Escaping Economyland

(Alternate title: Escape from the Planet of the Economists)

Economyland is a place on the flat world of  Reductio Ad Absurdum where the Economical Bestiary’s mythical beasts run wild in a free state of nature. Economyland is the true center of the universe around which the sun, planets, stars, and all the rest of the universe revolves. Economyland was created by God and placed under the dominion of man,  a sort of Disney-esque theme park for economists of all species. In ancient times Economyland was known as Economia:

In the Eastern Orthodox, Greek-Catholic Churches, Latin Catholic Church,and in the teaching of the Church Fathers which undergirds the theology of those Churches, economy or oeconomy (Greek: οἰκονομία, oikonomia) has several meanings. The basic meaning of the word is “handling” or “disposition” or “management” or more literally “housekeeping” of a thing, usually assuming or implying good or prudent handling (as opposed to poor handling) of the matter at hand.  (Wikipedia)

War of the World-views

Pius conservatives are fond of accusing science of being reductionist, of reducing the divinely-wrought human being and the world of nature to an oversimplified, materialistic machine.  This is, as always, the conservative pot calling the kettle black.

Liberal economists don’t do much better. Most economists share a model of the economic world that is simplistic, reductionist, and naively anthropocentric.

<– click on the image for a closer view of Economia

Capitalism defines the economic system in terms of the dynamics of capital and labor; production, distribution, and consumption;  or as it is often framed, the supply and demand of goods and services. The natural world is seen only as a supply depot for raw materials. The production and consumption of goods and services of and by the biosphere , is treated as a giant externality. And that view is a giant existential blunder.

Of course, it is a conveniently self-serving (if short-sighted) blunder in some quarters; and we need not wonder too hard about how and why this oversight has persisted for so long.

In contrast, “economics as if people mattered” (see below) has to begin with economics as if the biosphere mattered. The biosphere can not be treated as a free supply depot and waste dump. The ecosystem cannot simply be seen as a magical black box that God put here to provide for all human wants and dispose of all human garbage. You’d have to be either a moron or a person with serious conflicts of interest skewing your judgment (or both) to hold such a view. Yet that is just the view of most economists, for whom nature is simply a part of the human economy rather than vice versa.

One of the first widely respected economists to correct this misapprehension was E. F. Schumacher who published Small is Beautiful in 1973, which placed the study of economics where it belongs, inside the study of the ecology of the biosphere. His ideas were of course treated with contempt by most conservative economists and they are generally still ignored by or unknown to most liberal economists.

Small Is Beautiful: Economics As If People Mattered by E. F. Schumacher.

Schumacher was a respected economist who worked with John Maynard Keynes and John Kenneth Galbraith. For twenty years he was the Chief Economic Advisor to the National Coal Board in the United Kingdom, opposed the neo-classical economics by declaring that single-minded concentration on output and technology was dehumanizing. He held that one’s workplace should be dignified and meaningful first, efficient second, and that nature (and the world’s natural resources) is priceless.

Schumacher proposed the idea of “smallness within bigness”: a specific form of decentralization. For a large organization to work, according to Schumacher, it must behave like a related group of small organizations. Schumacher’s work coincided with the growth of ecological concerns and with the birth of environmentalism and he became a hero to many in the environmental movement.  (Wikipedia)

The Happiness Index (E.F. Schumacher Society/New Economics Institute)

The E.F. Schumacher YouTube Channel

Another writer, Richard Heinberg, a Senior Fellow of the Post Carbon Institute, is making an effort to put the study of economics into a modern scientific perspective. Following are a few excerpts from a pre-publication version of his book “The End of Growth:”

The classical [economic] theorists gradually adopted the math and some of the terminology of science. Unfortunately, however, they were unable to incorporate into economics the basic self-correcting methodology that is science’s defining characteristic. Economic theory required no falsifiable hypotheses and demanded no repeatable controlled experiments. Economists began to think of themselves as scientists, while in fact their discipline remained a branch of moral philosophy—as it largely does to this day.

…For help, we can look to the ecological and biophysical economists, whose ideas have been thoroughly marginalized by the high priests and gatekeepers of mainstream economics…

The ideological clash between Keynesians and neoliberals (represented to a certain degree in the escalating all-out warfare between the U.S. Democratic and Republican political parties) will no doubt continue and even intensify. But the ensuing heat of battle will yield little light if both philosophies conceal the same fundamental errors. One such error is of course the belief that economies can and should perpetually grow.

But that error rests on another that is deeper and subtler. The subsuming of land within the category of capital by nearly all post-classical economists had amounted to a declaration that Nature is merely a subset of the human economy—an endless pile of resources to be transformed into wealth. It also meant that natural resources could always be substituted with some other form of capital—money or technology. The reality, of course, is that the human economy exists within, and entirely depends upon Nature, and many natural resources have no realistic substitutes. This fundamental logical and philosophical mistake, embedded at the very heart of modern mainstream economic philosophies, set society directly upon a course toward the current era of climate change and resource depletion, and its persistence makes conventional economic theories—of both Keynesian and neoliberal varieties—utterly incapable of dealing with the economic and environmental survival threats to civilization in the 21^st century.

Another giant of economic empiricism and innovation, though not an economist per se, was W. E. Deming.

William Edwards Deming (October 14, 1900 – December 20, 1993) was an American statistician, professor, author, lecturer, and consultant. He is perhaps best known for his work in Japan. There, from 1950 onward he taught top management how to improve design (and thus service), product quality, testing and sales (the last through global markets, through various methods, including the application of statistical methods.

Deming made a significant contribution to Japan’s later reputation for innovative high-quality products and its economic power. He is regarded as having had more impact upon Japanese manufacturing and business than any other individual not of Japanese heritage. Despite being considered something of a hero in Japan, he was only just beginning to win widespread recognition in the U.S. at the time of his death. (Wikipedia)

Though still virtually unknown and unappreciated in the US, Deming was almost solely responsible for the transformation of Japanese industry from having, in my childhood, a reputation for manufacturing cheap junk goods to, by the mid-70′s, a reputation as the maker of the world’s highest quality and highest value automobiles, electronics , and many other consumer goods. Though his ideas of continuous improvement were originally widely rejected in the US until recently because they did not fit with autocratic US corporate culture, in the 80′s and 90′s US industry imported many Japanese manufacturing consultants  due to the reputation for quality and efficiency that Japan had gained, ironically, as a direct result of adopting Deming’s ideas.

Demings methods, rejected by US captains of industry for decades, swept through the entire Asian world and are largely responsible for the fact that Asian manufacturers are still kicking US industry’s ass today in markets as diverse as cars, cell phones, personal computers, and solar cells.

Where would American workers be without such enlightened and visionary corporate management? Perhaps still in the middle class instead of in unemployment lines or among the the ranks of the working poor. The story of W. E. Deming proves yet again that a profit is without honor in his own land.

The US Is Becoming an “Underdeveloping Nation”

While President Obama tapped former corporate executives to become his top economic team, many economists question the path the United States is on. Amy Goodman of Democracy Now speaks to the acclaimed Chilean economist Manfred Max-Neef. He won the Right Livelihood Award in 1983, two years after the publication of his book Outside Looking In: Experiences in Barefoot Economics.

“We are simply, dramatically stupid. We act systematically against the evidences we have. We know everything that should not be done. There’s nobody that doesn’t know that. Particularly the big politicians know exactly what should not be done. Yet they do it. After what happened since October 2008, I mean, elementally, you would think what? That now they’re going to change. I mean, they see that the model is not working. The model is even poisonous, you know? Dramatically poisonous. And what is the result, and what happened in the last meeting of the European Union? They are more fundamentalist now than before. So, the only thing you know that you can be sure of, that the next crisis is coming, and it will be twice as much as this one. And for that one, there won’t be enough money anymore. So that will be it. And that is the consequence of systematical human stupidity.”

“First of all, we need cultured economists again, who know the history, where they come from, how the ideas originated, who did what, and so on and so on; second, an economics now that understands itself very clearly as a subsystem of a larger system that is finite, the biosphere, hence economic growth as an impossibility; and third, a system that understands that it cannot function without the seriousness of ecosystems. And economists know nothing about ecosystems. They know nothing about thermodynamics, you know, nothing about biodiversity or anything. I mean, they are totally ignorant in that respect. And I don’t see what harm it would do, you know, to an economist to know that if the beasts would disappear, he would disappear as well, because there wouldn’t be food anymore. But he doesn’t know that, you know, that we depend absolutely from nature. But for these economists we have, nature is a subsystem of the economy. I mean, it’s absolutely crazy.”

“The principles of economics should be based in five postulates and one fundamental value principle.

• One, the economy is to serve the people and not the people to serve the economy.
• Two, development is about people and not about objects.
• Three, growth is not the same as development, and development does not necessarily require growth.
• Four, no economy is possible in the absence of ecosystem services.
• Five, the economy is a subsystem of a larger finite system, the biosphere, hence permanent growth is impossible.
• And the fundamental value to sustain a new economy should be that no economic interest, under any circumstance, can be above the reverence of life.”

View the entire interview with Amy Goodman and Manfred Max-Neef.

Keeping It Real

Modern economists need to get over their hair-splitting theories, self-serving technical jargon, and their detached, ivory-tower naïveté, and get real.

As E. B. White once aptly advised, “Bend down, Librarians, and taste the page.” I think it was also he who said “All their biology is Latin names.”

That is the message of the Economical Bestiary, which ridicules the brand of economics which persists to this day as little more than, as Richard Heiberg calls it, moral philosophy. The moral hazard for economists is succumbing to the personal, financial, and academic conflicts of interest between the cognitive corruption of their profession and the objective imperatives of reality.

Poor Richard

Framing the Market (PRA 2010)

Ecological economics (Wikipedia)

Ecological economics is a transdisciplinary field of academic research that aims to address the interdependence and coevolution of human economies and natural ecosystems over time and space. It is distinguished from environmental economics, which is the mainstream economic analysis of the environment, by its treatment of the economy as a subsystem of the ecosystem and its emphasis upon preserving natural capital. One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing “strong” sustainability and rejecting the proposition that natural capital can be substituted by human-made capital.

(Wikipedia)

Natural Capitalism: Creating the Next Industrial Revolution is a 1999 book co-authored by Paul Hawken, Amory Lovins and Hunter Lovins. It has been translated into a dozen languages and was the subject of a Harvard Business Review summary.

Their fundamental questions are: What would an economy look like if it fully valued all forms of capital? What if an economy were organized not around the abstractions of neoclassical economics and accountancy but around the biological realities of nature? What if Generally Accepted Accounting Principles recognized natural and human capital not as a free amenity in inexhaustible supply but as a finite and integrally valuable factor of production? What if in the absence of a rigorous way to practice such accounting, companies started to act as if such principles were in force. (Wikipedia)

The principles used by Natural Capitalism Solutions are:

1. Buy time by using resources dramatically more productively.

This slows resource depletion, lessens pollution, and increases employment in meaningful jobs. It lowers costs for business and society, halts the degradation of the biosphere, makes it more profitable to employ people, and preserves vital living systems and social cohesion.

2. Redesign industrial processes and the delivery of products and services to do business as nature does, using such approaches as biomimicry and cradle to cradle.

This approach enables a wide array of materials to be produced with low energy flows, in processes that run on sunlight, emulating nature’s genius.  It shifts to circular economies in which materials are reused, remanufactured and waste is eliminated.

3. Manage all institutions to be restorative of natural and human capital.

Such approaches enhance human well-being and enable the biosphere to produce more wealth from its intact communities and abundant ecosystem services and natural resources.(Natural Capitalism Solutions)

Related articles

• Framing the Market (PRA 2010)
• General Utility 2.0 (PRA 2010)
• Unconventional Thinking: Small is Beautiful! (rightways.wordpress.com)
• How Economies Relate to Wild Nature (betternature.wordpress.com)
• Elinor Ostrom (Wikipedia) “Ostrom is considered one of the leading scholars in the study of common pool resources (CPR). In particular, Ostrom’s work emphasizes how humans interact with ecosystems to maintain long-term sustainable resource yields
• On economics as a science of prosperity (eco-transitions.blogspot.com)
• 2012, the year of Ecological Economics? Exploring the mad rationale for asset price bubbles (eco-transitions.blogspot.com)
• The Rise of The New Economy Movement (Alternet.org) The broad goal is democratized ownership of the economy for the “99 percent” in an ecologically sustainable and participatory community-building fashion. The name of the game is practical work in the here and now—and a hands-on process that is also informed by big picture theory and in-depth knowledge.

• RSA Animate – The Power of Networks (YouTube) Existing markets are crippled by over-simplification and externalities. This video gives a context for the kind of sophistication and complexity our markets must develop.