Green economics is all about finding objective ways to value, in some kind of unified fashion, the earth’s physical environment, its ecosystems, human-produced tangible capital (such as buildings, roads and trains), human skills and knowledge (called human capital), and social capital (such as political institutions and even social media). Since almost all business and political decisions carry tradeoffs across different kinds of capital (e.g., one decision may be better for human capital but worse for the environment and vice versa), unified valuation methods are critical to support business and political decision making. Currently, the only established game in town is the classical economics definition of gross domestic product GDP and its derivatives. Media outlets clap when it goes up and boo when it goes down. Yet, most of us know that as a compass for human progress, GDP is brain dead – stranding humanity on a ship without a rudder. What GDP really measures is how much monetized activity took place; not what kind. But that monetized activity is 100% embedded in earth’s ecosystem which is itself embedded in earth’s physical environment of earth, fire water and sky. Get rid of people, and the earth and all nonhuman ecosystems will get along just fine. Get rid of earth’s ecosystems or the physical environment and Poof, humanity disappears. We need ecosystems; they do not need us. The relationship is fundamentally asymmetric. I am currently a consulting CTO to a start-up dedicated to bringing these inclusive wealth metrics to the valuation of state, national and global level economics.
Following in the tradition of Wealth Accounting as devised by John O’Connor at the World Bank which takes a systematic approach to sustainability by recognizing all forms of capital(objects) specifically natural capital, produced capital, human capital and social capital and the actions/transactions that use capital to produce outputs. methods of wealth accounting have recently become a part of the System of National Accounts SNA a rule book for how countries are supposed to perform macro economic accounting.
Here’s an interesting discussion I had with other members of the expert group on sustainable development indicators hosted by the Library of Alexandria
on the limits of monetary valuations and the relative roles of physical quantities vs. monetary values for decision making On the role of monetary valuations vs. physical quantities
At the World Bank
- Designed and implemented the first software for integrated local and national level socio-economic-environmental indicator systems, e.g.,
- Environmental model for the first Earth Summit in Rio
- The Bank’s 50th anniversary model of the world’s well being and poverty
- Created and implemented algorithms for
- Aggregating irregular data for the World Bank’s System of National Accounts
- Multi-layered context-sensitive indicators
- Aggregating service level indicators for capital
- Assessing information quality and detecting data source errors
The needs of wealth accounting demand new approaches to the integration of qualitative and quantitative information, and valuations. Research and relevant links in these areas will be posted soon