Economy, Nature and Systems

In the post about Tata Indicom (and about systems and rules thereof) by Atanu, I saw one interesting piece about the economic system being a part of this natural system and the rules it has to play by one chaitanya. It is so good:

Inderjeet, i’ll take a shot at your question. (Hope we are not deviating too much from the discussion. Since we are talking about “systems” this is probably appropriate)..

“Since this is a blog by an economist about India’s development, I am tempted to ask how come the modern economic thought considers the natural environment as merely an input for production, in other words the economy as the “system” with the natural environment as a subset?”

Natural environment system is obviously a superset of Human economic system. So, for human economic system to be sustainable in the long run, it should operate by the rules of the super-system. Our current human economy is acting to the contrary. I think you agree with me upto this point.

Now, Modern economic thought (by which i take you mean, the free market system), per se, does not consider “natural environment as merely an input”. It simply says that if the prices of goods & service in the market be completely determined according to supply – demand dynamics, then it leads to efficient allocation of resources. The “natural environment” provides services worth trillions of dollars to our human economy. The problem is that the natural environment cannot speak and does not demand money for the services it provides. So, it is upto the human society to place appropriate value on the natural environment and the run the human economy based on that pricing. The whole problem is, the humans are not doing that. For example, we are pricing crude-oil just for extraction costs, refining costs, plus some profits. The price of disruption of climate-service is not included. We are pricing the paper for cost of cutting a tree, transportation costs, etc. The price of carbon-sink-service, and other ecosystem services that a tree provides is not included. These are just couple of examples. So, it is upto the humans to assign value to ecological services, and incorporate in the pricing. So, i believe the solution to environment problem lies not in fixing economic systems, but in humans making conscious choices and incorporating them in existing system.

btw, no need to be apologetic about being “save the earth types”. You are welcome to the club. It just means that one is using one’s head and seeing the larger rules operating in the world. Rules that human economy must live by.

I have to clarify that iam no fan of viewing nature strictly from utilitarian perspective (i.e, the value of “services” nature provides to humans). Everything has it’s own inherent beauty and value, beyond use to humans. However, even from a strictly utilitarian and practical point of view, the current human economy is the height of stupidity.


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