Suppose you are given $100,000 as an inheritance and told to live off it for a year. You are also told not to worry too much because there would be more money from the estate coming your way in the future.
It would be a pretty safe bet that most of us would happily spend at least some of this $100,000 bonus — perhaps a new car, maybe a nice holiday or two.
The cautious amongst us might put most of the money aside for a rainy day knowing that in the real world such windfalls are rare and we would be right not to be taken in by promises of it being windy again next year.
Now suppose that the $100,000 was definitely a one-off with no unexplained windfalls to follow. Receive the capital as a one off and a few more of us might decide to invest it and only spend the interest — invested wisely $100,000 would yield enough return on investment for a nice vacation each year for years to come.
Now suppose that the relative who left the money to you was not quite so well off or maybe there were a few other relatives to share the legacy and the sum bequeathed was $1,000.
It is unlikely that this amount would be spent on shares, bonds or bullion.
More likely it would be absorbed into the current account of everyday life and barely touch the sides.
Now consider an admittedly rare and unlikely situation where the relative was Buffet-like wealthy and left you a more serious $10,000,000.
You could spend all of this in a year but you would be getting quite a lot of ebay deliveries. Even with the attentions of the taxman, most normal folk would have trouble spending the annual interest on this sum.
If the money didn’t go to your head the interest on investment would see you and your family live like kings indefinitely.
All this makes sense. It has been explained many times over and the subtleties consume the days and nights of many a financier.
So here is a question. Why do we ignore all these fundamentals when it comes to natural capital?
We treat natural capital — the fundamentals of nature that supply useful goods and services — as though it were in the $10 million bracket: infinite, and inexhaustible with endless yield.
Admittedly there is some justification for this. Agriculture has leveraged natural capital most efficiently. We know this because there are now 7 billion of us. The mines and drilling rigs still bring minerals and fossil fuels to help us create goods and power with apparently no end on sight… yet.
Only it is just like the $10 million. It sounds like a huge sum for most people. And yet just like the majority of lottery winners, even big sums can be spent given enough profligacy
It is time that we both learn and accept that natural capital is finite and that we should pay the same attention to nurturing its yields as the investment bankers do attending to their profits.