11/14/2008 05:12 am ET Updated May 25, 2011

The First Death Rattle of Our Unsustainable Economy (Part II)

In our last blog we wrote about some of the inherent contradictions of neoclassical economics that make it a bad fit for our civilization in the long run. To recap these fallacies briefly:

- Infinite increases in consumption are possible in a finite world;
- Capitalism is efficient at making our lives better off; and
- Capitalism is fair

We promised to take a look at what a sustainable economic system might look like, and we'll do that in our next blog, but there are at least two other contradictions inherent to our current economic system so glaring they deserve a quick mention. The first of these is similar to the primary problem bedeviling the "wizards" down on Wall Street, and that problem is that if something can't be traded then it appears to have no value. Where the inherent value resides in a Credit Default Swap we aren't quite sure, but honestly we're a lot more concerned with things like the environment, renewable energy, personal independence, our relationships with our family and friends, and time to relax in our garden with a glass of homebrew.

A beautiful forest teeming with wildlife surely has value, but according to our economic system it is worthless until we take some aspect of it, the trees or the wildlife or the property itself, and sell it to another human. Unfortunately, at that point its original value will most likely be compromised by removing some of the resources: whether trees for logging, wildlife to protect crops or livestock, or just bulldozing wholesale for replacement with a new McMansion or Burger King.

This first contradiction -- the lack of perceived economic value -- has led to massive distortions in our conversation about renewable energy. It is much easier and cheaper to take solar energy and use it for things that need to be heated up rather than to turn that same solar energy into electricity. While solar water and solar air heaters can achieve efficiencies of 60%, a typical solar electric (photovoltaic or PV) panel will be only around 15% efficient. You might think that since our economy is so "efficient" we would not be embarking on huge solar electric projects until we've used solar energy to directly heat our homes and our water. But this isn't what happens. Instead, since solar generated heat is not usually traded, according to our economic system it has little or no value. Indeed, when we install a solar air heater on someone's home, they will actually use less traded energy (typically coal or natural gas generated) and our so-called "economy" will shrink, even though they are now polluting less and using solar energy as efficiently as possible, not to mention having achieved a degree of energy independence.

The second huge contradiction goes back to Adam Smith and The Wealth of Nations. Not many folks we know have actually read this book, it's a hefty tome and the lengthy digression on silver incomprehensible, but since it supposedly underpins our economic system it's worth referring to every now and then. Many folks would be surprised to find how vociferous Mr. Smith is in his call for government regulation of markets, and his belief that ultimately the wealth of a nation should be measured by the living standards of its people, not by the height of accumulated piles of material goods. Mr. Smith points out that, as we all know, division of labor increases productivity. But what Mr. Smith passes over is that this increased production of material goods comes at a hefty price: tedious, repetitive work often isolated from our surrounding natural environment. Since satisfaction in our work declines as it becomes more isolated from the whole and more repetitive, it becomes necessary for us to gain our satisfaction in life away from our work and instead we often look for satisfaction via the things we consume. Unfortunately, it is impossible to find any lasting satisfaction through consuming things (just ask your belly), and, the physical world being finite, we eventually run out of things to consume.

Since our current economic system is riddled with contradictions that are forcing its implosion as it abuts the physical limits of our planet, what do we do next? Fortunately some very smart people have been ruminating on this subject for the last few decades, and we'll take a look at what they have to say in our next entry.