The Economics of Sustainability


In 1987, a new political term was coined: “sustainable development.” The term is defined as:

“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

The definition is attributed to Dr. Gro Harlem Brundtland who chaired the World Commission on Environment and Development which produced the report Our Common Future. Many meetings, largely attended by government officials, government financed ‘intellectuals,’ and big business officials, have been conducted to discuss the implications and implementations of this statement through economic or central planning. 1This planning is performed by using the force of government to coerce people’s daily lifestyles by subverting property rights.

Sustainability advocates tell us: 1) that resources are limited, 2) that we consume too much for our own good, 3) that a governing authority needs to decide what is the best allocation of resources for us, 4) and thus lead everyone to prosperity with their ideas of sustainable development.

Still unmentioned today, 26 years later, is: 1) who decides what is and is not sustainable, 2) on what logical basis sustainability is calculated, 3) and exactly whose ‘good’ is considered for benefit.

The core of “sustainable development” is the notion of disciplining the consumption of consumers and producers. It consists of a self-appointed elite forcing needs and abilities of people against their will. But, needs and abilities cannot be determined arbitrarily by others; rather, it is derived by each individual according to their own unique, subjective valuation system. A central authority trying to determine the subjective valuation of other individuals consists of misallocation of resources (the same one’s we’re told to conserve) and market distortions (below market interest rates, industry specific stimulus) that inflate price bubbles (housing, commodity, stocks) causing an erosion of wealth.

We have seen the effects of central planning:  from wasted natural resources of wood, mined rock, man hours, money, and energy in building bridges to nowhere and vacant buildings.

In 2006, John Bratland, an economist with the US Department of Interior, wrote in an essay that:

“the theory of intergenerational sustainability largely ignores

1. the valuations and actions of individual human beings,

2. the critical function of private property rights and

3. role of market institutions based on voluntary monetary exchange.

By ignoring these features of human life, the case for sustainable development provides no rational framework for dealing with emerging scarcities. The concepts of valuation, capital, and income only take on valid or coherent meaning in the context of individual action, private property and market exchange.” 2

This central planning model attempts to assign rights to future persons with the premise that future generations should have an equally sufficient environment to the current. In order to assign rights to future generations, the central planners subvert private property rights of presently existing people.  The assumption in this subversion is that private property owners will squander their resources thus destroying their own capital and wealth.  Most people do not leave their water or electricity running when they are not home in order to keep their expenses low.  And, most people wish to provide for their children and families, thus private property owners have every incentive to conserve their resources.3

We have addressed the central planning fallacies one and two cited by Bratland. The third item, the role of market institutions based on voluntary exchange (e.g. the pricing and profit system) is also subverted.

Prices are determined by what consumers are willing to pay.  Prices function to effectively sustain resources.  Think about how smart phones are priced.  When the first iPhone came out it was priced near $500, as it was a new groundbreaking product to be introduced (thus scarce).  Now smart phones are not scarce as a variety of brands and models of smart phones are given away for free. Or think about the price of tomatoes during a bad crop season.  There are fewer tomatoes for existing demand and prices will rise to indicate tomatoes are not as plentiful. Prices provide signals to consumers and to producers to make decisions.  A chef may decide to use something other than tomato in a dish.  The greenhouse farmer may step up production seeing that he is not affected by the poor weather.  The botanist may devise a more resistant crop to produce more tomatoes regardless of weather.  All of these decisions are motivated by price signals.

Prices are the equilibrium reached through the market clearing process that is determined based on what the consumer is willing to pay and what the producer is willing to accept for a good or service. As we mentioned earlier, the consumer and producer determine their price acceptance based on their own needs, desires, and availability. Prices indicate resource availability or constraints, which guide people in economizing their use. The profit system is guided by prices, which provides the incentives for producers to invest their capital into productive and innovative practices. The pricing system is efficient.

The price for any good is determined by a combination of value (demand) and scarcity (supply). As a good becomes scarce (oil), we are willing to pay more for it and thus encouraged to consume less. When a price increases, the profit system encourages entrepreneurs to provide lower cost alternatives to supply a market. Tyler Watts, an assistant economics professor at Ball State University, illustrates the market operation of rational resource consumption with the transition of interior illumination:

“tallow candles were replaced by whale-oil lamps, which were replaced by kerosene lamps, which were replaced by incandescent bulbs powered by electricity. There was no social or political pressure needed to accomplish this evolution; there was no “peak whale-oil” movement, no kerosene conservationists, no sustainability crusade of yore. All it took was a functional price system, combined with the ever-present entrepreneurial drive for profits under a competitive, free-market order.” 4

The free market system provides sustainability of rational resource consumption, and it provides sustainability of both high standards of living and economic growth in a capitalist economy.

Central planning today was popularized from the advocacy of Keynesian’s, named after an economic theorizer John Maynard Keynes. It is easy to understand why this economic intervention theory can be appealing since we can often see tangible results. For example, when the housing market was stimulated, we saw people put to work building homes. We saw people become homeowners. But, when the bubble that was created by this intervention burst, the central planners ignored the effects of the previous intervention. Rather, they focused on a perceived solution from the very problem they created.  What the planners fail to predict or see until it happens is the chaos their plan creates. It is not seen that society’s resources are being wasted by being allocated to areas where they are not needed or wanted but instead where a board thinks they will likely be needed or wanted.  Instead future economic growth is hurt by decisions in the now.  This Field of Dreams type of economics is better left to movies where the consequences of today’s decisions on future generations are never felt.  An effective study of economics attempts to trace all the effects, both intended and unintended, of human action and economic activity.

This theory of central planning is nothing new. The Communists told us to submit to their ideas of planned economics because humanity was at stake. Now, the Sustainables tell us that the entire planet is at stake.1 Somewhere along the way, the critique of capitalism has changed from condemning its failure to wealth redistribution to condemning economic growth.5 And, we are expected to submit our property rights to their wishes.

Currently in the United States, property owners have to seek permission from the government to conduct economic activity on their own property.

  • we are told what light bulbs, air conditioners, doors, and windows we can put on our homes,
  • we are forced to purchase energy from select suppliers,
  • we are not allowed choice in medicine,
  • we are told what foods we can consume.
  • And, in some cases, we are to seek permission from government to choose what color to paint our homes.

One thing is certain, it is not free market capitalism that has caused sustained high unemployment, market volatility, lack of innovation and economic activity, erosion of the consumer’s purchasing power or inflated prices, and depleted savings. These are the consequences of following the fallacy of central planner’s blind faith through the use of government coercion. Central planning has but one end result: sustained poverty for all.

[1] Poliquin, Morgan J. “ ‘Sustainable Development’ Privileges the Few.” Mises Daily. (2006)

[2] Bratland, John.  “Toward a Calculation Theory and Policy of Intergenerational Sustainability.”  The Quarterly Journal of Austrian Economics.  Vol. 9, No. 2. (2006) 13-14

[3] Gordon, David.  “A Poverty of Reason: Sustainable Development and Economic Growth.”  The Mises Review.  Vol. 9, No. 3  (2003)

[4] Watts, Tyler A.  “Sustainability: An Assault on Economics.”  Mises Daily. (2009)

[5] Tucker, Jeffrey A.  “The Decivilizing Effects of Government.”  Mises Daily. (2010)

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2 Responses to The Economics of Sustainability

  1. Patriot May 22, 2013 at 12:58 pm #

    Nice to see that you used ONE peer reviewed journal to make your argument.

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