True Cost Economics
Economics, in its current form, is a very limited science.
Classical economists are accustomed to quantifying cost in gain in
simple monetary terms while ignoring the more sweeping
ramifications of a particular decision. Air pollution, for example,
costs residents of Ontario at least $1 billion a year in medical
costs and missed work, but these figures do not make their way into
the analysis of the businesses doing the polluting. Neither does
the appalling destruction that China is currently wreaking on the
environment, the cost of which damage more than outweighs the
country’s rapid economic growth. There is no room for such crucial
factors in neoclassical economics, the predominant school of
economic thought that assumes that people’s decisions are guided by
totally rational thought processes. Clearly, the destruction of
one’s habitat is not an entirely rational decision to make, and
critics blast the isolated, ‘autistic’ manner in which modern
economics employs a narrow scope and and a limited conception of
cost and value.
A number of economists, fed up with the limitations of classical
economics, have put forth a new paradigm; in which pricing includes
a number of factors beyond an item’s market value. The
environmental cost of aviation, for example, adds at least $500 per
passenger to airline travel. Recent mad cow scares have cost the
cattle industry $6 billion dollars, and a World Health Organization
study of France, Switzerland, and Austria found that 1.7 percent of
the GDP was taken up by the costs of traffic pollution. By using
these figures to paint a more complete picture of the
transportation and cattle industries, economists will be able to
more easily create value, not just in terms of raw profitability,
but in terms of overall health and environmental impact. In fact,
the new paradigm substitutes the more broad Genuine Progress
Indicator (GPI) for the limited Gross Domestic Product, factoring
leisure time, crime, and resource depletion into the measurement of
a nation’s success. With global warming racking up a yearly bill of
$304.2 billion, businesses would be forced to take note of their
own environmental practices in a way that the current model does
not encourage. True Cost Economics is currently creating a sizable
ruckus in the academic world, and its value as a system of thought
is starting to be recognized by the economic establishment.
— Brendan Themes
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