Environmental Economics

Origins

Sometime between the early 1960s and the late 1980s, people in large numbers began to realize that the world faced an environmental problem. Though there continues to be much debate about the nature and scale of the problem, many citizens of industrialized nations remember specific incidents that forever buried the comfortable notion that the world's resources were unlimited, and humankind's actions too insignificant to spoil our ecosystem—a nuclear test extinguishing all life of a small island; a shoreline fouled up by an oil spill; thick smog sickening thousands of urban residents. In American history, Cleveland's Cuyahoga River became the poster child for the birth of environmental awareness—a river so contaminated with industrial waste that it self-ignited on June 22, 1969, burning for days. But whatever the problem—pollution, deforestation, global warming, depletion of the ozone layer—a growing realization began to emerge: the environment was central to society's well-being. As described in more detail below, this was true whether one chose to examine the environmental crisis using logic, hard science, subjective feelings of wellness, or economic cost-benefit analyses.

Economics and the Environment

A key concept in all debates about the environment is “growth”—growth of populations, economic output, and consumption. Due to the explosion of productive capacities in the wake of the industrial revolution, humans have managed to use up more resources since 1945 than in all of prior human history combined. Solid economic growth rates (in both capitalist and communist nations) were generated by increases in production and consumption of goods and services—much of which was resource intensive. Improvements in standards of living became virtually synonymous with increased use of resources—“better” became virtually synonymous with “bigger” and “more.”

Indeed, the idea that economic growth is good, and that more growth is better, has been, and still is, widely celebrated—by citizens and economists alike. Since the very beginnings of the discipline, “growth” has made up the basic rationale for modern economics; it is what politicians and business leaders the world over strive for; it is the one and only parameter that informs our key economic indicators (the national income and product accounts, like gross domestic product [GDP]); it is widely perceived as the key indicator for measuring standards of living; and economists see it as an essential ingredient not only of success, but of the very survival of modern economic systems.

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