Hello, I am Peter van Bergeijk and I am an Earth economist. It is nice to be in the same place. I teach on Earth and you are watching me somewhere on Earth. It is cool that my economics is not about a specific country, but about our planet and its problems. We will not be talking about their problems, but about our shared perspective. I invite you to join me in this journey, and to become an Earth economist yourself. At the end of this video, you will know what Earth Economics is and how Earth Economics differs from other fields of economics. And you will be able to argue why we need this new approach. Earth Economics is an important and challenging new field of economics. We already have the field of micro-economics which studies decisions made by individual consumers, households and firms. This is a well-developed field. Macro-economics analyzes the decisions and behavior of countries and their governments. This is where economic science and policy started. So that is also well covered. You're probably aware of these levels of economics. However, we increasingly recognized that we do not yet have a branch of economics that analyzes decisions at the level of our planet. This is why we need Earth Economics. So what are the distinguishing characteristics of Earth economics? The reason to study Earth on its own is because Earth does not interact. Earth cannot lend nor borrow. Earth cannot export or import, because we do not trade with Moon or Mars. This is why Earth is an autarky, a closed economy. Unlike nations, Earth will have to resort to its own natural resources, ts own factors of production, its own savings and investments. I think Earth is a pretty strong case for autarky. Professor Peter, what would be real example of autarky? That's a difficult question. A perfect autarky has occurred only in very special and exceptional cases. Because trading is, so to say, in the human DNA and when trade is not allowed, smuggling occurs. So only a few very strong boycotts and embargoes could be cases of autarky. So only at the level of Earth we could see real autarky, right? Yes, you're right, indeed, and that is also why we need this additional perspective of Earth Economics in addition to traditional macroeconomics. Many economic recipes do not apply in autarky. For example, at the planetary level an export-oriented growth strategy is impossible. My conclusion is that if you want to understand Earth, you have to study the planet as a stand-alone. The second key element of Earth Economics is that we do not look at parts and that is of course quite abstract. But instead we look at the whole and that is a very concrete way of observing. Macroeconomics is essentially national in orientation as it deals with national policies. Now, why is this a problem? First, many economic problems have a very specific answer for a specific individual or a specific country. But a completely different answer at the global level. Some policies do not work because they work for an individual, but not for the whole. These policies of countries are then called incompatible. Second, some individual policies work, but they would have a much stronger impact if more countries would do the same, because the benefits leak abroad. An example of leakage is an increase in government spending. An increase in spending increases imports, and thereby demand leaks to other countries. Third, some problems cannot be solved individually. It is ineffective and futile to act unless we act together. The clearest example is global warming. Global warming cannot be stopped, slowed down or mitigated by the activities of one country alone. An important reason why these issues are often overlooked is because of the Fallacy of Composition. This is a logical flaw that assumes that something that is true for the part must therefore be true for the whole. Let me give you an example. Economists analyze world issues by aggregating nations into regions, and regions into even larger entities. Starting at a low level of aggregation, so that is at the level of the nation state, they expect to arrive at the top, the world economy. But it is more probable that they actually do not see the whole. For example, the policy advice to restore fiscal imbalances, improves of an individual countries macroeconomic resilience, but if practiced by all, this creates or deepens a depression. These four factors are powerful reasons why we need to do our analysis at the appropriate level. For global problems, the appropriate analytical level is the world and therefore we need Earth Economics. Of course the analysis of Earth as a closed economic system, like any abstraction, also carries a cost. You may find the closed economy simplicity unrealistic in view of the real world's complexity. My point is that there are more important benefits in terms of analysis and policy. We really need Earth Economics to better understand the potential of our world. This new perspective on our planet helps you to ask the really important questions. What do you think would be the best course of action for world government? How can we increase Earth's human capital? How should we distribute global output? How do we ensure sustainability? The reason to use an Earth-economic lens is not to make us better Earthlings, but to increase our awareness of global problems that extend beyond national borders. I look forward to our journey in the next weeks.
