Re: post keynesian economics and environmetal sustainablity

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

As Chief Economist of The World Bank, Lawrence Summer wrote an infamous
December 1991 memo concluding that The WB should "be encouraging more migration
of the dirty industries to the LDCs (Less Developed Countries)". 
The logic was "impeccable" that toxic wastes should be exported to these
poor countries because the people produced less and their deaths had less
impact on the overall economy; that because the wages were low in these
countries, health care costs were lowest too. Summers declared: "I think
the economic logic behind dumping a load of toxic waste in the lowest wage
country is impeccable and we should face up to that". Africa is vastly
under populated and therefore under polluted.
Therefore, "initial increments of pollution probably have very low
cost."  This is the type of conclusion that cost effectiveness analysis
can lead to.  The Brazilian Secretary of the Environment of Brazil,
Jose  Lutzenberger, was reported to have retorted that Summers' reasoning
is perfectly logical but it provides a concrete example of the unbelievable
"alienation, reductionist thinking, social ruthlessness and the arrogant
ignorance of many conventional economists concerning the nature of the
world we live."

Now alienation is a Marxist term which makes it highly unpopular in the US. Alienation is the subjugation of people by the artificial creations of people "which have assumed the guise of independent things." Because products are thought of as commodities with money prices, the social process of trade and exchange, known as the market, becomes driven by forces operating independently of human will like natural laws.

Ergodic theory is a fairly new branch of mathematics which applies probability analysis to study the
long-term average behavior of complicated systems. It overlaps heavily with smooth dynamical systems
theory and draws methods, examples, and problems from harmonic analysis, number theory,
combinatorics, harmonic analysis, coding theory and group theory, and many other branches of mathematics. Applications range from celestial mechanics through interactions of biological populations to the efficient transmission and recording of information.
Much research has concentrated on symbolic dynamics, almost everywhere convergence, maximal theorems, and connections of ergodic theory with harmonic analysis and probability.

Ergodic theory is also the study of dynamics in the presence of an invariant measure. Most dynamical systems have a very complicated orbit structure; ergodic theory allows us to describe the long-term behaviour of a 'typical' orbit. Ergodic theory is very closely related to dynamical systems and has also been used to study many problems in other areas of mathematics.

Ergodic theory is also the study of statistical properties of deterministic dynamical systems. By statistical
properties we mean properties which are expressed through the behaviour of time averages along trajectories of dynamical systems, dynamical properties of commuting maps and algebraic dynamical systems (actions by group automorphisms), dynamical realization of integer sequences and other
connections between number theory and dynamical systems.

If a time average does not give complete representation of full ensemble, system is non-ergodic

To be truly nonergodic means to have no way to go there from here.  Practically nonergodic means it is very hard to find route from here to there.  It is the attribute of a behavior that is in certain crucial respects incomprehensible through observation either for lack of repetition, e.g., by involving only transient states which are unique, or for lack of stabilities, e.g., when transition probabilities (see probabilities) are so variable that there are not enough observations available to ascertain them. Evolution and social processes involving structural changes are inherently non-ergodic. To understand non-ergodic behavior requires either reference to the underlying organization of the system exhibiting it or the study of a large sample of systems of the same kind.

Concerns about the national economy, environment, public health, and the quality of EPA's regulatory
process have led Congress to consider proposals to require EPA analyses of risks, costs, and benefits of
proposed regulations. Proponents of analysis want the results used to design more efficient regulations and
to prioritize environmental problems for Federal attention. Risk analysis summarizes available scientific
information about hazardous activities, chemicals, or technologies and the effects they may have on
exposed animals or people under various conditions, for example, with or without regulation. Risk and
economic analyses can be qualitative or, if information is sufficient, quantitative, but economists can only
quantify economic benefits of enviromental regulations if scientists can quantitatively estimate risks to
health and the environment.

Economic analysis and risk analysis of many management options already are required by executive order
and statute; EPA has conducted such analyses for 20 years. The quality of its analyses and the influence
of the results on management decisions have been both praised and criticized. Some environmental
statutes prevent EPA from using analytic results in developing regulations.
Experts in risk analysis disagree about how "risk" and related terms should be defined.
"Environmental risk" is defined as the probability of occurrence of a particular adverse effect on human health or the environment as a result of exposure to an environmental hazard; an "environmental hazard" may be a hazardous chemical in the environment, a natural hazard, or a hazardous technology (for example, a dam).

"Environmental risk assessment" refers to any formal or informal scientific procedure used to produce a
quantitative estimate of environmental risk. For example, risk assessment is often used to estimate the
expected rate of illness or death in a human population ex-posed to a hazardous chemical based on the
number of experimental animals affected by various doses of the chemical as measured in laboratory
experiments.

"Environmental risk analysis" is defined more broadly to include any quantitative or qualitative scientific description of an environmental hazard, the potential adverse effects of exposure, the risks of these effects, events and conditions that may lead to or modify adverse effects, populations or environments that influence or experience adverse effects, and uncertainties with regard to any of these factors.

Generally, risk analyses are based on scientists' evaluations of results of scientific research, extrapolations of these results to predict the type and to estimate the extent of effects in exposed populations, and judgments about the number and characteristics of persons exposed to hazards at various levels. The final step in risk analysis is "risk characterization," which summarizes scientific judgments about the existence and overall magnitude (that is, the incidence) of adverse effects given specified levels of exposure to a hazard.

"Economic analysis" refers to any systematic procedure to evaluate real or anticipated resource expenditures and losses (costs) relative to real or anticipated gains (benefits). "Cost-benefit-risk
assessment" is the quantification and monetary valuation of the expenditures, gains, and losses, and the
calculation of net benefits to society associated with the adoption of a particular regulation (or alternative
management strategy) to address an environmental hazard. Quantitative environmental risk analysis
(that is, risk assessment) is a necessary prerequisite to the conduct of cost-benefit-risk assessment of
environmental regulations, because the " benefits" are the risks avoided (that is, the adverse effects on
human health or the environment, or risks of such effects, that the regulation is meant to address.) Risk
assessment may be used to estimate the number of people or animals likely to be harmed by exposure to
the hazard under each regulatory strategy, including a "do-nothing-different" strategy that reflects the
current policy, or regulation, or laissez faire. Benefits may be expressed in such terms as numbers of lives
saved or illnesses or species extinctions avoided. Risk that is expected to remain after a new regulation is
implemented may be subtracted from the risk under current conditions to estimate risk reduction
opportunities -- that is, the "expected benefit " -- of each regulatory alternative. If benefits are translated
into monetary terms to allow cost-benefit-risk assessment, various techniques may be used to calculate
the dollar values of health effects; these values may be derived from studies of how much people are
willing to pay to avoid exposure to a hazard or particular adverse effect, or based on savings of direct
costs, such as health care expenditures, salary loss for the duration of an illness, or the years of work lost
to premature death. The intent is to estimate the gross monetary value of benefits to society, rather than
to individuals. "Net benefit" is the expected monetary benefit less the cost of implementing the regulation.
Cost-benefit analysis is a system of measuring the desirability of government programs by weighing both the long and short-term benefits of a program against the long and short-term costs of a program. An artificial discount rate is used to calculate what the costs and benefits may be in the long run.

Results to date are highly problematic.  Consider the following study:

NCPA: STUDY SAYS COST-BENEFIT ANALYSIS DOESN'T JUSTIFY GLOBAL WARMING ACCORD
http://www.ncpa.org/press/gwarmpr.html

Henry C.K. Liu
 
 
 
 

RHolt1234@xxxxxxx wrote:

Hopefully in the near future Bill Mitchell, Mat Forstater and I will start on a project of editing a volume on Post Keynesian economics and the environment. Thinking a little bit about the project let me throw out a basic issue to see how some of you will respond. A primary issue in environmental economics has to do with long-run sustainability. Using a very simple model of comparing marginal abatement costs with marginal damages to determine a socially efficient level of emissions of a pollutant assumes that all costs are estimated. A criticism given is that such a model has a tendencyto put more weight on costs and benefits for present generations compared to future generations. This would not be a problem if all resources were renewable and pollutants noncumulative, but as we know this is not the case. The neoclassical response is that through discounting we can come up with an estimated value of the marginal abatement cost and the marginal damage functions that takes into consideration all costs in the short-run and the long-run associated with pollution. But this analysis is based on an ergodic system. If we accept a non-ergodic system � a future that is uncertain how do we evaluate all future costs associated with pollution and carry out a policyof sustainability?

-Ric Holt