Sustainable Economics

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Introduction and definition
Not Sustainable Economics Example
Our Current Situation
Why Growth Alone Does Not Equal Progress
GDP vs GPI (graph)
Two Views (diagram)
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In the simplest terms, the net results of achieving Sustainable Economics are:
A lower probability of boom/bust business cycles (regional or national);
The quality of life will not diminish over time due to the way businesses extract natural resources and grow and harvest crops.

The easiest way to illustrate what real world sustainable economics means is to show an example of what it is NOT.

Many timber corporation's forest management practices are a good example of what not to do. The following is typical of the forest practices in the heart of Redwood Tree country in Northern California. This practice applies to many large timber companies in other states, only the type of trees are different.

There are other industries with the same non-sustainable practices, including mining, oil, agriculture and fishing, to name a few.

NOT Sustainable Economics in the Timber Industry:
An example from Mendocino County, California.

Mendocino County Forest Land Information: Much of the data about MRC comes from the Greenwood Watershed Assoc.and the other main source of forest information is Dr. Hans Burkhardt's book "Maximizing Forest Productivity".

A healthy "ancient forest" like some of the national parks will yield 100,000+ board feet per acre (bf/ac).

A healthy commercial forest that has had good sustained yield practices for centuries will yield 40,000 BF/ac.

The three largest timber corporations in Mendocino County hold forest lands which now have the following depleted average yields:

Hawthorne-Campbell Co.(old GP co.): 10,000 BF/ac
MRC (old LP): 8,000 BF/ac
Pioneer Co. (old CFL): 4,000 BF/ac

Yet, even with these depleted forests, the companies still plan to clear cut at rates beyond ambitious sustainable yield rates. The above three corporation are major timber land owners in Mendocino County whose principal owners live in other areas.

These companies own over 500,000 acres. The Mendocino Redwood Co (MRC) which is owned by the Fisher Family (who own the Gap and other retail stores) own 231,000 acres that they bought from Louisiana Pacific (LP). The companies combined acreage is a large percent of the land in this large California County.

Most of these lands were heavily logged by the multinational corporation LP before MRC bought them. MRC plans to log these depleted forest lands at 40 million board feet a year for the next ten years, which by the most conservative estimates is at least twice the sustainable yield rate. "If these corporations are left unchecked, all merchantable reserves of trees will be eliminated by the year 2010."( K.S.)

The holdings of these three corporations "have been managed for at least two decades for short-term profit. Inventory has been depleted to the point where most reserves of merchantable trees are consumed. Forest productivity has declined to about 1/2 to 1/3 of its original capacity... Had this same forest been managed for sustainable, maximum yield, as required by law since 1973, today's volume and value would be approximately four times what it actually is today.

During this period of two decades the County lost a potential wealth of 3 billion dollars and a potential timber volume of 2.3 billion board feet which was never allowed to be grown. After a period of just 20 years, net revenue, discounted revenue, annual growth, annual harvest volumes and employment would be higher today, had the law been implemented." Dr. Hans Burkhardt - Forester

The maximum sustain yield curves in forestry text books point to the fact that cutting only a small percent of your total inventory each year will yield the maximum board feet of lumber if measured over a long period of time.

The current logging practices by these large corporations and Gualala Redwoods Inc. is approximately as follows:

The majority of time their logging plans call for clear cutting. After logging road construction and clear cutting all of the Fir and Redwood trees, often the logging companies will start a fire storm by the aerial dropping of napalm (gasoline gel). Sometimes these fires burn beyond the intended area. Their intention is to clear the slash, bushes and trees that have low lumber value, such as, Tan Oak and Madrone etc.

What ever living plants survive this fire storm are then sprayed with herbicide like Garlon, which is deadly to fish and problematic to the workers doing the spraying.

Many times the companies cut very close to streams and California Department of Forestry compounds the problems by allowing winter operations. Winter logging operations increase the chances that heavy erosion will take place before new trees or seeds can be planted. Many streams and their fisheries have been destroyed by this practice, not to mention homes and roads due to mud slides.

The trees that are sometimes planted after this sterilization of the natural ecosystem are Fir or Redwood due to there market value. These new monoculture tree farms growing in this somewhat sterile environment are more prone to disease due to their non biologically hedged nature.

During the height of the timber boom many of the raw cut logs where being shipped out of the country to Mexico because it is cheaper to create finished timber in low-wage countries. Additionally, foreign markets were willing to pay premium prices because they had deleted their own forests.

Above timber example from:

Why would a company treat one of their own assets this way?

1. This practice (clear cuts) yields greater short term profits at the expense of long term profits and American manager's compensation is usually based on annual performance which is a disincentive for true maximum sustained yield practices.

2. The company replants their land, after using the above clear cut method; they can then plant the maximum density of trees with the highest current market value. This tree count makes the "on paper" value of their land appear high. Of course, most reputable forestry experts will tell you that there is a greater possibly of disease decimating these "tree farms" in a few decades because the trees are a dense mono-culture with no natural stops.

These large timber companies cut and run, leaving the land and the local people worse off in the long run.

One may ask, what do raw materials, natural resources and crops have to do with a large segment of the economy like the service or information sector?

Natural and agricultural resources are the underpinning to all segments of the economy. Even traditional growth-based economic models point to this. Even if people only had a need for food and shelter, raw materials and land would still play a big role in the economy.

Alan Greenspan, the Chair of the Federal Reserve Board (the Fed), probably the second most powerful person in the government, once said, when testifying before congress, "...the basic business cycle has not been repealed". Meaning there will be ups and downs in the economy no matter what the government does. He has also said that unemployment is an inevitable by-product of the Fed's intervention in interests rates used to decrease inflation.

Among other things, Sustainable Economics shows that these cycles of inflation and recession are largely linked to the current business practices and mismanagement of natural resources.

Due to the current poor state of our natural resource base, it would necessitate a number of fairly major changes to even come close to achieving a sustainable economy and sustainable quality of life.

In recent years more writings and economic models have appeared around the issue of sustainable economics. The major politicians, and economists who advise them, appear to have no understanding of the term "sustainable economics" or the short term interests of their big contributors override any interests in embracing the concepts and policies needed to make the necessary changes.

Below are a couple of examples from other web sites of sustainable economic models and principles.


The resources of the earth are finite.

Economic growth cannot continue indefinitely; sustainable and efficient rates of resource and energy use (throughout) need to be

The earth cannot support the present human population at the high level of consumption found in affluent countries such as the United States.

The ability of the earth to absorb pollutants resulting from human energy use and artifact production is finite.

Energy sources are not recyclable-they can only be used once and then they may become pollutants.

The stock of human bodies and artifacts cannot increase indefinitely, but must be maintained at a steady-state level lower than the earth's carrying capacity.

A sustainable lifestyle should emphasize quality (knowledge, culture, health) rather than quantity, and should be based mainly on
renewable resources.

above from:


The site below discusses why Gross Domestic Product (GDP) also Gross National Product (GNP), which our politicians frequently use as a measure of economic progress, is not a good measure. This is especially true if you are trying to achieve a sustainable economy.


from: http://www.rprogress.org/pubs/gpi1999/gpi1999.html

Imagine receiving an annual holiday letter from distant friends, reporting the best year ever for their family, because they spent more money this year than ever before. It began during the unusually rainy winter sparked by El Niño, when the roof sprang leaks and their yard in the East Bay hills started to slide: The many layers of roofing had to be stripped to the rafters before the roof could be reconstructed, and engineers were required to keep the yard from eroding away. Shortly after, Jane broke her leg in a car accident: A hospital stay, surgery, physical therapy, and replacing the car took a bite out of their savings. Jane, of course, couldn't maintain her usual routine of caring for their two small children, shopping, cooking, and cleaning duties, so they hired people to help. Then they were robbed and replaced a computer, two TVs, a VCR, and a video camera; they also bought a home security system, to keep these new purchases safe.

Essentially, Jane and John's equating money spent with well-being is like using the gross domestic product (GDP) as the barometer of nation's economic health. The GDP is simply a gross tally of money spent--goods and services purchased by households or government and business investments, regardless of whether they enhance our well-being or not. Designed as a planning tool to guide the massive production effort for World War II, the GDP was never intended to be a yardstick of economic progress; yet, gradually it has assumed totemic stature as the ultimate measure of economic success. When it rises, the media applaud and politicians rush to take credit. When it falls, there is hand-wringing and general alarm.

The GDP as a Flawed Measure of the Economy--and of Progress

As a measure of economic health, the GDP is badly flawed. First by counting only monetary transactions as economic activity, the GDP omits much of what people value and activities that serve basic needs. For example, it doesn't count free services, such as community volunteer work or caring for children or elderly parents in the home--services that would show up in the GDP if they were paid for. It also ignores the value of leisure time spent in recreation, relaxation, or with family and friends. The GDP omits crucial contributions of the environment, such as pure air and water, moderate climate, and protection from the sun's harmful rays, even though these services, which the earth provides for free, become expensive if they need to be bought instead. It is appropriate that an economic indicator include such measures, because common sense and history tell us that the economy is a tool to address needs and enhance well-being, not an end in itself.

More significantly, the GDP fails to distinguish between monetary transactions that genuinely add to well-being and those that diminish it, try to maintain the status quo, or make up for degraded conditions. Much that contributes to economic growth is perceived by most people as losses rather than gains: fixing blunders from the past, borrowing from the future, and shifting activities from the unpaid household or community sector to the monetized economy. For example, the GDP treats crime, divorce, legal fees, and other signs of social breakdown as economic gains. Car wrecks, medical costs, locks and security systems, and insurance are also pluses to the GDP.

Further, the GDP ignores the environmental costs of economic activities. It takes no account of the depletion of natural resources used to produce goods and services: For example, the harvesting of ancient redwood trees adds the market value of the wood to the GDP. The GDP counts pollution as a double gain to the economy: The production of oil that creates pollution adds to the GDP; then the clean-up of toxic waste sites or the Exxon Valdez oil spill ups the GDP even more. In treating the depletion or degradation of our natural resources as income rather than depreciation of an asset, the GDP violates both basic accounting principles and common sense.

To the GDP, every transaction is positive as long as money changes hands. No wonder the GDP rises continuously, adding everything as a gain, making no distinction between costs and benefits, well-being or decline. And no wonder that, while media and politicians crow about economic growth, many Americans feel strangely ambivalent or left out.


To address the inadequacies of the GDP as a guide for public policy, the Genuine Progress Indicator was developed in 1994 by Redefining Progress, a nonprofit, nonpartisan public policy institute designed to stimulate public discourse on the type of future that Americans desire and how to achieve it.[1] Founded on the conviction that the nation's economy and political culture are increasingly at odds with its best values and aspirations, Redefining Progress uses research and public education to promote integrated policy approaches to social, economic, and environmental problems and to advance the principles of enterprise, responsibility, and stewardship.

The Genuine Progress Indicator (GPI) takes from the GDP the financial transactions that are relevant to well-being. It then adjusts them for aspects of the economy that the GDP ignores. The GPI thus reveals the relationship between factors conventionally defined as purely economic and those traditionally defined as purely social and environmental.

Like the GDP, the GPI begins with the nation's personal consumption expenditures. But the GPI assesses the well-being of households, rather than focusing exclusively on the number of dollars they spend. While the GDP then adds the nation's spending on investment and government, the GPI considers most of those expenditures defensive, and thus begins with only personal consumption expenditures as its base.

Personal consumption expenditures are then adjusted for income distribution using the Gini coefficient (see below under "Income Gap Widens"). It is often assumed that the rising GDP lifts all boats, but this is not necessarily true. From 1973 to 1993, for example, while the GDP rose by 55%, real wages declined by 3.4%. In the 1980s alone, the poorest fifth of American families lost 0.5% of their income each year, while the top 5% of households increased their real income by 3.9% per year. Growth did not benefit everyone, and a true measure of well-being should take this inequality into account.

Because the GDP makes no distinction between transactions that contribute to or diminish well-being, it operates like a business income statement that adds expenses to income instead of subtracting them. The GPI, on the other hand, differentiates between what most people perceive as positive and negative economic transactions, and between the costs of producing economic benefits and the benefits themselves. It adds up the value of products and services consumed in the economy--whether or not money changes hands.

Using personal consumption expenditures adjusted for income inequality as its base, the GPI then adds or subtracts categories of spending based on whether they enhance or detract from our nation's well-being.

The following nonmonetary benefits--ignored by the GDP--are included in the GPI:

  1. the value of time spent on household work, parenting, and volunteer work.

  2. the value of services of consumer durables (such as cars and refrigerators).

  3. services of highways and streets.

The GPI then subtracts three categories of expenses that do not improve well-being:

  1. defensive expenditures, defined as money spent to maintain the household's level of comfort, security, or satisfaction, in the face of declines in quality of life due to such factors as crime, auto accidents, or pollution. Examples include personal water filters, locks or security systems, hospital bills from auto accidents, or the cost of repainting houses damaged by air pollution.

  2. social costs, such as the cost of divorce, household costs of crime, or loss of leisure time.

  3. the depreciation of environmental assets and natural resources, including loss of farmland, wetlands, and old-growth forests; reduction of stocks of natural resources, such as fossil fuels or other mineral deposits; and damaging effects of wastes and pollution.



The data in our 1998 update highlight the need for an alternative measure of economic vitality. As human illness can be concealed by a surface appearance of health, economic robustness as measured by the GDP masks a fragile state of economic growth that cannot be sustained.

Figure 1: Genuine Progress Indicator -- An Alternative Measure Of Progress

Graph of GDP versus GPI, 1950 to 1998


Above from:

Above from: Design For A Sustainable Economics, by Robert Gilman http://www.context.org/ICLIB/IC32/Gilman.htm

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