October 31st, 2003

rock shadow

ramblings on economics and biology

I've been meaning to polish this before I post it, but since it doesn't seem like I'll get around to it anytime soon, I'll post it anyway - feel free to rip holes in it, and I'll do my best to explain my position. :~)

How valid are these parallels between biological ecosystems and economic systems?

Economic systems, like biological ecosystems, tend toward local optima rather than global optima, especially when there are multiple interacting factors that are being optimized. In biology, this means that organisms are not optimal, and going from their present design to the optimum would be too much of a departure from the evolutionary path they've taken (though mutations can perturb this enough to occasionally tend toward higher local optima). In economics, this means that companies optimize for the short-term.

In biology, carrying capacity is maintained - even "gross polluters" like elephants with lots of externalities are low enough density that the ecosystem can recover from the damage they cause, and their externalities are new niches. This often doesn't happen with economics, if it's not immediately profitable to take advantage of that niche. In biology, population distributions are maintained, and you don't get one player dominating like you can in economics (such as monopolies). In general, it seems that in biology, population distributions are maintained and you don't get one creature dominating the "market" (with the exception of some non-native plants and animals, which can and have completely devastated ecosystems).

In economics, there are no checks, and no carrying capacity. In Berkeley, companies must recycle what they can - but why don't they do the same in Richmond, where there are similar industries? Either it's inertia (e.g. overhead of finding other companies who can use your waste, and arranging things) or something more fundamental (e.g. it's just not cost-effective).

Neo-liberalism and natural capitalism argue that markets will tend toward sustainability because it's cost-effective to use less raw materials and to re-use waste products. But this may affect only a small set of a company's externalities: the company has no motivation to reduce waste in other areas. Also, the focus is still solely on money. I feel like this is fundamentally flawed, yet this is the way markets will and do operate, unless government regulation stops them.

... I guess market forces can affect things also, though perhaps only in ways that are economically viable - such as dolphin-safe tuna and organic produce.