The recent Amazonian fires here in Brazil and their potential impact on global warming got me thinking about the role of economics, and how economic theories and models may be complicit in the process of environmental destruction and global warming. Do our models factor in the environmental impacts of economic activity, or do they ignore them?
Many analysts think that they ignore them and that new ways of thinking about the role of the economy and it’s connection to the environment are needed. One of these analysts is John Fullerton, an ex-Wall Street banker who has founded the Capital Institute, a non-profit organisation whose aim is to completely rethink our economic and financial models with a view to making them much more responsive and attuned to how they impact our environment.
“ This search first opened my eyes to the profound, interlocking crises we are now facing – ecological, economic, and social – including the shocking prospect that we are destroying the planet’s ability to support life as we know it. My most startling discovery, however, was that the modern scheme of economics and finance – what Wall Street “geniuses” (like me) practiced so well-formed the root cause of these systemic crises”
John Fullerton, Ex-Wall Street Banker
A major criticism of traditional economics is an obsession with economic growth. Maximizing economic growth is an important macroeconomic policy objective for most governments, but this usually has considerable negative environmental impacts.
Amazonian Production Possibility Frontier – The Trade-Off Between Economic Growth and Nature.
Jair Bolsonaro, the controversial new Brazilian President, wants to ‘develop’ the Amazon by encouraging more production of meat, soya and timber. In other words, using the PPF diagram above, he wants the Brazilian economy to move from point e to point f on the above PPF. The opportunity cost of these policies, however, will be less rainforest as shown by the movement from A to X on the horizontal axis.
Brazil is in the process of recovering from one of its worst-ever recessions and Bolsonaro sees Amazonian ‘development’ an opportunity to dig the economy out of the recession. The Amazonian region is also one of the poorest in Brazil and any development of the region could pull many of its inhabitants out of poverty.
However, the Amazon rainforest plays a crucial role in regulating the world’s environment; it contains twenty per cent of the world’s animal and plant species, its plants hold ten years worth of carbon emissions, and it helps regulate the precipitation cycle of the whole of South America. Extensive deforestation of the Amazon would have incalculable impacts on South America’s ecosystem and would sharply accelerate global warming.