The Azimuth Project
New Economics Foundation (changes)

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Idea

The New Economics Foundation or nef is attempting to develop a new approach to economic modelling:

Standard models take no account of resource use and environmental constraints, and are blind to social outcomes in terms of equity and, of course, human well being. They are open-ended by nature, with growth being the primary output of interest. Inputs feed in, interact with each other, achieve balance (or equilibrium) and outcomes result.

Our approach turns this on its head. We will start with the hard outcomes we need - environmental sustainability; equitable economic justice; and high levels of human well-being - link these to relevant economic determinants within the model (aggregate output, income distribution and working hours, respectively, for example) and to ‘reverse engineer’ what this would imply for the levels and types of differing inputs.

They have issued the following report:

Critique

Arguably standard economics does take into account resource use and environmental issues. However, economics generally assumes that these effects will lead to effects on prices, and those “price signals” will then result in efficient mitigating actions. However, this has three problematic assumptions:

  1. Price signals will happen at all. Large lobbying and voting groups can often “redistribute” extra expense from environmental/resource issues by obtaining government subsidy, tax breaks, use mandates or other non-obvious support, leaving visible prices unchanged.

  2. Price signals will be timely. If an issue requires developing a new technology or infrastructure, rather than a straightforward substitution of one “product” for another, this will take often take time and resources before it is “deployable”. It is unclear whether enivronmental issues will be noticed early enough to actually raise prices early enough.

  3. Price signals will be heeded. For a business consuming some environmental resource, it is often unclear whether a price rise is going to be long-lasting and ought to lead to substitution or R & D. (For example, it is often stated that whilst oil prices have generally risen, their volatility has led to a decision not to pursue alternative energy sources.)

Thus the NEF’s explicit modelling of these issues is valuable.

References

category: organizations

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