The framework on which Ecological Economics is founded provides a privileged perspective for formulating policy indications for managing the Covid pandemic and fostering economic recovery.
First, Ecological Economics adopts the precautionary principle, as stated by Bob Costanza in the first editorial of the journal Ecological Economics in 1989. The level of uncertainty we face today requires policies that minimize societal risk. The rapid spread of Covid19 around the world should have impressed upon policymakers, and people in general, the importance of espousing said precautionary principle. Had governments taken the early warning signs seriously, the epidemic would have not become a pandemic, and the economic crisis would have been much less severe.
Second, as Industrial Ecology has also been emphasising for many years, ecological economists know that the principle guiding any sustainability policy should be minimizing material throughput. GDP growth is based on accelerating the rate at which extracted materials become waste, thereby engendering environmental degradation and negative effects on our well-being and happiness.
Third, we are acutely aware of the limits and flaws of GDP as an appropriate indicator for measuring progress and assessing economic policy.
The deep economic crisis triggered by COVID presents us with the opportunity to radically change our economy and society. It is time for us to call for structural change, something that we have been hoping to attain for decades, and to which we have dedicated a great deal of research effort.
None of us needs convincing that the present socio-economic system must be changed. We are thus in the position of having to talk to the hesitant, to those who are still convinced by the ‘conventional wisdom’ that without an incessantly growing GDP we cannot have employment and well-being, that stimulating demand (and garbage generation) is the only way forward.
Paradoxically, first-year economics students are taught that economics studies the allocation of scarce resources among alternative ends, and that markets generate bad allocation of production factors due to externalities and public goods, leading to the production of too much of some goods and not enough of others. Prices are wrong, that is to say, they do not reflect the actual cost of producing goods, and hence the value that people attribute to them. Workers and other production factors should be reallocated so that the “right” quantities are produced at the “right price”. GDP includes anything that is traded on the market, without distinguishing between economic goods and bads. GDP is not the right indicator, even from a strict Arrow-Debreu perspective
We recognise the many flaws in the neoclassical approach and that criticisms to the current system go far deeper than the problem of allocative inefficiency.
However, we should at least try to break the mainstream schizophrenic position of macroeconomics supporting GDP growth while microeconomics invoking improvements in allocative efficiency. In reacting to the current rhetoric about how to re-launch the economy, while calling for a healthy transformation towards a less unsustainable socio-economic system, we believe that it is also helpful to convince the hesitant and the sceptical that GDP growth can be bad even from a mainstream point of view.
To this purpose we launch a short plea, which is supported by a group of well-known scholars within our discipline and is AVAILABLE HERE.
We ask economists to sign it. You can do it by clicking here. We will send it to several international institutions (e.g. EU Parliament and Commission) and spread it through the media.
Tommaso Luzzati* and Tiziano Distefano
Dipartimento di Economia e Management, REMARC and CISP – Università di Pisa, Italy , *Corresponding author, https://people.unipi.it/tommaso_luzzati/
A plea to politicians: ask the economists to tell the truth, available at
https://docs.google.com/document/d/11invyuIdtYxA_4gQrSNozsxBO7GyNYzczeLu79Em0o0/edit?usp=sharing