Fixing the Formula

Fixing the Formula

Much of Future Bright has been about understanding the interaction between economic and natural systems. It started with a question that occurred after I witnessed a massive culling of labor in two seemingly polar opposite industries: Sales and Trading and Music. The question?

Is something systematically wrong with industrial economics. Four years of studying sustainability later and here’s my answer: YES and we can fix it.

The problem is that industrial economics is set up, as all finance is, on the basis of a carry trade. A carry trade says you can borrow in one currency where money is cheap and convert into a higher yielding currency to lend. It is the basis for all finance and in this case the crux of the formulaic flaw. Industry borrows from the natural capital stock at the cost of extraction plus the marginal cost of labor. Technology is employed to lower these costs, eliminating labor and accelerating the depletion of non-substitutes. Here’s a picture of the flaw below using the wood pulp for paper example:

broken_loop

It shouldn’t be too difficult to see that we have a problem here. Forest’s provide services essential for life and by ignoring their replacement value/cost we are depleting them rapidly.

By valuing natural capital and the services it provides we can expand our view of economic value and thus the size of the economy. It just requires widening the lens and implementing the proper accounting and incentive system.

Do your own research. If 50% of habitat is gone, we must act concertedly and decisively. Below is a model of the fixed formula replacing yearly crops of hemp for paper production. Now – go be a billionaire.

Fixed_Loop

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