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by Christopher Manning
Thomas Paine wrote in Common Sense,
“A long habit of not thinking a thing
wrong, gives it a superficial appearance of
being right, and raises a formidable outcry
in defense of custom.” His argument was
in support of independence from British
rule, however, this argument could also be
used to support the need for an economy that
is both sustainable and renewable.
Historically, we have judged our economic progress
on predominantly short-term metrics. For instance, we
calculate our Gross Domestic Product (GDP) as the total market value
for all goods and services produced within the country over a given
period of time – usually measured by a calendar year. Taken further,
the major components of GDP include gross investment, government
spending, net exports/imports and consumption.
 Though this may be an adequate measure of certain aspects of our
economy, it does not take into consideration the expenditures we have
made from our natural resource base (land, petroleum, coal, minerals,
etc.). Therefore, the current formula is a major misrepresentation of
our overall economic health because much of our economic theory
was founded when our natural resources (topsoil, water, fisheries, and
many others) seemed limitless. The theory needs to be enhanced to
give consideration to the fact that we are no longer a civilization that
is still in its infancy. Given that the world population is over 6.6 billion
people, it is easy to see that we can no longer consider our natural
resource base to be limitless.
Unfortunately, our current economic theories have not evolved
as fast as our world and they still ignore the cost of systematically
depleting our planetary balance sheet. In fact, none of them reflect the
expenses incurred by the consumption of our non-renewable resources
like petroleum, coal, and minerals.
A study produced by the New Economics Foundation in the UK
expanded on this thought. They measured the profits that had been
reported by Shell and BP and offset them with the estimated cost of the
CO2 emissions they produced. A study by Carnegie Mellon University
assigned a cost of $35 per ton of CO2 emissions. Based on these costs,
BP would have to subtract an expense of $51 billion (for 1,458 metric
tons of emissions), leaving the company with a $31 billion loss. The
same calculation would leave Shell $8 billion in the red.
The above referenced costs are based
on pure economic theory and would
serve a dual purpose: 1) Encourage a
reduction in consumer demand through
a higher product price and 2) Stimulate
investment in next generation technology.
Unfortunately, the damage already done to
our ecosystem cannot be undone no matter
what cost is assigned to CO2 emissions. We can
only hope to create change that might mitigate
future damages.
As illustrated, once “social costs” are taken into consideration, we
have a highly unstable design for our economic infrastructure. To date
we are at least aware of this problem and there is growing interest in
a field of study that considers our total effect on our overall ecosystem.
Known as Biophysical Economics, this relatively new field refers
to a theory of economics that does not violate the laws of nature.
The study of Biophysical Economics can be traced back to France
in the 1750s, where a group called the Physiocrats believed that natural
resources were the source of material wealth. Their basic premise
suggested that the economic process was subject to certain objective
physical and moral laws; independent of human free will.
This original thought went through several incarnations over the
years and took its current form in 1989 when the International Society
of Ecological Economics (ISEE) was formed. Their goal is to advance
the understanding of the relationship between ecological, social and
economic systems for the mutual well-being of nature and people.
We can no longer rely on the simple economic solutions currently in
place to solve our emerging problems. Does it make sense to continue
to operate a global economy with total disregard for the planet that
sustains us? Our thoughts and behaviors must evolve to support our
current stage of development. We must begin to adjust our actions to
work within the parameters the earth has given us. Once we do, we
will find that both nature and people are healthier and wealthier.
Christopher Manning founded Manning & Associates Financial Services,
a fee-only wealth management firm, to assist individuals and businesses
with a clearer vision of their values and how to incorporate those into a
sustainable investment plan. Please see www.manning-financial.com for
more information.
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