Welcome to the video on the Post Keynesian Economics of Nature. I will discuss the relationship between economy and nature with the help of key Keynesian concepts, namely uncertainty with its environmental uncertainty to financial uncertainty. I am sure that you will remember the difference between risks, which is calculable because it has probabilities and the uncertainty which is about the unknown. Well, take this as a starting point and you will have no problems understanding this presentation. Ecological uncertainty includes climate change, nuclear disasters, earthquakes, floods and droughts. And these all can have negative effects on the economy. Capital goods are destroyed such as buildings and factories. Crops die so that there will be food scarcity. And human lives are lost or hurt which affects labor markets and healthcare. So just like Hyman Minsky claimed that financial fragility affects the real economy, we can also state that ecological fragility affects the economy. The precautionary principle is a recognition of uncertainty about possible damage and irreversible effects caused by nature, such as damage of earthquakes and floods and global warming. Just like we need financial buffers and limits to financial activity to prevent deep financial crisis, theory of nature claims that we need buffers and limits in the exploitation of nature by the economy. This is what the precautionary principal means. How to do this? Well, we start by recognizing that economy is an open system and better than any closed system of the biosphere. Just like social economics as I explained in the first video this week going into ecological economics. This close system of our planet dictates the planetary boundaries in which we can live comfortably, and our economy can function without leading to irreversible harm. Scientists have identified ten planetary boundaries and have calculated that currently we have already gone over three of these, risking our future. I will mention the five key planetary boundaries, greenhouse gases, biodiversity, pollution, fresh water use, and land use. Just like in a case of reducing financial fragility, the reduction of ecological fragility requires us to reduce the scale of operation. Think about household and neighborhood level renewable energy production with solar panels instead of a few big power stations in the country, or recycling materials close to where the goods are consumed. For example, for old cars rather than transporting them miles away for recycling. And explore local win, win solutions such as vegetable gardens on the rooftops of apartment buildings which produce local food. Serve as water sinks in case of heavy rains and insulate buildings against heat in the summer. Economics recognizes stocks as the amount of debt in the economy or workers in the labor market. And flows such as credit and young people leaving school and looking for work. Economics of nature applies this to nature with the help of ecological stock-flow model. An ecological stock-flow model starts from the I=PAT equation of ecological economics as we've seen in a video on the social economics of nature earlier this week. Remember that I stands for environmental impact and this equals population growth times effluence times the level of green technology. We now relabel I as DMC, which stands for domestic material consumption. This allows us to distinguish domestic resource use from international resource use through imports. So, we want to know how much natural resources a country uses within its borders and we want to know how much resources it uses from other countries, such as Imported wood, palm oil, steel, or oil. DMC equal DE minus PTB. DE stands for the domestic extraction of resources. PTB refers to the physical trade balance, that is, the net effect of imports of resources and exports of resources. Finally, MI refers to material intensity. It refers to the material intensity of consumption. Remember that all laptops were bigger and heavier than new ones. So the lower MI the less material is used for the same consumer good. This all leads to the ecological stock flow model in which domestic material consumption, DMC equals P for population size, times A for affluence of consumption and times MI for material impact. This stock flow model of the introduction between nature and the economy helps to make clear that the damaging effect of consumption of a country depends on population growth, effluence in its consumption pattern, and the intensity of resource use both from its own territory and imported from other countries resource stocks. The diagram on the slide shows you the development of material intensity, the MI variable from the model. In the Asia Pacific region, it's compared to the rest of the world. You see, in a horizontal x is years between 1970 and 2008. On the vertical axis there is tons per capita of material intensity. Now the green line shows that in the Asia-Pacific region material intensity has increased, where as in the rest of the world the light blue line, it has declined per capita. So in Asia-Pacific region, people have been using more and more material per person. Now this diagram shows the trend in DMC, the Domestic Material Consumption. Again the x axis shows years between 1970 and 2008. And y axis shows tons per capita. We see that in the Asia-Pacific region DMC is steadily increasing, where as in the rest of the world, it has started to decline. Do we think that this is because of population growth in the region? Well, interestingly the increase in domestic material consumption in the Asia Pacific region is not so much attributable to population growth. The two variable a affluence that is increased consumption per capita. This means that when we look for limits and buffers for that region, we should not focus on limiting population growth but rather on limiting the material impact of consumption. This model concludes the video on the post Keynesian economics of nature. I hope that the parallel to financial fragility is helpful for you, and that you found it insightful to learn that environmental uncertainty is more affected by consumption growth per person than by population growth. The next video presents the new classical theory of nature which argues that markets for the right to pollute are the most efficient solution to reduce pollution because firms have to buy these rights and this can be costly. Curious how this works? Watch the next video.