Page 162 - Environment: The Science Behind the Stories

can in turn affect the environment. When we deplete natural of particular commodities. Standard neoclassical models assume
resources and generate pollution, we degrade the capacity of that people behave rationally and have access to full information.
ecological systems to function. Scientists with the Millennium In neoclassical economics, buyers desire a low price,
Ecosystem Assessment (p. 33) concluded in 2005 that 15 of whereas sellers desire a high price. This conflict results in a com-
24 ecosystem services they surveyed globally were being promise price being reached and the “right” quantity of com-
degraded or used unsustainably. The degradation of ecosys- modities being bought and sold (FIguRE 6.10a). This is phrased
tem services can disrupt economies. In Costa Rica, rapid for- in terms of supply, the amount of a product offered for sale at
est loss up through the 1980s was causing soil erosion, water a given price, and demand, the amount of a product people will
pollution, and biodiversity loss that increasingly threatened buy at a given price if free to do so. Theoretically, the market
the country’s economic potential. Low-income small farmers moves toward an equilibrium point, a price at which supply
were the first to feel these impacts. Indeed, across the world,
ecological degradation is harming poor and marginalized peo-
ple before wealthy ones, the Millennium Ecosystem Assess-
ment found. As a result, restoring ecosystem services stands Market
as a prime avenue for alleviating poverty. equilibrium Supply
The relationships among economic and environmental
conditions are only now becoming widely recognized. Let’s
briefly examine how economic thought has evolved, tracing the
path that is finally beginning to lead economies to become more
compatible with the natural systems on which they depend. Price
Adam Smith proposed an “invisible hand” Demand

Economics shares a common intellectual heritage with eth-
ics, and practitioners of both study the relationship between
individual action and societal well-being. Early philosophers
had long believed that individuals acting in their own self- Quantity
interest harm society. However, Scottish philosopher adam (a) Classic supply–demand curve
Smith (1723–1790) argued that self-interested economic
behavior could benefit society, as long as the behavior was High
constrained by the rule of law and private property rights and Optimal level
operated within a competitive marketplace. Known today as of resource use Costs
a founder of classical economics, Smith felt that when people or pollution per unit
reduction
pursue their own economic self-interest under these condi-
tions, the marketplace will behave as if guided by “an invis-
ible hand” to benefit society as a whole. In his 1776 book
Inquiry into the Nature and Causes of the Wealth of Nations, Costs or benefits per unit
Smith wrote:

It is not from the benevolence of the butcher, the brewer, or
the baker that we expect our dinner, but from their regard Benefits
per unit
to their own self-interest. [Each individual] intends only his
own security, only his own gain. And he is led in this by an
invisible hand to promote an end which was no part of his in- Low CHAPTER 6 • Ethi C s, E C ono mi C s, A nd s ustA in A bl E dE v E lopm E nt
tention. By pursuing his own interests he frequently promotes 0% 100%
that of society more effectually than when he really intends to. Resource use or pollution reduction
(b) Marginal benefit and cost curves
Smith’s philosophy remains a pillar of free-market thought
today, and many credit it for the tremendous gains in material FIguRE 6.10 We can graph the fundamentals of supply and
wealth that industrialized nations have achieved. Others assert demand and costs and benefits. In a supply-and-demand
that free-market policies can worsen inequalities between rich graph (a), the demand curve indicates the quantity of a given good
and poor and intensify environmental degradation. (or service) that consumers desire at each price, and the supply
curve indicates the quantity produced at each price. The market
Neoclassical economics considers supply, automatically moves toward an equilibrium point, at which supply
equals demand. We can use a similar graph (b) to determine an
demand, costs, and benefits “optimal” level of resource use or pollution control. In this graph,
the cost per unit of resource use or pollution cleanup rises as the
Economists subsequently adopted more quantitative approaches process proceeds and it becomes expensive to extract or clean
as they aimed to explain human behavior. neoclassical economics up the remaining amounts. Meanwhile, the benefits per unit of
examines the psychological factors underlying consumer choices, resource use or pollution cleanup decrease. The point where the
explaining market prices in terms of consumer preferences for units lines intersect gives the optimal level. 161

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