CASSEEcolEcon

CENTER for the

ADVANCEMENT of the

STEADY STATE ECONOMY

Contrasting Worldviews

In ecological economics, the steady state economy is the means for achieving societal wellbeing. In conventional neoclassical economics, perpetual growth is pitched as the way to achieve wellbeing. The reason for this distinction - and the fundamental difference between the two schools of thought - is the worldview.

In neoclassical economics, the ecosystems of the planet are viewed as a subset of the economy (Figure 1a). The most basic model of the economy is a circular flow between firms and households (Figure 1b), in which the households provide labor and purchase goods and services, and the firms provide salaries and sell goods and services. Upon inspection, flaws in these models become clear. In the first case, even a casual observer can determine that the human economy is embedded within the ecosystems of the planet (Figure 2a). Without land, water, air, natural resources, and ecosystem services, there is no economy. In the case of the circular flow diagram, the structure has been reduced too much to model reality with any degree of accuracy. The flow diagram disregards the laws of thermodynamics by omitting throughput. A more accurate model (Figure 2b) realizes that natural resources (low-entropy matter and energy) are inputs to the circular flow, and pollutants (high-entropy waste products and heat) are outputs. The flawed neoclassical worldview engenders a belief in perpetual growth. The ecological worldview recognizes limits imposed by the natural world.

Ecological Economics in Contrast to Neoclassical Economics

Must Read

Herman Daly and Josh Farley have written an outstanding text book on ecological economics.

Multidisciplinarity

According to the International Society for Ecological Economics (ISEE), ecological economics exists because years of disciplinary specialization in scientific inquiry have left us unable to understand and manage the interactions between the human and environmental components of our world. Such specialization in neoclassical economics has produced many insights, but it also has resulted in a lack of knowledge and skill to solve systemic problems associated with the interactions between the human economy and the natural world (e.g., climate change, species extinctions, and loss of ecosystem services). Ecological economists embrace and synthesize insights and theories from other fields of study. The ISEE provides an online encyclopedia with papers that explore the multidisciplinary nature of ecological economics.