An environmentally sensitive model for economic analysis

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On Sunday, large volumes of water poured down the Rishiganga in the Chamoli district of Uttarakhand. The slopes of the Himalayan rivers are steep and the flash floods are therefore very violent. It killed more than 200 people, destroyed four hydroelectric projects and shattered several bridges, leaving many isolated villages. Rescue operations are underway, even as scientists try to identify what triggered this disaster. Immediate evidence suggests that a glacial lake has burst its shore, setting in motion an icy mud of muddy water, reminiscent of the state tragedy of 2013. As global warming has been found to weaken glaciers, it will not be. no wonder the ultimate cause turns out to be us. Or, to be more precise, our reckless pursuit of economic development at the expense of ecosystems around the world. Climate change is a crisis that calls for a global response. As environmentalists design interventions to save our planet, economists should help by rethinking their discipline. For too long he has looked the other way.

The fundamentals of economics cannot be reworked. But since Nicholas Stern pointed out climate change as the world’s biggest “market failure”, nature has come under the prism of academics. The latest example is a report submitted to the UK government last week. Written by Cambridge professor Partha Dasgupta, it advocates a reset that sees nature as a key entry to exit, an entry that deserves to be analyzed like other entries. For a long time, students have studied production in its most skeletal form in terms of labor and capital, with other major factors like organization and innovation often classified as productivity enhancers. What was taken from nature was simply taken for granted, given its abundance. With this assumption of unlimited availability in the event of a threat, natural inputs must be valued appropriately, requiring an analytical framework that will alter our cost calculations and require us to pay uncompromising attention to environmental conservation. . Damage to nature could deplete natural resources and processes enough to cap the size of the global economy, according to Dasgupta’s report. To overcome this, he offers a large variable called “natural capital,” a stock that he wants to track in the context of what its depletion would mean for the sustainability of economic growth.

The proposal makes sense, but could end in failure to reach consensus on how best to quantify natural capital. We are all vaguely aware of the value of essential services provided by nature, such as breathable air, clean water, and benign temperatures, as well as the complex ecological interactions and natural cycles that balance all of this. Remarkably, Dasgupta has put forward an illustrative “production function” that takes all of this into account. One could quibble over its details, but the idea is worth embracing and further research. According to his estimates, the efficiency with which the world has transformed natural capital into production remains far too low. If we are to stop wasting our natural stock by 2030 without slowing our current trend of economic expansion, we need to achieve annual efficiency gains almost three times faster than from 1992 to 2014. Indeed, we need to act before let it be too late. An irony of Chamoli’s calamity is that his battered village Reni was once the birthplace of the Chipko movement, aimed at saving our forests. “Ecology is the permanent economy” was the rallying cry of its main driving force Sunderlal Bahuguna. It is no longer just a cry in the desert. At least, we hope.

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