The Return of Ecological Economics in our Analysis

Introduction

"Ecological economics studies how ecosystems and economic activity interrelate (Proops 1989)." In practice however, the fundamental motivation for this new discipline is to educate decision-makers and society that narrowly understood human economic activity depends on ecological activities. We must broaden our asessment of economic well-being to include the ecological foundation of our economy. The message is not a new concept in human understanding, but has been partially lost with the advent of economic hegemony over human activity.

Ecological Economics

A brief investigation into the field of ecological economics should convince all but the most recalcitrant neoclassicist of the supremacy of ecology in the hierarchy of disciplines. Economic activity is an open system whose input and output lie in the wider realm of ecology. Economists admit as much through their use of the concept of externality. An externality is a product of the economic system that impacts a wider, more inclusive system. Ecological economics views environmental externalities as the links between the two systems. In modeling jargon, we are looking at the stocks and flows of natural and man-made capital. Unfortunately, significant difficulties arise in trying model the many strong interactions of two already highly complex systems. Predicting the effects of human activity on ecosystems is tantamount to predicting evolution itself (Costanza et al, 1993). Economists use the term externality because they have set the boundaries of the system they are modeling. Economics is a partial equilibrium analysis and is precise; ecological economics is a general equilibrium analysis and therefore more binding.

The social problem of wetland destruction cannot be practically solved without a perspective that incorporates both wetland science and economics. Wetland destruction has been rampant due to economic activity in the U.S. since 1780 (Hiemlich 1998, Hey 1995). Wetland values and functions are no longer superabundant public goods. Only, curtailing private economic activity in the interest of the public good can protect these values. This project argues that successful management of wetland (and more broadly aquatic) resources requires a new level of authority, based on the watershed and justified by ecological economics. Politics is the mechanism to explicitly influence the taps on the inflow and outflow of the economic system.

Sustainability

The precursor to the study of ecological economics is the concept of sustainability in economics. Neoclassical economics regards sustainability as guaranteed by the functions of the market and technological innovation. Neoclassical economics does not distinguish between natural and man-made capital (Victor 1991). There are important distinctions. Some natural capital, like the ozone layer, is now acknowledged to be irreplaceable. Also, natural capital cannot be said to depreciate in value like man-made-capital. For example, an acre of wetland in the Mississippi watershed can be said to produce, on average, $262 dollars of flood protection a year ad finitum without any maintenance. However, the substitutability of man-made for natural wetlands is in question. Studies by Siobhan Fennessy illuminate both the difficulty and potential for substitution by comparing natural and artificial wetlands (1998) and by mapping out areas with hydric soils (waiting for publication). Mitigation banking is a policy that embraces market function and substitution. The function of an ecological economic policy would be to maintain a sufficient natural capital (wetland) stock for the next generation. The National Academy of Science has determined the stock of wetlands should be ten million acres over the current total in the contiguous forty-eight states. A sustainable stock of wetlands would maintain the flow of wetland goods to the economy and absorb the wetland-related externalities. The no-net-loss policy realized that the wetland stock should not indefinitely decline. However, ecology informs us that an additional ten million acres are needed to guarantee a sustainable stock.

Utilitarianism and the Environment

Economics, sustainability and ecological economics are products of utilitarian thinking, which seeks the greatest good for the greatest number for the longest time (Jardins). Our government's purpose is utilitarian. For better or for worse, the environment is being protected in the name of people, not the environment itself. For utilitarians economics is a powerful tool to accomplish their goal. Government relies on economists to manage the country and solve problems efficiently, so environmental problems become economic problems. While market imperfections like lack of ownership cause environmental damage, idealized markets are used as solutions, like mitigation banking and emissions trading. Ecological economics studies extend economic valuation to ecology. Robert Costanza has spent much time meticulously calculating economic benefits of wetlands. Without addressing sustainability or substitution, neoclassical economists can exploit these valuation numbers to legitimate wetland destruction (King 1998). Substitution and sustainability have been partially addressed by the no-net-loss policy. Section 404 of the CWA is society's instructions for wetland protection. The authors, like King, believe the use of mitigation cost numbers are useful as wetland valuations. The CWA demonstrates society's willingness to coerce individual permitees to replace wetland value and function. Our mitigation credit cost table is a valid presentation of "conditional" revealed willingness-to-pay valuation. In other words, given a society where the natural landscape is valued, mitigation credit prices represent what people are "willing" and able to pay per acre of wetland.

The Social Marginal Benefit Curve

The economic problem of wetland destruction lies in the differential between individual and social marginal benefit of wetlands.

The large differential that exists between SMBP and IMBP is because the benefits of wetlands are very diffuse. Society at large gains little benefit from the creation of a new parking lot or farm. This depiction validates mitigation as a policy, but just imagine the complexity of calculating the exact placement of these four curves. HeimlichÕs curves also portray wetlands as a normal good with diminishing returns. The peculiarity of natural capital will not allow wetlands to behave linearly on this graph. One of the benefits of wetlands is flood control. Hey and Phillipi estimate that thirteen million acres of wetland could have absorbed the catastrophic ($16 billion) 1993 Mississippi flood. Sixteen billion is a substantial social benefit (1,230$/acre) that would not be realized if less wetlands were restored. Social benefits like wetlands experience some economies of scale. The SMBP could be inverse, curvilinear, or down and up.

All that is sure is that there are significant social benefits to be realized by increasing the wetland stock. The failure of economic analysis to easily determine the "best" course should not deter wetland protection efforts. Final Analysis

The no-net-loss policy is an incomplete goal and an ineffectual policy. The CWA will not produce a sustainable wetland stock for our future generations and neither will the 100,000 acre increase called for in the Clinton/Gore Clean Water Action Plan. Ten million acres are needed to ensure the integrity of our nations aquatic resources. Reinventing government on a rational scale to deal with environmental issues is a necessity. Property rights and private economic incentive are moral hazards for the protection of sustainable, semi-replaceable, social ecological benefits like wetlands. Wetlands need their own law to articulate this complex situation.