08031 The Essentials of Economic Sustainability

Wealth consists not in having great possessions, but in having few wants. — Epictetus

iPermie is not an economics textbook. It is a discussion of using permaculture to hack a good life design that works for you. In doing that we touch on some big issues and one of them is economics. This is necessary because you need a personal economic plan for your good life design. It will inform your work with invisible structures as you become the process of change and reform to pull us back from the precipice of sudden collapse. A true understanding of ecological economics helps you manage the great forces of change coming at you. The world needs big changes. those large events begin in your own life and household. As you model sustainability by the way you live, you make it possible for our entire society to become more sustainable.

This chapter draws heavily on the work of Dr. John Ikerd, professor emeritus of economics at the University of Missouri at Columbia and his book “The Essentials of Economic Sustainability.” Those who want to explore these concepts in greater depth should read the book cover to cover.

All economic value comes from nature and society.

There are no other possible sources of wealth. Nature and society are it! The economy creates nothing without nature and society. It is an artifact of nature and society. The economy facilitates productive work. It cannot create anything that does not have its origin in nature.

As it currently manifests, economic activity everywhere degrades the productivity of nature by destruction and pollution. It punishes our society with corrupt values.

And so it comes to pass that our economy is in deep trouble. By allowing our economic activities to attack and damage the foundations of our economy — nature and society — we dig our grave. We sow the seeds of our own demise. We drive ourselves towards the ash heap of history.

There is a direct relationship between the corruption of our natural ecologies and our societies values and the present precipitous worldwide declines in our economies.

As we degrade nature and society, we degrade the capacity of our money economy.

Most economists believe that imagination and creativity can find something to substitute for any depleting resource. We think we can find a solution for every problem with the right economic incentives. Thus, mainstream economics assume that economic sustainability is a matter of assigning monetary values to those assets and public goods contributed by nature and society.

The problem is that no investment that pays off outside of the lifetime of the investor makes any economic sense in the present order of things. The longer the payoff timeline, the lower the present value of the investment in monetary terms. An investment with a payoff one thousand years in the future has an effective current value of zero.

Yet, a sustainable future requires long-term social and ethical value investments. We must protect and promote the common good of society and the planet. That idea does not have a place on the balance sheets of modern corporations and governments.

That’s a big problem.

Sustainable economics is a holistic discipline. It cannot be understood as parts. It must be embraced as a whole.

Change is a constant in human society. It appears that every few hundred years human societies experience times of great transformation. We may be approaching such a time right now.

An economy that does not meet the needs of its people is unsustainable and prone to collapse. Even a cursory examination of our present economic arrangements shows they are inadequate for the requirements of these times.

• They do not meet the needs of all people.
• They do not meet the needs of nature.
• They do not meet the needs of the future. Indeed, the economic transactions facilitated by our present system come at the expense of the needs of the future.

Sustainability is not a matter of everyone having everything that they want. It is a matter of ensuring that the economic system meets the basic physical and mental needs of the population. In doing so, we must not steal present prosperity from the future.

All physical things that we need require energy, so economic sustainability requires sustainability in our use of energy. The problem is that pesky Second Law of Thermodynamics, which dictates that every time we do something useful, a little something of that usefulness is lost. In popular terms, we formulate those laws as — (1) You can’t make a profit, (2) You can’t break even, (3) You can’t get out of the game.

POP QUIZ! How many references does this make to the Laws of Thermodynamics in iPermie? What does that suggest about the importance of the Laws of Thermodynamics for permaculture design and your own personal future?

That’s why our fossil fuel based economy is inherently unsustainable. We power the present by mining the past and shifting significant costs into the future.

Solar energy and biology are the only strategies we have that can finesse the inevitable loss of energy due to the Second Law of Thermodynamics.

Economic productivity happens when people transform the energy and resources available to them from nature into stuff that is useful to them. What and how much we get depends on the people, their education and organization and the systems that facilitate trade and economic activities.

But no amount of ingenuity, creativity, and work can create something out of nothing. We can’t create energy. We can only harvest or mine it and use it for our purposes.

Besides fossil fuels, social energy powers power our economic transactions. This refers to the time, resources, and work spent to maintain positive, productive human relationships. We constantly deplete our social energy and it must be regenerated and renewed. Nothing happens for nothing. Families, communities, and societies all require work, resources, and time.

Economic values and relationships are individual, instrumental, and impersonal. An economy is a collection of individuals and individual collective organizations. All economic value ultimately accrues somewhere to some one (or some collective).

Economic values are instrumental because they are means to ends. In this case, we want something in return for our economic action. Thus, we defer value in a transaction until we receive something of value. This suggests a problem if the value to be received is one hundred years in the future but we expect payment in the present.

Economic relationships are impersonal because one person’s dollar is the same as every other dollar in existence, no matter who owns it or its geography. A = B and B = C so A = C.

Social values are not impersonal. They are individual and instrumental. Reciprocal might be a slightly better word than instrumental, because social relationships go “both ways.” A social relationship won’t be as well defined as an economic contract. These relationships are not economic because they are self-evidently personal, not impersonal. Our social relationships vary, based on who our social relationships are connected to. They are context-specific. They don’t produce any marketable stuff that we can sell or trade. It is not possible to assign an economic value to a personal relationship.

Now we come to ethics, which are different from both economic and social relationships. Ethical relationships are noninstrumental but they are impersonal. The permaculture ethics of caring for people and caring for the planet are the same for everyone, irrespective of any personal or economic relationship we may have with the person or entity.

Behavior driven by ethics does not expect an economic reward. It’s not a means to an end. Ethical relationships do not produce economic value. Even if we expect to go to heaven when we die, because we lived in accordance with our ethical values, we don’t expect to be paid in this life for what we do that is good and beautiful and true.

The claim of modern classical, a/k/a unsustainable economics, is that every person attempts to maximize his or her “individual, impersonal, instrumental economic self-interests.”

Unsustainability economists will admit that people “appear” to do things that are not directly related to their economic self-interest. They will claim that these are economic actions anyway since they somehow benefit the individual. An extreme example of this is the philosophy of objectivism, as developed by Ayn Rand, which argues that there is no such thing as altruism, that all actions by individuals are fundamentally selfish in their nature. Thus, the unsustainability economists reject the concept of non-economic action by human persons.

On the other hand, it is obvious to ordinary people that we do things for non-economic reasons all the time. Social and ethical motivations are common in our personal behaviors.

We can say, however, that groups of people that are dedicated to economic values have no ability to act on anything other than their own economic self-interest. The charters of corporations and the laws of the incorporating states require them to advance the economic interests of their stockholders. Corporations, which are not human persons (although they have some of that status before the law), are an unsustainability economist’s perfect dream come true: an allegedly truly rational economic actor.

Alas for us all, our unsustainable market system allocates no economic value to investments that solely benefit someone else or which benefit humanity as a whole or nature. There is no economic incentive to meet the needs of all in a society. The market only supports meeting the needs of those who have sufficient value to trade for what they need. Since future generations have nothing to offer in the present, anything that benefits them is of no interest to the present marketplace.

We prefer investments that pay off sooner rather than later. The longer the payoff is in the future, the less we will pay for it now. At 7% interest, the present value of money is worth only 50% of what it will be in 10 years. An investment that pays off in 1000 years is worth — right now — 1/1000th of the expected payoff in that future millennium.

In other words, our system structurally encourages short-term investment and structurally discourages and disadvantages long-term (post my current lifetime) investment.

This is why our present market economy will never become an instrument of sustainability. It is why our present economy drives us towards the ash heap of history. Observe what happens across the world right now, absent the blinders freely provided by market propagandists, to find the truth of this statement.

This is not an argument that markets are evil per se. It is simply an accurate observation of the limitations of our the present market system. The market does what it does. It can't do what it can't do — such as organize the sustained action of individuals and collective organizations to make long term investments in the future on behalf of people and our natural ecologies.

We need investments in economic activities and we need investments in social relationships and ethical values. Meeting human needs is obviously important. Meeting human greeds isn’t. Satisfying the gluttony of those who already have more isn’t important. Economic action is of no greater importance than work for social and ethical values in our journey towards long term sustainability.

Permaculture design reminds us that we need a surplus.

We need to store surplus as a hedge against the future.

We need surplus to share into the community around us.

A sustainable economic activity makes a profit that enables investment in economic and ethical values and other noneconomic investments for the common good of humanity and the planet.

The money economy cannot sustain itself, by, of, and for itself. Social and ethical values and relationships are absolutely necessary for the proper functioning of a money economy.