Economics for Community

Economics Is About Meeting Human Needs

At its core economics is about the exchange of goods and services to  meet human needs.  It is a basic human activity and occurred long before  there were economists and economic theories. Exchanges occurred because  they benefited both parties, and did so without advertising, stock  exchanges or global corporations. Exchanges of tools and raw materials  between regions occurred even before agriculture emerged.  Exchanges  contributed to survival for some groups, as well as to “luxuries,”  enriching life both literally and figuratively.1  Modern economic activities are of course much more complex and  formalized, but the basic activity is simple, essential and virtually  universal. As human societies evolved and became more complex, and more goods  and services were available, the rules and roles involved became more  specialized and formal. With the differentiation in roles, power  disparities developed and the benefits of exchange became more  disproportionate within groups. Disproportionate benefits also occurred  between regions, but moreso because some groups enjoyed advantages  conferred by the environmental resources available to them rather than  because of innate superior intelligence or abilities, or special  relations with the Deity.2  The disproportionate benefits accrued to those with more power both  within and between groups; and of course those with the power made the  rules, further ensuring their disproportionate accumulation of benefits. This enduring self serving dynamic has resulted in a modern economy  characterized by enormous disparities of wealth between communities and  nations, even as economic concepts and practices become more formal and  complex.  Indeed, the theories and practitioners of economics played a  significant role in generating and maintaining these discrepancies.   While modern economic theory purports to be a science, it could just as  accurately be described as a socio-political justification for ensuring  the most benefits accrue to those with the most power. Both descriptions  would be partly right and partly wrong.  Critical analyses of current  neoclassical economic theory and practice identify both its weaknesses,  and point to alternative conceptual frameworks which build on its  strengths3 (also, see Defunct Economic Theories). Economic activities confer many benefits on people around the world.  Many aspects of classical economic theory contributed to the increased  production and consumption of goods which conferred these benefits.  However, there are also many aspects of neoclassical economic theory and  practice that work against community, in terms of the just distribution  or sharing of the economy’s benefits, and the ecological sustainability  of its operation.  Sustainable scale is about economics for community,  that is, for “common unity.” This involves economic theories and  policies which explicitly seek to preserve and enhance this common unity  in terms of ecological sustainability and just distribution.

Homo Economicus or Economics for Community?
Neoclassical economic theory is based on the view that people are  insatiably acquisitive, and that if individuals act in their own self  interest to satisfy these needs, then the greatest good will occur for  the largest number of people. This view of people as “homo economicus”  is at the core of the idea that the market can provide the greatest  good; it is the invisible hand of the market, through individuals acting  in their own self interests, that creates the greatest social good. This view of human nature is in sharp contrast with the view that  humans are essentially social beings, whose happiness and well being are  largely determined by their relationships with each other (see Understanding Human Happiness and Well Being).  The notion of economics for community is based on a more holistic and  scientific basis of the determinants of human well being.  This view  recognizes that market goods play an important but limited role, and  that the non-market goods and services provided by community or nature  are also essential factors. These very different views of human nature  have enormous implications for our economy, our businesses, our  communities, and our survival.

Market and Non-Market Goods and Services
Market goods are those that are exchanged in barter or trade;  non-market goods and services are those that are not traded or bartered  but are available either because they are provided by nature (see Ecosystem Functions & Services)  or community.  All manufactured goods are market goods; examples of  non-market goods or services are things like community safety, care  provided by friends and family, protection from UV radiation provided by  the atmospheric ozone layer, and climate stability.  Every individual’s  total welfare is a combination of both market and non-market goods and  services; both are essential for human well being. Unfortunately, neoclassical economic’s search for continued growth  seeks to include ever more non-market goods and services, wherever  possible, into the market.  Profits can only be made on market goods and  services, so the more things that can be included in the market  economy, the more profit is available. Once goods become market goods  there is a tendency to exploit them as rapidly as possible to maximize  profits, and move on and do the same with the next hot market item.  In  this way various renewable, as well as non-renewable resources are  being depleted. Economics for community holds that the non-market goods and services  have intrinsic, non-monetary values that cannot be replaced by financial  assets.  It holds that rules are needed to respect this basic  requirement for various non-market goods and services to ensure economic  activities serve these broader values. Most ecosystem services are  non-market services and need to be protected to ensure these services  are sustainable.  Ideally, governments are responsible for ensuring  rules are in place to protect both market and non-market goods and  services.  Economic interests often distort this ideal and much greater  protection is provided to market items.

Valuing Non-Market Goods
Non-market goods such as UV protection and democracy have intrinsic  value beyond the monetary. These values have to do with ideals of  justice, safety and security, aesthetic preferences and well being.   However, many of these non-market goods and services can also be shown  to also have monetary value, and various attempts have been made to  identify these in dollar terms.4  There are a variety of methods for assessing the monetary value of  non-market goods and services, and the exercise can be instructive to  illustrate that these monetary values can be significant (e.g. the  dollar value of global ecosystem services was identified to be more than  twice that of the global money economy).  However, it is important to  accept that the essential non-market values of these goods and services  are non-monetary and do not require monetary justification to be  preserved.

The “When To Stop” Rule
From a sustainable scale perspective, neoclassical economic’s focus  on continuous growth is a major cause of scale problems (see Causes of Scale Problems).  Macroeconomic theory has no “when to stop” rule, no concept or  procedure to determine when economic growth is producing more costs than  benefits.5  Microeconomics does have such a rule; it is determined solely by market  prices as they are affected by supply and demand. A macroeconomic “when  to stop” rule that preserves ecological sustainability is needed to  ensure economic growth does not exceed sustainable scale; this can only  be determined by ensuring throughput does not exceed regeneration (see Sustainable Or Unsustainable), both for individual categories of throughputs (see Scale Relevant Solutions), and for economic throughput as a whole (see A Scale Synthesis). A macroeconomic “when to stop” rule cannot be determined by market  pricing, and thus cannot solely be the result of a series of  microeconomic decisions. Given the current extent of global trade, “when  to stop” rules for specific sectors (e.g. forestry, fisheries, mining,  energy, etc) will need to involve global agreements both about the  absolute levels of throughput, and the distribution among nations. Such  rules would also have to consider both market and non-market items. Clearly, more than economic policies are required to achieve the goal  of sustainable scale.  But current economic policies are responsible  for exceeding unsustainable scale (see Causes of Scale Problems), and changes in many of these policies and practices are essential.  A variety of suggestions are provided in this section.

Macroallocation of Market and Non-Market Goods and Services
Neoclassical theory and practice seek to include virtually all goods  and services into the market economy. The more that can be included, the  more the market can grow. This creates serious difficulties for  sustainable scale, as many of the goods and services essential for human  well being are not market goods or services, but are greatly affected  by ever expanding market activities (eg. atmospheric ozone layer, global  climate stability, etc; see Sustainable Scale Issues). Economics for community recognizes the existence of non-market goods  and the importance of preserving them and protecting them from  legitimate market activities. Often, legitimate market activities at one  level have significant negative non-market impacts at other levels (eg.  clearing of forests for agriculture may make sense for the local  farmer, but have negative consequences for regional hydrologic cycles  and global climate).  Economics for the global community requires that  these non-market externalities are internalized; that theories and  practices ensure ecological sustainability and just distribution in the  optimal, macroallocation of market and non-market goods.6

Government Involvement in Non-Market Goods
Governments generally recognize the importance of non-market goods  and tend to provide them in the form of public goods – health care,  education, roads, streetlights, parklands, etc.  Monetary policies are  generally not helpful in the provision of non-market goods. Low interest  rates to stimulate investment only works for market goods; even with  low interest rates the private sector will not invest in non-market  goods as the latter provide no profit opportunities. Investing in  non-market goods is left to governments. There are two types of non-market goods governments invest in, which  have very different implications for sustainable scale. When governments  invest in man-made non-market goods (eg. roads or hospitals) this  injects money into the economy which is used to purchase market goods  and encourages economic growth. Such government investment acts like  direct investment in market goods and contributes to the throughput that  must be accounted for in comparing throughput with regeneration of  ecosystem services. Governments also invest in non-market goods which are not man-made,  but which protect or restore ecosystem functions (e.g. parklands,  wetland or species habitat preservation, etc). Such investments  contribute to maintaining sustainable scale by maintaining or increasing  the regeneration of natural capital (see Natural Capital and Income, and Critical Natural Capital).   Governments also have a variety of fiscal policy tools at their  disposal to protect and enhance non-market goods relevant to sustainable  scale.

True Cost Pricing: Pigovian Taxes and Subsidies
Economists have long known that every market product has external  social and environmental costs (see EXTERNALIZED COSTS). One of the  reasons that economic activities exceed sustainable scale is because the  costs of unsustainable levels of throughput are not included in the  market prices of the throughput, thereby giving a false accounting of  the benefits of such activities. Economist A. C. Pigou (1920)7  promoted the idea of incorporating the external cost into the price of  products to accurately reflect the true costs.  Pigouvian, ecological or  green taxes are all terms for the same attempts at fiscal policies to  internalize externalized environmental and social costs. If market  activities confer a net benefit on community that are not reflected in  the price of the goods sold, then a subsidy can be provided to  acknowledge that contribution. Such taxes ensure that only those market activities that generate net  benefits to community will endure. If companies have to pay pigouvian  taxes for the social and environmental costs of their activities, then  they will seek to reduce these costs to zero, for the benefit of all. If  they receive subsidies for net benefits to community, then they can be  encouraged to provide non-market goods that contribute to sustainable  scale. By implementing a pigouvian tax a government is essentially creating a  property right to the environment for the state, using a liability rule  (see Supportive Public Policies:  Property Rights), and ensuring that specific economic activities are a  net benefit to community. Indeed, it might be argued that governments  have the responsibility to do just that.

Is True Cost Pricing Effective?
A wide variety of pigouvian taxes have been used to reduce pollution  and encourage environmental protection.  Generally these taxes are  designed to be introduced over a number of years to provide companies  with time to adjust. If the annual increments are small enough to start,  and the government policy is firmly committed to the tax over the long  term, it is easier for companies to plan and adapt.  Such taxes have  been effective in:8  

• reducing overfishing in New Zealand
• reducing water use in Chile
• reducing toxic wastes in Germany
• increasing recycling of demolition waste in Denmark
• reducing heavy metal discharges in the Netherlands
• reducing nitrogen use in agriclture in Sweden
• reducing nitrogen oxide emissions in Sweden
• reducing sulfur emissions in the United States.

A feature that can enhance the attractiveness of a pigouvian tax is  for the government to agree to make it “revenue neutral” by reducing the  least useful existing tax as the new tax is introduced (e.g. reduce  taxes on income or labour which discourages hiring, as a pollution tax  is introduced).  In this way a broader program of tax reform can be  implemented, which taxes “bads” (resources, land use or pollution) and  not “goods” (employment, and ecosystem services). Several European  countries have adopted “ecological tax reform” as part of their  employment and environmental strategies.

Limitations
Ecosystems respond to quantity and quality of material throughput (see Understanding Scale),  not prices.  Controlling throughput via quotas and bans is more  effective than manipulating prices. One of the challenges with relying  on pigouvian taxes is the assumption we know what harm is being done by  the activity being taxed.  With the complex and emergent properties of  ecosystem dynamics, these costs cannot always be anticipated. However,  where harm is known, taxing it will help reduce it. Additional challenges with pigouvian taxes are that the social and  environmental costs of specific market activities can be difficult to  identify precisely, and can change over time, requiring constant  adjustments to the tax.  This is problematic for businesses which need  to plan ahead and prefer the simplicity of knowing in advance what their  costs will be. Nonetheless, reasonable estimates of true costs are  possible and adjustments can be made over time.  But serious errors  could lead to the costs not being covered by the tax and eventually  exceeding sustainable scale. Ongoing review is essential. There are two kinds of pigouvian subsidies, each of which have  different impacts on sustainable scale.  If a bonus or subsidy is  granted to an industry to not pollute, then the industry might become  more profitable and attract new entrants – thereby increasing the  overall level of pollution.  Subsidies or bonuses to industries which  actually restore or increase levels of ecosystem function would not have  this effect. Combining pigouvian taxes or subsidies with quotas and or emission trading schemes (see Supportive Public Policies) can both set the absolute throughput limits required and provide the disincentives to ensure the quotas are respected.

A Pigouvian Tax on Advertising?
It might be argued that the close to $1 trillion dollars spent  annually on advertising globally produces a variety of social and  environmental costs, and should therefore be subjected to a pigouvian  tax.  Advertising obviously contributes to economic growth, a major  cause of exceeding sustainable scale thereby imposing serious costs on  current and future generations. Advertising encourages consumption of  market goods by providing information about the benefits of such goods.  Often this information makes people feel deprived if they do not have  the good being advertised. It also ignores the potential costs to the  purchasers by not providing full disclosure regarding the consequences  of their purchases. Advertising’s focus on market goods provides no information about the  important benefits of non-market goods, except to the extent  advertisers attempt to associate their products with these goods (eg.  using your SUV to enjoy the wilderness). This leaves the public less  informed of both the environmental and social costs of what is  advertised and the critical services that ecosystems provide. Civil society and governments attempt to take up this slack but  generally do not have the financial resources available to compete with  the private sector.  A pigouvian tax on advertising could provide  funding for such public information services.  Combined with regulations  of full social and environmental cost disclosure for all private sector  advertising, such a tax would contribute to the optimal  macro-allocation of market and non-market goods (see above).

Price Determined Not Price Determining
From a sustainable scale perspective allowing the market to determine  prices for goods and services is problematic. Market pricing will not  provide a “when to stop” price – a price that indicates that levels of  throughput are about to become unsustainable.  In fact, just the  opposite occurs; as a natural resource becomes more scarce its price  increases. Higher prices generally lead to reduced demand.  But as long as the  resource can be provided for a price the market will bear then the  resource is increasingly depleted – the exact opposite of what is  required to prevent an unsustainable level of resource throughput. A  major investment house recently projected a “super spike” of $50-110 for  a barrel for oil due to increasing demand and decreasing availability.9 Clearly, prices cannot be relied on to achieve sustainable scale. Rules and regulations that determine a sustainable level of  throughput (from both a source and sink perspective) fix the quantity of  the resource or emission allowed.  This fixed quantity and how it is  used will then determine the eventual market price.  Such a regulation  of pricing is required to achieve and maintain sustainable scale.  The  issue is what determines price – the market or the quantity deemed  sustainable? Unrestrained markets do not set prices that will limit  quantities to sustainable levels. Determining prices by regulating  quantities is in direct opposition to an unfettered market – the goal of  neoclassical economics.

Seigniorage: Following the Money
Money systems are a convenience; it is much easier to take an  accepted currency to purchase food than to carry three pigs to exchange  for several bushels of wheat. Issuing and regulating currency is a  public good, facilitating and regulating market exchanges.  Providing  this service confers benefits on the provider.  As the currency system  facilitates exchange, the issuer of currency reaps some of the benefits  of these exchanges. In the past, this benefit accrued to the sovereign, then to the  states which succeeded the kingdom.  Today, however, almost all nations  have granted the authority to create new money to financial  institutions.  While the states still impose regulations about how this  can and cannot be done, many of the benefits which previously accrued to  the state now go to these financial institutions. More importantly, a  powerful policy tool has been given up by the state. Seigniorage is the benefit that accrues from issuing currency.  When  states transferred this right from themselves to financial institutions  they gave up two important benefits. The financial benefit from creating  money no longer accrues to the state but to the financial institution;  the state has foregone these revenues that now go to financial  institutions. Taxpayers must make up the difference. Secondly, because money creation is tied to loans, new money creation  is tied to the economic growth required to repay the interests on those  loans. The money supply is thus determined by the amount of loans made  by financial institutions. The state has foregone the power to manage  the money supply on the basis of social or natural capital. Monetary  policy is locked into promoting economic growth, thereby contributing to  ever increasing levels of material throughput, regardless of the  degradation of critical natural capital (see Understanding Scale).10 If nation states were to reclaim the right of seigniorage they could  both increase their revenues, and expand the policy levers they have to  ensure economic activities maintain an overall level of well being.  But  well being is more than financial wealth and involves social and  natural capital as well.  All must be monitored and managed to ensure  sustainable scale. 

Limitations
Monetary reform which returns seigniorage to national governments is  no guarantee that they will operate within sustainable scale. Such  reform is, however, a necessary if not sufficient policy condition for  governments to play a more active role in achieving and maintaining  sustainable scale. 

Measuring Wealth:  GDP vs GPI
Gross Domestic Product (GDP) is widely taken as the most important  indicator of national well being, and virtually all governments at all  levels seek to increase their GDP.  As a measure of economic activity  only the GDP fails to capture the impact of economic activities and  other public policies on the accounts of social and natural capital.   Worse, increases in GDP can actually contribute to declines in these  other accounts which monitor wealth in the broadest sense, including the  flow of non-market goods and services that determine human well being  and happiness (see Understanding Human Happiness and Well Being). The GDP is an inadequate measure of wealth because it is limited to  total expenditures, regardless of what those expenditures are for, and  what their impacts are on social and natural capital stocks and flows.   Expenditures for oil tanker spills on pristine coastlines, medical  expenses for self-induced lifestyle illnesses and diseases, lawyer’s  fees for divorce, and home security systems for domestic protection, are  all examples of economic activities which contribute to GDP which also  degrade social or natural capital.  Analyses indicate that as much as  xx% of GDP may be for these types of negative expenditures; increased  GDP based on such negative measures is actually “uneconomic” in the  sense that their costs outweigh their benefits. What is true of GDP at a national level is also true of GWP at the global level.  “…there is a major flaw in measuring the quality and achievement  of life by the total of economic production – (GNP/GDP)- the total of  everything we produce and everything we do for money.”  John Kenneth Galbraith (1999).  One of the economists who developed the GDP. “…the welfare of a nation can scarcely be inferred from a  measurement of national income as defined by the GNP… goals for ‘more’  growth should specify of what and for what.” Kuznets (1965) One of the economists who developed the GDP

Alternatives to the GDP
Various attempts have been made to overcome the shortcomings of the  GDP, most notably the Genuine Progress Indicator, or GPI.  This measure  incorporates indicators of social and ecological, as well as economic,  well being.  It also subtracts the defensive expenditures (eg. crime,  family breakdown and environmental degradation, etc.) normally included  in GDP. Other advantages include its method of treating the costs of  current activities to future generations, as well as the costs of  current income disparities. Comparisons of GDP and GPI in developed economies invariably show  increasing divergences over the decades from about 1950, reinforcing the  notion that economic growth beyond a certain level does not add to  human well being or happiness. Various jurisdictions are exploring use of the GPI in monitoring  their well being, and as a policy tool for improvements. Analyses using  the GPI are helpful in demonstrating how seemingly positive changes in  some areas of importance can actually lead to negative changes in other  important areas.  Continued work is being done to improve the rigour and  comprehensiveness of the GPI, as well as other broader measures of  wealth.

Other Alternatives to the GDP
Other alternatives to expanding the GDP include “triple bottom line”  reporting, which incorporate economic, environmental and social  indicators of well being. In many cases these measures are developed by  individual corporations who chose whatever non-financial indicators they  wish, and which can change from year to year. A more robust set of triple bottom line indicators are being  developed by the Global Reporting Initiative, a UN sponsored attempt to  develop alternative measures.  This attempt involves accountants,  business representatives, social scientists, civil society organizations  and diplomats.  They are attempting to develop rules for reporting on  the social and environmental indicators that are as comprehensive,  reliable and detailed as the rules for financial reporting.11  Progress is slow, but the initiative demonstrates the widespread  recognition for an indicator of wealth or well being that is not  restricted to the financial dimension as is GDP. Limitations One of the biggest limitations of the GPI, GRI, and similar measures,  is that there is not a conceptual framework to guide what variables are  included in the index, nor is there a framework to guide the relative  weightings associated with each of the variables included. Currently,  each of the multiple variables receives equal weighting; there is no  differentiation, for example, between the negative costs of crime and  family breakdown on the one hand, and degradation of ecosystems on the  other. This equal weighting reflects the developers’ acknowledgements that  assigning weights to different variables raises the question of whose  values are to be reflected in the weightings. The developers of the GPI  have not yet addressed the issue of developing consensus regarding  values, but recognize the need to do so. Those involved with the GRI are  still struggling with an appropriate value framework to apply. From a sustainable scale perspective, achieving ecological  sustainability is a critical value. The concept of optimal scale (see Sustainable Scale)  requires socio-political consensus of how we organize and manage our  economy to remain within the limits of ecological sustainability.  Both  the GPI and GRI currently lack such an explicit value position which  ensures ecological sustainability.

Fair Wealth Distribution: The Growth Issue Under the current economic paradigm, economic growth is equated with  increased wellbeing.  There are many problems with this simplification,  but the main one is that aggregate or total growth does not identify the  distribution of economic benefits in society.  If one person or one  million people received the entire economic output, the total GDP would  register no difference.  Since growth is automatically equated with  increased well-being and as the solution to poverty, there is always a  bias toward growth. If sustainable scale was exceeded, then GDP would register nothing,  except a further increase in economic growth.  If increased well-being  is the goal of economics, than distribution of wealth becomes much more  important than growth, and in fact a much more direct way to address  poverty.  It separates poverty reduction from growth as two  separate  and somewhat unrelated issues. At the subsistence level there is evidence of a correlation between  economic growth and poverty reduction.  Beyond that level the  correlation weakens and is more correlated with government policies.  If  we are to respect sustainable scale, then there will come a point at  which no further economic growth as measured by material throughput is  possible.  At this point it will be impossible to continue the attempt  to use economic growth as a solution to poverty.  Then wealth  distribution becomes a much more important issue than economic growth.

Fair Wealth Distribution: the Justice Issue The increase in GWP has been fairly steady over the last several  decades; those who hold up the GDP or GWP as the key measure of wealth  and success point to this phenomenon as an indication that things are  improving. They take it as an endorsement of current economic  development practices, and call for more of the same. However, measuring  the total amount of financial activities in an economy, as does the  GDP, is only one way of determining if there is enough money available  (putting aside for the moment the non-monetary determinants of wealth).   Also of interest is just how those financial resources are distributed  within a community, or a nation, or globally. The multidecadel increase in GWP has been accompanied by an ever  widening gap in the distribution of wealth – the rich get richer and the  poor get poorer. In 2000, the world’s 358 billionaires had accumulated  financial resources surpassing that of the combined annual incomes of  countries with 45% of the world’s population.12  The United States, one of the richest countries in terms of GDP per  capita, is also one of the countries with the greatest disparities in  financial wealth.  By the late 1990’s the top 1% of US households at the  top of the financial wealth pyramid controlled about 30% of all the  material wealth in the nation.13 Across the globe, the top 1% make more per year than the bottom 57% of people.14

A GINI to the Rescue Economists have a way of measuring the distribution of financial  wealth called the GINI coefficient.  It ranges from a low of 0.0, where  everyone would theoretically have the same amount of financial wealth,  to a maximum of 1.0, where all financial wealth would be owned by a  single party. In most developed countries the GINI has been steadily  increasing over the past several decades, indicating ever greater  concentrations of financial wealth in fewer and fewer hands. In the  United States it is over 0.78 and rising.15  While the financial pie is growing, more and more of it is going to  fewer people.  Along with the concentration of financial wealth goes the  concentration of political influence, disrupting the democratic  process. While the injustices of large disparities in financial wealth and  political influence are undesirable in and of themselves, there is also  an impact on activities which affect ecological sustainability.  With  large disparities, both ends of the financial wealth spectrum contribute  to ecosystem degradation. The United States, for example, with only 5% of the global  population, consumes approximately 25% of the world’s resources  annually.16  And within the US, those with the most financial resources consume a  disproportionately high amount.  At the same time, those at the low end  of the financial spectrum, half the world, nearly 3 billion of the  world’s poorest live on less that $2 a day also degrade the environment  in numerous ways because they have little choice in their struggle for  survival.17 Economic policies which target both a minimum guaranteed income and  lower GINI coefficient could contribute to both sustainable scale and  just distribution.

Guaranteed Minimum Incomes A guaranteed minimum income ensures that every member of a community  has sufficient financial resources to meet basic human needs. When  people’s needs are met, they are less likely to degrade ecosystems,  engage in violence and commit crimes. A guaranteed minimum income can  thus provide public benefits as well as personal and environmental ones. There are a variety of economic policies used by different  jurisdictions to provide some sort of minimum income, including various  welfare programs, unemployment insurance, minimum wages, and negative  income taxes for the unemployed. Guaranteed employment at a living wage  is also an option. Funding for such initiatives could be made available from a variety  of approaches that have not yet been widely used, such as resource  trusts or land taxes.  Both approaches are based on the notion that  natural resources, including land, are owned collectively and the  benefits derived from them should be shared collectively.  Instead what  typically happens is that governments grant rights to resources use that  are many times lower than their real value, and generally to very few  parties. These few individuals or corporations then exploit the  resources for their own gain, rather than allowing the benefits to  accrue to the broader community of citizens. A similar dynamic occurs with land.  Land is fixed and part of the  common heritage of a nation. The market value of land is determined by  proximity to others, i.e. by a social factor influenced by government  regulations. Taxing land rather than the buildings on the land would  return some of the land values to the community.  The main point is that  there are innovative economic policy solutions available to encourage  more just distribution of wealth, a necessary condition for sustainable  scale.

Maximum Incomes: A Cap on Wealth? If there are absolute limits on the amounts of throughput that can be ecologically sustainable (see Sustainable Or Unsustainable),  then it follows that there should be also be limits on the amount of  income or wealth that can be accumulated by any individual on the basis  of this throughput. This notion of an income or wealth cap is  controversial. People from both developed and developing countries feel  that anyone should be allowed to earn or acquire as much as they  legitimately can (some even drop the legitimacy requirement). The idea of an income or wealth cap is based on the idea that it is  indeed legitimate to keep wealth that has been earned through one’s  efforts or abilities, but not to capture wealth created by nature,  society or the work of others.  There is also the issue of  intergenerational justice.  If wealth accumulation is unlimited, then  less and less will be available for future generations.  If consumption  must be limited to stay within sustainable scale, then it seems just  that those with the greatest wealth should limit their ability to  consume.  The value of an additional $100 to someone with great wealth  is immaterial, while to a poor family it could be the difference between  life and death. Accumulation of great wealth is not required to satisfy basic human  needs, a comfortable level of sufficiency, well being or happiness.  Great wealth does confer power and status, but these are personal and  not community benefits.  However, the envy that great wealth stimulates  often results in others attempting to gain the same personal benefits,  and stimulating economic growth to do so. More growth means more  throughput, and increases the likelihood of exceeding sustainable scale.  A greater public good accrues if wealth is capped and just distribution  and sustainable scale are encouraged by economic policies. Economic policies to cap incomes and wealth exist, and to some degree  are used in some jurisdictions. Progressive income taxes exist in most  countries, where taxes increase with income.  If such taxes approached  100% they could be used to cap income. Consumption taxes, such as a VAT  (value added tax), also help reduce consumption. A special tax on luxury  goods would do the same. A Material and Energy Throughput (MET) tax has also been proposed,18  as a way of capturing not just the market value of the good or service  purchased, but the throughput value in terms of its impact on ecosystem  function. Yet another approach would be to limit the range of salaries  between the highest and lowest workers in a firm; a fixed ratio of, for  example, 10:1 would ensure that the highest paid employees would have  clear limits. Progressive wealth taxes are another option. Currently,  almost half of accumulated wealth is inherited.  The progressive wealth  tax on real estate could be expanded to all forms of financial wealth.

Limitations Recognition that there is an intimate connection between just  distribution and sustainable scale is critical to achieving both  essential objectives. While there are economic policy options available  to achieve both, some of them are not widely known or accepted.  There  are also attitudinal obstacles to many of the policy options, based on  misunderstanding of either the reality of biophysical limits, or the  relationship between perceived personal freedoms and public goods. Given  the urgency of achieving sustainable scale, these obstacles are  challenges to be overcome.

Discounting Policies: What is the Future Worth?
Minimum incomes and wealth caps are means of increasing just  distribution largely with the current population that shares the  planet.  Economic policies also affect future generations.  Economic  practices which consider the future costs of decisions made today apply a  discounting approach to these future costs.  The value of money today  will be worth less in the future; the discounting rate adjusts present  and future values to allow comparisons so decisions can be made which  best allocate resources between the present and the future.  Generally  the discount rate is at or near the interest rate.  This practice makes  good sense for individual decisions, and over relatively short periods  up to a few years. For very long term decisions, and especially for ones that involve  non-market goods and services, there are serious problems with the  standard discounting approach.  First of all, conventional discounting  practice assumes that the way people discount the future is  exponentially.  If this were true then different values would be  assigned to costs 100 or 110 years from no. However, empirical studies show that people give more weight to what  happens in the near future, but are indifferent to outcomes over very  long periods of time. Therefore, applying conventional discounting  practices to non-market goods and services, such as climate change,  places less and less value on long term future costs, although this does  not reflect the way people actually value the future. The lesson for sustainable scale is that conventional discounting  practices should not be applied to the non-market goods and services  provided by ecosystems over very long time spans.  But it is those long  time spans that are relevant to sustainable scale. Whether improved  discounting techniques, or totally different ways of assessing future  value are needed, is an open question. For example, hyperbolic (vs. exponential) discounting is said to more  accurately reflects actual human preferences. Given that certain  ecosystem functions are essential and irreplaceable to human well being  (see Critical Natural Capital),  our task is to preserve these essential services, and develop economic  theories and practices that inform us how to best do so. Basing policy  decisions on conventional techniques that lead to destroying life  supports for future generations is equivalent to condemning our  descendants to an increasingly miserable existence.

Economic Globalization
Economic globalization is the primary policy objective of most  developed and many developing nations, as well as the World Trade  Organization.  The avowed aim is to integrate all national economies  into a single global market, regulated by the same rules, including the  reduction or elimination of trade barriers, and the inclusion of  whatever non-market goods and services are convertible to market items. Economic globalization is said to increase efficiency and bring gains  to all parties. Many of the assumptions of economic globalization are  questionable, especially from a social justice perspective.  To the  extent economic globalization increases wealth disparities between  nations, it also contributes to injustice, and at least indirectly to  sustainable scale problems.  Our purpose here is primarily to focus on  its direct contribution to problems with exceeding sustainable scale. Economic globalization is based on the “Washington consensus” model  of development, also called TINA (There Is No Alternative) by former  British Prime Minister Margaret Thatcher. The Washington consensus (TINA) model of development is based on the  following factors which are designed to increase the country’s GDP or  throughput of goods and services:  

• Deregulation/Privatization
• Free movement of capital
• Free movement of goods (No trade barriers)
• Develop products for export
• Reduce public expenditures (structural adjustment)

Throughput to What End: Profit or Sustainability?
Increased GWP is an explicit goal of economic globalization. From a  strictly economic perspective, increased GWP is desirable as it means  economic growth and increased profits for those who make it happen.  However, increased GWP also means increased material and energy  throughput (see Sustainable Scale Issues), which is the key issue in determining whether sustainable scale is exceeded (see Sustainable Or Unsustainable).   International trade has become a vehicle for the dominant policy goal  of ever increasing economic growth. This goal is misplaced as it is in  direct contradiction with basic physical laws. Trade has existed between different peoples from the earliest records  of human history.  Goods were traded that were not available locally.   Over time, classical economic theory articulated the notion of  comparative advantage, identifying the conditions under which nations  could trade to their mutual advantage, including even those goods that  were available locally. However, economic globalization has violated  several of those conditions, drawing into question the conceptual basis  for its justification. Where multiple competing firms were a precondition, we now have a few  firms dominating the market; where having financial capital remain  national was necessary, we now have global financing; where a moral  framework was expected to ensure economic activities had social  constraints, we now have an unfettered market where profit is the  dominant value.  The result is increasing disparities between nations,  and increasing competition for increasingly scarce resources; more  profits, more throughput and more unsustainable practices. International trade which allows nations to efficiently supplement  whatever their unique resource requirements might be to maintain an  optimal population within a sustainable range is a possible alternative  to international trade for the sake of profit.  Each country has  different needs to supplement its natural resources to maintain a  reasonable quality of life within a sustainable scale. This assumes that  each nation is attempting to manage its affairs to remain within  sustainable scale, and only importing or exporting those items which  allow it to do so. Today’s trade regime is quite different.  Markets, not sustainability  criteria, determine what is imported or exported.  Financial  considerations trump ecological and justice issues.  Resources are  exported because they generate revenue, and goods are imported because  they are “cheaper” than produced locally. The privatization schemes  favored by global traders often involve the transfer of a public good  (eg. water supply) from government to private sector control.  The  result is liquidation of national accounts of natural capital,  destruction of communities as their industries are closed due to foreign  competition, and social unrest resulting from a public good now being  treated as an ordinary market commodity. Exporting non-renewable resources often creates considerable  ecological costs for the exporting country.  Relying on non-renewable  resources is economically, as well as ecologically unsustainable.   Exporting renewable resources only makes sense if the exporting nation  has an ecological surplus of the resource. Unfortunately, this is not  always the case. Even when the resource in question is not needed by the exporting  nation, the externalized costs of environmental and social damage may  outweigh the financial benefits of the trade.  Importing non-renewable  resources is also short sighted; the consequences of dealing with their  ultimate depletion can be immense (see Energy).   And to import renewable resources that are not surplus to the exporting  nation’s sustainable needs is only to shorten the time over which these  resources will remain renewable. International trade is essential to a just and sustainable planet,  but not if it is based solely on profit and promoting growth. Basing  international trade on sustainability and justice criteria is as  important as basing national economies on these same values.

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Originally posted @ Sharing Sustainable Solutions