With greater awareness of climatic considerations, one would imagine a faster movement towards sustainability in this day and age. Yet, the movement is slow, and many companies merely engage in greenwashing instead of actually being sustainable. Why might this be?
Psst… Bored of the same old content around economics and the environment? Don’t close this tab! I promise the content is not cliche stuff that you’ve seen a 1000 times already. Besides, we overestimate how much we know! I did this study about recycling and found that people know a lot less than they think they know… so stay, I’ve made this post worth your while. 🙂
The issues preventing us from being as sustainable as we should be are barely about individual choices. Our failures to turn off the lights when we leave the room and not closing the tap when we brush our teeth are not major concerns. The elephant in the room is the system. Individual actions are important, but we miss a lot when we hyper-fixate on them.
With the United Nations Framework Convention on Climate Change (UNFCCC)’s Conference of the Parties (COP28) being held in the UAE this year, there’s a lot we can do to bring pragmatic change. Even if you are not based in the UAE, there are many events abroad and online that you can participate in to move youth demands further and beyond. I’ve added some Instagram pages at the end you can follow to stay updated about opportunities. This is beyond awareness.
Economics has a political and ideological alignment that introductory economics courses don’t tell you about. The economics we know and the systems in place are the crux of the structural problems we face in being environmentally considerate and sustainable.
Economic theories and concepts are taught as if they are law. One thing they do clarify is that economics is based upon creating assumptions. Many of those assumptions need to be re-examined.
Such assumptions largely fall under what is called “classical” or “neoliberal” economic theory. We need to unlearn classical economics and subscribe to more sustainable economic theory. We’ve been indoctrinated to think of these as law, and the time has come to reverse that. Raise questions. Be vigilant.
Neoclassical Economic Theory Summarized
Neoclassical economics is essentially an Adam Smith type view of the system where the forces of supply and demand are thought to drive prices, production, and consumption. It:
- Prioritizes strictly quantifiable considerations
- Believes in form(s) of infinite growth
- Aims for profit maximization
- Aims to maximize efficiency
- Opposes government intervention
It also claims that people and businesses are rational and can make perfectly self-interested and well-evaluated economic decisions. It also usually only focuses on net values and thus exacerbates inequalities.
This is also largely the type of economics taught. It is, fortunately, becoming increasingly unpopular as people subscribe to newer, more accurate, and more sustainable theories of economics that broadly fall under the umbrellas of “heterodox” or “wellbeing” economics. A little bit of thought and connection with real-world practices shows that neoclassical economics theoretically cannot support sustainability or socioeconomic equality.
Companies and nations are always seeking high growth figures. This comes from an assumption that infinite growth can be achieved. This assumption needs to be reversed. The way we look at and interpret growth rates and targets needs re-thinking.
Fast-paced growth in the last few decades largely comes from uncontrolled abuse of resources and consumption. Even as economists try to explain that infinite growth is still possible on a finite planet, they are not voiding the suggestion that “economic growth” needs to be separated from “unsustainable resource consumption and harmful pollution.”
Investopedia suggests that economic growth can be sustainably attained, such as by expanding public transport, education, and healthcare. However, who is to prevent businesses from engaging in economic growth that harms the environment? Besides, private sector expansion into education, healthcare, and public transport has its own issues regarding income inequalities.
Besides, why do we need continuous growth? The quest for continuous and infinite economic growth facilitates and requires exploiting the people and the environment. Depending on how one defines “growth,” this may not be true. But for economists, it’s about the numbers and GDP.
“Growth for the sake of growth is the ideology of the cancer cell” – Edward Abbey
Profit Maximization and “Efficiency”
The neoclassical economic system seeking to establish free markets without government intervention cares most about its profits and “efficiency.” The system does not work towards our goals because it is not created to work towards them.
“Human societies thrive in a wide variety of climatic zones. For the bulk of economic activity, non-climate variables like labour skills, access to markets, or technology [are more important than] climatic considerations in determining economic efficiency,” says Nordhaus in a very broadly cited paper.
Economists also use several other tools that help quantify options and make decisions. For example, they employ cost-benefit analyses and calculate comparable values for gains that occur in the future (discount rates). Often, these rates are picked in ways that are not accurately representative of real-world demands. Environmental concerns are downplayed in picking discount rates.
Cost-benefit analyses often don’t go far enough in calculating environmental concerns. Even when they do, since the idea is that a project with more benefits than costs should be undertaken, environmental damage is allowed to occur.
Economists also work with the understanding that different levels of pollution and environmental damage benefit society as it helps raise the standard of living. This may be partially true given our consumption of various items, cars, etc. However, in a world with little choice and many nudges to move towards a superfluous lifestyle, perhaps the assumption is unfair. We can vocalize against assumptions like this one to make our demands clear to hopefully soon reach a point where such assumptions do not fly anymore.
Costs of Production
Profit maximization has many other implications. Simply put, goods are priced with a function that accounts for production costs, brand image, profit margin, and people’s demands. However, there are costs associated with production that producers don’t pay for.
In economic terms, these are called “externalities.” For example, goods produced that pollute the air or rivers do not account for environmental damage.
Fortunately, since we do not live in a world where the ideas of free-market economics are perfectly implemented, there are levels of government regulation that impose standards and rules on companies to prevent them from freely polluting the environment. However, it is not enough. Climate catastrophe is moving faster than the rate of change within companies.
Classical economics argues that companies can use resources efficiently without government interference. However, given that companies only calculate the costs that will affect them, the classical claim is false, as many of their actions generate negative externalities that harm society. Under the classical system, the people and environment exist to serve the economy. They are often just considered as just a means, not an end.
Companies try hard and often succeed in overpowering government regulations. In his book, ‘The Divide,’ Jason Hickel outlines several cases where economic agreements and goals harm the environment. Most shockingly, there are rules in the North American Free Trade Agreement (NAFTA) that allow companies to sue governments for “losses” incurred due to environmental regulations. The converse is disallowed; governments cannot sue companies under NAFTA.
The neoclassical assumption that companies and individuals are rational is wrong. Rationality implies that people are intelligent, calculative, and have all the necessary information to make decisions. That is not true. Not only do we not have all the information we need to assess decisions and thus sustainability, but companies also have an incentive to and do hide information and even lie about their production, pricing, and sustainability practices (greenwashing).
When taught economics, we often work under the assumption that the market we are studying is “perfectly competitive,” that companies in that market are breaking even with their costs (not earning abnormal profit). For most if not all markets, this assumption is simply not true. In the absence of such an assumption, companies actually have a lot of scope for profit generation, marketing gimmicks, evading social responsibilities (environmental considerations), and more. These are the realities of the real world, but “basic economic” knowledge does not explain these cases.
Economists’ and Politicians’ Distance from Sustainability
Economists, with far less scientific consideration, get to make the bulk of decisions. Often, they outright doubt science. At some point in my life, I saw an educator (Economics) make fun of scientists and climate change because they thought that economic considerations were more important than the scientists because “the scientists are confused among themselves, LOL.”
Natural scientists estimate damage 20-30 times higher than mainstream economists, but mainstream economists earn more profit in the short-run.
Politicians rely on economists more than they do on scientists. Economists have often been wrong about climatic considerations. Many sources estimated the following changes in GDP in response to temperature rises:
- 7.9% GDP fall from 6 degrees celsius rise (Nordhaus, 2018)
- 3.67% GDP fall from 4 degrees celsius rise (Warren, Hope, et al.)
- 7.22% GDP fall from 4.5 degrees celsius rise (Dietz, Wagner, et al.)
On the other hand, scientists issue more stringent warnings at even a 2 degree celsius rise. “Evidence from paleoclimate data, climate modeling, and modern observations that 2 degree celsius global warming could be dangerous” (Hansen et al.). Other scientists very often use more catastrophic terms to warn us.
There are alternatives to the neoclassical capitalist system. Wellbeing economics envisions a system where the economy exists to serve the society, people, and the environment. Neoclassical economics envisions a system where the people, society, and the environment exist to serve the economy.
“Learn Basic Economics!” Let’s Learn Beyond Basic
Capitalists and business sympathizers often attack environmentally concerned people with the phrase “learn basic economics.” This is also a common phrase against inequality concerns.
It’s funny because the more you learn economics, the more you realize that the classical and prevalent system is harmful for the people and the environment. It was built to benefit the capitalist class and make profit in the short run. So let’s do it, let’s listen to them and learn basic, nay, beyond basic economics.
I hope this post provided a good starting point in questioning the economics and economic system that is prevalent today. In moving towards sustainability, it will be increasingly important to learn and teach “beyond basic” economics to others, too.
Stay Updated on Further Knowledge and Opportunities Regarding COP28, Sustainability, and More!
There are several other criticisms that can be offered. I recommend watching this video for more information. I also extend my gratitude to Steve Keen for creating the video and the Wellbeing Economics Society at the University of Sussex for being my first space in critiquing Neoclassical Economics.
- YOUNGO (Official Children and Youth Constituency of UN Climate Change)
- AIESEC (look for local chapters in your country separately, too)
- Wellbeing Economics Club in your university or region
- SDG Action
- Youth 4 Sustainability