The economy and the environment interact in so many ways. Sometimes they benefit each other in several ways. At other times, they are not. The economy is a system with inputs and outputs. Most times, the inputs are from the environment. Also, the outputs from the economic systems go to the environmental system.
As an example, the economic system gets resources such as land and other amenities from the environmental system. It then uses such resources and gives outputs such as wastes to the environmental system.
Here are some titbits about how the economic system and the environmental system are interlinked.
- Rational human behaviour can result in environmental problems.
- People and businesses impacts the environment according to the incentives they get from the economic system.
- Costs and benefits drives human decisions. These are sometimes difficult to quantify and value.
- Free market can lead to environmental problems due to factors such as externalities, public goods, hidden information etc.
- Free market can be used to solve environmental problems using measures such as carbon tax, green taxes, tradeable permits etc.
- Protecting the environment has opportunity costs.
- It is much more expensive to achieve extra imrovement in environmental quality.
- Economic growth does not automatically lead to higher level of environmental quality.
- Most environmental problems are international and need international economic aggreements to solve the problems.
So, what can we do?
We all need to ensure that our actions to benefit from the economic system do not negatively impact the environmental system. Also, our actions to benefit from the environmental system should not negatively impact the economic system.
This is possible. However, in most cases, we should be able to make out the best from the trade-off between the economic system and the environmental system.
