The paradigm of current economic thought seems to disconnect it from the notions of sustainability that we will be required to embrace to construct a salient future for ourselves. As we face the wider environmental problems of global warming, peak oil, and food inflation; the assumptions inherent to neo-liberal economic theory leave us at a disadvantage in tackling these already potentially insurmountable issues. Further, many of these neo-liberal assumptions have resulted in a culture of economic gangsterism that has seen recession for the last two years. Indeed, it is the very dogmatism of neo-liberalism and the pathological pursuit of economy growth and maximized returns that has created many of the problems that we are facing now.
I remain unconvinced that the field of economics as it stands, and the tendency on the part of economists to think a certain way, and to agree on certain assumptions, even when they fly in the face of reality, will provide us with a vehicle to construct a salient and stable future. At the same time, economics as a field remains an incredibly important tool for analysis and prediction. What is needed then is a fundamental shift in the way we think about economic theory and in what we 'assume' about human interactions. As Thomas Kuhn noted, the paradigm we ascribe to dictates the way we frame and conceptualize issues. While paradigms can be useful, they are to a certain sense determinist in how we interact with the world and what we assume to be true. This poses an inherent danger, and the assumptions being made as the driving force behind our economic interactions, and what is rational behavior are at the moment driving us on a course that may in the end be disadvantageous.
The assumptions made in neo-liberal economic theory and in game theory about human nature seem to be highly fallacious. To economists, humans will behave barbarously to promote their self-interest whenever given the opportunity at the expense of the collective and of society as a whole. Free market economists such as Milton Friedman and Frederic Von Hayek then add the twist that this behavior is to be promoted as only a perfect equilibrium of avarice will somehow promote an ideal equilibrium in which everyone strives to meet their needs. The dogma behind this is not only terrifying, and as Adam Curtis does well to argue in the BBC documentary series The Trap, is a perversion of Isaiah Berlin's concept of negative liberty, but seems to fundamentally untrue do to another inherent human instinct towards cooperation.
The mere existence of society, and the fact that we have managed to make it this far without having raped, murdered and robbed each other at every turn does much to discredit these assumptions about human selfishness. It occurs to me that we have a fundamental biological imperative to cooperate, just as other "pack animals" have used this genetic advantage to prosper. It can even be argued that this ability of group cooperation is a form of natural selection, though this is highly debatable. The point stands however that the behavior that neo-liberal economic theory would lead us to believe is rational is in many ways pathological, and a strict adherence to these notions of rationality is very dangerous. It is also dehumanizing as it strives to ascribe to human beings inherent economic value.
Previously, Keynesian economics was an attempt to rationalize this cooperative sense, and to speak of human capital, many of the economic meltdowns that resulted from the implementation and over extension of Keynes theories saw serious economic problems across Western Europe, while the tyranny of Isaiah Berlin's positive liberty saw a particularly ruthless strand of social Darwinism take root in the form of the Soviet system. However, the sort of winner takes all free market system, with its assumption that growth at any cost is good, regardless of long-term environmental degradation and resource scarcity concerns has in and of itself resulted in a similar sort of social Darwinist mentality that would rob us of as a future as a species. In the end, a new way of thinking about economics is necessary for the sake of conservation or preservation. Social accounting and environmental accounting, while growing increasingly in importance in economics curricula rarely goes far enough into calling into questions these ideologies. Meanwhile, the field of Environmental Economics, while producing some important regulatory market mechanisms remains heavily indebted to game theory, which is in turn based on the models of John Nash and the potentially dangerous assumptions that underlie them.
The now largely ignored and recently deceased John Kenneth Galbraith rejected the technical analysis and mathematical models of neoclassical economics as being divorced from reality. Just as the economist Veblen did before him, Galbraith asserted that economic activity cannot be distilled into inviolable laws – it is rather was a complex product of the cultural and political. He believed that economists tended to ignore those crucial factors that are not amenable to axiomatic descriptions. Galbraith was a lifelong Keynsian and as Keynes ideas were gradually relegated in favor of neoclassical sensibilities, Galbraith was increasingly relegated to the fringes: only hauled out as an example of the deceptiveness of the "old ideas" whenever certain neoclassical models needed to be justified to the public. What is shocking about this, is that, with his refusal to implement mathematical models, which really prove nothing, Galbraith was one of the few in the economics field that was willing to call into question not just the limitations of the economic paradigm, but also to practice genuine Popperian falsification of his ideological bent.
Only a handful of pre-eminent economic thinkers: Paul Volcker, Joseph Stiglitz, Paul Krugman (to a point) and Amatrya Sen among them, are disciples of this school of economics - and Stiglitz came to these conclusions only after defecting away from the neoclassical approach after growing increasingly frustrated at his position in the World Bank. This is, however, the tradition that I argue needs to be reclaimed and built upon if the field of economics is to serve us well in the future.
While economic growth remains important, sustainable growth is far more important. Economists talk endlessly of "discounting" – the idea that a dollar today is worth more than a dollar tomorrow, however, if the rending of a dollar today means that there is no tomorrow, then the whole of the debate becomes null. Conservationism is incredibly important – however even the terminology conservationism reduces our natural environment to little more than resources to be consumed at some future date. More important I feel is the notion of 'preservationism' – or the concept that certain natural resources should be preserved and remain untouched as they have inherent value. Notably, forestry and other plant life hold an important roll in carbon sequestration – pulling CO2 out of the atmosphere – and staving off global warming.
I put it to you that we must define our values as a society, and for economists to reconsider and redefine the limits to what is rational behavior. Perhaps it is not so irrational for people to work together or to accept less than optimum return on their investments if doing so means that our planet, our way of life and our general well being are not negatively and harmfully impacted. The world of economics is one of perpetual cognitive dissonance in which one set of notions of what is rational action are put forward while we continually see people sacrifice their economic best interest in order to act humanely and intelligently towards a sustainable future. The environmental activist and journalist Bill McKibben calls this the "durable future" in his book Deep Economy and I think that this terminology is useful. Where we need to go with the field of economics is not necessarily a return to the Keynesian so much as it is a simple question of assumption and of what constitutes economic rationality for the individual and whether this flies in the face of the interest of the public interest.
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I originally wrote this piece several years ago but I think it has only gained in relevance from when I first wrote it as, if anything, the current economy has further underlined the points that I sought to make. Additionally, I think while the Obama seemed to initially convince many people that it would be in some way different, the repeated decision to marginalize Paul Volcker while empowering the likes of Timothy Geithner has meant that the Obama administration has retained the neo-liberal economic policies and mindsets that have have supported by both parties since the Clinton Administration. Indeed, I was fiercely critical of the way fear and intimidation were used in the fall of 2008 to rush through TARP with minimal oversight and in such a way that was highly beneficial to corporations while failing to serve the public interest.
I feel that events have only further justified that criticism. Congresswoman Marcy Kaptur have have had the most succinct critique of TARP, arguing in favor of policies directed in avoiding foreclosures in cases in which borrowers could still afford to make payments rather in in direct support to the lenders themselves. While a subsequent bill was used for this purpose, it was insufficient and the Obama administration failed to regulate the process of foreclosure, costing many people - including a sizable number who had not defaulted on their mortgages, their homes. Meanwhile, the United States is no closer to signing a climate deal or implementing any form of market mechanisms to regulate greenhouse gas emissions. Thus, our firm belief in free-market orthodoxies are causing us to fail to address both the social and the environmental outcomes of economic activities.
The upshot thus far has been the advancement of alternative economic systems in Europe. The French have begun developing a new economic measure other than simply GNP and GDP encompassing not simply typical economic metrics but also costs of environmental mitigation, life cycle consideration, social costs and general societal happiness. Similarly, the British government has begun collecting data on happiness and general well being across the United Kingdom. This move was likely inspired by researchers Richard Wilkinson and Kate Pickett's book The Spirit Level, which makes the case through a series of studies that more equitable societies tend to fair better across almost every health, social and environmental indicator.
The book has caused a stir in many circles because speaks with numbers and repeatedly demonstrates strong correlations between equity and societal well being. Equally importantly, it articulates an alternative view to simply economic vitality as to what a society should look like and speaks to the long-standing success of the series of compromise agreements that constitute Social Democracies. Finally, The Spirit Level articulates a set of outcomes that speak to the roll of civil society and the wider social compact that appear to be at odds with neo-liberal economic orthodoxy. It is through an economic focus that includes environmental and social considerations that we might constitute a more healthy and more diversely and richly prosperous society altogether.
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