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    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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    Published on Aug 1, 2004

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