Living Standard and Quality of Life

Another indirect adverse effect of environmental degradation on economic well-being arises from the effect of the degradation on people’s perception of their economic condition.

A further illustration of the erroneously perceived conflict between environmental conservation and economic well-being lies in this frequent reaction to some piece of environmental devastation: “Oh, well, at least it creates jobs for some people who wouldn’t have one otherwise.”

Certainly the degradation will keep some people busy for a while, but because of the depletion of the resource on which their jobs depend, there will be a net loss of jobs. This is easy to demonstrate in the case of forests, topsoil, and whales. But what of the less easily quantifiable environmental resources of a pleasant suburb, a clean recreational beach, a lovely view, a peaceful holiday island?

Say several kilometres of clean recreational beach are rendered useless for that purpose by some project that keeps a number of people busy for a year or two. The conventional view is that the money paid to the workers increases “the national income” and makes the whole community richer.

Actually it is the national throughput rate that is increased by the addition of the land, including the beach and whatever other resources are associated with the project, to the throughput activity. Beauty and amenity could also be regarded as resources added to the throughput activity.

The loss of the beach amenity will have several effects.

First, people accustomed to enjoying the beach directly, and those who enjoyed it indirectly by choosing to live near a beach rather than near whatever is taking its place, sense a lowering of living standard. This adds to the general pressure for higher wages because it widens the gap between expectations and reality where living standards are concerned.

The beach amenity was part of people’s living standard but not in the same sense as the material goods and services they consume. It was part of people’s “quality of life”. This term is used here to mean that component of living standard that is not readily measurable in money terms, being emotional and subjective rather than material. But the loss of a portion of quality of life is felt as keenly, and reacted to as forcefully, as the loss of the ability to consume some quantity of material goods and services.

The increased upward pressure on wages is accompanied by increased debt, rising interest rates, worsening ratio distortion (see “proportionate flow” in an earlier posting) and, in fact, a similar self-reinforcing syndrome of economic aches and pains to that which flowed from the appearance of value inflation discussed earlier.

Also, land and housing prices are likely to change drastically in the vicinity of the lost beach. They may be sharply depressed. This causes people to sell up before they otherwise would and increase demand for land and housing in other areas, putting upward pressure on real estate prices there. So, many people will suffer a money loss between selling the old place and buying the new. Their financial difficulties will put increased pressure on loanable funds and tend to increase interest rates. Also the new area may have less environmental amenity than the previous one in its former condition. The two factors will combine to increase the general upward pressure on interest rates.

Alternatively, rezoning of the land to industrial use may raise the land price well above what is normal for house and garden purposes and drive the resident away through commercial pressure and higher rates. A good money profit will be made by people in this case, which will make it easier for them to buy a home elsewhere. The extra demand and the extra money in some people’s pockets will have the effect of driving up residential land prices for everyone, with a consequent increase in interest rates and in debt as people still strive to buy land in quantity and quality to match their expectations. The raised land prices in one area spill over into other areas.

The fact that land and environmental amenity are limited resources is responsible for and demonstrated by the problems just described. The throughput of land and of building materials is increased by the residential shifts. They don’t make the country any bigger or richer.

More short-term jobs are created by the flurry of resettlement. But with the increased depletion rate of the wealth base and all the economic stresses set up, it is arguable that more long-term jobs are lost than short-term ones created, leading to a net loss of jobs in the final working through of the initial blow of the loss of the beach.

The purpose incidental to which the beach was destroyed varies, depending on its nature, in its effect on direct short-term and indirect long-term employment.

If the beach was mined for mineral sands, this resource will increase employment in other places and ways during the time taken for it to be throughput, degraded, and dispersed. Another limited resource has had its throughput rate increased, and in this case its renewal rate is low. Jobs that depend on this resource will be at risk as it is depleted; this statement raises questions that will be examined later.

Or the beach might become an area reserved for the use of a relatively small number of people at a high money price. The beach is not destroyed, but is lost to the previously large number of users as effectively as if it had been. The effect is mainly to transfer throughput from some people commanding a disproportionate share thereof to others similarly placed, with little finding its way to less perfluent people.

The direct effect on throughput is minimal but the indirect effects, through the perceived lowering of living standards of large numbers of people, are depressive as described earlier.

It often happens that a beach close to and used by large concentrations of people becomes unusable because of increasing pollution from expanding industrial installations nearby. The pollution itself creates no short-term employment and destroys other wealth as well as the clean beach. The industrial processes causing the pollution create short-term employment but boost the throughput of numerous limited resources, probably depleting them in the modern situation where so many resources are being throughput at a rate higher than their renewal rate.

Some questions raised by the foregoing paragraphs:

Is increasing throughput always bad? Jobs depend on maintaining resources, but how can there be jobs without throughput? Must it be “hands off everything”?

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