[This is a revised version of an essay entitled Econoctopus: the deep and insidious tentacular nature of economies. Edited for clarity.]
When people think about the economy, they most often think in terms of jobs and income but there’s much, much more to economies than that. Almost every decision by every person in every capacity has an economic impact; humans are constantly making economic decisions. There are the obvious personal purchasing, career and education decisions; and then simple time allotment decisions also have economic impact - if only to choose an income generating activity (overtime work, money earning hobby, etc.) or not. On the business side, all decisions have economic consequences: personnel, sourcing raw materials, outsourcing labor, business expansion, waste disposal, product concentration, charitable donations, etc. And every institution, especially and including all levels of governments affect economies; consider how budgets and allocation limit research and social spending; regulation and policy affect business decision which affects jobs and income, closing the loop.
But even this perspective offers only a two dimensional view of economics. For a broader, three dimensional, view, it will be necessary to venture into the realm of externalities and how they feed back to economies. This discussion, in particular, will focus on an often disregarded aspect of the relationship between economies and the environment.
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[This is the continuation of a series of essays describing a systemic way to view economies. It should be read in order:
Econology Part 1a: It's not the economy, Stupid; it's economics]
Given that ‘an economy or economic system consists of the production, distribution or trade, and consumption of limited goods and services by different agents in a given geographical location’ the material flow of an economy can be represented as its transition from raw natural form to finished product ready for consumption before being discarded as waste:
And prior to the industrial revolution, those interested in esoteric economics had no need to extend their study beyond the red arrowed processes of this simple diagram. That’s because the environment supplied the raw materials with such abundance and dispelled waste with such efficiency that economists assumed these services to be ubiquitous and could safely be disregarded in economic accounting. In reality, economic raw materials and environmental services along with all other planetary matter cycle under some combination of biogeochemical and geochemical forces. In total, these function as nature’s ultimate recycling ‘factories’, continuously cycle matter into different forms:
In keeping with the factory metaphor, for most of civilization, the environment was able to absorb the volume of discarded economic waste and convert it back into raw organic/inorganic materials. Implements composed of organic materials such as wood, leather and edibles were broken down by decomposers and re-entered the food chain; metallic objects corroded over time and dissipated back into the environment. When the volume of economic waste was within the capacity of the environmental factory to process, all planetary matter was in flux, transitioning through stages of formation, degradation and re-formation. So long as the environment was capable of servicing the economy by transforming its discarded products back into raw material input for economic production, the economy could run indefinitely. This gave rise to the assumption that environmental resources are limitless and therefore could be externalized and set outside of economic accounting.
But the transformation of the global economy in the two hundred and fifty years since the advent of the industrial revolution has put additional pressure on the environment. Advances in mechanization, power use and science and technology have scaled raw material extraction, manufacturing capacity and inventions of new synthetic materials to levels beyond what had ever been achieved in the past. With seemingly unlimited power to be had in the seemingly unlimited supply of fossil fuel, business leaders took advantage of every opportunity to profit from exploiting the environment to feed a material economy. One by-product of this frenetic economic activity is the reversal of the balance between human activity and environmental recycling ‘factories’.
This boom in economic activity has affected the environment in three major areas: (1) The extraction of raw material can be highly detrimental to ecosystems and wildlife habitats (see here and here). (2) Materials economy based on high volume consumption and rapid turnover produce high volumes of waste (see here and here). (3) Commercial volume production of synthetic materials (plastics are a good example) adds novel compounds to the waste stream that natural systems are not evolved to break down (see here and here). The long term negative consequence on the environment eventually adversely feeds back to the economy.
By externalizing the environment, economies are treating the environment like a neglected sewage treatment facility. Commercial extraction of resources is equivalent to the destruction of the facility or equipment. This while constantly increasing the rate of input (more and more raw sewage) placing an ever growing demand to increase capacity. Then incoming sewage gradually shifts to contain higher and higher levels of materials the facility was never designed to process and is toxic to current processing methods. The result is an enormous backlog of industrial waste polluting the environment. This is the effect advance economies have not on single economic zones but the entire planet.
The planet and its resources are finite (the mass of Earth is finite). By externalizing environmental resources and assuming they are infinite to support the production and consumption of disposable consumer goods, economies have created an imbalance between consumption and environmental resources. As this imbalance is the product of the economic activity, their resolution lies in economic policy making. This is not to say the solution is to deindustrialize modern economies but rather, a call for economists to incorporate long term environmental sustainability into their economic models.
This would be in keeping with economics as defined in my earlier post: the study of self-organizing, self-sustaining economies to facilitate the production and exchange of surplus goods and services to promote the survival and well-being of workers. After all, Pixar’s WALL-E should be a fictional depiction of future Earth, not a projection of current Earth.
Continued in Econology Part 2: The ecology of economies.
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