The first step towards sustainability- changing values and expectations through ecotaxation policy

                With recent discussion in the United States and abroad about possible policy responses to climate change focusing on “cap and trade,” where select polluters will be issued a quota of permits corresponding to a maximum amount of carbon dioxide, and the ability to trade them among themselves to work out the least possible cost of abatement, now is an excellent time to look at deeper reforms, reforms that address the fundamental issues and causes of our current crisis in a way that sets our economy, and indeed our society and civilization as a whole, on the right long-term track. Instead of attempting to mitigate the end result (too much CO2), we need to examine what actions and practices got us here, and what else needs to be addressed beyond CO2 in order to stabilize the earth’s climate, and have a truly sustainable society.

Let's talk about the Steady State Economy

Triple sustainability- economic, environmental, and social- is the goal; we know that. The real question and quest then, is the means. The idea of a "steady state" economy, "popularized" (because, let's be honest, revolutionary ideas that challenge the status quo and corresponding vested interests are rarely ever popular, and this one is no exception) by economist Herman Daly, succinctly summarizes the necessary ideas and policies behind these elusive means in a way that presents a rather utopic image of what a truly sustainable paradigm would look like.
A brief literature review that hits on some of the key points follows.

Introductions and Motivations......

In my weekly Senior project meetings, I am constantly reminded that more than anything else, such an undertaking as this is meant to exhibit the knowledge and skills in the discipline of economics, that I’ve acquired over my four years at Bard College. This seemingly obvious goal has become increasingly problematic the more research I do, as the thesis that evolves endogenously from this process into the firm belief that the “scientific basis” of our current economic paradigm, from academia to Washington, most often called “the neo-classical synthesis,” is inherently wrong, directly contradicts the majority of what I have learned in economics classes at Bard.

Moreover, one of the major reasons this paradigm has been perpetuated even in the face of insurmountable evidence against it, is the very departmentalization of knowledge at virtually all institutional levels, but especially in academia, that gives rise to the need to express one’s proficiency in the specific discipline of economics after completing the four years of study required to obtain a degree in the first place. Just as mainstream economics attempts to fit any problems that require policy response into its language and mathematical models , college students are required to specialize their interests into one (or perhaps at most two, in the case of a duel-major) of the predefined disciplines, regardless of how well that isolated set of knowledge, principles, and tools is equipped to deal with the complex issues that face our society and civilization.

When it comes to issues of sustainability- economic, environmental, and social, as all are inherently and intractably related- and specifically the role of the economy within the ecosystem and how it relates to global climate change, an interdisciplinary approach is more important than ever before. Economics, as well as most other relevant disciplines, are essentially committing to a failed policy response by not reevaluating how their underlying assumptions are either corroborated or disproven by other overlapping disciplines’ implications of its most basic assumptions. The need for such a rethinking should be obvious even before examining the evidence, just by looking at mainstream economics’ dismal record in maintaining anything near a “sustainable environment,” and the inherent values embodied by the logic in the counter-argument that it is maintaining an economically ideal level of environmental destruction based on individual, private-based decision-making reflected through flawless pricing mechanisms.

Everyone dealing with issues that have been delegated to “economics,” implicitly (environmental policy) or explicitly (wealth distribution) need to accept the fact that far from being amoral, our current economic system is full of value and moral judgments, all of which endogenously affect consumer preferences and definitions of utility. Specifically, the neo-classical synthesis’ system is based on the assumption of, and consequently biased toward, the idea of universal, “self-interested individuals,” commonly referred to as “selfish,” and in reference to its relation to the system as a fundamental assumption, the telling, “fully rational;” a very self-defining term indeed. A new assumption of “bounded rationality” that incorporates such other motivations as altruism, community, and more generally the concept of “group selection” borrowed from evolutionary biology, is the most fundamental change needed, and as it’s necessary to incorporate it into economics on the basic, theoretical level, such a shift will have far-reaching implications.

This is not the only change needed, far from it; but it’s hard to overstate the radically different economic reality that immerges from such an intuitive assumption change.

Only by starting with the problem of global climate change, and working backwards, realizing our current economic system’s fundamental unsustainability, did I come to the conclusion that the discipline’s basic assumptions need to be revised in order to successfully fulfill its role, given the enormous responsibilities that society has imparted to it.

As I’ve delved deeper into this conflict between our current economic system and our natural environment, the process has taken me through many layers of reform:

from internalizing externalities through the Coase theorem, to envisioning the economic system within the ecological system, and from there to thinking about the Laws of thermodynamics and energy and entropy flow, to the theoretical and practical applications of such a rethinking, which took me by natural resource accounting in physical terms, to explicitly energy-based value systems, or entropy-based value systems, and focusing on limiting throughput, population, consumption, incorporating equitable distribution and sustainable scale along with efficient allocation as explicit goals for economics, to finally looking at what underlying assumptions would need to be reconsidered in order to develop the microeconomic theory that’s more consistent with this reality and the necessary steady-state/sustainable goals and thus better inform policy to deal with our most pressing problems, concluding that a severely bounded-rationality assumption that takes into account altruism, co-evolutionary theory where different systems, like humans’ economic and cultural, micro and macro, influence each other’s evolution and underlying assumptions and lead to radically different policy prescriptions than under our current economic paradigm.

By explicitly defining these other than self-interested motivations in humans on the micro level, as well as how they’re informed and influenced by the system(s) at the macro level (whereas neo-classical economics generally assumes the micro is exogenously determined and in the aggregate make up the macro dynamics, with no reverse influence), a new set of relationships between actors will emerge and come to the forefront of the theory, and create a legitimate framework to deal with community-wide issues, where group-selection mentalities exist, and indeed are necessary to achieving and implementing policies that will maximize the common good.

And by creating/strengthening the institutions that are necessary in helping aggregate these motivations into a coherent force, this process can be significantly sped up by integrating the new paradigm’s values into society, and serve as a real-world complimentary action to further legitimize the new theoretical foundations. Also by putting these institutions in the context of the codynamics of power relations and institutions, specifically environmental, the nature of enforcement mechanisms and behavior-altering actions can be further explored and explicitly employed to further institutionalize on a larger societal/cultural level the existing other-than-self-interested motivations that will be incorporated into the microeconomic theory.