Ecological Economics 101: The Real Costs of Living

In the age of Covid-19, large cities have turned into giant prisons, with billions of people ‘stuck’ in their houses. The almighty economy that took ten years to recover from the last global crisis crumbled in a matter of weeks. And evident by fights over toilet paper in grocery stores, our societal fabric may be no more than a sheet of transparent saran-wrap after all. We must be asking ourselves by now how can we avoid this in the future? In this new series, we’ll explore how expensive our current ‘growth at all costs’ economic model is, starting with a basic ‘crash course’ in Ecological Economics and a lesson in the real costs of living.

I’ve been thinking about creating this series for a while now. I wanted to find ways to bring my perspective as an environmental scientist to other walks of my life. This includes my growing interest in economics, personal finance and, of course, this blog.

But until Covid-19 disrupted virtually everyone’s lives, costing societies trillions of dollars, many of these discussions still seemed abstract and esoteric. But with Covid-19 now firmly in the spotlight, it seems like a suitable time to highlight the costs of discounting the services provided by healthy ecosystems, often not understanding their full value until it is too late. The things we do – including the lifestyles we choose – all have an impact. All come at a cost – a cost to the taxpayer (financial capital), a cost to yours or your neighbours’ welfare (social capital) or a cost to the environment (natural capital).

Ecological Economics

‘Classical’ or ‘traditional’ economics attempts to allocate scarce resources towards alternative desirable ends (i.e. welfare). That is, it aims to use things as efficiently as possible with the goal of creating a ‘better’ future.

But what does ‘better‘ mean? And which ‘alternative ends’ do we collectively desire? And whose future are decision-makers considering?

In contrast, Ecological Economics focuses on these ‘scarce resources’. It aims to understand, define and allocate them according to the realities of nature. It also carefully considers which ‘alternative desirable ends’ we apply these scarce resources to most efficiently.

Traditional economics has come to focus too much on the allocation of resources (read ‘market efficiency’). Models with flawed assumptions guaranteed the triumph of free markets as the best way to allocate these resources.

We’ve been cooking the books right from the beginning.

In traditional economics, a Cyclical Flow diagram describes the environment is seen as but a sector within the economy (i.e. resource sector), rather than the domain within which the economy actually exists.
In traditional economics, a Cyclical Flow diagram describes the environment as but a sector within the economy (i.e. resource sector), rather than the domain within which the economy actually exists.

There is one big, glaring, fundamental flaw with mainstream economics. As Jon Erickson puts it, traditional economics employs an ’empty world’ model. In contrast, ecological economics uses a ‘full world’ perspective.

Mainstream economics rejects the first law of thermodynamics* and calls the environment but a sector of the larger model. In reality, the economy is dependent on access to these resources. It is important to understand that it exists within the sustaining and containing ecosystem, and not the other way around.

In contrast to traditional economics' 'Empty World' model, Ecological Economics recognizes that the environment is finite, and the economy depends on and exists within it.
In contrast to traditional economics’ ‘Empty World’ model, Ecological Economics recognizes that the environment is finite, and the economy depends on and exists within it.

Quality over Quantity

Traditional or mainstream economics encourages a ‘growth economy’. In defiance of reality, it does not view natural resources as scarce.

In contrast, Ecological Economics recognizes the scarcities of energy and materials (natural capital) and promotes this consideration in economic decision-making. It encourages a ‘development-based’ economy.

Put simply, ‘quality over quantity’.

Externalities and Value

When we burn fossil fuels, greenhouse gases are emitted into the atmosphere and contribute to global climate change. When we destroy wetlands, they no longer protect our houses from floods.

Perhaps most backwards, these things are actually good for GDP, the primary measure by which we gauge our (economic) success.

When we encroach on natural habitats we eliminate the protection against disease that healthy ecosystems and ample space provide. Currently, this is predicted to cost about $9 trillion dollars in 2020 and 2021 alone due to the Covid-19 pandemic.

When a company profits** while causing environmental degradation and contributing to global climate change, it actually adds cost to the system. It simply passes on the cost of that destruction to the future taxpayer, while reaping only the benefits.

When we fail to pay health care workers a living wage*** we pay the social costs as a society later. We see this now as the system fails to meet our needs. Thousands are being left to die alone and families and care workers are suffering the trauma caused by these unthinkable tragedies.

My own grandmother, 94, has been in the hospital for a month and has no comprehension of why my mom has stopped visiting her. Her health is declining fast. If she doesn’t live longer than another few months until this is all over, she will die alone. In addition, my mom will face the challenge of not having been able to be there to say goodbye and comfort my grandma in her final moments.

This scenario and others like it are playing out all over the world in the thousands right now.

This is truly costly.

Until those taking care of people earn more than those taking care of cars, we will suffer such costs.

A Sick World

Almost everywhere except for China had the chance to avoid the worst of the Coronavirus Pandemic. Instead, we waited for it to wreak havoc on our own lives before taking any action at all. Then, frustrated with our own inaction, many pointed the finger at China, ignoring the fact that this could have happened in many places around the world.****

But what they also fail to realize is that is that this is our fault. Not China’s, ours! All of ours.

Through the ongoing discounting of natural capital and its squandering in exchange for financial capital, people as a whole are virtually all complicit in not only the proliferation of this virus, but in its creation as well. Our ever-growing cult of western consumerism created this disaster, and now we are paying for all that ‘growth’.

While our supply chains depend on places like China, we simply export the inherent environmental damage and human costs. Cheap, unregulated and often inhumane labor practices required to produce our cheap goods would never pass in the consumerist West. If we repatriate that production, we will have to be prepared to pay more for virtually everything. We must also be prepared to adopt the inevitable natural capital losses caused by the production of all that stuff.

To put it in more relatable terms, it would cost about $30,000-$100,000 to produce an iPhone completely in America. And that’s ignoring the fact that it probably wouldn’t even be possible at all.

The Real Costs of Living

The natural environment is of great value and is difficult or even impossible to repair or replace. The services it provides – like a buffer from novel viruses that result from living too densely – are known as ecosystem services. As we are learning now, these services are very valuable.

As long as we continue to encroach further on natural habitats, more zoonotic illnesses like Covid-19 are inevitable. The degradation of global natural capital introduces many challenges, and the emergence of novel diseases is only one of them.

In the age of Covid-19, the real costs of living are becoming glaringly apparent.

*The Law of Conservation of Energy states that no new energy is created nor destroyed. There is only conversion of energy.

**In Canada, our bitumen-rich Alberta crude oil doesn’t trade well on the global market. It is expensive and inefficient to extract, so governments subsidize it in order for it to compete. In 2015, the fossil fuel industry received a total of $60 billion, or about $1,650 per Canadian.

***And teachers, restaurant workers, grocery store clerks and cleaners, to name but a few more under-compensated members of society.

****A more dangerous prospect than a virus like Covid-19 is the potential emergence of an anti-biotic resistant strain of bacteria. Our western lifestyles and modern society are indeed creating the conditions for this to occur.

3 thoughts on “Ecological Economics 101: The Real Costs of Living

    1. Thanks for reading Phil.

      I’d love for you to elaborate on how you disagree?

      Like I said in the article, I am a biologist/ecologist by training (and work for a mining company). I have studied economics at points along the way to earning an MSc though.

      Perhaps I wasn’t clear in the article, but the point was largely that the standard economic model itself is flawed, primarily because it doesn’t actual account for all externalities.

  1. veronica

    I don’t think your post is wrong at all. I think you’ve eloquently expressed what I struggle to explain to people.

    The phrase I like to use (especially with business types) is “the economy is a wholly owned subsidiary of the environment”.

    By that I mean, without a healthy environment, you have no economy. If they disagree, I ask them to name an economic activity that could be performed without relying on the environment. Even finance relies on computers conducting all the myriad of transactions that are done on computers whose components came from the natural environment not to mention the energy required to power them…..

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