The Common Pitfall of Valuing Ecosystems

0:00My name is Tomohide Yasuda. I'm from the University of Massachusetts at Boston, Department of Environmental, Earth and Ocean Sciences. In 1997, the most prestigious science journal, Nature, published a paper by Costanza et al. titled It puts the value of the world's eco-sensitive services and natural capital, it puts the value of the entire biosphere at $16.54 trillion a year. This estimate has taken a life of its own, since its publication, and has appeared widely in the popular media.

0:50In academia, the paper still remains one of the most cited papers in environmental and ecology studies. At present, the citations are 1,257. Ten years after the publication, annual citations are still increasing. The Robert von Sander, the lead author of that article at the University of Vermont, is highly cited and highly funded research. I will talk about that later. The content of my talk today is that I will go over the article's fundamental flaws and why do we care?

1:40The Science Nature article has many, many flaws and dirty tricks, but I will focus on only three major problems. First, they assume value is an objective entity, but as we know, they are really a subjective entity. They claimed that they measured a consumer's willingness to pay for ecosystems, but what they did was actually calculating total replacement costs for these ecosystems. They also are committed to double counting. Simply put, what they did was to calculate the costs necessary to replace the 17 ecosystem Let me comment on the word service. Like value, service is again a subjective entity. I don't feel like I'm being served by the earth, the soil formation.

2:57As I said, they treat the value of the ecosystem as an objective entity that can be measured independent of individual human action, but thanks to Carl Menger, we have long known that value is a subjective entity, value should be recognized by human beings. This is a foundation of modern economics, but these authors of the article ignore this reality completely. What is a subjective entity? It means an ecosystem's value depends on how much people actually pay for it, how many people pay for it, how much these people can afford to pay.

3:52Also, an individual's valuation of an ecosystem is unique. Even if I put some of my own money on some unit of an ecosystem, it doesn't mean that somebody else like you would put the same amount of money on the same thing. This is a graph I took from DEXI. The demand curve is sloping to the right. It means they claim they are dealing with marginal utility. But as I said, they are calculating total replacement costs for these ecosystems using our current technology. So what they are actually doing, by the way, they claim that they are calculating the area of these two shaded areas, but what they are actually doing is this, because with our current technology, right, and we even don't know whether our current technology can replace these 17 persistent circles, it means the red area approaches infinity.

4:58In the paper, they claim that there are up above the estimate of 54 trillion dollars per year, it's three times as large as global GDP. Of course, you know, this approach is infinity. Well, what, you know, what are human, you know, our real human day-to-day economic activities are taking place in this tiny, tiny microscopic area, because this is their ground dealing with the entire Earth. So our activities are concerned about this. We are using their microscope. Different colors represent different individuals and different tiny units of different ecosystems, If human beings are facing choices between tiny, tiny incremental changes to different ecosystems to what we have now, the left side of the graph has no meaning. What does it mean if we use half of Earth's ecosystem surface if we are done for anyway?

6:12Well, also, the author, Costanza, and all the choice of these 17 ecosystem services is arbitrary and capricious, right? They claim that, how much do we need to pay to replace these 17 ecosystem services? But if we are going to lose all of these, why do we have to limit ourselves to these 17 ecosystems? Why don't we include one hundred and thirty bells? Or for example, Earth's rotation. I'm not saying that what would happen if we didn't stop its rotation completely, but even if the Earth slows down a little, if the rotation wouldn't happen, our day to day and night cycle will be altered, and then that would have a kind of economic impact on our life.

7:09and also how about the moon? If the moon gets a little closer to the Earth, what would happen? Well, tides and tidal cycles would be dramatically changed and of course fisheries would be affected and of course homes would be dramatically affected by that. Why they don't include that? You can come up with your own examples to add to this list, but my point is that they chose these seven ecosystems on the assumption that we human beings are going to use these seven ecosystems services in the near future, because of human feelings.

7:59That's why they showed, I suspect, they showed these symptoms of systems, but in reality we are giving this, as I said, tiny, tiny incremental changes to what we have at works. Let's look at this list carefully. They commit double counting. Well, I don't really understand what's the difference between gas regulation and climate regulation. What's the difference between water regulation and water supply? Soil formation, nutrient cycling, waste treatment, they're all over. Well, they also include pollination and food production. But when we buy honey and different kinds of fruit and all kinds of plant products, the final prices you pay include the cost of information.

8:50They are committing double-counting. Also, information causes allergies, right? In other words, they don't deduct that figure, you know. Anyway, they commit double-counting. This is apparently bad economics. Why do we care? Why am I singing to the choir? Why am I giving this talk to a professor client who wrote an introduction to Carl Menger's seminar work? Because they are not going to leave us alone. Well, these 13 authors were cited in the other most prestigious science journals of science.

9:38Assigned, societies need to overhaul their environmental and economic policies, for example, by taxing the loss of weapons to avoid facing a spree of this money. They want to tax us, based on their exaggerated estimate. By the way, the legal author Robert Ostrander lifetime funded, styling 21 million dollars. 90% of that figure, or the amount, came from government, of course tax. Why do we need to criticize? I know that Austrians are busy criticizing bailout, but the journal Nature decided not to publish any follow-up to the Constantin L. article.

10:29It means the readers of the journal scientists have not been exposed to the article's criticism. There is a lack of communication between scientists and real economists. Let me conclude my presentation with two major consequences of their political use of their exaggerated and wrong essence. If we tax people based on their wrong estimates, these taxes would take away resources from individuals who are facing real choices in their lives, including managing their surrounds.

11:25And they are letting you, we are going to pay our own money to deal with a specific environmental problem, a specific ecosystem from which our lives are dependent. And in the course of that, we will invest our money on certain specific technologies. And the technology will be developed, and costs to deal with some issues will be reduced in the future. So therefore, in the long run, as our technology is developed, the cost to deal with, even if we're losing some of these ecosystem services, the cost will be lower.

12:15So it's meaningless to calculate the total cost now. So, if we or they do not tax us based on their wrong estimates, these taxes will create, first, coercive allocation of individual resources away from the ecosystems they really value. Second, these taxes will prevent our technological development. Thank you very much, praxeology. Thank you very much.