Are We Consuming Too Much?

By Jon Christensen

Illustration by Mark Hess ©HessDesignWorks.com

The answer to the question may seem obvious. But it’s not. Not even to Paul Ehrlich, who has spent his life warning of impending disaster for our overweening consumer culture.

Ehrlich’s latest book, One with Nineveh: Politics, Consumption, and the Human Future, written with his wife Anne, takes its title from a Rudyard Kipling poem. “Recessional” is a cautionary verse about the hubris that went before the fall of Nineveh, the once-thriving capital of the ancient Assyrian empire on the Tigris River in present-day Iraq. The Ehrlichs argue that if we don’t curb our wanton ways, a similar fate awaits us.

But in a paper recently published in the prestigious Journal of Economic Perspectives (1), Paul Ehrlich joined a group of nearly a dozen of the world’s most ambitious ecologists and economists to try to put some hard numbers behind worldwide concerns about sustainability. They boldly entitled the paper “Are We Consuming Too Much?”

There are, of course, places where the biggest problem is definitely not that people are consuming too much. It’s that they’re consuming far too little. Think Africa. Consumption is obviously inadequate when people are dying of malnutrition. But insufficient investment also means that the next generation of Africans will have less than this generation, and the generation after that still less. This is a death spiral of declining consumption and investment, two keys to well-being and sustainability

But what about us? And by this, I mean those of us living in the United States and other rich countries. The answer Ehrlich and his colleagues came up with will be shocking to some. And it will come as a surprise to many. It even surprised some of the authors, including Nobel Prize-winning economist Kenneth Arrow.

It turns out that even we with our Priuses and SUVs and venti lattés might not be consuming too much, as long as we are investing enough in the future to ensure that generations to come enjoy standards of living at least as high as ours. And that suggests that we might be worrying way too much about how much we consume and far too little about how to invest in the poorest regions of the world, many of which are home to some of the earth’s greatest biodiversity as well as its most desperate people.

“Now wait just a minute,” I can hear you saying to yourself. Because that’s what I said to myself. Especially when I saw Paul Ehrlich’s name on the paper.

And therein lies a story.

“If someone had told me in 1970 that I would be close friends with a bunch of economists, I would have thought they were out of their minds,” says Ehrlich. “Economists seemed like the enemies.”

Back then, Ehrlich had armored himself against constant attacks from economists. But it was an economist who first extended an olive branch to Ehrlich, resulting in what he now calls “the biggest intellectual transformation of my career.” It’s a personal transformation that reflects an epochal change in the relationship between ecology and economics.

***
Sir Partha Dasgupta was that economist. A knighted Oxford and Cambridge scholar known as one of the world’s foremost authorities on the economics of developing countries and a voluble wit to boot, Dasgupta was visiting Stanford University around 1990 when he decided to engage the devil’s advocate in a conversation. He had read Ecoscience, a state-of-the-art catechism for ecologists in the late 1970s and early 1980s written by Paul and Anne Ehrlich and John Holdren. Dasgupta found Paul Ehrlich in his lab across campus and they hit it off.

Dasgupta saw something in Ehrlich that other economists didn’t see, says Larry Goulder, an economist at Stanford who later joined their collaboration. “Most economists thought of Paul as a wacko doomsayer,” says Goulder. Dasgupta saw his insight and relevance and that there didn’t have to be a contradiction between economics and ecology.

Once Dasgupta opened the door, Goulder, Arrow, and other economists and ecologists joined the conversation, opening up a much larger discussion about what the dismal science might contribute to the science of life.

If you step back for a moment, this isn’t so strange. After all, both disciplines are concerned about the same place. “Eco” comes from the Greek word “oikos,” meaning house. To get our house in order will require better accounting on both sides of the equation: ecology and economics. What’s strange is why it took so long for them to talk to each other. The explanation? People. And place.

“We overlook the role purely personal relationships are able to play in scientific progress,” says Dasgupta. He and Ehrlich and the other economists and ecologists who joined their conversation became friends. It was personal affection and trust that provided the glue for collaboration. “I can’t emphasize this point strongly enough,” says Dasgupta.

Ehrlich agrees. “You have to have the human relationship,” he has learned. You can’t get people to do interdisciplinary work just by throwing them into a room together, he says.

And that’s where place comes in. Stanford University has a kind of champagne air, as a friend of mine says. There is something about it that encourages blue-sky thinking and camaraderie, even among people who have serious disagreements about the rest of the world.

There is another charmed place at the heart of this story, too — an island near Stockholm called Ask?that is home to the Beijer Institute, a research center of the Royal Swedish Academy of Sciences. Its mission is to bring economists and ecologists together to find common ground and develop tools for improving the management of the “life-supporting environment” around the world, especially in developing countries. The Beijer Institute brought Ehrlich and Dasgupta and some of their best friends and colleagues together on the island and set them loose on the biggest question of our times: how would you define sustainability?

***
Much of the debate about sustainability has clustered around the two opposite poles of ecology and economics.

On the one hand, economists tend to believe that, if we run out of some environmental resources or find better or cheaper substitutes, we will simply switch — from horsepower to gasoline, for example, or from gasoline to hydrogen. The economic argument is typically that “increases in knowledge and in manufactured and human capital will enable societies to substitute their way out of economic problems,” says Dasgupta.

Ecologists, on the other hand, tend to believe that “we are running out of environmental resources” and some environmental resources cannot be replaced, like the dodo or the passenger pigeon.

“Much of what is generally published on the question is an outburst of the personal emotions of the writer,” Dasgupta says. But the Ask?group, as they decided to call themselves after their Swedish getaway, came to believe that it just might be possible “to go way beyond mere hand-waving.”

They began to think, quite audaciously, that they could figure out a mathematical formula for sustainability that would satisfy both economists and ecologists. There were two crucial things that made this possible.

The first development was the growing confidence of the economists that they could begin to incorporate environmental resources such as forests, fish stocks, and petroleum reserves into rigorous economic models. And environmental data, albeit far from perfect, were adequate enough to begin construction of a basic balance sheet for most countries around the world that would show depletion of natural capital such as forests in the liability column, and investment in other forms of capital such as factories in the asset column.

The second development was that the ecologists accepted some of the basic assumptions of the economists. Without mincing words, Larry Goulder says the bottom line was this: “Sustainability is best defined as sustaining human welfare. That’s the be-all and end-all: sustaining the quality of human life.”

Now, Goulder is quick to add, that may well entail sustaining particular environmental resources such as fresh water, wetlands, and fisheries. He emphasizes that certain natural resources — such as particular species or unique landscapes — might require permanent protections because human welfare depends on their being left intact or undisturbed for aesthetic, ethical, or other more practical reasons. But in economic terms, resources are ultimately “means to an end,” he says. And it may be OK to deplete some natural resources if this yields values to humans greater than the value people attach to the resource in its original state.

Many ecologists might find this difficult to swallow. Ecologists tend to believe that many resources cannot be replaced, and, well, to put it most simply, it’s not all just about human welfare. But Ehrlich and the other ecologists in the Ask?group were willing to go along with the economists. Why? Because they trusted them and because so many other economists are simply oblivious to natural resources. Because these economists persuaded them that together, they could figure out how to put natural resources into the center of the equation of human welfare. And that could create common ground where a productive discussion about sustaining human welfare and the environment could take place.

***
Until their paper appeared in the Journal of Economic Perspectives last year, the only venue where these issues were seriously hashed out was in highly theoretical economics literature so thick with differential equations that math-challenged mortals couldn’t possibly penetrate them. Thus a critical discussion about viable ways of defining “sustainability” — something of concern to all of us — has had no purchase in public discourse outside the rarified confines of economic think tanks and the World Bank.

Truth be told, even this paper has some parts that are difficult for some of the authors to explain. The ecologists had to trust the economists on some of the equations that calculate whether countries meet what they call a “sustainability criterion.” And even Larry Goulder demurs to Ken Arrow on one particularly arcane point about treating population growth as an element of human capital.

But at bottom, their “sustainability criterion” is not that difficult to grasp. It simply requires that “current consumption be consistent with future generations enjoying standards of living at least as high as the current one.”

Think of a household budget. You have a certain income. Now divide that income into two piles. One pile is for current spending: food, fuel, fun, and rent, if you don’t own your home. That’s consumption. The other pile is for investment: in your business if you own a business, a mortgage payment if you own a home, in stocks or bonds if you decide to invest in other businesses, and education for you or your children, should you decide that the world just might have a chance at surviving for future generations to enjoy. That’s investment.

Now think bigger — because this simple household budget is not a perfect analogy for the sustainability criterion applied to a country. For countries, the equation involves adding up domestic net investment in manufactured capital plus education expenditures because those represent investments in human capital.

So far, this is not that different from your household investments. However, for countries, the sustainability criterion also requires figuring out what is happening with stocks of natural capital. So the depletion of natural resources, such as the extraction of oil and gas, must be subtracted from total capital investments along with the cost of damages to the environment, such as projected costs of carbon dioxide emissions.

The net change in these capital stocks is called “genuine investment,” and it is either positive (if countries save and invest more capital than they consume) or negative (if they are spending down their principal). The principal (the sum total of all forms of capital — manufactured, human and natural) is called “genuine wealth.”

In the United States, the United Kingdom, and China, the Ask?group found genuine wealth to be increasing (although less robustly in the U.S. than in the U.K. or China); thus, the sustainability criterion was satisfied. In sub-Saharan Africa, the Middle East, and North Africa, they found genuine wealth to be decreasing at alarming rates. India, Pakistan, Nepal, and even Bangladesh were found to be borderline. Changes in some assumptions could easily push them one way or the other.

Kirk Hamilton, team leader of Policy and Economics in the Environment Department at the World Bank, who was not involved in this collaboration, says that the paper reinforces his group’s findings. “Our clients need to consume more, not less,” he says. “The broad implication is that richer countries are on a sustainable path while poorer ones are not,” he adds. But “reducing consumption in the North will not automatically increase consumption in the South.”

Hamilton says the “policy prescription for poor countries, as the paper notes, is to increase productivity so that both consumption and saving can grow.” However, he cautions, some resource-dependent developing countries are currently consuming too much, most notably oil-rich Middle Eastern countries. They are currently tapping into abundant natural capital to fund current government spending, but they are neither investing the revenue productively nor transferring sufficient income to poor households so that they can save for the future. This is called the “resource curse” and it gets to the heart of the question from a different direction.

***
Instead of asking “Are we consuming too much?” says Larry Goulder, we could ask the more central question, “Are we investing enough in the future to compensate for the loss of natural capital?” That in turn gets back to the crucial question about whether there are some forms of natural capital which we simply cannot afford to lose.

And it is a measure of how deeply felt this collaboration has become that in the course of working on this paper together, the economists wholly adopted some of the ecologists’ crucial concerns, too — to the point of being uneasy with some of the paper’s findings.

Even Ken Arrow, the Nobel Prize winner, was surprised and cautious about the results. The findings were “more optimistic than I would have expected,” he says. In part, he attributes that to their methodology. “We wanted to be as conservative as possible,” he says, and “avoid any implication that we were cooking the books.”

The economists take great pains to emphasize the limitations of the data when it comes to things that ecologists have long advocated. Outside of forests, which were included in their equation, there are critical forms of natural capital not yet included in the calculations.

“Many ecological resources are missing,” says Partha Dasgupta, and “we have good reasons to conclude that many of those missing resources are in worse shape now than they had been previously.”

There is abundant research, for instance, showing that fresh water and fisheries are being depleted in many places well beyond levels that can sustain current, much less future, consumption. And as Arrow adds, “much depletion of natural capital has local effects.”

The local effects of ecological changes, the economists acknowledge, could also cause ecosystems to cross what ecologists call “thresholds.” Unlike markets, which almost invariably react in a linear fashion to changes (as prices rise, demand falls), ecosystems often react in nonlinear ways (a small change in nitrogen can be the tipping point that shifts a lake from clear to clogged with algae).

The economic services that ecosystems provide to people are also not yet included in the formula, Arrow says. These would include the services that wetlands provide by controlling floods and that insects provide by pollinating crops and controlling pests, to name just two that make huge contributions. Wetland services may be valued as high as US$15 trillion annually, according to some estimates, and wetlands are being destroyed at a faster rate than any other type of ecosystem.

The economists also worry about what they call “shadow prices.” This evocative label conveys what it costs to compensate for losses of natural capital with investments in other forms of capital such as human resources through education, or built capital such as businesses and industry. It generally takes a bigger investment because shadow prices are higher than market prices. They include many environmental costs or “externalities” that aren’t seen in market prices. Recognizing these hidden costs is essential for choosing cleaner ways of producing and consuming goods, regardless of overall levels of consumption.

It’s true that one important message of the paper is that “we should worry about the poorest countries,” Goulder says. “But there’s a lot that the rich countries can and should do to make their own consumption patterns less damaging to the environment. There’s much room for public policies that address these externalities and help people make greener consumption decisions.”

For his part, Paul Ehrlich couldn’t be happier than he is hearing a group of economists talk like this. Still, he isn’t about to give up his crusade against SUVs (he’s not as worried about those venti lattés, as long as the coffee is shade-grown).

“Nobody doubts that there should be more consumption among some people,” he says. “But it’s very clear that a lot of what is going on is not sustainable.”

However, if you had asked him in 1970 what the biggest problem was, Ehrlich would have said controlling the size of population. Since then, changes in population growth rates worldwide have led him to focus more on consumption. And now, working with economists has put much more sophistication into the equation.

1. Arrow, K. et al. 2004. Are we consuming too much? Journal of Economic Perspectives 18(3):147-172.

About the Author:
Jon Christensen is a contributing editor for Conservation In Practice and a Research Fellow at the Center for Environmental Science and Policy at Stanford University.

Recommended

1 Comment

Leave a Comment

Like-what-you're-reading-Donate2