Environmental macroeconomics: a neglected theme in environmental economics - leave alone economics

Economists usually regard environmental issues as drivers of allocative distortions within markets. Hence, they claim that corrections of such distortions, for example, by recourse to the internalization of externalities, are firmly rooted within the market framework. Therefore, the traditional view is that environmental issues fall fairly and squarely within the domain of microeconomics. This paper argues that such a view is flawed. The primary reason is that externalities are never fully internalized. Within any market, there always exist residual externalities, which do accumulate over time. Therefore, the same way as the aggregate of market transactions lead to the definition of national product in macroeconomics, the aggregate of residual externalities lend credence to the recognition of nature as capital that depreciates. In accordance with this recognition, this paper illustrates the reformulation of long run stabilization frameworks in macroeconomics. The analysis of these reformulated frameworks illustrates different configurations for policy variables as illustrated with reference to South Korea.