If you’re running a business, sustainability means a business model that will work over an indefinite period of time. If your business is chronically losing money then you have to have a plan to get to profitability, or the business is not sustainable. In this case it is easy to see that there is a scarce resource, money, that the business will eventually exhaust. If the business can increase revenue relative to costs, it can become profitable and sustainable.

Sustainability is always about using up a scarce resource rather than achieving a viable balance where the resource is renewed in some way as quickly as it is consumed. A couple more examples:

In fishing, a wild population of fish is caught and consumed. If the fish population cannot reproduce at a sufficient rate, fish stocks will decline and so will yields. Restrictions on catches attempt to balance the rate at which fish are caught with their ability to reproduce and grow to maturity, thus making the business sustainable. Of course, each individual fisherman would like to catch as many fish as possible, so catch limitations have to be implemented and enforced at an aggregate level. In the US, “fisheries management involves scientists, researchers, managers, fishermen, and local communities working together to ensure the future of fisheries resources, marine habitat, fishing businesses, and coastal communities” according to a trade group^[1]. In short, fishermen understand the need for, and support, sustainable fisheries management even if at times there are differences of opinion about numbers.

Sustainability often involves externalities. In a classic example of externalities, a factory making widgets dumps toxic chemicals in a river which is used as a water supply downstream, causing people using that water to suffer. The factory doesn’t pay for those damages in a pure laissez faire free market, and so has no incentive to reduce the toxic discharges. As we pointed out in the primer, because the full costs of the widgets are not built into their price, the price for widgets will be too low and too many sold. There are a number of ways to fix that issue: ban dumping the toxic chemical, make the factory pay for the damages, or apply a tax to recover society’s costs. In the case of a toxic chemical, outlawing the discharge will probably be the choice, but in other situations economic solutions may work better, as we’ll see.

The above makes it clear that ensuring sustainability generally involves scientific research, economics, and of course politics. Politics itself is inextricably linked to economics, from the local to the global, as even a casual observer knows.

The American Economic Association says that “Economics can be defined in a few different ways. It’s the study of scarcity, the study of how people use resources and respond to incentives, or the study of decision-making. It often involves topics like wealth and finance, but it’s not all about money. Economics is a broad discipline that helps us understand historical trends, interpret today’s headlines, and make predictions about the coming years.”^[2]

In short, economics is an essential tool if we’re going to achieve sustainability in the face of population and consumption growth in a world with limited resources.

^[1] Seafood Harvesters of America https://www.seafoodharvesters.org/fisheries-explained#newsroom-press-release-title-color1.

^[2] https://www.aeaweb.org/resources/students/what-is-economics