Biophysical Economics – economy returning to nature

Posted: February 9, 2009 in environment, reflections, society
Tags: , ,

The matrix we live in is controlled by economic forces that are still driven by the belief in unfettered growth of almost everything, leading to ever-increasing profits through unstoppable consumption. This article by  The Tyee though suggests that a change might be in the offing, with economists beginning to take seriously the notion of Biophysical Economics. Biophysical economics is based on a conceptual model of the economy connected to, and sustained by, a flow of energy, materials, and ecosystem services. That means we have to work with nature, not against it.


The year 2009 will witness a tsunami of appeals to economists to fix, as disgraced Federal Reserve chairman Alan Greenspan put it, the “flaw” in their thinking. Most will get it wrong.

The proposals for bailouts, regulations and government spending sprees all share one tragic flaw: they assume no physical or biological limits to human growth. Most economists cling to an 18th century mechanical universe that conjured an “invisible hand” of God, that would allegedly convert private greed into public utopia.

Indeed, a few got rich, but the meek inherit an earth featuring child slavery, sweatshops, a billion starving people, toxic garbage heaps, dead rivers, exhausted aquifers, disappearing forests, depleted energy stores, lopped-off mountain tops, acid seas, melting glaciers and an atmosphere heating up like a flambé.

Meanwhile, a rigorous subculture of scientists and economists have been working to free economics from its 18th century quagmire by reconciling human enterprise with the laws of physics, biology and ecology.

Their time has come. This year, 2009, will signal the birth of a genuinely innovative economics that will eventually displace the patchwork rationalizations for greed. The new ecological accounting is variously called “dynamic equilibrium,” “steady-state” or “biophysical” economics.

What about technology?

Ignoring nature remains the tragic conceit of conventional economists, who presume we can grow our economies forever without regard to quantities of materials, energy and pollution. Biophysical economics, on the other hand, acknowledges that there exist no cases in nature of unlimited growth.

Dr. Albert Bartlett, emeritus professor of physics at Colorado University, urges economists to learn the laws of nature. Non-material values — creativity, dreams, love — may expand without limit, but materials and energy in the real world remain subject to the requirements of thermodynamics and biology. “Growth in population or rates of consumption cannot be sustained. Smart growth is better than dumb growth,” says Bartlett, “but both destroy the environment.”

What about technology? Some economists imagine that computer chips or nanotechnology will save us from the laws of nature, but every technical efficiency in history has resulted in more consumption of energy and resources, not less. Remember when computers were going to save paper? That never happened. Computers increased paper consumption from about 50 million tons annually in 1950 to 250 million tons today. Meanwhile, we lost 600 million hectares of forest.

Nor is the Internet a celestial realm where ideas are exchanged for “free.” Computers require copper, silicon, oil, toxic chemicals, massive energy for server networks, and garbage heaps for techno-trash. In every industrialized nation, energy and material consumption is increasing, not decreasing. Technology is not energy. It costs energy.

Malthus revisited

biophysical-economicsIn the 1970s, World Bank economist Herman Daly wrote “Steady-State Economics,” to outline the future of ecological economics. Daly makes a distinction between “sustainable growth,” which is “impossible” and “sustainable development,” which is natural. “The larger system is the biosphere, and the subsystem is the human economy,” says Daly. “We can develop qualitatively, but we cannot grow beyond the biosphere’s limits.”

A U.K. commission chaired by Sir Nicholas Stern called global warming “the greatest market failure ever seen.” Pavan Sukhdev, economist for Deutschbank, estimates that forest destruction erases $2.5 trillion in “natural capital” annually. Mark Anielski, an economist in Edmonton, estimates that “ecological services” from Canada’s boreal forests — carbon capture, water filtration — are worth about $93 billion per year.

In the 19th century, Thomas Malthus and John Stuart Mill introduced ecological economics, warning that human expansion would eventually meet natural limits. Industrialists have mocked Malthus and ignored Mill for two centuries, but the evidence now suggests that the discovery of petroleum only postponed the effects.

Many economists now recognize that Malthus and Mill were essentially correct. A 2008 Goldman-Sachs report about commodity shortages stated, “we see parallels with Malthusian economics.” Popular investment advisor James Dines told a New York investment conference in May that food and fuel scarcities are a “result of a Malthusian planetary limit.”

“Limits to growth are real,” says Anita M. Burke, former Shell Oil and B.C. Hydro sustainability advisor. “We must embrace adaptation strategies that create new ways of being in relationship to each other and the planet. The solutions offered by growth economics are inadequate. These will be replaced by an economics that accepts the limits and laws of nature.”

Biophysical Economics

“Energy used by the economy is… a proxy of the amount of real work done in our economy,” says Charles A. Hall, at the State University of New York. In the 1980s, Hall and others hypothesized, “Over time, the Dow Jones should snake about the real amount of work.” Twenty years later, a century’s market and energy data shows that whenever the Dow Jones industrial average spikes faster than U.S. energy consumption, it crashes: 1929, the 1970s, the bubble, and now with the mortgage collapse.

World oil production plateaued in 2005, and as the price of oil rose from $35/barrel in 2004 to $147 in 2008, it added a $3.5 trillion annual cost to human civilization. “That reduced discretionary income,” says Hall, “the domino that led to a decline in aggregate demand, particularly for suburban real estate.” Jeff Rubin, chief economist at CIBC World Markets, agrees: “Oil shocks create global recessions.”

A popular Wall Street publication, The Corporate Examiner, is planning a special edition this year on “the end of faith-based economics,” with an article by Hall and his colleagues. In October, Hall convened the first International Conference on Biophysical Economics in Syracuse, New York, and will publish a book this year. “Since economics is about the production and transfer of physical things or services that require energy,” says Hall, “it is a biophysical science, not a social science.”

nature-protectionRobert Costanza, director of the Gund Institute for Ecological Economics at the University of Vermont, will launch two periodicals this year: an annual academic anthology, The Year in Ecological Economics, and a bimonthly magazine, Solutions, for technical and popular articles about ecology and economics. “To repair our economic system,” explains editor Ida Kubiszewski, we must realize that “the mounting environmental and social problems we face are systemic. Articles in Solutions will employ whole-systems thinking.”

The editorial board includes pioneers of ecological economics — Herman Daly, Ernest Collenbach and Vancouver’s Bill Rees, who developed “ecological footprint” analysis at the University of British Columbia. Rees calculates that human consumption of the biosphere is “already 30 per cent into overshoot,” consuming more than the ecosystem can replenish. “We must account for the environment,” says Rees, “reduce total consumption, and then address equitable distribution.”

‘Sooner or later…’

“We are dying of consumption,” says Peter Dauvergne, sustainability advisor at UBC and author of The Shadows of Consumption. “The unequal globalization of the costs of consumption is putting ecosystems and billions of people at risk.”

To honestly achieve a “sustainable” economy, humanity must step through a paradigm shift, as profound as the transition in the sixteenth century, when Copernicus showed that the earth is not the centre of the universe. Likewise, ecology teaches us that humanity is not the centre of life on the planet. Just as the Pope’s henchmen refused to look through Galileo’s telescope, some economists avoid looking out the window to see what keeps humanity alive: photosynthesis, precious materials, and concentrated energy.

“Sooner or later,” as ecologist David Abram puts it, “technological civilization must accept the invitation of gravity and settle back… into the rhythms of a more-than-human earth.”

In the 21st century, human enterprise has reached the scale of the planet. We have to account for ourselves on nature’s balance sheet. This is biophysical economics. It appears inevitable. Biophysical culture is what we will make of it.

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  1. SGA, Inc. says:

    I have a little exercise I like to do. I STOP worrying about the economy, the gold prices is rising at a scary pace, a new rev…. I just STOP thinking about all that. does burrying my head under sand make me an ostritch?

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