Saturday, June 18, 2011

Neoclassical vs. Ecological Economics

Prompt: Create a chart comparing and contrasting ecological economics and neoclassical economics. On each respective side put the main points for each school of thought. For each major point also write down the reasoning behind the development of these practices and their goals, these may be either historical or current needs.

1 comment:

  1. For comparison:

    Ecological economics
    -Thermodynamics – Carnot and Clausius discover laws of physics about matter and energy
    -Matter evolves – Darwin shows that through adaptation and learning, evolution, or positive feedback loops, occur
    -Steady state – Daly built on Mill creating the idea of a closed loop system where resources for production and pollutants are kept steady
    -Distribution of rights is important for sustainability as whoever owns the right controls how that good is used, the type of products produces, and who consumes the goods
    -Ecology defined as the “study of the economy of nature” and economics as the “ecology of humans” – at its core, ecology is the “relationship of organisms to their environment”
    -Systems thinking – Lotka approached ecology and economics as integrated whole which exhibits nonlinear dynamics and is constrained and structured by flows of energy
    -Externalities needs to be incorporated into the market through more extensive valuation techniques
    -Uses a transdisciplinary approach – necessary for construction and analysis of wicked problems

    Neoclassical Economics
    -Markets guide humans – Adam Smith’s invisible hand where people enter a transaction fully informed for their own benefit will result in them acting for common good
    -Resources are scarce – Thomas Malthus and how an ever increasing population will exhaust its resource base and Ricardo’s idea that the higher quality resources are used first
    -Diminishing marginal returns on the basis that local systems have negative feedback loops
    Initial distribution of rights/goods does not affect efficiency of allocation – resulted from aversion to Marx who argued the importance of the distribution of resources in use
    -Markets have externalities that do not affect operation of market
    -There is an efficient use of a resource over time that is determined by the interest rate and price – Hotelling shows that resources that do not generate a flow of services at a rate greater than the rate of interest, should be depleted
    -Approach is often linear (restricted to such by mathematics) and developed in isolation from other areas of study
    -Natural capital can be replaced with built or human capital