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					Green Economics Institute                         Economics because people matter
                                  Reclaiming economics for people, the planet, non
 Green Economics Institute               human species and the biosphere




  The Global Crisis and the credit
             crunch




                              Alicante

                            January 2009
                                              Miriam Kennet, June 2006
   Miriam Kennet
 What is Economics?
What is an economist ?
Green Economics Institute                  Economics because people matter



     What is economics?
    • The original word for
      Economics was Oikonomia
      which meant ‘household
      management’

    • In fact, true economics,
      Oikonomia, is about managing
      the needs of society,nature,non
      human species, the planet and
      the biosphere


                                        Miriam Kennet, June 2006
Green Economics Institute                         Economics because people matter



     What is economics?Scarcity
  • Managing scarce resources-


  • The more scarce a resource, the more
    value is created,Samuelson the father
    of Neo classical economics

  • Current economics values scarcity-
  • And so chopping down the rainforest
    creates scarcity and therefore value in
    the forest.
  • In fact the opposite is actually true in
    the life-world –we need abundant
    rainforests.
                                               Miriam Kennet, June 2006
Green Economics Institute
    –Mainstream economics:
                                   Economics because people matter




    –Preferences
    Preference of homo economicus as expressed
     by his
    spending activities.




                                Miriam Kennet, June 2006
Green Economics Institute                                         Economics because people matter


    Growth

      –   Mainstream models :-
      –   Solow-Swan Growth Model
      –   as increased stocks of capital goods
      –   (means of production) showed the
      –    relationship between labor-time,
      –   capital goods, output, and investment.
      –   , the role of technological change became crucial,

      – even more important than the
      – accumulation of capital. 1950s,.




                                                               Miriam Kennet, June 2006
Green Economics Institute                               Economics because people matter


    Growth theories
    •   Assumes that countries use their
        resources efficiently and that there are
        diminishing returns to capital and labor
        increases.
    •   A)increasing capital relative to labor
        creates economic growth, since people
        can be more productive given more
        capital.
    •   B) poor countries with less capital per
        person will grow faster because each
        investment in capital will produce a
        higher return than rich countries with
        ample capital.
    •   C) because of diminishing returns to
        capital, economies will eventually reach a
        point at which no new increase in capital
        will create economic growth. This point is
        called a "steady state.―


                                                     Miriam Kennet, June 2006
Green Economics Institute                              Economics because people matter

     Rostows stages of economic
     growth
     • Walt Rostow 1916 0 2003 wrote Stages of economic growth a
       non communist manifesto. 1960 He saw his work as a political
       mission and he worked with Gunnar Mydal and believed in
       economic take off. He argued that development policy could be
       a political instrument in the east west conflict. He formed the
       Charles River Clique working on President Kennedys campaign.
       He believed that economic growth would stop communism.
     • He distinguished 5 stages that countries have to pass through,
     • a)    the traditional society
     • b) the preconditions for take off
     • c)    the take off
     • d)    the drive to maturity- (self sustained growth)‫‏‬
     • the age of high mass consumption

                                                    Miriam Kennet, June 2006
Green Economics Institute                          Economics because people matter


     GDP 1
    GDP is an indicator of total volume of goods and services
      produced each year and the variations therein.
    Growth is based on GDP: - GDP is based on
    a)Market value of all the goods and services sold in a
      country per year measured in money
    b)The cost of producing non market services provided
      by government bodies , education, central and local
      government services, etc




                                                Miriam Kennet, June 2006
Green Economics Institute             Economics because people matter



    Origins of economics?
    • Xenophon Oikonomikos
      369 BCE Estate
      Management or household
      management and efficiency
      using administrative
      authority to interact with
      nature and agriculture




                                   Miriam Kennet, June 2006
Green Economics Institute                Economics because people matter



     Origins of Economics?
 • Aristotle
 • 384 – 322 BCE
 • Nichomachean Ethics
 • 3 types of economics justice
 • Oikonomia the management of
   the household,
 • Wealth acquisition through
   exchange which should be
   limited and not at someon else's
   expense
 • The good life or eudaemonia
 • Happiness through virtuous
   activities.
                                      Miriam Kennet, June 2006
Green Economics Institute      Economics because people matter


    History of economics
    • What is an
      economist?
    • Is it this or ?




                            Miriam Kennet, June 2006
Green Economics Institute              Economics because people matter


    History of economics
    • Or this ?             • Who contributes
                              the most?




                                    Miriam Kennet, June 2006
Green Economics Institute                                                              Economics because people matter


David Ricardo 1772-1823
Ricardo's most famous work is his Principles of Political Economy and
Taxation. Ricardo opens the first chapter with a statement of the labour theory
of value. Later in this chapter, he demonstrates that prices do not correspond
to this value. He retained the theory, however, as an approximation. Ricardo
continued to work on his value theory to the end of his life.

This book introduces the theory of comparative advantage. According to
Ricardo's theory, even if a country could produce everything more efficiently
than another country, it would reap gains from specializing in what it was best
at producing and trading with other nations. (Case & Fair, 1999: 812–818).
Ricardo believed that wages should be left to free competition, so there
should be no restrictions on the importation of agricultural products from
abroad.

The benefits of comparative advantage are both distributional and related to
improved real income. Within Ricardo's theory distributional effects included
that foreign trade could not directly affect profits because profits respond only
in changes to the level of wages. The effects on income are always beneficial
because foreign trade does not affect value.

Comparative advantage forms the basis of modern trade theory, reformulated
as the Heckscher-Ohlin theorem, which states that a country has a
comparative advantage in the production of a product if the country is
relatively well-endowed with inputs that are used intensively in producing the
product. (Case & Fair, 1999: 822).

Like Adam Smith, Ricardo was also an opponent of protectionism for national
economies, especially for agriculture.                                              Miriam Kennet, June 2006
Green Economics Institute            Economics because people matter



    Scottish Enlightenment
    • Adam Smith the father of
      modern economics:
    • An enquiry into the
      causes of the wealth of
      nations 1776
    • We could change from
      savages in the
      countryside to the market
      of laissez faire




                                  Miriam Kennet, June 2006
Green Economics Institute              Economics because people matter



    John Stuart Mill
    •  (20 May 1806 – 8 May
      1873), British
      philosopher, political
      economist, civil servant
      and Member of
      Parliament, was an
      influential liberal thinker
      of the 19th century. He
      was a teacher of
      utilitarianism, an ethical
      theory developed by his
      godfather, different from
      Bentham's
    • Steady State economy.
                                    Miriam Kennet, June 2006
Green Economics Institute                       Economics because people matter



       Jeremy Bentham
   •   advocacy of utilitarianism and his
       opposition to the concept of
       natural rights[1], with oft quoted
       statements to the effect that such
       rights were nonsense[2]. He
       influenced the development of
       welfarism[3], a concept espoused
       by modern American liberals.


   •   Bentham was one of the most
       influential utilitarians, partially
       through his writings but
       particularly through his students
       all around the world. These
       included his secretary and
       collaborator on the utilitarian
       school of philosophy James Mill,
       James Mill's son John Stuart Mill,
       and several political leaders (and
       Robert Owen, who later became a
       founder of socialism).                Miriam Kennet, June 2006
Green Economics Institute                                                                   Economics because people matter


      Alfred Marshall
 Alfred Marshall's textbook, Principles of Economics (1890), was the dominant textbook in
 England a generation later. Marshall's influence extended elsewhere; Italians would compliment
 Maffeo Pantaleoni by calling him the "Marshall of Italy". Marshall thought classical economics
 attempted to explain prices by the cost of production. He asserted that the Neo- cassicals went
 too far in correcting this imbalance by over emphasizing utility and demand. Marshall thought
 the question of whether supply or demand was more important was analogous to the pointless
 question of which blade of a scissors did the cutting.

 Marshall explained prices by the intersection of supply and demand curves. The introduction of
 different market "periods" was an important innovation of Marshall's:

    * Market period. The goods produced for sale on the market are taken as given data, e.g. in a
 fish market. Prices quickly adjust to clear markets.
    * Short period. Industrial capacity is taken as given. The level of output, the level of
 employment, the inputs of raw materials, and prices fluctuate to equate marginal cost and
 marginal revenue, where profits are maximized. Economic rents exist in short period
 equilibrium for fixed factors, and the rate of profit is not equated across sectors.
    * Long period. The stock of capital goods, such as factories and machines, is not taken as
 given. Profit-maximizing equilibria determine both industrial capacity and the level at which it
 is operated.
    * Very long period. Technology, population trends, habits and customs are not taken as given,
 but allowed to vary in very long period models.

 Marshall took supply and demand as stable functions and extended supply and demand
 explanations of prices to all runs. He argued supply was easier to vary in longer runs, and thus
 became a more important determinate of price in the very long run.

                                                                                       Miriam Kennet, June 2006
Green Economics Institute                                      Economics because people matter



      Neo classical economics
  1. People have rational preferences among outcomes
that can be identified and associated with a value.
  2. Individuals maximize utility and firms maximize
profits.
  3. People act independently on the basis of full and
relevant information.

From these three assumptions, neoclassical economists
have built a structure to understand the allocation of
scarce resources among alternative ends -- in fact
understanding such allocation is often considered the
definition of economics to neoclassical theorists. Here's
how William Stanley Jevons presented "the problem of
Economics".

  "Given, a certain population, with various needs and
powers of production, in possession of certain lands and
other sources of material: required, the mode of
employing their labour which will maximize the utility of
their produce."                                             Miriam Kennet, June 2006
Green Economics Institute                                                    Economics because people matter
 Neo Classical Economics
 profit maximization lies behind the neoclassical theory of the firm,


  demand curves leads to an understanding of consumer goods,

  supply curve allows an analysis of the factors of production.

  Utility maximization for consumption,

  of demand curves for consumer goods,

 Market supply and demand are aggregated across firms and individuals. Their interactions
 determine equilibrium output and price.

 The market supply and demand for each factor of production is derived analogously to those
 for market final output to determine equilibrium income and the income distribution.



 Neoclassical economics emphasizes equilibria, where equilibria are the solutions of agent
 maximization problems.

 Eeconomic phenomena can be explained by aggregating over the behavior of agents.

  The emphasis is on microeconomics. Institutions, which might be considered as prior to and
                                                                        Miriam Kennet, June 2006
 conditioning individual behavior, are de-emphasized.
Green Economics Institute                                      Economics because people matter



    Keynes
    •   1936 t the General Theory of Employment,
        Interest and Money,


    •   t "the theory of aggregated production, which is
        the point of the following book, nevertheless
        can be much easier adapted to the conditions
        of a totalitarian state [eines totalen Staates]
        than the theory of production and distribution of
        a given production put forth under conditions of
        free competition and a large degree of laissez-
        faire."


    •   aggregate demand to explain variations in the
        overall level of economic activity, such as were
        observed in the Great Depression.
    •    The total income in a society is defined by the
        sum of consumption and investment; and in a
        state of unemployment and unused production
        capacity, one can only enhance employment
        and total income by first increasing
        expenditures for either consumption or
        investment.




                                                            Miriam Kennet, June 2006
Green Economics Institute                                       Economics because people matter


    Keynes contribution
The General Theory of Employment, Interest, and Money (1936), Keynes laid the
foundation for the branch of economics termed "Macroeonomics" today. Based on
the methods devised by Alfred Marshall, he argued that macroeconomic
relationships differ from their microeconomic counterparts because the
ceteris paribus
 clauses applicable to different levels of aggregation differ.

 The view of given prices and wages income determines demand (see IS-LM), pre-
dates Keynes.
His innovation is to take, in his core argument, prices and wages as perfectly
flexible and establish that the interaction of "aggregate demand" (in his sense) and
"aggregate supply" (in his sense) may lead to stable unemployment equilibria. His
work on employment went against the idea that the market ultimately settles at a
state of full employment - a central tenet of Classical economists. Instead he argued
that there exists a continuum of equilibria, the full employment equilibrium
position being just one of them.


                                                            Miriam Kennet, June 2006
Green Economics Institute                       Economics because people matter


    Keynes
       Prevailing economic orthodoxy stuck to the old
       classical view that Markets will clear in the long
                                run.
            At the height of the crisis, the fledgling
          Labour government was told by Treasury
       officials that the government must balance the
               budget to survive the depression.
                               This
       effectively meant increasing taxes and cutting
      unemployment benefits. Keynes described this
      as economic madness and argued for the exact
                             opposite.
                He argued in a recession of this
      magnitude, it was necessary for the government
            to intervene and actively stimulate the
           economy. Apart from a few half hearted
      attempts such as the new deal, Keynes' policies
         were largely ignored in the UK and US; and
      high levels of unemployment persisted until the
                 start of the second world war. Kennet, June 2006
                                                Miriam
Green Economics Institute                            Economics because people matter

    Paul Samuelson:Neo classical
    economics
 Samuelson is considered one of the
 founders of modern neoclassical
 economics.
International economics, where he
influenced the development of two
important international trade models:
the Balassa-Samuelson effect, and the
Heckscher-Ohlin model (with the
Stolper-Samuelson theorem).
  Consumer theory, he pioneered the Revealed Preference Theory, which
 is a method by which it is possible to discern the best possible option,
 and thus define consumer's utility functions, by observing the consumer
 behaviour.
                                                  Miriam Kennet, June 2006
Green Economics Institute                               Economics because people matter



    Critique of Samuelson
  “‫‏‬      Samuelson admits that utility is a construct that
  has no basis in psychology; although he uses the terms
  ‘consumer’‫‏‬and‫‘‏‬individual,’‫‏‬his‫‏‬model‫‏‬is‫‏‬built‫‏‬around‫‏‬a‫‏‬
  fictional character that critics have dubbed Homo
  economicus. This economic man (yes, he is male) never
  had a childhood, never has children, has never depended
  upon a caregiver and does not have anyone he provides
  care for. He only experiences well-being by consuming.
  He‫‏‬is‫‏‬rational,‫‏‬selfish,‫‏‬a‫‏‬psychopath...‫‏‬he‫‏‬isn’t‫‏‬influenced‫‏‬
  by hundreds of billions of dollars in advertising or the
  purchases of his neighbors. If Homo economicus buys
  something, it gives him utility; his consumer sovereignty
  must be respected.

                                                     Miriam Kennet, June 2006
Green Economics Institute                   Economics because people matter


    Rosa Luxemburg
• Polish and moved to Germany
• Marxist
• Wrote a critique of capitalism:
•   The Accumulation of Capital
• Was killed
• Idea was that capitalism depended on non
  capitalist production areas with lower wages
  and that the poor had to be driven off rural
  land- so that they could become the labour
  power and their land given to elites who would
  also service capitalism for the ruling imperial
  power- eg in India and China.
• Background – opium war and Indian peasantry
                                    Miriam Kennet, June 2006
  observations
Green Economics Institute                                                                  Economics because people matter


Joan Robinson
a Marxist – Only significant woman to get
acknowledgement in mainstream
Robinson assisted with the support and exposition of Keynes' General Theory, writing especially on its employment
implications in 1936 and 1937 (in the midst of the Great Depression it tried to explain).

In 1933, in her book, The Economics of Imperfect Competition, Robinson coined the term, "Monopsony," which is used to
describe the buyer converse of a seller monopoly.

In 1942 Robinson's An Essay on Marxian Economics famously concentrated on Karl Marx as an economist, helping revive
the debate on this aspect of his legacy.

During the Second World War, Joan Robinson worked on a few different Committees for the wartime national government.
During this time, she visited the Soviet Union as well as China. She developed an interest in underdeveloped and developing
nations and contributed a lot that is now understood in this section of economics.

In 1949, she was invited by Ragnar Frisch to become the vice president of the Econometric Society but declined because she
couldn't be part of the editorial committee on a journal she couldn't read.

In 1956, Joan Robinson published her magnum opus, The Accumulation of Capital, which extended Keynesianism into the
long-run. Six years later, she published another book about growth theory, which talked about concepts of "Golden Age"
growth paths. Afterwards, she developed the Cambridge growth theory with Nicholas Kaldor.

Close to the end of her life she studied and concentrated on methodological problems in economics and tried to recover the
original message of Keynes' General Theory. Between 1962 and 1980 she wrote many books to try and bring several
economic theories to the general public. Robinson suggested developing an alternative to the revival of classical economics
                                                                                       Miriam Kennet, June 2006
Green Economics Institute                            Economics because people matter



    Kenneth Arrow
    •   He is considered one of the founders of
        modern (post World War II)
        neo-classical economics.


    • His most significant works are
      his contributions to social
      choice theory, notably "Arrow's
      impossibility theorem", and his
      work on general equilibrium
      analysis. He has also provided
      foundational work in many
      other areas of economics,
      including endogenous growth
      theory and the economics of
      information.



                                                  Miriam Kennet, June 2006
Green Economics Institute             Economics because people matter


    Social choice theory
    • Bentham : Persons maximize their choice
      for utility for themselves
    • Aggregated the utility is good for everyone.
    • Criticism:
    • However, if a rich person gets less utility
      from food for example -then they might not
      do whats best for fair distribution of food.
    • Arrow and Sen:
    • Proved that not everyone has the same
      background or requirements so this doesnt
      work

                                   Miriam Kennet, June 2006
Green Economics Institute                                        Economics because people matter



       Paul Krugman 1953
   •   Economies and returns from scale
   •   And New Economics Geography
   •   Geographical concentration of population and
       activity
   •   Consumption influenced by many others
   •   Economies of scale
   •   Where does activity take place
   •   Why do countries near the Equator tend to be
       poorer
   •   Fewer firms – less competition – more profits
   •   Hecksher Olin Theory,markets are perfectly
       competitiive, trading nations identical, tastes
       identical,economies all fully employed- constant
       economies of scale prevail in production, firms
       increase all output by a proportion output increases
       by that proportion
   •   Krugman found therefore that -if firms increase all
       inputs by the economies of scale then , output
       increases by economies of scale. This will lead to
       fewer and larger firms and competition becomes
       imperfect within that industry
   •   Critical of Bush Administration



                                                              Miriam Kennet, June 2006
Green Economics Institute      Economics because people matter

    It looks as if the economy is
    falling off a cliff
    • Depression
      economics
    • When you have
      depression
      economics the
      usual rules dont
      apply and virtue
      becomes vice and
    • Caution is risky
    • Prudence is folly




                            Miriam Kennet, June 2006
Green Economics Institute                               Economics because people matter



    Simon Kuznet
      •   National Income and Its Composition,
          1919–1938. Published in 1941, it
          contains a historically significant work
          on Gross National Product. His work
          on the business cycle and
          disequilibrium aspects of economic
          growth helped launch development
          economics. He also studied inequality
          over time, and his results formed the
          Kuznets Curve.
      Another important development was
         Kuznets' empirical examination of
         Keynes' 1936 Absolute Income
         Hypothesis. The hypothesis gave birth
         to what would become the first formal
         consumption function.underdeveloped
         countries of today possess
         characteristics different from those
         that industrialized countries faced
         before they developed, helped put an
         end to the simplistic view that all
         countries went through the same
         "linear stages" in their history and
         launched the separate field of
         development economics -
                                                     Miriam Kennet, June 2006
Green Economics Institute                                Economics because people matter




•
       Kuznet curve
    U shaped relationship between income
    inequality and economic growth
•   During economic development growth
    measured by GDP will be unequal at first will
    stabilize gradually and then become equal.
    Therefore inequality had to rise first before
    being solved.

•   This meant at first need to support those on
    very low incomes
•   Then shift to those on middle incomes savings
    improved , industraliisation of agriculture and
    towards manufacturing, causing initially a
    relative inequality,
•   Decrese in population of upper income,
    inheritance taxes,
•   Developing countries should only focus on
    growth, not be concerned with income
    distribution
•   For more info on Environmental Kuznet Curve:
    :See Lawn P. in International Journal of Green    Miriam Kennet, June 2006
    Economics, and some work by Ekins.P.
Green Economics Institute                    Economics because people matter



     Robert Costanza:Ecological
    Economics
    Dr. Costanza's research has
    focused on the interface between
    ecological and economic systems,
    particularly at larger temporal and
    spatial scales. This includes
    landscape level spatial simulation
    modeling; analysis of energy and
    material flows through economic
    and ecological systems; valuation
    of ecosystem services,
    biodiversity, and natural capital;
    and analysis of dysfunctional
    incentive systems and ways to
    correct them.                         Miriam Kennet, June 2006
Green Economics Institute                                Economics because people matter

     Kenneth Boulding – The coming of spaceship
     earth
 Complex system. It is easy to have too simple a view of it,
and it is easy to do harm and to make things worse under
the impulse to do good and make things better.
: "Anything that exists is possible."
"Theories without facts may be barren, but facts without
theories are meaningless."
 "Anyone who believes exponential growth can go on forever
in a finite world is either a madman or an economist."
 "Mathematics brought rigor to Economics. Unfortunately, it
also brought mortis."
"Economists are like computers. They need to have facts
punched into them."
 "We make our tools, and then they shape us."
 "Nothing fails like success because we don't learn from it.
We learn only from failure."
 "There is no such thing as economics, only social science
applied to economic problems."

                                                      Miriam Kennet, June 2006
Green Economics Institute                         Economics because people matter



    Georgescu Roegen
    • Father of ecological or bio economics
    • 1906
    • Entropy law
    • Thermodynamics
    • 1971 The Entropy Law and The Economic Process
    • The economic process is entropic: it neither creates nor
      consumes matter or energy, but only transforms low into
      high entropy(That is irrevocable waste).1966
    • Demand side moderates consumption and avoiding waste
    • Humans should see themselves as an evolving organism
      and protect future generations




                                               Miriam Kennet, June 2006
Green Economics Institute                            Economics because people matter



    Herman Daly
    •   Daly's books include Towards a
        Steady-State Economy (1973); Steady-
        State Economics (1977); Economics,
        Ecology, Ethics (1980); Valuing the
        Earth: Economics, Ecology, Ethics (co-
        edited with K. Townsend); For the
        Common Good: Redirecting the
        Economy Toward Community, the
        Environment and a Sustainable Future
        (with John Cobb, 1989); Population,
        Technology and Lifestyle (co-edited
        with R. Goodland and S. El Serafy,
        1992); Beyond Growth: The Economics
        of Sustainable Development (1996). He
        has also published over 100 articles in
        scholarly journals and magazines.


    •   In 1989, Daly was one of the key
        figures in the foundation of the
        International Society for Ecological
        Economics (ISEE), and serves as
        Associate Editor of its journal
        Ecological Economics. ISEE is the
        major forum that links economists and
        ecologists, and academics and             Miriam Kennet, June 2006
        environmental activists.
Green Economics Institute                                                Economics because people matter




•
      Amartya Sen
    Sen's seminal papers in the late sixties and early seventies helped develop the theory of
    social choice, which first came to prominence in the work by the American economist
    Kenneth Arrow,
•    who, while working in the fifties at the RAND
•    Corporation, famously proved that all voting rules,
•   be they majority voting or two thirds-majority or status quo
•   , must inevitably conflict with some basic democratic norm.
•   Sen's contribution to the literature
•   as to show under what conditions Arrow's Impossibility
•   Theorem would indeed come to pass as well as to extend and
•   enrich the theory of social choice, informed by his
•   interests in history of
•   economic thought and philosophy.

•   In 1981, Sen published Poverty and Famines:
•    An Essay on Entitlement and Deprivation,
•    a book in which he demonstrated that famie
•   e occurs not only from a lack of food,
•    but from inequalities built into mechanisms for distributing food. Sen's interest in famine
    stemmed from personal experience. As a nine-year-old boy, he witnessed the Bengal
    famine of 1943, in which three million people perished. This staggering loss of life was
    unnecessary                                                         Miriam Kennet, June 2006
Green Economics Institute                              Economics because people matter


    Capabilities approach

 he Capability Approach is a conceptual framework developed by Amarty
 Sen and Martha Nussbaum for evaluating social states in terms of human
 well-being (welfare).
 It emphasizes functional capabilities ("substantial freedoms", such as the
 ability to live to old age, engage in economic transactions, or participate i
 political activities); these are construed in terms of the substantive
 freedoms people have reason to value, instead of utility (happiness, desire
 fulfilment or choice) or access to resources (income, commodities, assets
 Poverty is understood as capability-deprivation.
  It is noteworthy that the emphasis is not only on how human beings
 actually function but on their having the capability, which is a practica
 choice, to function in important ways if they so wish. Someone could be
 deprived of such capabilities in many ways, e.g. by ignorance, governmen
 oppression, lack of financial resources, or false consciousness.
‫‏‬                                                   Miriam Kennet, June 2006
Green Economics Institute                            Economics because people matter


    Sen and Choice theories

    This approach to human well-being emphasises the importance of
    freedom of choice, individual heterogeneity and the multi-
    dimensional nature of welfare. In significant respects, the approach
    is consistent with the handling of choice within conventional micro-
    economics consumer theory although its conceptual foundations
    enable it to acknowledge the existence of claims, like rights, which
    lexicographically dominate utility based claims (see Sen (1979))‫‏‬




                                                  Miriam Kennet, June 2006
     Ten Capabilities influences 1-4
Green Economics Institute
  1. Life.
                                                      Economics because people matter


     HDI live to the end Development
Being able to Human of a human life of normal length; not dying
     Index
prematurely, or before one's life is so reduced as to be not worth living.
  2. Bodily Health.
 Being able to have good health, including reproductive health; to be
adequately nourished; to have adequate shelter.
  3. Bodily Integrity.
Being able to move freely from place to place; to be secure against
violent assault, including sexual assault and domestic violence; having
opportunities for sexual satisfaction and for choice in matters of
reproduction.
  4. Senses, Imagination, and Thought
 Being able to use the senses, to imagine, think, and reason-- and to do
these things in a "truly human" way, a way informed and cultivated by an
adequate education, including, but by no means limited to, literacy and
basic mathematical and scientific training.
Being able to use imagination and thought in connection with
experiencing and producing works and events of one's own choice,
religious, literary, musical, and so forth.
Being able to use one's mind in ways protected by guarantees of freedom
of expression/ political and artistic speech, and freedom of religious2006
                                                      Miriam Kennet, June
Green Economics Institute                                                                  Economics because people matter


    Ten capabilities 5-10
      5. Emotions.
     Being able to have attachments to things and people outside ourselves; to love those who love and care for
    us, to grieve at their absence; in general, to love, to grieve, to experience longing, gratitude, and justified
    anger. Not having one's emotional development blighted by fear and anxiety. (Supporting this capability
    means supporting forms of human association that can be shown to be crucial in their development.)‫‏‬
       6. Practical Reason
     Being able to form a conception of the good and to engage in critical reflection about the planning of one's
    life. (This entails protection for the liberty of conscience and religious observance.)‫‏‬
       7. Affiliation.
           1. Being able to live with and toward others, to recognize and show concern for other human beings,
    to engage in various forms of social interaction; to be able to imagine the situation of another. (Protecting
    this capability means protecting institutions that constitute and nourish such forms of affiliation, and also
    protecting the freedom of assembly and political speech.)‫‏‬
           2. Having the social bases of self-respect and non-humiliation; being able to be treated as a dignified
    being whose worth is equal to that of others. This entails provisions of non-discrimination on the basis of
    race, sex, sexual orientation, ethnicity, caste, religion, national origin.
       8. Other Species. Being able to live with concern for and in relation to animals, plants, and the world of
    nature.
       9. Play. Being able to laugh, to play, to enjoy recreational activities.
      10. Control over one's Environment.
           1. Political. Being able to participated effectively in political choices that govern one's life; having
    the right of political participation, protections of free speech and association.
           2. Material. Being able to hold property (both land and movable goods), and having property rights
    on an equal basis with others; having the right to seek employment on an equal basis with others; having
    the freedom from unwarranted search and seizure. In work, being able to work as a human being,
    exercising practical reason and entering into meaningful relationships of mutual recognition with other
    workers.



                                                                                      Miriam Kennet, June 2006
Green Economics Institute              Economics because people matter


    Sens arguments
    • Sen argues that neo classical
      economists have preference theory
      backwards
    • People dont adapt their preferences to
      maximize utility, eg they dont NOT learn
      to read out of choice but rather they lack
      the capability- due to lack of resources.
    • Learning to read make them more
      capable
    • He also distinguishes between economic
      growth and economic development
    • Book- Development as Freedom
                                    Miriam Kennet, June 2006
Green Economics Institute                         Economics because people matter



    Marilyn Waring
Marilyn Waring (born 1952) is a New Zealand feminist, an activist
for "female human rights", an author and an academic. She
holds a Ph.D. in political economy



She has outspokenly criticised the concept of GDP, the
economic measure that became a foundation of the United
Nations System of National Accounts (UNSNA) following World
War II. She ridicules a system which 'counts oil spills and wars
as contributors to economic growth, while child-rearing and
housekeeping are deemed valueless'.[

                                               Miriam Kennet, June 2006
Green Economics Institute                                     Economics because people matter


    Issues to consider
    •   Normative issues such as             • Limits to environmental
        intergenerational fairness come        resource are imposed by
        into discussions- and distributive     nature
        issues between rich and poor
        nations are important                • Origin, interactions and
    •   Uncertainties can take several
                                               reproductive capacity are
        forms such as price,irreversible       governed by nature
        environmental damage                 • Most of these resources have
    •   Unexpected or sudden species           no readily available markets
        extinction




                                                           Miriam Kennet, June 2006
Green Economics Institute                         Economics because people matter


    Hussen's environmental economics issues 1
    • Causes of environmental degradation,
    • Need to establish disciplinary ties between ecology and
      economics
    • Ownerships rights are difficult to establish for the
      environment
    • Trade off between environmental degradation and economics
      goods and services
    • Ineffectiveness of the market in allocating environmental
      resources
    • Assessing monetary value of environmental damage
    • Public policy instruments that can be used to slow halt and
      reverse the deterioration of environmental resources, and
      overexploitation of resources which might be non renewable


                                               Miriam Kennet, June 2006
Green Economics Institute                                        Economics because people matter


    Hussen's environmental economics issues 2

    •   Macroeconomics effects of environmental regulation and other resource
        conservation policies
    •   Technology and the extent to which it can be used to ameliorate the
        environmental degradation or resource scarcity
    •   Environmental problems that transcend national boundaries
    •   Limits to economic growth
    •   The extent to which past experience can be used to predict future events of
        ecological and economics and technological uncertainty
    •   Ethical and moral imperatives for environmental resource conservation
    •   Concern for the welfare of future generations
    •   The interrelationships among poverty, population and environmental
        degradation
    •   In developing countries
    •   The necessity and viability of sustainable development


                                                            Miriam Kennet, June 2006
Green Economics Institute                                                Economics because people matter



       Neo classical economics 1
   •   In the neo classical world view
   •   The human economy is composed of people, flows of comodities and human
       institutions
   •   The most important flow is the generation of utility- satisfaction for humans
   •   Resources are fungible -that is one kind of resource can substitute for another
   •   Environmental resources have no intrinsic value and exist only to provide utility for
       humans and the economy
   •   In this worldview freedom of choice and private ownership are important
   •   In a centrally planned economy the production and distribution of goods are
       dictated by bureaucratic choices with resource ownership retained by the state
   •   Market economy- is composed of economic entities,households or firms
   •   scarcity




                                                                     Miriam Kennet, June 2006
Green Economics Institute                                               Economics because people matter



     Neo classical economics 2
 •   Commodities, markets, non market public and private institutions, with private
     ownership enforced and competition
 •   Product markets is where goods and services are exchanged
 •   The factor markets is where there is buying and selling of basic resources such as
     labour capital and natural resources
 •   Higher prices are a feature of emerging scarcity – therefore desirable
 •   Opportunity cost – costs not realised – of the next best option e.g. If I choose to
     conserve an expensive tiger rather than a slightly more common species, then thats
     an opportunity cost,
 •   The market is an provider of information on resource scarcity




                                                                     Miriam Kennet, June 2006
Green Economics Institute                                                           Economics because people matter

    Ideas of Neo Classical Economics
    The perfect market structure and the Invisible Hand

    • Adam Smith
    •   Individuals working in their self interest will promote the welfare of the whole of society-
    •   The effectiveness of an economy is judged by how well it satisfies the material needs of its
        citizens- the consumers
    •   Maximum output from resources is aim- efficiency of exploitation is good,
    •   Requirements:
    •   1, freedom of choice based on self interest
    •   2, competition
    •   3,.perfect information
    •   4 mobility of resources
    •   5. Ownership rights
    •   Perfectly competitive markets,
    •   Adam Smith Father of modern economics the Invisible Hand will guide each individual to do
        not only what is in his self interest but also that of society at large




                                                                               Miriam Kennet, June 2006
    – Adam Smith in
Green Economics Institute     The Wealth of Nations: Economics because people matter
    – people in any society will not employ their capital in foreign trading only if the
      profits available by that method far exceed those available locally, and that in that
      case it is better for society as a whole that he does so.
    –    But the annual revenue of every society is always precisely equal to the
      exchangeable value of the whole annual produce of its industry, or rather is
      precisely the same thing with that exchangeable value.
    – As every individual, therefore, endeavors as much as he can both to employ his
      capital in the support of domestic industry, so to direct that industry that its
      produce may be of the greatest value; every individual necessarily labors to
      render the annual revenue of the society as great as he can. He generally,
      indeed, neither intends to promote the public interest, nor knows how much he is
      promoting it.
    – By preferring the support of domestic to that of foreign industry, he intends only
      his own security; and by directing that industry in such a manner as its produce
      may be of the greatest value, he intends only his own gain, and he is in this, as in
      many other cases, led by an invisible hand to promote an end which was no part
      of his intention. Nor is it always the worse for the society that it was not part of it.
    – By pursuing his own interest he frequently promotes that of the society more
      effectually than when he really intends to promote it. I have never known much
      good done by those who affected to trade for the public good. It is an affectation,
      indeed, not very common among merchants, and very few words need be
      employed in dissuading them from it.

                                                               Miriam Kennet, June 2006
    – (IV.ii.6-9, page 456 of the 1776 Glasgow Edition of Smith’s works; vol. IV, ch. 2, p
Green Economics Institute                               Economics because people matter

    Pigou the father of welfare
    economics
    The Economics of Welfare : 1920), brought welfare
    economics into the scope of economic analysis.
    He showed that the market did not include some costs,
    externalities, spill over effects and third party effects.The
    market is therefore inefficient in this respect which justifies
    government intervention. There is a distinction between
    private and social marginal products and costs.

    Free Rider Effect; I maximize my benefit and let others
    pay.
    He originated the idea that governments can, via a
    mixture of taxes and subsidies, correct such perceived
    market failures — or "internalize the externalities".

    Pigovian taxes, taxes used to correct negative
    externalities, are named in his honor.
                                                     Miriam Kennet, June 2006
Green Economics Institute              Economics because people matter

    Pigou -The father of
    environmental economics
    • Suggested
    • Society should
      compensate farmers
      whose crops were ruined
      by railways
    • Economists should judge
      when the state should
      intervene
    • Taxing rich people to pay
      for social costs-
      progressive taxation
    • Eg Bill Gates wont notice
      a small tax.
    • Sacrificing a little output
      was worth the gain.

                                    Miriam Kennet, June 2006
Green Economics Institute                         Economics because people matter



     Ronald Coase
  Public Choice theorists rejected Pigou's
 approach for its naive "benevolent despot"
 assumption.
  Ronald Coase demonstrated that efficient
 outcomes could be generated without
 government intervention when property
 rights are clearly defined.
 "The Problem of Social Cost" (1960 )‫‏‬
 is considered an example of market failure:
 driving can impose hidden costs on other
 drivers and society, whereas use of public
 transportation or other ways of avoiding
 driving would be more beneficial to society
 as a whole.[
 Other common examples of market failure
 include environmental problems such as
 pollution or overexploitation of natural
 resources.
 Nevertheless, some economists see these
 as symptoms of public property rather than
 free markets.
                                               Miriam Kennet, June 2006
Green Economics Institute                            Economics because people matter



    Coase Theorum
  Describes the economic efficiency of an economic allocation
  or outcome in the presence of externalities.

  The theorem states that when trade in an externality is
  possible and there are no transaction costs, bargaining will
  lead to an efficient outcome regardless of the initial
  allocation of property rights.

  In practice, obstacles to bargaining or poorly defined property
  rights can prevent Coasian bargaining.
  Describes the condition where the allocation of goods and
  services by a market is not efficient.
  Market failure can be viewed as a scenario in which
  individuals' pursuit of self-interest leads to bad results for
  society as a whole

                                                  Miriam Kennet, June 2006
Green Economics Institute                Economics because people matter


    Coase Theorum
    • Private agents base their decisions on
      private costs as opposed to social costs
      because they dont have to support the
      social costs of their activities.Why dont
      they have to pay?
    • Because there is no clear property right.
    • Simple solution to the problem of
      externalities is to privatise property rights.
    • But to whom should that property be
      allocated? Those creating the costs,
      polluters?or those experiencing the costs
      or reduction in welfare?Coase thinks both
      work.
                                      Miriam Kennet, June 2006
Green Economics Institute      Economics because people matter


    Causes of the down turn
    • Spain debt to
    • house price
    • problems




                            Miriam Kennet, June 2006
Green Economics Institute               Economics because people matter


    To solve this downturn
    • We need to rethink our
      economics
    • We need to consider all the
      players and provides
    • We need to think of all the
      beneficiaries
    • We need to provision for all of
      our needs


                                    Miriam Kennet, June 2006
Green Economics Institute                    Economics because people matter


    Green solutions
    • Detailed regulation of banks and financial
      markets
    • Partly nationalised
    • Strenghtening demand for public
      investment
    • Sensible public projects -green ones
    • Conversion to green technology
    • Green jobs
    • Sort out property market to end boom
      and bust – no scarcity and good supply
    • Second house ownership tax
      disadvantages – changes to tax system
      for needs rather than investment
    • Production factor labour not taxed but
      use of capital taxed – and consumption
      of non green items
    • Short term stimulate economy  Miriam Kennet, June 2006
Green Economics Institute           Economics because people matter


      Longer term
   – Longer term - not dependent on growth
   – Working reduction
   – Include women in GDP
   – Who things are produced
   –What is produced- social culture
   – Not capitalised cheap goods- change in
     strucure of the economy towards more
     sensible use




                                 Miriam Kennet, June 2006
Green Economics Institute      Economics because people matter


    Green
    • Move to greener
      climate
    • Move to greener
      transport
    • Move to greener
    • Power
    • Move to greener
      jobs
    • Move to be more
      inclusive
    • Restructure our
      economy



                            Miriam Kennet, June 2006

				
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