduces many of the common errors of growth-enthusiasts. Continue reading

On Economic Valuation and Sick Mothers

I have spent most time this week at the Fourth International Conference on Degrowth for Ecological Sustainability and Social Equity, which takes place in Leipzig. In one of the sessions today, my doctoral father had the pleasure(?) to defend the economic (valuation) approach to environmental problems in a panel discussion. Most arguments used in this discussion against the economic approach were, I say it frankly, nonsense. Either they resulted from misunderstanding or from confusion or they just didn’t have anything to do with the issue. The only two valid arguments I was able to filter out were: a) that economists often treat ecosystems atomistically in that they value single ecosystem services and then just “add them up”, which is a practice I am very concerned about, too, and b) that the economic approach hasn’t achieved anything so far (which is debatable, but still a valid critique, as there is no systematic assessment of this issue to be checked against). Today, however, I would like to respond to one of the misconception-based arguments, for I think that it shows in an impressive way what economics is (not) and why we need economic analysis. Continue reading

Is Economic Valuation a “Neoliberal Road to Ruin”? A Response to George Monbiot

George Monbiot is actually an environmental journalist I esteem highly. But I do not agree with his aggressive criticism of what he calls a “neoliberal road to ruin”, which I would prefer calling economic valuation of environmental goods and services [the linked article is a transcript of Monbiot’s talk, which you can see below]. While he does make important points, I see his criticism as mistaken in many respects. In what follows, I would like to respond to some of the points he made. Continue reading

Ecosystem Services or The Downsides of Choosing the Wrong Namesake

Just a few days ago I published a post in which, among other things, I criticised economists for using the term “value of a statistical life”, as it begs to be misinterpreted and opens up space for criticism that is actually based on misconception. Today, I realised that often I must deal with a similar issue in my own research field. “Ecosystem services”, while arguably originally an eye-opening metaphor, seen from today’s perspective was a badly chosen term. It invites criticisms of the approach that are at odds with its essence, but are suggested by its name. Continue reading

The Economic Value of a Statistical Life

A human life is worth $4 million to $9 million. At least according to an authoritative meta-analysis of economic studies that estimate the so-called “value of a statistical life”. This is one of the most controversial issues in modern economics, which has met with vast criticism. Particularly, it has been argued that one cannot attach a price-tag to the life of a human being. In what follows, I would like to argue that a) this criticism is largely based on a misconception of the estimates; b) economists can only blame themselves that the misconception actually arised; and c) the calculation of the value of a statistical life is not sensible, albeit for reasons different from the ethical ones that are commonly used to argue against it. Continue reading

It’s Deliberation, Stupid!

Economic valuation, attaching price tags to nature, is considered wrong by many people. The reasons are divergent, ranging from complete rejection of the idea that the value of nature could be reduced to a price to critique of specific valuation methods, especially those based on questionnaires in which people are asked about their willingness-to-pay for an environmental good in a hypothetical market. Except for the general rejection of the economic approach, which I can understand but do not accept, many of the criticisms can be approached and incorporated. A particularly promising path towards “better” economic valuation is the still seldom applied class of deliberative valuation methods. Continue reading

Resource Economics’s Most Problematic Assumption

Every theory or, to use the term famously coined by Thomas Kuhn, paradigm is based on a set of assumptions. Some assumptions are more, others less important for the overall theoretical system that is built upon them. This has to do with the ease with which they can (or cannot) be relaxed if shown not valid. It is, however, a truism that every model, theory or paradigm must be based on simplifying assumptions and that “closeness to reality” is seldom a relevant criterion for their evaluation (this latter statement must be, of course, qualified, which I will do below). Resource economics, i.e., the branch of economic theory that deals with the exploration, extraction and markets for (non-renewable) resources is no exception from this rule. One of my professors at the university used to present empirical findings regarding important assumptions of economic theory (such as the interest rate parity) by stating: “This is one of the few economic assumptions that stand up to reality.” The so-called Hotelling’s rule, one of the crucial models and assumptions of resource economics, is not one of those few. Continue reading

Productivity Growth in a Post-Growth Society

In Robert Solow‘s (in)famous growth model, perhaps the most important part was what is now called the “Solow residual” or “Total Factor Productivity” (TFP)–the part of economic growth that cannot be explained by changes in the input of the factors “capital” and “labour”, which is, in effect, the result of technological progress. In other words, TFP is a reflection of us learning how to produce more with the same amount of input. A recurrent theme in this blog is that quantitative GDP growth is highly problematic, mainly due to the related pressures on natural ecosystems. However, even if we decide to stop growing–or, better, to stop focusing on growth–, it is not obvious that we can actually achieve it. And TFP is one of the reasons why this isn’t as simple as many in the degrowth movement seem to believe. Continue reading

Putting a Price on Nature’s Beauty

In a recent Guardian piece George Monbiot was quite hard on my profession–or rather, on the issue of how politicians use the ideas behind the concept of economic valuation of ecosystems:

As Ronald Reagan remarked, when contemplating the destruction of California’s giant redwoods, “a tree is a tree”. Who, for that matter, would care if the old masters in the National Gallery were replaced by the prints being sold in its shop? In swapping our ancient places for generic clusters of chainstores and generic lines of saplings, the offsetters would also destroy our stories.

While I do not think that economic valuation is useless, an important question implicitly posed by Monbiot is: even if economists know what they’re doing and where the limits of their work are, is it justified to expect that politicians do? To price or not to price: That is the question…

Positive Economics and Psychology

Economists often argue that in their research their engage in positive science, which means that they use models of human behaviour to test the consequences of various policy scenarios. Importantly, they do not engage–in their own contention–in normative analysis, i.e., they do not attempt to formulate prescriptions as to which policies/modes of behaviour are the right ones (except when “right” means “welfare maximising”). There is much to be questioned about that, including whether economics actually deserves being called a science or whether welfare maximisation is or, in fact, can be normatively neutral as a source of guidance for analysis. I will not dwell upon these questions today. Rather, today’s topic is the model of human behaviour conventional economics rests upon and whether one can call the application of this model–the so-called homo oeconomicus–positive analysis. Continue reading

Emissions Trading and Feed-In Tariffs: Do We Need Both?

When I started this blog some 3.5 years ago, the focus was on climate issues, particularly climate economics. More recently, however, I have neglected this topic a little. Fortunately, working at a research institute gives one the opportunity to learn a lot about things other scientists do–e.g., regarding the quite popular question whether the EU needs both emissions reduction and renewable energy deployment targets such as the 20-20-20 target. In other words: do we need an energy mix consisting, e.g., of emissions trading and feed-in tariff schemes? Or is emissions trading enough to reach policy goals? And, by the way, what are these goals? Continue reading

9th Graders Can Publish Scientific Papers, Too

I just stumpled upon a paper published in the prestigious journal Ecological Economics, titled Determining the willingness to pay for ecosystem service restoration in a degraded coastal watershed: A ninth grade investigation, 31 of whose 36 authors are 9th grade students of a high-school biology class (from this public high school in New Jersey). Here is part of the introduction to the paper:

Designing and conducting our study was very difficult, but undoubtedly the hardest step of the process was writing the paper. For example, before we began writing we had to review and synthesize the existing literature about ecosystem valuation. The papers were sometimes too advanced for us to fully understand, but after reading so many, we were able to gain a general understanding. We assigned different students to write different sections of the paper, but the amount of effort each individual was willing to provide varied, essentially leading to a jumble of sections filled with pretentious scientific jargon that masked a lack of understanding on the part of many students. This may have been because of a lack of effort on the part of some, or the misguided efforts of students to make the paper conform to what they thought science (and scientific writing) was. Also, we had to learn how to tailor our paper to this journal, Ecological Economics, working to format it so that it fit the requirements. The problems we faced may also have stemmed from having such a large class working on one paper or just from struggling to understand the data. In addition, the statistical data analysis and models we used were beyond the grasp of most of our class, thus making discussions about the results more difficult. This also complicated our ability to draw conclusions based on our findings. It was not a simple process.

To me, the sole idea of such a project is great. But the fact that the paper actually has got published is even better. Thumbs up for the editors of Ecological Economics. And thanks to the students for showing that you don’t have to have a well-known name to get published in meaningful journals (unless it is the American Economic Review, where you have to pay a fee for your paper to be considered for publication).

How and Why: Economic Valuation of Nature

Since I started working on my PhD thesis, I have been asked many times what it is about. I must admit that it is hard for me to explain. First, because attaching price tags to forests or wetlands is not quite something that people expect to be done by scientists. It is strange. Second, because most people do not like the idea. Even if they are not aware of this term, what they fear is going by the name of “commodification” and is a highly controversial topic in scientific literature, including a famous commentary in the prestigious journal Nature by Douglas McCauley, aptly titled Selling Out on Nature. While I do have some answers to the questions and doubts of my friends and relatives, they are too complicated and comprehensive for a casual conversation at the coffee table. Therefore, I decided to write a blog piece about this, at least for those of my friends and relatives who understand English. Continue reading

“The world can, in effect, get along without natural resources”

As almost every societal movement, the sustainability movement has its personalized evils, its specific foes. One of them is Robert M. Solow, the famous creator of the growth model that supposedly is the source of all evils in this world. Moreover, a quote of his can often be encountered (including in the German Wikipedia article about him) that comes from a lecture he gave in 1974, where he said:

The world can, in effect, get along without natural resources, so exhaustion is just an event, not a catastrophe. Continue reading