Assumptions of Classical Economics which Do Green Critics - Assignment Example

What assumptions ical economics do green critics draw into question and what are the political consequences of the green approach?   Green economics is all about how economy is dependent on its natural surroundings and how it is a component of the natural world. It considers that the non-human things such as plants, the atmosphere and the earth sciences also have a direct relation to economics and are affected by economic deals and should be regarded as stakeholders. Green economics believes that everything which exists on the Earth has a connection with the rest of the species or nature. It believes that resources are limited and one can not extract uses from them unlimitedly. It also states that one cannot expand in a limited space. Green economics have so far been considered external to mainstream economics and there is a lot of discussion about whether they have any major points in similar. Green economics states that in the world we live in, needs looking after and if our daily transactions or dealings with each other affect the natural atmosphere, then it should be taken into account in decision making. As the natural resources are scarce, we can not use them wastefully, thus, our use of them should be noted. Besides, as our actions affect other human beings, such as a business decision affecting its consumers, suppliers, workers, shareholders, bank, the society and community etc, our actions can also affect non-human things such as plants, animals, the environment or the ecology and the different natural systems that exists around us. Green economics broadly encompasses the natural environment too while talking about social justice and other economic matters and has questioned some of the assumptions made by the classical economics. For this reason, it is often called non-neoclassical economics. Neo-classical economics, also called the marginalist school, is a general approach to economics and it centers and revolves around the market, the demand and supply decisions which determine the price and the output produced and also the resulting income distribution that occurs after the transactions are made. These decisions usually come about after consumers or individuals make utility maximizing and rational decisions despite a limited income and after firms employ the maximum use of resources, information within the budget constraints. Firms and individual also act separately on the basis on information and they have perfect knowledge. The assumptions of neoclassical theories include the profit maximizing behaviour of firms and the derivation of demand curves from the consumer indifference curves and budget lines to maximize their utility. Factors of production are analyzed by supply curves. It emphasizes on equilibrium and the aggregation of individual and firms’ demands and supply curves. Bodies which shape up individual behaviour or are considered not as important are not emphasized. The conventional economics has taken a lot from this neoclassical approach in its assumptions and at the basic microeconomics level. Despite these derivations, there have been many individuals and economists who have criticized the neoclassical theories, especially when it came to the lack of attention given to the environment or the ecology. Green critics say that mainstream economists consider environmental and ecological considerations as externalities, which are a cost or benefit arising from an economic transaction or deal that affects a third party or people who are not directly related to the transaction. Conventional economics assume that the society’s preferences are fixed and does not change or evolve with time or analysis. The green economists have often also shown distrust about capitalism which refers to an economic system where ownership is in private hands and economic decisions are made by the market economy. They do not believe that the “invisible hand” as called by Adam Smith makes the best decisions. The theory that self interest of individuals make them act in a certain way which brings good and well being to society is contested by green critics who do not support it entirely. Green critics claim that a lack of intervention makes individuals acting on their self interest disregard the wellness of the environment and the ecological conditions that are affected with their behaviour. Environment and ecology is affected, for example, when a company is opened up in place after it has gone through a rapid deforestation. The cutting down of trees adversely affects the environment and makes it less pleasing so self interested behaviour may not always come up with the best possible solution or to the common good of society, as believed by green economists or critics. Green critics are also of the view that classical economists disregard the economics of the environment, resources and sustainable development while green economists greatly concern themselves about these matters. Green economists consider environment and the study of it to be the starting point of economists whereas, classical economists, as stated believe environmental conditions and other such matters to be externality or third parties that get affected. Green economists do not believe in the concept of economic growth as they believe that resources and the space available are finite and the growth achieved is actually at the expense of the using of resources. Green economists want environmental resources to have monetary value, so that they are taken into account when individuals and firms make decisions. “Since 1980, China has made great improvements in energy efficiency at its power stations and factories, halving its energy consumption per unit output.” Green economics is also characterized by an objection to the study of factors of production that do not differentiate clearly and fully between a living, such as the nature or human beings, and non-living being the financial, infrastructural or social roles involved in the process of production. While classical economics discourage the intervention of government through tax and tariffs, green economics actually believe that the implementation of tax, subsidies, and trade and tariffs laws will actually steer people away from neglectful behaviour. Traffic congestion and the negative effects of deforestation are some of the environmental hazards that occur if ecology is not considered or is sidelined. They also disagree about the capitalist’s theory views on money. An economy run under a free market system may bring variety to consumers and given liberty and freedom to firms but is criticized on making the rich richer and the poor poorer and thus leading to an unequal distribution of wealth and income. Green economics believes in reaching an average value. Green critics also find it hard to come to terms with the fact of human behavior that they prefer luxurious products or commodities such as diamonds over nature things, even if it is as necessary as important as water. This makes the diamond-water paradox of conventional economics appear disillusioned. “The research department of the Organisation for Economic Cooperation and Development (OECD) is currently investigating ways to reduce material throughput and energy use in member countries by 90 per cent.” Environmental economists (green economists) are also of the view that positive economic growth may sometimes be in fact negative when the environmental harm done by industrialization is given importance in the economic equation. They also point out that conventional or classical economics does not count most environmental resources and services and it does not carry a price tag, mainly because of the reason that no one possesses their ownership right but they are for all individuals, such as air and water. “Conventional economists believe that continuing economic growth will solve the world’s environmental problems as they arise. But ‘environmental economists’ in many countries –including Kenya, South Africa, Thailand, Costa Rica, India, Brazil, the Philippines, Chile, the USA and several European states – are exploring ways of including environmental impacts in economic thinking.” This green movement has also given way to green politics which is a political ideology that gives importance to environment and ecological factors. The forerunners of this green movement argue that government should take action against those companies that are involved in the wasteful use of natural resources. They also want the government to stop subsidizing these companies and they think that a green tax shit will make the consumers and producers behave in a less disturbing way to the environment. These ideologies are against the economic globalization taking place as it will replace natural environments, habits and local culture by transforming the world into one global village. Green politicians support the Marxism while emphasizing on environmental protection and voice out their opinions against the capitalist systems, which according to them are the cause of environmental degradation and destruction. Green politics lays emphasis on local decision making and the right of citizens to play a distinct and direct role when it comes to the decisions revolving around their life and the environment surrounding them. Thus, they advocate and support consensus decision making and democracy. The political consequences of the green approach also include the political actions taken on an individual level to encourage customers to buy goods that are environmental friendly and conform to the ethical standards. Green politicians are also against the usage of nuclear energy and the political consequence of this in Germany and Sweden has been the cancellation of all programs related to the establishment of nuclear plants. Moreover, the World Bank has also tried to influence economic thinking to bring environmental consideration into it. It expects countries to take into account of the scarcity of the natural resources and the sparing use they demand. It has focused on environmental protecting measures and has discouraged in its annual publications, deforestation, air pollution and changes in the land. “The introduction to the Bank’s World Development Indicators 1999 states: Given the close link between economic activity and environmental change, there is a strong argument for developing indicators that integrate the economy and the environment more closely.” Countries are encouraged to look into the affects on the environment of their decisions on trade and other economic matters. Research programs are being launched to investigate into the efficient use of natural resources. Surveys are being conducted and financial institutions, such as Bank are asked to carry out an environmental review while sustainable development is also brought into focus. The Green tax shift, also benefits the poor who suffer the most from environmental degradation, as claimed by the forerunners of the green movement while the rich are able to adapt and to move from their locations. There have been critics of this green approach to politics and economics too. People argue that countries are going through a positive economic growth and industrialization are best equipped with knowledge, technology and finance to look into more efficient methods of products and to advocate the right use of natural resources. Critics also argue against the green economist’s support of the levying of taxes and tariffs and they claim that it leads the world towards poverty which might lead to more environmental degradation. According to Kazi Jalal, Chief of the Asian Development Banks Office of Environment and Social Development: “Asia is the worlds most polluted and environmentally degraded region. You can see how population pressure in Asia is causing poverty, and poverty is causing environmental degradation, and environmental degradation is retarding the economic growth rate because the resources of the environment are also resources of development… It is a vicious cycle and unless you consider these social, economic and environmental problems in one context, you are not serious about meeting the challenges.” However, people are generally becoming more aware of the environment and are trying to use ecological friendly products while the businesses and firms are also intent upon making products that are environment friendly. Many pressure groups and NGOs are working to discourage environmental degradations and governments have taken valid steps to discourage it. Research has also been conducted with successful results in countries like China which has halved its energy usage even if the production and output has increased. Though many people still adhere to the neoclassical economics, many individuals regard the environment as more than an externality and there are now many people who play a direct role in making decisions about their life and the environment. References: Adam Smith. (1790). The Theory of Moral Sentiments,. Roodman, D. (1998). The Natural Wealth of Nations,. Sen, A. (1987). On Ethics and Economics,. Suranyi, M. (1999). Capital Markets and the Environment,. Read More