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ACHIEVING ECO-NOMIC SECURITY*
ON SPACESHIP EARTH

By Jim Bell

CHAPTER III

ECO-NOMICS: EXPOSING THE MYTH
OF ECONOMY VS. ECOLOGY

Ecology Vs. Economy?
Ecology: The Foundation Of The Economy
Direct Subsidies
The Mining Industry
Subsidies and Their Effect On Reuse And Recycling
True-Cost-Pricing
Implementing True-Cost-Pricing
The Effect Of True-Cost-Pricing
Eco-nomic Success Stories
Creating Wealth Vs. The Illusion Of Wealth
Some Thoughts On Trade

 

 

 

Synopsis

The ecology of our planet is the foundation of everything we do, including what we do under the heading of economy. When we damage the ecology through inappropriate economic activities, we undercut the potential for economic activities in the future. Today, very little of what we do economically actually increases our energy and material wealth. This is because almost everything we do, and more precisely, HOW we are doing it, depends on the use of non-renewable resources and the procurement and use of potentially renewal resources in ways that are not ecologically sustainable.

"True cost pricing" or "full cost pricing" is a free-market strategy aimed at integrating the principles of ecological sustainability with economically sound business practices. The basic idea behind the concept is to insure that the consumers of eco-nomically harmful products and services are those who pay for any damage those commodities cause. Currently, the public, through taxes, health costs, etc. pays most of the environmental and social costs associated with ecologically damaging products. By paying these costs, the public is caught in the ironic position of actually subsidizing the very products and processes that are causing them harm. Even worse, these subsidies retard the development of technologies that are ecologically benign, by reducing the market-place-cost of ecologically and socially damaging technologies. With true cost pricing, these costs would be included in the market price of ecologically damaging products and services.

Including these costs up-front would cause the consumer price of such commodities to rise. This would unleash pent up entrepreneurial or competitive energy toward the development of ecologically friendly products and services that would avoid such costs and thus be less expensive than their damaging counterparts.

As technologies become more ecologically sophisticated there is no reason for commonly used products to be any more expensive to purchase than they are now. But even if they did end up costing more at the point of purchase, under true cost pricing they would still be more cost effective to society. It's less expensive to prevent ecological and social problems, than to attempt to fix them after they have been created.

Adding the eco-nomic or true cost to products and their packaging would also eliminate most of our solid waste disposal problems. With true cost pricing everything sold in the marketplace would be designed to be reused or at least recycled or composted. When all costs are included, this is the most cost effective thing to do.

There is a general view that the free enterprise system is the antithesis of a healthy environment. With true cost pricing, however, free market forces can be powerful tools toward creating an eco-nomically secure future.

 

 

 


Ecology Vs. Economy?
 

 

 

 

 

 

 

 

Probably the most misunderstood connection between ecology and our day-to-day lives is the relationship between ecology and the economy. By now most people are beginning to sense that major changes are needed to protect our ecological security. A New York Times poll in 1990 found that "74 percent (U.S. citizens) said that protecting the environment is so important that requirements and standards cannot be too high, and environment improvements must be made regardless of cost." (2) In a more recent Wall Street Journal/NBC News Poll it was "revealed that eight in ten Americans call themselves 'environmentalists.'" (3)

Globally, the sentiment seems to be much the same. "In a Gallup poll of 22,000 people in 22 nations, a majority in 20 rich and poor countries - from the U.S. and Japan to Russia and Brazil - favored a green emphasis. In the other two, India and Turkey, 43% supported the environment. In 16 of the countries, most respondents said they would accept higher prices so industry could pay for environmental measures." (4)

BUT -- lurking in the back of many of our minds is the idea that if we don't give industry and its products the freedom to damage and pollute the environment, the economy will be hurt and people will lose their sources of income. If this notion is true at all, it is valid only from a very narrow perspective. Obviously, if we damage our planet's ecology beyond its point of recovery or turn-around, the economy will collapse and most of the ways that we currently earn income, as that term is used in the modern world, will cease to exist.

 

 

 

 

 


Ecology: The Foundation Of The Economy
 

 

 

 

 

 

 

 

At the most fundamental level, the ecology or life support system of our planet is the foundation of everything we do. It provides us with the air we breathe, the water we drink, and the food we eat. It also, directly or indirectly, provides us with the wherewithal to get everything else we need and want to keep ourselves comfortable and stimulated.

As such the ecology of our planet is the foundation upon which all our eco-nomic activities rest. When money is made in ways that unduly damage the life support system of our planet, the foundation of our economy is being undermined as well.

In economic terms the ecology of our planet is like the money or capital in a bank account. The productive potential of the ecology is the interest generated by that capital. Presently, most of our activities affect our planet's ecology in ways that reduce both its capital and productive potential. Instead of increasing our ecological wealth, we are spending it.

Agricultural and forestry practices worldwide are characterized by the loss of topsoil and soil fertility to erosion. Similarly, our methods of obtaining, using, and disposing of the earth's mineral resources are reducing the capital in our ecological account. As ecological capital is reduced, the amount of interest or income it can sustainably produce is reduced as well.

If we protect our planet's ecological capital, we can live off the interest it generates forever. This idea is similar to economist Herman Daly's concept of "no net loss of natural capital". (5) By using some of this interest wisely, we can actually increase our planet's ecological capital and thereby increase the sustainable interest or income that it generates. If we grow food and manage our forests in ways that enrich the soil, we are increasing the earth's ecological capital, or the earth's potential to produce more food or forest products on a given piece of land. If we use sustainable methods to obtain, use, reuse, and recycle the earth's mineral resources, we are preserving the eco-nomic foundation that allows us to benefit from these resources indefinitely.

When all costs are considered, there is no conflict between ecological health and economic vitality. They only appear to be at odds because many of the environmental and social costs associated with creation, use, and disposal of products offered in the marketplace are not included in price that is paid for them. Instead, these costs, which in effect subsidize the product or service they are attached to, are paid for by everyone.

Even if we do not use or benefit from an ecologically damaging product or service, we pay for the impacts they create. In other words, we pay a hidden subsidy to cover any costs associated with a product or service that is not covered by its retail price.

This is especially true in the energy sector of our economy. For example, as consumers we do not pay additional money up front for cars and trucks or the fuel we burn to run them to cover the health costs that result from breathing or being exposed to the pollution that comes out of their exhausts, crank cases, breaks, etc. Even if only exhaust related air pollution is considered, studies sponsored by American Lung Association came up with air pollution related health costs for the U.S. ranging from "$4.43 billion to $84.99 billion" in 1985. (6)

Similarly, as consumers we do not pay the true cost for electricity to cover the health costs to society caused when fossil fuels containing sulfur and other harmful chemicals are burned to generate it. A Pace University study estimated that each ton of sulfur dioxide emitted into the atmosphere "costs society $3,500 in health-related damage alone -- and in 1988 the United States emitted 22.8 million tons of sulfur dioxide." (7) If Pace University's estimates are correct, the health costs caused by sulfur dioxide emissions in 1988 were just under $80 billion. (8)

Hidden costs related to fossil fuel use also show up in crop damage. Experiments by the University of California show that ozone levels, "half those (typically found) in Southern California-reduce yields of cotton by 20%, table grapes by 25% and Valencia oranges by 25%. (9)

Even though they are not commercially traded and therefore not easily quantified, there are a number of other hidden costs related to fossil fuel use. They include:

  • the disfigurement of historical monuments which are eroded by acid deposition and discolored by fossil fuel particulates;
  • damaged watershed function and wildlife which are harmed by ground level ozone (smog), acid deposition, and particulate materials; and
  • visibility which affects mental health and productivity, traffic safety, tourism, property values, and our general quality-of-life.

Even if we only consider the two obvious health-related costs discussed above, the hidden health cost related to air pollution is somewhere between 84 and 165 billion dollars a year. (10)

A 1988 German study on the true cost of energy, titled the "Social Costs of Energy Consumption," uncovered similar costs. Hohmeyer, the author of the study, "concluded that the direct social costs attributable to electric generation in Germany is about $.03/kwhr (more than is actually paid for it). This accounts for medical expenses, loss of pay due to sickness, repairs required to buildings, loss of forest revenues, etc. but little or nothing for pain and suffering, bereavement, loss of scenic tourist attractions, etc." (11)

Also not included in Hohmeyer's analysis are the health costs associated with carbon monoxide emissions, or the potential cost of building locks and dams to hold the sea at bay if global warming caused by greenhouse gases cause ocean levels to rise as the polar ice cap and glaciers melt. If these costs are included, some experts have pegged the cost of mitigating the negative impacts of fossil fuel use at $.07 per kwhr for coal and $.04 per kwhr for natural gas above what we currently pay for them. (12)

Presently, the United States uses about 7.6 quads or around 2.25 trillion kWh of electricity each year. If 3, 4, or 7 cents were added to the cost of each kWh of electricity used in the U.S. we would be paying an additional $66, $89, and $155 billion respectively for electricity each year. (13)

Even these higher estimates do not include everything. Not included are the social or ecological costs associated with exploring for oil and natural gas, the installation of pipelines, the occasional natural gas explosion and tanker oil spill. Nor do they include the even more serious costs related to strip mining coal. (14)

Just considering health costs alone, whatever their exact cost turns out to be, the payments to cover them are made on many levels. Some payments go directly to our personal doctors to cover the care for illnesses that are caused or aggravated by air pollution. Some come out of tax revenues to pay for the health care of people who cannot afford it. Others come in the form of lost productivity that results in higher costs for general goods and services. Air pollution both aggravates and prolongs respiratory illnesses. People thus affected are less productive when they work and they are off the job more often. Because more people are sick more often, we also pay higher premiums for health and life insurance. And these costs are paid by everyone, whether they drive a car or truck, ride a bus, or use electricity produced by burning high sulfur fossil fuels. (15)

Hidden subsidies in other economic sectors include costs like cleaning up water polluted during mining and smelting operations. They also include the cost of replacing eroded topsoil when forests are clear cut or when land is improperly farmed. The pollution caused by using poorly designed products and the cost of land filling packaging and product residues are additional costs borne by the taxpayer. More detailed examination of these and other hidden costs associated with how we currently do things will be covered in the chapters to follow.

 

 

 

 

 


Direct Subsidies
 

 

 

 

In addition to hidden subsidies, there are also a number of direct subsidies that taxpayers pay to keep the retail price of non-renewable energy resources artificially low. Resource depletion allowances, for example, permit resource extractors to write off some of the taxes they would otherwise have had to pay on their profits. In other words, resource extractors pay less taxes on their profits than do other businesses.

To foster and protect its subsidies, the oil industry supports its own lobby. "The largest lobby in Washington is the American Petroleum Institute, with over 500 employees." To keep its employees busy, the American Petroleum Institute "spent $50 million" in 1988. (16) What does the oil industry get for its money? Oil companies "receive massive government subsidies" -- $8.5 billion in 1984 for example. (17) For comparison, Exxon had $7 billion in sales in 1990. (18)

Another way the taxpayer subsidizes the non-renewable energy industry is by paying for research and development. Compared with other energy sources, nuclear energy has consumed the lion's share of public research funding related to energy. Since 1948 "65% of all federal energy research dollars --- has gone to nuclear fission and fusion." (19)

As a whole, the energy industry receives direct subsidies in the form of federal tax credits and research funding to the tune of "roughly $50 billion per year". Twenty-six billion dollars of this amount goes into supporting fossil fuels and $19 billion to support the nuclear industry. (20) By comparison, "energy savings received less than $1 billion (in subsidies), and returned 185 times as much in savings per Federal dollar invested than a dollar invested in nuclear power." (21) And as if current direct subsidies were not enough, the U.S. Government is offering Texaco, Chevron, and other U.S. companies involved in exploring oil fields in the former Soviet states full protection from commercial risk. (22)

In total, the net value of all the subsidies, hidden and direct, that benefit the conventional energy industry "range between $100 billion and $300 billion per year" in the United States alone. (23)

Our dependence on imported oil also costs us economically by amplifying our nation's trade imbalance. Depending on the level of economic activity, oil imports have accounted for as much as 92 percent of the U.S. trade deficit. (24) When we import oil we export money.

We can avoid this capital drain from our local and national economy by investing the money we now export in becoming more energy efficient and switching to renewable energy resources. Not only would this help protect the environment from damage and help our national trade imbalance, it would also help the economy by turning jobless people in the U.S. into tax paying workers.

 

 

 

 

 


The Mining Industry
 

 

 

 

 

 

 

 

In addition to benefiting non-renewable energy systems, direct subsidies like resource depletion allowances also benefit the mining industry. According to the Federal Office of Management and Budget (OMB), most of the mining industry's $505 million 1991 tax windfall came in the form of resource depletion allowances. (25)

Other subsidies enjoyed by the mining industry include the General Mining Act of 1872. This 122 year old act allows mining interests to purchase publicly owned land at $5 per acre or less if they discover hard-rock (gold, silver, lead, iron, and copper) mineral deposits on it. Additionally, no matter how much a particular mineral deposit is ultimately worth, the public is not entitled to a royalty. This is because the land containing the deposit is sold outright to the mining company. (26)

Beyond the overt subsidies discussed above, the mining industry also benefits from hidden subsidies. These subsidies are the result of environmental laws which exempt mining interests from clean-up responsibilities. Mining wastes constitute the "single largest category of wastes produced" in the U.S. Yet the Federal Resource Conservation and Recovery Act of 1976 "specifically exempted mining wastes from regulation as a hazardous waste." (27)

Although it is not required by law to do so, Kennecott Copper, which operates the Bingham Canyon copper mine in Utah, reported its cumulative toxic chemical release in 1987. "Out of the 18,000 industrial facilities reporting nationwide that year, the Bingham Canyon mine came in fourth in total toxic release and first in metal." (28) As large as Kennecott's contribution to toxic waste is, it should be borne in mind that the Bingham mine is only one of many copper mining operations. Further, copper is only one of the many resources that are mined.

 

 

 

 

 


Subsidies and Their Effect On Reuse And Recycling
 

 

 

 

 

 

 

 

One of the worst results of the subsidies just described is that they hamper reuse and recycling by artificially reducing the true price of virgin materials. Mining, harvesting, and processing virgin materials requires far more energy and causes far more ecological damage than does reusing or recycling the same materials. If these costs were included in the consumer price of virgin materials, industries would design more products for reuse and purchase recycled materials when reuse was not practical. More costly virgin materials would only be purchased as a last resort.

The benefits of reuse and recycling would be further enhanced if the cost of landfilling poorly designed products and packaging were included in their price. If this happened, the least-cost strategy for manufacturers would be to design products and packaging to be reusable and/or easily recycled.

If products and their packaging were designed to be reusable, recyclable or compostable, landfills could be transformed into Resource Recovery Centers. At these centers, reusable products would be put back into circulation and worn out objects would be sorted and returned to industry to be made into new products in a perpetually sustainable cycle. Resource Recovery Centers would also recycle organic materials not suitable for direct reuse or recycling by composting them. Once composted these materials would be returned proportionally to the forests and fields where they originated.

Even without considering the broader costs involved, some municipalities are finding that composting is already a cost effective way to process organic wastes. Fairfield, Connecticut has instituted a composting operation that combines sewage sludge with yard wastes to produce compost. "Richard White, supervisor of Fairfield's wastewater treatment facility, which produces sewage sludge for the composting facility, figures the town is saving at least $100,000 in its first year of composting. He hopes to increase those savings by marketing the compost to local landscapers, and by charging nearby companies to compost spoiled food and other organic materials." Odors from the operation have not been a problem. Even though the Fairfield facility is located in a residential neighborhood where some houses cost $500,000 there have been no complaints. This is probably because "the Fairfield facility smells no worse than wet leaves" from a few yards away. (29)

In general, direct and hidden subsidies give ecologically damaging products and practices an economic edge over practices and products that are more ecologically benign. As presently structured, these subsidies take up the economic slack for polluters which, in effect, penalize companies that operate in ways that are more ecologically benign. For its part, the taxpaying public is caught in the ironic situation of subsidizing the very industrial and commercial practices that they are threatened by and end up paying for to correct.

 

 

 

 

 


True-Cost-Pricing
 

 

 

 

 

 

 

 

The answer to this dilemma is embodied in a concept called true-cost-pricing. True-cost-pricing is a two step process through which the free-market can be used to stimulate economic activity while protecting the ecological foundation that supports it.

Step one requires a thorough ecological and social accounting to determine what things are really costing us. What would a styrofoam cup really cost if we include all the costs associated with its creation, use, and disposal in its point-of-sale price? Consider just one of the impacts of using styrofoam: one hundred percent of the human tissue samples analyzed by the Environmental Protection Agency's National Human Adipose (fatty) Tissue Survey contained styrene. Although the final cost of treating people who become ill from such exposure is unknown, styrene contamination has been linked to "neurotoxic, hematological, cytogenetic, and carcinogenic effects". (30)

Or, what is the true cost of the pesticides we use in our homes and gardens or eat with our food? A 1987 National Cancer Institute study revealed that children in households where parents used home or garden pesticides "are six times more likely to develop some forms of childhood leukemia." (31) Beyond the tragedy this finding portends, what costs should be added to the price of pesticides to cover the children who contract leukemia from pesticide exposure? A vigorous accounting would bring these costs to light.

Step two involves the adoption of State and/or Federal legislation to insure that all or at least most of the costs associated with a particular product or service be included in the end-use price of the product or service in question.

 

 

 

 

 


Implementing True-Cost-Pricing
 

 

 

 

 

 

 

 

The implementation of true-cost-pricing could take place in a number of ways. One possibility would be to require companies to pay a specified amount of money into an escrow fund for each product they produce. The amount of money deposited for each product would be based on a true-cost-pricing audit that would target the ecological and social costs that a particular product's creation, use, and disposal would incur.

The deposit for styrofoam products, for example, would include:

  • Health and ecological costs related to the extraction and use of the petroleum that went into making them. (Styrene is an oil-based product.)
  • Health and ecological costs associated with the creation, use, and landfill disposal costs of styrofoam products. (Currently, very little styrofoam is recycled and when recycled, it is made into products like plastic lumber and outdoor carpet that will be landfilled when these products wear out.)
  • Any extenuating environmental costs related to landfilling styrofoam, like groundwater contamination.
  • Other costs, like the public cost of litter cleanup for improperly discarded styrofoam. These costs could be based on historic information, such as the historic percentage that styrofoam has contributed to total litter over the 5 preceding years, divided into the total cost of litter abatement.

To facilitate recycling, some items like flashlight batteries would include a returnable deposit of perhaps $.50 each to ensure they would be recycled instead of thrown away when exhausted. When batteries were returned, the $.50 deposit would be redeemed or carried over to the purchase of new batteries. Such deposits would ensure that valuable resources like those found in flashlight batteries would be returned to the industrial sector for reuse instead of being landfilled or discarded in the general environment. Currently, most flashlight type batteries are disposed of in ways that contaminate surface and groundwater with toxic liquids and heavy metals. (32)

True-cost-pricing is already having an impact on price in the energy sector. The state of Wisconsin "considers either conservation or non-fossil fuel-generating capacity economically comparable to a conventional (energy production) system even if it costs 15 percent more." (33) Wisconsin's "public service commission also requires utilities to include the future cost of mitigating air-quality problems in proposals to renovate existing power plants." (34)

New York's approach is to add "a certain amount per kilowatt-hour based on air and water pollution and land degradation to the expected price of electricity from each source." (35)

An even more complex and comprehensive way to calculate the hidden costs related to energy is being considered by California, Oregon, Wisconsin, Colorado, and New Jersey. This method, developed at the Bonneville Power Administration by a team led by Shapard C. Buchanan, is "based on the total cost per kilowatt-hour produced or saved over the lifetime of a power generating or conservation resource." (36) The costs targeted in Buchanan's method include "the capital cost of building a plant or purchasing conservation equipment, the incremental costs of generating or saving each kilowatt-hour and various identifiable environmental and social costs." (37) "Conservation receives an additional 10 percentage bonus because of its many unqualified environmental benefits." (38)

Using market mechanisms to achieve ecological goals is even picking up support in the corporate world. "Last October, (1992) Frank Popoff, chairman and CEO of the Dow Chemical Company, suggested that the pricing system for chemicals should be changed so that individual products directly reflect their environmental costs." (39)

 

 

 

 

 


The Effect Of True-Cost-Pricing
 

 

 

 

 

 

 

 

The primary effect of true-cost-pricing would be to level the economic playing field. One result of this leveling process would be to stimulate a pent up reservoir of entrepreneurial energy toward the development of more ecologically benign products and services. To some extent this is already happening even though the market is currently skewed against it. By releasing entrepreneurial energy, leveling the economic playing field would also lead to the creation of new ecologically sustainable jobs. Currently, entrepreneurial activity in this area is being stifled by the direct and hidden subsidies discussed previously.

Another result would be to insure that the people who purchase ecologically harmful and non-recyclable products would pay for any health, clean up, or repair costs related to their creation, use, and disposal. Since consumers purchase such products for their own benefit, it is only fair that the purchaser pay any external costs associated with them. This would relieve this burden from the shoulders of more ecologically conscious consumers and the public at large.

In general, the effect of true-cost-pricing would be to stimulate manufacturers and service providers to provide products and services that are as ecologically sustainable and socially beneficial as possible. When all costs are included, this is the most cost effective and therefore profitable thing for them to do.

 

 

 

 

 


Eco-nomic Success Stories
 

 

 

 

 

 

 

 

Even without true-cost-pricing, some well known companies are finding that being more eco-nomically responsible is the most cost effective way to operate. The April 1988 issue of Technology Review reported that the 3M Corporation has eliminated 50% of its toxic wastes, and greatly reduced the pollution it formerly released into the environment. During the ten year process from 1975 to 1985, 3M has saved around $300 million on disposal costs and through more efficient resource use, and increased energy efficiency. (40) Duphar, a large chemical concern in the Netherlands, has done even better. Duphar "adopted a new manufacturing process that decreased by 95% the amount of waste created in making pesticide." (41)

Like 3M, other U.S. corporations are benefiting from waste reduction as well. "According to a recent EPA study of 28 firms that have undertaken waste-reduction measures, 54 percent found that their investment paid for itself in less than a year, 21 percent found that it took one to two years, and only 7 percent found it took more than four." (42) With true-cost-pricing, this industrial clean up process would be greatly accelerated. (43)

Some companies have found ways to get the job done without using toxic chemicals at all. Perchloroethylene or PERC is the solvent of choice in most dry cleaning operations. It is also a toxic material that has been associated with a variety of health and environmental problems. These problems range from "central nervous system depression and liver damage" to being listed as a "hazardous waste under the 1984 Resource Conservation and Recovery Act (RCRA)". (44)

"Ecoclean", a dry cleaning method that has been in use in London, England since 1920 avoids the use of solvents altogether. The process was developed by the grandfather of Richard Simon who now runs the family business. Although the "sponge and press" method developed by his grandfather is practiced in much the same way as it was over 70 years ago, Richard Simon has added a number of innovations. These include the use of an environmentally safe soap called Aveda produced in Minneapolis and "the use of returnable wooden hangers" and cover bags to minimize waste. (45)

If Simon has his way the "Ecoclean" process will soon be available in the United States. "In December, 1992 the EPA conducted a month-long economic feasibility study and preliminary performance test of Ecoclean techniques in collaboration with the Neighborhood Cleaning Association in Manhattan and two dry cleaners in Washington D.C." In the study "Federal and New York State employees were invited to drop their clothes off at designated points to be cleaned using the Ecoclean Methods. As part of the study, manufacturers donated 13 kinds of garments which were worn by volunteers over a four week period, and cleaned once a week, half using Ecoclean." (46) As of this writing, the test results are not in, but considering that the Ecoclean process has been competing successfully in England with solvent based cleaning processes for over 70 years, the outcome should be a foregone conclusion.

The 91,000 acre Collins Almanor Forestry operation is another eco-nomic success story. Recently, the media has made much out of the apparent conflict between saving the forest from clear-cutting and preserving jobs for loggers. Meanwhile, the Collins Almanor foresters continue to quietly harvest timber sustainably and profitably as they have for the past 50-plus years.

When Collins Almanor began harvesting the forest in 1941, estimates indicated it contained 1.5 billion board feet of lumber. A board foot of lumber is 12 inches by 12 inches and one inch thick. Since 1941, 1.7 billion board feet of lumber have been harvested from the forest -- approximately 34 million board feet per year, with 1.5 billion board feet of unharvested timber still remaining. Over the 50 year-plus harvest period "only a few trees were snaked out of the woods at a time", matching the forest's natural rate of growth and renewal. (47) This approach has made it possible to harvest the forest profitably while "wildlife, clear water, and recreational possibilities abound, even on land that has just been cut." (48) To increase the forest's value as a wildlife habitat the Collins Almanor foresters leave some potentially harvestable trees in the forest to die. When the crowns of these trees break off they become snags which provide nesting habitats for birds like woodpeckers and the spotted owl. (49)

 

 

 

 

 


Creating Wealth Vs. The Illusion Of Wealth
 

 

 

 

 

 

 

 

On a fundamental level true-cost-pricing is about developing an economy that creates real wealth as opposed to the illusion of wealth.

The difference between real wealth and illusionary wealth can be illustrated by comparing houses "A" and "B" which are identical in size and appearance. To the uneducated observer each house would appear to represent the same amount of wealth. But looking below the surface we can see that one house represents the creation of wealth whereas building the other house creates little if any wealth, and may actually result in a net loss of wealth.

Here is how Houses "A" and "B" differ.

House "A" is made of materials that were mined, harvested, and processed in ways that sustain the ecological foundation from which they were drawn. Toxic materials, which might cause its occupants to become ill were not used in house "A".

These issues were not considered in the construction of house "B".

House "A" is very energy and water efficient. It is well insulated and is equipped with a ventilating system that saves energy by using heat, extracted from exhausted stale air, to warm up the fresh air replacing it. Energy efficient lighting and appliances are also incorporated in house "A". Additionally, house "A" features low flow showerheads and water efficient toilets.

In house "B" these amenities are either not included or minimally included.

Where appropriate, house "A" is designed to collect rainwater from its roof and store it in an underground cistern. It is also equipped with graywater (bath, sink, and wash water) recycling for landscape irrigation and uses a state-of-the-art water efficient irrigation system. House "A" also features a landscape design that is consistent with the rainfall and weather conditions of its location. House "B" does not include these amenities and features a water intensive landscape design.

House "A" also incorporates construction strategies that stress durability and minimize the cost of and need for maintenance. It is also designed to minimize the threat of fire and avoids the use of materials that would produce harmful toxins if ignited.

In the construction of house "B" these issues are only minimally considered.

Finally, house "A" is constructed on land that is reasonably geologically stable and not subject to flooding.

House "B" is built on geologically hazardous alluvial deposits, within the boundary of a 100 year frequency flood plain.

Clearly the construction of house "A" represents the creation of real wealth. With house "B" this is probably not true or at least far less wealth has been created through its construction. When all the peripheral or "true" costs associated with house "B" are tallied, it may even represent a net wealth loss.

Unfortunately we currently have a house "B" economy. Even when we grow food, wealth is more often lost than created. In the U.S., 8 to 20 units of non-renewable energy are consumed for every unit of food energy delivered to our tables. (50)

In addition to the non-renewable energy it consumes, agriculture as it is commonly practiced, causes some of our most valuable topsoil to erode away more rapidly than nature can replace it. "The USDA estimates that some 23 percent of U.S. cropland suffers erosion rates greater than is considered 'tolerable'. (51) Globally, "an area the size of China and India combined has suffered moderate to extreme soil degradation caused mainly by agricultural activities, deforestation, and over grazing in the past 45 years". (52)

Since 1972 "the world's farmers lost about 480 billion tons of topsoil, roughly equal to that which covers the agricultural land of India and France." (53) These losses of wealth (topsoil and non-renewable energy) are less apparent to us in the western world because they are masked by large inputs of non-renewable energy. Inputs which make our present agricultural system appear to be productive, but which is only kept afloat by subsidized, non-renewable energy consumption that lets us:

  • Mine and manufacture nutrients and other additives to replace those that are lost to erosion and through other avenues;
  • Divert rivers into deserts; and
  • Pump water out of aquifers at rates that exceed their recharge. (54)

The recent damage from Hurricane Andrew offers us another look at the wealth question. Well-built homes, constructed above high water lines, can withstand the onslaught of the fiercest hurricane and suffer only minimal damage. Even well-designed mobile homes can survive hurricanes if they are properly anchored. In other words, with a bit more care in construction and citing, much of the damage (loss of wealth) caused by Andrew could have been avoided.

Ironically, as reconstruction of the damaged area commenced, the enormous costs of the rebuilding activity showed up as a plus in our nation's Gross National Product (GNP) or measure of economic health. In reality, rebuilding the area will probably end up being a drain on our national resource wealth base unless the area is rebuilt in a more eco-nomically responsible way.

Or as economist Robert Repetto put it, "A country could exhaust its mineral resources, cut down its forests, erode its soils, pollute its aquifers, and hunt its wildlife and fisheries to extinction, but measured income would not be affected as these assets disappeared." (55) Once these resources are gone, however, the economy based on their use will obviously collapse.

Fortunately, this kind of outcome is not inevitable. If the true-cost-pricing measures illustrated in the example of house "A" were applied, rebuilding Florida and our use of resources in general would be wealth producing and our nation and the world would be more eco-nomically secure for it.

 

 

 

 

 


Some Thoughts On Trade
 

 

 

 

 

 

 

 

Recently, a flurry of regional and global trade agreements have been proposed, hammered out, or adopted. (56) The reason given for these high priority government and commercial efforts is to spur economic activity and therefore create jobs, profits, and expanded consumer choice. While this view may hold true in the short term for some people, it will not be true for most of us for long.

Why? Because the underlying economies of the countries that mine, grow, harvest, and manufacture the goods they seek to trade are not eco-nomically sustainable. Almost without exception, the world's economies are close to being totally dependent on non-renewable energy resources and the procurement of other resources in ways that are not eco-nomically sustainable, even if energy issue, just discussed did not exist.

In other words:

As long as our underlying economies are not eco-nomically sustainable, spurring them along by accelerating trade and consumption will only hasten their decline.

This is not to say we should eliminate trade. If our economies were ecologically sustainable, their stimulation through trade would be positive. The real issue is not trade at all, but the need to develop local, national, and global economies that are eco-nomically secure. In other words, we need economies that create real wealth instead of its illusion. If we achieve this goal, the foundation of our economy will be strong and resilient in the present and far into the foreseeable future.

 

 

 

 

 


Jim Bell 4862 Voltaire St. San Diego, CA 92107 jimbellelsi@cox.net