The ecological logic of capitalism

6a00bookplantToday we continue our series of the winning essays submitted to Dean of Freshmen, Fred Siegel.  These freshman were selected from over 300 of their peers to attend a dinner with Dean Siegel and a very special guest.

Our featured essay of the day is by freshman, Andrew Sherlock who writes passionately about the economic reasons for our current situation.

Not many people notice this, but the words ecology and economics are derived from the same Greek word, “oikos,” meaning “household.”  But as is made painfully clear by Hot, Flat, and Crowded, the world has not taken very good care of its environmental and economic households.  Friedman’s book perfectly explains how our challenges in these these two areas are inextricably linked.

Now before reading Hot, Flat, and Crowded, I had a general understanding of climate change and its impact on the environment, geopolitics, and global economics. It goes something like this: we buy cheap fuels from anti-democratic regimes which we then burn to support our economic growth, but in doing so we destroy the environment and prop up those regimes.  And as Friedman explains in great detail, the results of continuing on this current course could be disastrous.  His main point is that we need a new energy “system” that can generate clean electrons in a way that conserves our natural resources and that uses these electrons in the most efficient way possible.  Only in this way can the world’s “flat” economy continue to grow and provide opportunity for more people on our “crowded” planet.  The book does an incredible job of describing  what a world with a clean energy system would look like, and spells out a general outline of how to get us there.

But what I take away most from the book is not any one of the facts, anecdotes or explanations.  By reading it I finally came to understand that the underlying cause of our climate change problems–and the reason nothing meaningful has been done to curb the growing problem–is not just government negligence, lobbying by oil companies or a bloated American lifestyle.  The real reason is that these things are the end result of the neoclassical capitalist economic paradigm that has driven the world economy for five decades.  This may seem unrelated, but let me explain my reasoning.  Under this model, economies exist outside of reality and the earth’s fragile ecosystem.  They instead exist in their own perfect world governed only by invisible market forces–the price signal, production and consumption, etc.  Given the right market conditions, so the theory goes, an economy can grow infinitely.  This is the capitalist model first articulated by Adam Smith in his landmark work The Wealth of Nations and more recently modernized and radicalized by economists like Milton Friedman.  I first learned about this economic theory when I read Naomi Klein’s book The Shock Doctrine: The Rise of Disaster Capitalism.  In it she describes how neoclassical, free-market economics took over the world–often violently and undemocratically.  I didn’t make the connection between this trend and climate change until reading Hot, Flat, and Crowded.

Here’s the connection.  The neoclassical model fails to take into account that we live on a planet with finite resources, and therefore infinite economic growth is impossible.  As economist Kenneth Boulding put it, “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”  Where the costs of this fallacy show up are in what economists call “externalities”– hidden costs of production that are not translated into the final price that a consumer pays for a good or service.   This is where Friedman says we have been “fooling ourselves.”  When a factory can produce cheap toys by spilling carbon dioxide into the atmosphere, the true cost of that toy is more than just materials, labor and profit markup, it is all of these things plus the cost of the damage caused to the environment.  So even though the world’s GDP has exploded in recent decades, these numbers do not tell the whole truth. Our economy and our environment are linked in ways we never thought about until now. With every gallon of gasoline, with every kilowatt of electricity, and with every automobile that we’ve produced since the Industrial Revolution has come an additional environmental cost that has been adding up.  And it’s this cost that we’re finally feeling in the form of “global weirding.”

Another place where neoclassical economic thought has caused the environmental and economic problems we have today is in its adherents’ view of the role of government.  Under their perfect assumptions, markets are perfectly self-regulating, and under perfect competition they can perfectly allocate resources in the best interest of society as a whole. But real world markets are anything but “perfect.”  Friedman remarks that,

markets are not just open fields to which you simply add water and then sit     back in a lawn chair, watch whatever randomly sprouts, and assume that the best      outcome will always result. No, markets are like gardens. You have to     intelligently design and fertilize them–with the right taxes, regulations, incentives             and disincentives–so they yield the good, healthy crops necessary for you to thrive.

Neoclassical economists have nevertheless succeeded in convincing policy makers and the American people that like President Reagan said, “Government is not the solution to our problem. Government is the problem.”  But if we are going to get ourselves out of the Dirty Fuels System, the free market cannot do it alone.  While the market is by far the greatest engine of innovation and the capital to support innovation, it’s up to the government to turn the engine on.  Unfortunately, policy makers are often too scared of evoking the public’s irrational fear of 20th century socialism to enact any meaningful reforms like a cap-and-trade system, a floor price on a gallon of gasoline or a national mandate on renewable energy.  These rational economic policies would do more to mitigate climate change than any individual possibly could.

In the end, the one line of Hot, Flat, and Crowded that meant the most to me personally is actually a quote from futurist Jeff Wacker.  He notes that, “We have been limited before in history by the logic of disease or hunger or war, but never by the ‘ecological logic of capitalism’”.  As I’m about to start my time at The George Washington University as an economics major, I can already tell that it’s this type of thinking–the re-evaluation of our economic paradigm and finding a new path to sustainable growth–will be my main interest.  It’s up to my generation, Friedman’s “Re-generation,” to learn all we can about our past mistakes to ensure that we never make them again.  So I want to thank you, Mr. Siegal, for having us read this book.  It has put the scope of our challenge in perspective for me.  I can’t wait to get into my classes and start working to make things right again.  Like Donella H. Meadows would say, “we have exactly enough time–starting now.”

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