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2017 | Book

The Economy in the World Read chapter Read first chapter

Macroeconomics in Ecological Context

Author: Karl Seeley

Publisher: Springer International Publishing

Book Series : Studies in Ecological Economics

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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About this book

Natural resources have been a recurring subject of public interest, from the environmental awakening in and the oil crises of the later 20th century, to wide swings in oil prices and increased concern about climate change in the first decades of the 21st century. Standard macroeconomics books treat resources in passing, in an ad hoc manner, if at all. This text integrates resources into the model from the ground up, allowing a more logically consistent understanding of the economic effects of changed resource availability. But the underlying structure remains mostly traditional: a full-employment perspective on the long run and a Keynesian approach to business-cycle fluctuations. This provides an easier adaptation for instructors and gives students the tools to understand economic analysis done in a more conventional framework. The business-cycle material starts with a “natural history” of money to help students see the connections between social and physical phenomena.

Table of Contents

Frontmatter

Building Blocks

Frontmatter
Chapter 1. The Economy in the World
Abstract
We begin by looking at the physical steps needed for a plate of pasta Bolognese to appear on your table. This serves as a template for the way the economy is grounded in the physical world. We then consider what distinguishes the economic perspective on humans’ use of nature from those of other disciplines, and then what distinguishes macroeconomics from its cousin microeconomics.
Karl Seeley
Chapter 2. Resources and Economic Processes
Abstract
The starting point for placing the macroeconomy in an ecological context is to understand some basics of how ecosystems function and how energy moves resources around within them. “Resources” are then generalized to “gradients,” followed by making the distinction between renewable and nonrenewable resources and a consideration of the major types of renewable resources. There is discussion of the rational use of exhaustible resources, but a more detailed treatment is left for Chap. 19 The final part of the chapter looks at the relationship between technology and resource use.
Karl Seeley
Chapter 3. Key Variables
Abstract
This chapter introduces the key conventional terms for measuring and describing the macroeconomy: GDP, inflation, unemployment, interest rates, the balance of payments, and the exchange rate. Unusually for a macroeconomics text, it also looks at measures of resource use. Distinctions are repeatedly made between real and nominal values of different variables. The concept of the GDP is linked back to the reduction of gradients described in Chap. 2
Karl Seeley

The Long-Run Model

Chapter 4. Labor, Resources, and the Production Function
Abstract
This chapter introduces a more-or-less “classical” production function, a widely used tool for analyzing economic behavior in the long run. The version presented here is conventional in its derivation of labor demand. However, it is atypical in that, following the logic of Chaps. 1 and 2, it includes resources along with the usual productive factors of labor, capital, and technology. These are introduced via resource supply curves which Chap. 6 will then feed into the supply side of the labor market. The chapter introduces the Cobb-Douglas specification for the production function and ends with the derivation of the per-worker form.
Karl Seeley
Chapter 5. The Composition of Output
Abstract
This chapter develops a set of functions that describe in a stylized way the components of output: consumption, investment, government expenditure, gross exports, and imports.
Karl Seeley
Chapter 6. The Long-Run Model (The Classical World)
Abstract
This chapter ties together the pieces from Chap. 4 to show how the equilibrium level of output is determined, and then how the output and the expenditure functions from Chap. 5 together tell us how much of each type of expenditure there is, as well as determining the equilibrium interest rate. Also, this is where the information about resource supply from Chap. 4 gets incorporated into the labor market in a way that allows the conditions of resource supply to help determine equilibrium in the labor market. The concept of “potential output” is introduced and identified with the equilibrium output level of the model here.
Karl Seeley
Chapter 7. Growth with Abundant Resources
Abstract
An examination of the different factors that can contribute to growth: increased capital, abundant resource supplies, a larger labor force, and innovation, though the effect of different types of innovation will depend on the ease with which resource supplies can be expanded. A distinction is made between the things that physically have to happen for growth to occur and the social arrangements that make those physical outcomes more likely. The question of convergence between rich countries and poor is considered by means of the diminishing marginal product of capital. The end of the chapter introduces “conditional equivalence,” describing what has to be true for the conventional model and this book’s model to provide the same view of growth. An appendix goes through the algebra of the steady state.
Karl Seeley

Business Cycles

Frontmatter
Chapter 8. A Natural History of Money
Abstract
Money is an essentially social phenomenon. In its details it is uniquely human, but it is enmeshed with the economy’s physical processes and in its functioning it bears a limited resemblance to mechanisms of social coordination that exist in other species. We begin with examples from those other species, covering both production for current use and behaviors that are functionally forms of investment. We then sketch different forms of coordination structures that humans use, leading to the coordinating role of money. The consideration of investment leads to the role of credit and its relationship to money.
Karl Seeley
Chapter 9. What Money Is
Abstract
Chapter 8 gave a very general overview of money’s role in an economy in the context of how other social animals organize joint activity (and how we humans organize our activity in ways other than with money). This chapter uses a parable about the construction of a mill to lay out with more substance what money is and how it works. The context is a physical economy in which money doesn’t yet exist. The parable shows how a set of social arrangements around an investment project can lead to the existence of money. Money itself is tied to debt and credit. Extensions of the main story lead to observations about the relationship between saving and investment, and about the government’s role in the monetary system. Appendices discuss: value and money’s roles and attributes; saving not tied to other people’s obligations; and the connection between money and precious metals.
Karl Seeley
Chapter 10. Banking
Abstract
The mill parable of Chap. 9 was a device to get at the essence of money as a credible promise. But to understand how money works more realistically, we have to look at how banks work. We start with how a checking account functions, which leads us to the bank balance sheet. The balance sheet in turn sets up how money is actually created by banks (as opposed to how it’s created by entrepreneurs building water mills in fictional villages growing homogenous food). The balance sheet raises the issue of banks’ need for credibility and how they establish that. The role of the central bank grows out of this need for credibility, and ranges from regulation of banks to acting as a lender of last resort for them. The chapter ends with a brief discussion of fractional-reserve banking.
Karl Seeley
Chapter 11. Expenditure Multipliers
Abstract
We extend the mill parable of Chap. 9 to develop some intuition about how expenditure multipliers work, as well as conditions under which thy’re more or less likely to be relevant. This covers both physical inability and simple unwillingness to increase output. We then derive the conventional Keynesian multipliers for changes in expenditure and taxation. The informal version from the mill parable is used to introduce some limitations of multiplier analysis.
Karl Seeley
Chapter 12. Monetary Policy
Abstract
We look first at the aims of monetary policy in terms of balancing the control of inflation with limiting excessive unemployment. The next consideration is the interaction between the money supply and economic activity. Turning to the actual mechanics of monetary policy, we address the issue of how the money supply is measured, including the various definitions of money. The specific tools discussed include not merely the traditional emphasis on open-market operations, but also the emergency measures and quantitative easing that have turned out to be important in the post-2007 era. The appendix provides an example of an open-market operation.
Karl Seeley
Chapter 13. Fiscal Policy
Abstract
After the treatment of multipliers in Chap. 11 and the discussion of monetary policy in Chap. 12, the mechanics of fiscal policy are relatively straightforward. This chapter addresses those briefly, distinguishing between automatic stabilizers and active policy, then addresses questions of how well fiscal policy works and factors that are likely to make it more or less effective. An exercise walks the reader through the rough contours of the 2009 stimulus bill.
Karl Seeley
Chapter 14. The IS and LM Curves
Abstract
The IS-LM model is a tool for understanding the effects of monetary and fiscal policy when interest rates are allowed to vary. This chapter derives the IS and LM curves and addresses the factors that determine their shape. For each one, a graphical explanation is followed by an algebraic derivation that allows a quantitative description of how far a curve will move in response to a given change in the economy.
Karl Seeley
Chapter 15. Policy and Shocks in the IS-LM World
Abstract
We put together the behaviors of the IS and LM curves laid out in Chap. 14 to see what predictions the IS-LM model makes about different policy actions and external shocks and how they affect output and interest rates. The goal of policy is defined as keeping actual output close to potential output. Depending on the relative slopes of the two curves, we may be able to say that fiscal policy is particularly effective or, with other slopes, that monetary policy is particularly effective.
Karl Seeley
Chapter 16. Short-Run Aggregate Supply/Aggregate Demand and Policy
Abstract
This chapter deals with relationships between the price level and real output. A higher price level is linked with a reduced level of aggregate demand (AD), but with an increased level of aggregate supply (AS). The curves for AD and AS are first explained in conventional Keynesian terms, where a change in the price level causes a change in the quantity demanded and the quantity supplied; AD is shaped by the central bank’s response to inflation, while AS is driven by stories of sticky wages or worker misperceptions. These are followed by alternative explanations: AD is shaped by the uncertain transition from planned expenditure to achieved real demand. AS results from the varying degree of firms’ willingness and ability to respond to increased demand by increasing output. The chapter ends with a discussion of the Lucas critique and an extension of that insight to broader issues of how policy is perceived.
Karl Seeley
Chapter 17. Policy Assessment
Abstract
This chapter looks at the evidence and argument over how well fiscal and monetary policy has worked. This is an inherently inconclusive exercise, given that the reference point for “success” is an alternative reality in which different policies were pursued. The chapter also includes a taxonomy of arguments against the efficacy of stimulus policy, addressed in the framework developed earlier in the book of a biophysical perspective on long-run growth and money as part of the real economy.
Karl Seeley

Macroeconomics in a Constrained World

Frontmatter
Chapter 18. The Standard Model and Alternative Perspectives
Abstract
Part III made a connection between the short run and the long run, but only in a superficial way. The long run was just “given,” as if by some natural evolution of the economy’s productive inputs. The economy’s “actual” output then varied around the “potential” output, depending on whether we were in a booming or recessionary phase of the business cycle. This chapter looks at the ways that business cycles and the policy responses to them may affect the path of long-run growth and considers different ways that influence could run. The rest of the chapter looks at a small selection of alternatives to this neoclassical synthesis.
Karl Seeley
Chapter 19. Resource Constraints
Abstract
This chapter extends the material from Chap. 2 on the use of resources and introduces the models of Howard Hotelling, John Hartwick, and M. King Hubbert. It then discusses the evidence that our resource situation is getting fundamentally tighter and introduces the concept of energy return on energy invested, or EROI.
Karl Seeley
Chapter 20. Growth Under Resource Constraints
Abstract
This chapter revisits the growth model from Part II, focusing attention first on the role of resources in the history of growth, then looking forward to understand possible implications of increased difficulty obtaining resources in the future. Highlights of past growth are the “Discoveries”, when Europe realized the rest of the world was out there and gained control over a vastly increased supply of largely renewable resources, and the “Discovery”, when technological progress made the vast energy storehouse of fossil fuels available for human use. The chapter ends with a consideration of three possible futures in a world of constrained resources.
Karl Seeley
Chapter 21. Business Cycles Under Resource Constraints
Abstract
This chapter looks at the different relationships between resources and recessions, depending on whether the recession is caused by events in resource markets, or caused by something else, then having effects on resource markets. It also looks at the limitations on policy efficacy when recessions are driven by resource events.
Karl Seeley
Chapter 22. Continuity and New Directions
Abstract
We look back at the ways that the lessons of this book’s resource-inclusive model are similar to those from a conventional model and how they differ. We conclude by asking what that suggests about different questions that macroeconomics should be asking and what new factors it should be taking into consideration.
Karl Seeley
Backmatter
Metadata
Title
Macroeconomics in Ecological Context
Author
Karl Seeley
Copyright Year
2017
Electronic ISBN
978-3-319-51757-5
Print ISBN
978-3-319-51755-1
DOI
https://doi.org/10.1007/978-3-319-51757-5