Free B00BLPJNWE EBOK by Paul Craig Roberts

believe that “low-cost” production is the be-all and end-all of “consumer satisfaction.” Until economists, or preferably people in society, realize that in economic jargon “low-cost” production might simply mean maximum external costs imposed on society and the environment, the vaunted unregulated market economy will continue on its path toward the destruction of life on earth.
     

 
Nature’s Capital
     
    So far we have dealt with economics within the existing paradigm. This section deals with the economics that is omitted from the paradigm. The omitted economics is so important that the omission indicates the need for a new economic paradigm.
     
    As we have seen, a basic problem is that economics does not measure all the costs, and the omitted costs might be the most important costs. Since economics does not measure all the costs, economists cannot know whether growth is economic or uneconomic. Economist Herman Daly, for example, asks if the ecological and social costs of growth have grown larger than the value of the increase in production.
     
    The costs that are left out of the computation of Gross Domestic Product are the depletion of natural capital, such as oil and mineral resources and fisheries, and the pollution of air, water and land resources.
     
    Economists do a poor job of adjusting economic theory to developments brought by the passage of time. Just as capital theory originated prior to the income tax and free-trade theory originated at a period in history when capital was internationally immobile and tradable goods were based on climate and knowledge differences, economists’ neglect of the ecosystem as a finite, entropic, non-growing and materially closed system dates from an earlier “empty world.”
     
    In an empty world, man-made capital is scarce and nature’s capital is plentiful. In an empty world, the fish catch is limited by the number of fishing boats, not by the remaining fish population, and petroleum energy is limited by drilling capability, not by geological deposits. Empty-world economics focuses on the sustainability of man-made capital, not on natural capital. Natural capital is treated as a free good. Using it up is not treated as a cost but as an increase in output.
     
    Economic theory is based on “empty-world” economics. But, in fact, today the world is full. In a “full world,” the fish catch is limited by the remaining population of fish, not by the number of fishing boats, which are man-made capital in excess supply. Oil energy is limited by geological deposits, not by the drilling and pumping capacity of man-made capital. In national income accounting, the use of man-made capital is depreciated, but the use of nature’s capital has no cost other than extraction cost. Therefore, the using up of natural capital always results in economic growth.
     
    For example, the dead zones in the Gulf of Mexico from fertilizer runoff from chemical fertilizer farming are not counted as a cost against the increase in agricultural output from chemical farming. The brown clouds that reduce light over large areas of Asia are not included as costs in the production of energy from coal. Economists continue to assume that the only limits to growth are labor, man-made capital, and consumer demand. In fact, the critical limit is ecological.
     
    Nature’s resources cannot be replicated or regenerated like man-made capital. These real limits to growth are both neglected and denied by economic theory.
     
    Modern economics is based on a “production function,” associated with Robert Solow and Joseph Stiglitz, two Nobel prizewinners. A production function explains the relationship between inputs and outputs. The Solow-Stiglitz production function assumes that man-made capital is a substitute for nature’s capital. Therefore, as long as man-made capital can be reproduced, there are no limits to growth. As the economists James Tobin (another Nobel prizewinner) and