How much, whom to, and why
does the civilization overpay for oil?

1. Summary

The global environmental imperative unequivocally demands urgent coordinated actions on climate and environment stabilization, yet the modern scale of such actions is persistently recognized as globally insufficient. This calls for investigation of reasons — other than incompetent unwillingness — for the fact that the world economy appears to be so fearful of any potential environmental expenditures or restrictions. In economics there is a stable stationary state with high employment, which corresponds to mass production of conventional goods sold at low (cost) price, and an unstable stationary state with lower employment, which corresponds to production of novel goods appearing in the course of technological progress that are initially sold at high prices. A second stable stationary state in economics corresponds to very low employment in production of very expensive goods. We show that when, like in modern economy, life essentials such as energy and raw materials are treated as free market commodities, the market price formation mechanism drives the economy to this second stable state, where the civilization is forced to pay the highest affordable price (currently 10% of global GDP) for energy that is produced by a negligible minority of the working population (currently ~0.1%) and sold at prices greatly exceeding the cost price (currently by 40 times). This burden of economically unjustified overpayments keeps the world economy eternally on the verge of breakdown, making any extra expenditures of whatever nature, including environment, intolerable. This situation is demonstrated to be conceptually grounded in the fundamental shortcoming of economic theory, which allows for economic ownership over energy sources. This is shown to be equivalent to equating measurable variables of different dimensions (stores and fluxes), which leads to effective violation of the laws of energy and matter conservation in modern economics.

Structure of financial flows in modern economics

Keywords: civilization, climate, consumption, cost price, economic growth, economics, ecosystem, employment, energy, environment, forest, living standard, oil, population number, production, retirement age, technological progress, poverty threshold, saturation, working hours

To cite this document:

Makarieva A.M., Gorshkov V.G., Li B.-L. (2010) Comprehending ecological and economic sustainability: Comparative analysis of stability principles in the biosphere and free market economy. Annals of the New York Academy of Sciences, 1195, E1-E18. Abstract. pdf doi:10.1111/j.1749-6632.2009.05400.x, first published as PNPI Preprint No. 2754.