Economics and Sustainability:

1. A Question of Interest Economics and Sustainability: James Stodder, (Economics PhD., Yale 1990) Lally School of Management & Technology Rensselaer Polytechnic Institute at Hartford If a man takes no thought about what is distant, he will find sorrow near at hand. - Confucius (551-479 BC) Sustain

2. I. Interest as Self-Interest: • Is maximizing Shareholder Valuesustainable? • Is accurate Carbon Pricing sustainable? II. Interest as Social-Discounting: • Is maximizing Expected Present Value sustainable? • Can we Balance current needs with long-term survival? Two Kinds of Interest Sustain

3. Shareholders = low commitment, demand high returns regardless of long-term effects. • GM a glaring example: failed to make the long-term investments of Japanese, Germans, or Ford (family). • Other systems ensure larger stakeholder voice: German banks and co-determination; Japanese Kereitsuand Lean Management promote-from-within. Max Shareholder Value: not enough Sustain

4. US Energy ‘Independence’ http://www.worldenergyoutlook.org/publications/weo-2012/ Sustain

5. GE considers US carbon pricing necessary for economy, but does Cradle-to-Cradle (C2C) anyway. • Mercedes GLK-Class first car in the world to receive Environmental Certificate from TUV* (Technical Inspection Association), setting EU standards for LCA. • Right Pricing is necessary, but it is notsufficient. 2) RightExternality Pricing: not enough * http://www.tuv-sud.com/home_com Sustain

6. http://www.daimler.com/Projects/c2c/channel/documents/2003772_Environmental_Certificate_Mercedes_Benz_GLK_Class.pdfhttp://www.daimler.com/Projects/c2c/channel/documents/2003772_Environmental_Certificate_Mercedes_Benz_GLK_Class.pdf Sustain

7. Two Kinds of Sustainability Stock ↓ C > R: C = R(S) Consumption (C), Regeneration (R) Stock ↑ C < R: Stock (S) Sustain

8. Two Kinds of Sustainability Maximum Yield Consumption (C) Regeneration (R) Stock (S) Sustain

9. Two Kinds of Sustainability Maximum Sustainable Welfare Maximum Yield Consumption (C) Regeneration (R) Stock (S) Sustain

10. Two Kinds of Sustainability Max EPV (C) “Enlightened Selfishness” Consumption (C) Regeneration (R) Max Sustainable Social Welfare “The Green Golden Rule” Stock (S) Sustain

11. Formalizing the Green Golden Rule http://www.amazon.com/Valuing-Future-Geoffrey-Heal/dp/0231113072 Sustain

12. Stability of Green Golden Rule Maximum Sustainable Welfare Maximum Yield Stock ↑ Consumption (C) Regeneration (R) Stock ↓ Stock ↓ Stable S1 S2 Stock (S) Sustain

13. Stability of Max Sustainable Yield Stable Consumption (C) Regeneration (R) Stock ↓ Stock ↓ Stock (S) Sustain

14. Stability of Green Golden Rule Maximum Sustainable Welfare Maximum Yield Consumption (C) Regeneration (R) Stock ↑ Stock ↓ Stock ↓ Stable S1 S2 Stock (S) Sustain

15. Viable Balance between Efficiency & Resilience (Goerner, Lietaer, Ulanowicz, Ecol. Econ., 2009)* * http://www.sciencedirect.com/science/article/pii/S0921800909003085 Sustain

16. Two Different Discount Rates New Econ: Max EPV(C, S) r = 0 Old Econ: Max EPV(C) r > 0 “Dictatorship of the PRESENT” Consumption (C) Regeneration (R) “Dictatorship of the FUTURE” Stock (S) Sustain

17. Dictatorship of the Future: The Stern Review (2006): r = 0.1% • Dictatorship of the Present: Nordhaus Critique (2007): r = 3% → 1% Example of Interest Rate Conflict:Debate on the ‘Stern Review’ Sustain

18. A ‘Saudi-Arabia of Waste’ http://www.worldenergyoutlook.org/publications/weo-2012/ Sustain

19. Graciela Chichilnisky, Economics E-Journal (2009): • The “Chichilnisky Criterion” • Starts with a focus on sustainable consumption, gradually shifts toward sustainable welfare. • Requires a gradual transitionfrom r > 0 to r = 0 (thus becoming more ‘future oriented’). • There is evidence that this is how most people naturally discount the far future anyway. “Avoiding Extinction: Equal Treatment of the Present and the Future” Sustain

20. Evidence on discounting from anthropology, animal behavior, and experimental psychology: http://evolution-institute.org/sites/default/files/external_docs/The%20evolution%20of%20hyperbolic%20discounting-%20Implications%20for%20truly%20social%20valuation%20of%20the%20future.pdf Sustain

21. “Management is not about maximizing profits or share-holder value in the short term. That may be relatively easy to do if the corporation is willing to sacrifice its future. Nor is management about investing everything into the long-term prospects. It may be impossible to survive the cash flow constraints or the risks and uncertainties of making investments without seeming rewards.” (p. 341) Sustain

22. Efficient Carbon Pricing, Maximizing Shareholder Value, Maximizing Expected Present Value – all are insufficient for sustainability if not based on Green Golden Rule. • Because of this insufficiency, firms aiming at very long-term success will go beyond what is currently required. • A Falling-Discount rate is “nature’s rule” in successful ecosystems. Most traditional cultures of spirituality and stewardshipalso foster the Green Golden Rule. • Similarly, a contemporary path to the Green Golden Rule must build a social and moral consensus toward the future. (If forced, that could be a real dictatorship!) Tying it all together Sustain