Affluence

From Thermal-FluidsPedia

The second factor appearing in the IPAT model is affluence. Affluence can be regarded as the increase in material gain and is usually measured as the per capita consumption of a certain good or a market activity. Neoclassical economists see more consumption and higher GDPs (gross domestic products) as indications of greater wealth, a healthier economy, and a better standard of living. The ecological footprint as a result of higher consumption is largely ignored. Consequently, these economists object to reducing consumption on the grounds that it slows down economic expansion and results in loss of jobs. Ecologists, however, disagree with this assertion on two accounts. First, material gain can bring happiness only up to a point, beyond which there is no correlation between the two. Second, higher GDP per capita is not a sign of wealth, as it includes costs associated with pollution and other environmental damage. If it were, a country could exhaust all its mineral resources, cut down all its trees, erode its soil, pollute its aquifers, and kill all its wildlife and fisheries, while its economy continued to grow (a).

Figure 1 Energy consumption vs. GDP for several countries.

Figure 1 shows the per capita energy consumption versus the GDP for several countries. Although correlation between GDP and energy consumption per capita was high in the past, the higher efficiencies achieved by newer technologies along with some conservation measures and the shift toward e-commerce has decoupled GDP from energy consumption for many industrial countries.

The data from the General Accounting Office (GAO) indicates that the US GDP has continuously grown by 2.5% per year since 1973, reaching 11.7 trillion dollars by 2004 (1). It is also estimated that up to a quarter of the US GDP is wasted on nonproductive human activities (lost productivity due to traffic congestion, absenteeism, and costs associated with highway accidents, property damage, environmental cleanup, and maintaining law and order) where no value is generated. Table 1 gives the breakdown of various nonproductive expenses in the United States. In addition, many of the social costs associated with climate change, distress, illnesses, and substance abuse have not been included, but may have to be borne out by future generations in terms of increases in crime rate, mental depression, unemployment, and other social ills. If we subtract the cost of wasteful activities from the GDP, we might be surprised to find that the economy may not have grown at all!

Table 1. Nonproductive expenses in the US
Activity	How?	Billion $
Highway accidents	Health care, repairs, loss of productivity, police, and judicial systems	150 100
Highway congestion	Loss of productivity	1,000
Driving (other)	Road repairs, pollution	400
Diet	Obesity, heart disease, substance abuse	450
Crime	Health, police, and prison	500
Cleanup of nuclear material	Extraction, processing, and disposal, nuclear weapons	300
Source: Hawken, P., Lovins, A., and Lovins, H., Natural Capitalism: Creating the Next Industrial Revolution, Rocky Mountain Institute, pp. 57, 1999..

Question: In Economics of Energy, in addition to the GDP, we defined another indicator - the net national welfare (NNW) - to gauge the state of the economy of a given country. How can we use these indicators to measure the degree of sustainability?

Answer: If both the GDP and NNW grow from one year to the next, no matter whether you consider yourself a neoclassical or an ecologist, you will see the environment as sustainable. If GDP continues to grow while NNW falls, the environment is sustainable according to views held by neoclassicals, but not to ecologists. If both the GDP and NNW decline, then we have a non-sustainable environment. The major problem with the NNW indicator is that it is not an easy way to determine the external costs and gains resulting from non-market goods, so this type of calculation is subject to interpretation and therefore highly subjective.

1 Effects of Affluence on Waste and Environmental Damage
2 References
3 Additional Comments
4 Further Reading
5 External Links

Effects of Affluence on Waste and Environmental Damage

The affluent lifestyle enjoyed in many industrial countries, in particular the United States, comes with a price: an ever-increasing volume of waste and a rapidly degrading environment. Waste is not only a result of inefficient material and energy use, but also a consequence of our unquenchable appetite for over-consumption, due to consuming products that are either unnecessary (such as disposable products, electric toothbrushes, motorized lawn mowers, etc.) or excessive (such as large cars, excess packaging, oversized air conditioners, super-sized food portions, etc.).

Waste problems in the United States became particularly severe following the Second World War, where much of its technological capability was redirected towards manufacturing consumer goods, newer drugs, higher quality cosmetics, and more potent pesticides, fertilizers, solvents, and lubricants. These products made life easier for most, but also resulted in numerous health problems and deterioration of the environment. As the economy became stronger and the average purchasing power of American families grew, so did the rate of consumption and the volume of waste. Today, according to EPA estimates, over 250 million tons of toxic waste are produced every year spread over about 50,000 toxic waste sites in the United States. Another 12 million tons of pesticides are used on crops, forests, and lakes.

The cleanup and safe disposal of toxic waste has been debated between those who promote building bigger and bigger landfills and those who prefer incineration. Unfortunately, each method has certain drawbacks; landfills, even those lined with multiple layers of clay and nonporous plastics, are largely ineffective at keeping toxins out of the surrounding soil. Incineration produces significant amounts of air pollutants and is suitable only for organic matters.

The best way to combat waste is to remove incentives for being wasteful and increase material and energy efficiency through better designs, more efficient utilization of materials, increasing product durability, and by recycling and reusing the scraps. Unfortunately, our economic system favors waste while discouraging efficiency. For example, commission fees charged by building contractors, architects, and engineering firms are based on the total cost of the project, and therefore the tendency is to oversize everything. The same can be said of the OEMs who furnish equipment and machinery. The sensitive alternative is to link prices and fees to efficiency rather than to a percentage of total cost. In other words, designers and engineers should be rewarded for what they save, not what they spend.

References

(1) Bureau of Economic Accounting, US Department of Commerce (http://www.bea.gov).

Additional Comments

(a) Even if monetary gains were the only indicator of affluence, higher income (GDP per capita) does not signify wealth because these values are calculated based on a single currency, usually $US, and cannot be translated to the real purchasing power of a citizen in his own country. In response to these problems economists have devised an alternative measure known as Purchasing Power Parity (PPP), which tracks the cost of a basket of traded and non-traded goods and services across countries.