At the beginning, I would like to ask you a simple question: What is economics? What would you answer? Would you tell me that economics is a science that describes production, consumption and distribution? Correct! Yet, there is another answer that I would like to hear: economics is a science that describes the life in the world of unlimited needs and limited (natural) resources. The statement triggers another question: how to find balance in such a life? According to Mathis Wackernagel, speaker at the World Resources Forum, the answer is: proper deficit management, through a new Bio-Economy.
The concept is really simple. Let’s begin with the very basics: markets are determined by demand and supply. The market of natural resources is described by bio-capacity and footprint. Bio-capacity tells how much bio productive area we demand, footprint how much is available to us. The difference between them depends on the level of production and consumption. Resource constraints affect economic performance, because production and consumption rely on the planet Earth’s budget!
The deficit occurs due to the shortage of natural resources, so the balance between bio-capacity and footprint is negative. There are advantages and disadvantages to having a deficit. On one hand, it enables trade between ecological creditors and debtors. On the other hand, potential development of debtors is constrained by global prices of natural resources. Growth of GDP per capita is strongly connected with country’s bidding power. To sum up, economic stability and competitiveness depends on managing eco-deficits. That is why you should manage the deficit properly!
Firstly, you should only increase the debt if you expect a growth. Remember that accumulating the deficit means drowning the economy not extending it.
Secondly, listen to the Golden Rule of Finance: borrow only to investment that benefits future generations, not to fund current spending. Chose the investment that offer growth.
Last but not least, do not be afraid of the change. Shortage of natural resources does not mean the end of the world. It only means the end of the old economy and the beginning of new economy: bio-economy. According to Mathis Wackernagel, president of the Ecological Footprint, “The New Era is Here” – it’s high time you put the theory into practice!