Economics and the Ecosystem

February 9, 2010

“Economics and the Ecosystem,” or something to that effect, was supposed to have been the title of that post last week on Planet Money, but I went with something else because I didn’t want to make the extended analogy. I’m still not going to, but now Robert has drawn out in the comments basically the whole of what I was trying to say. Now I don’t have to feel angry and misunderstood anymore!

The main lesson I learned from The Cartoon Guide to the Environment (recommended) was that ecosystems are extremely complicated and interdependent things. Listening to the Planet Money podcast, I thought about how that’s true of economics relationships, too. Just to make up an example, you can decide to kill the wolves because they are a nuisance, but as a result the deer population gets out of control, with a natural check on their numbers having been destroyed.

In this analysis, I’m trying to describe the effects of a policy without passing judgement on it. Using a phrase like “out of control” to describe the deer population above seems to imply that it’s bad, and using that phrase was a mistake. All I really meant to say was that killing wolves has an effect on the deer population, because wolves play a significant role in reducing the number of deer. Similarly, I don’t want to say that it’s right or wrong for homeowners to walk away from their mortgages. I merely wanted to say that if the attitude that mortgages are easy to walk away from became widespread, banks have to raise rates to account for this fact. At the same time, of course, people walking away from their mortgages may be, not an original cause, but the effect of the banks’ earlier decision to package and resell mortgages on a large scale.

As I said, the point here is not to pass judgement on the decisions people make, but merely to notice the importance of context, personal interaction, and even the feelings of “virtue” that people get from their economic interactions. Marxists think capitalism is soulless and alienating, but I don’t think you have to be a Marxist to feel like there is something immoral or ignoble about capitalism. What I’ve been trying to say in this series of posts is that capitalism is way more complicated than this simple “rational self-interest” model suggests.

Basically, I agree with everything that Robert wrote here. It was what I was trying to say. Oh, but one caveat: I agree that Marxists see capitalism as basically relying on a stock of social capital that gets gradually depleted by self-interest. But I think that’s wrong, because capitalism can build or deplete social capital, depending on the circumstances. But yeah, that’s the debate I want to be having.

Note: It’s hard to say to exactly what degree I’m copying the ideas of Deirdre McCloskey in The Bourgeois Virtues, but I have to acknowledge that this line of reasoning is original to her, not me.


One Response to “Economics and the Ecosystem”

  1. Rrrobert! Says:

    Apropos of nothing, one of my Amherst professors says ecological academia is in the throes of a major paradigm shift. Previously, we thought ecosystems worked in cyclical but essentially static states – hares breed, there are more of them, lynxes have more food, fewer hares, fewer lynxes, more hares, ad infinitum. Fire, grass, small trees, big trees, fire.

    It turns out that those relationships are incredibly hard to pin down – that there are so many variables in ecosystems that there really isn’t any identifiable pattern, just a constantly evolving flux. Coincidentally, or maybe not, the shift is contemporaneous with new discoveries about learned versus instinctual behavior – whereas before we thought deer were shy and birds flew south because of their genetic code, it now appears that that a lot of that information was transmitted by learning. So behavior evolves the same way genes do.

    The result is a blurring of what conservation means, and what intervention means, and what our relationship with nature should be. We’re still pretty confident you shouldn’t go upending whole ecosystems willy-nilly (if only because you never know the consequences for human lives – we still don’t really know what’s going on with the bees, and that’s a big deal), but beyond that – what to do with bears that have learned to pillage human garbage cans?

    I imagine the same ideas can (and in some places, have) been applied to economics. Many of the relationships are predictable, but the rules are constantly changing as the actors and circumstances evolve. You may be able to isolate a relationship between A and B, but in practice you’re concerned with not only A and B, but also C, D, E, F, and Q.

    This is one reason I’m skeptical of radical free-marketism. Government policies are an essential part of the geography of the market; they’ve always existed, will always exist, and it almost doesn’t make sense to posit a macroeconomy in the absence of policy. The market can and will adapt to whatever policies government sets.

    At the same time, this is like saying the planet will be fine no matter how bad global warming gets. It’s true, but it lacks reference to the things we actually care about. As with the environment, the unintended consequences of policies can be disastrous for people. So though insisting we shouldn’t make economic policies seems as silly as saying we should stop doing things that affect nature, it probably does make sense to be skeptical of radical disregard for traditional, evolved, long-observed behavior.

    Of course, there’s a lot of room in between those two extremes. And even the extremes can be argued (we’re seriously going to be incrementalist about slavery?) Et cetera.

    So to bring it all back, it does seem like the moral norms of capitalism are shifting, and it’s not at all clear whether that’s for good or ill, and it may not even be a question that makes sense. Good for whom? Ill for whom? Those are questions I can get behind.

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