Economics

Dyrehaugen Web Notebook

2023-12-09

1 Economics

Modern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences.

Economics is always a creature of time and place and theory and our relation to given theory must account for this.

The capitalist economy is a non-equilibrium system. It tends not to equilibrium, but to crises.

Today’s mainstream economics, I would argue, has lost not only a key feature of the Enlightenment—making order by producing classifi cation sys- tems (taxonomies)—but also the key feature of the Renaissance that preceded the Enlightenment: the immense creativity and innovations, in all aspects of human life, unleashed during that period. Economics lost what Nietzsche refers to as ‘capital of will and spirit’ (Geist- und Willens-Kapital). Our quali- tative understanding (‘verstehen’ in German philosophy) was crowded out by a more mechanical form of understanding (see Drechsler 2004 for a discus- sion). In this way, the process of economic development became reduced to a process of adding capital to labour in a quasi-mechanical fashion, much like adding water to soluble coff ee. By neglecting the diff erences between eco- nomic activities, economics was not able to break the core of the vicious cir- cles that keep poor countries poor, the mutually reinforcing lack of purchas- ing power and lack of employment (see Kattel, Kregel and Reinert 2009). Reinert (2011) The terrible simplifiers (pdf)

Economics is too important to leave to the economists

The equations of mainstream economics are derived from the pre-analytical vision that the economy is self-contained and self-regulating by means of price competition.

Economics, as a discipline, lives in a contrived world of its own, one con- nected only tangentially to what occurs in real economic systems. (Hall and Klitgaard)

ECONOMICS AT A CROSSROADS: The standard convention that ‘goods are desirable’ does no longer apply. How do we go from here?

Economics is the study of the conversion of energy to fight entropy.

Economics is a reductionist carve-out of commodifiable pieces of the larger complex systems of society and ecology.

Energy is money. Nearly everything else is credit.

Economics is the most powerful religion ever. It shapes the lives of even those who don’t believe in it or its gods.

So what is modern economics about? It seems to be, mainly, about itself.

The ‘science’ of maximizing and minimizing stuff you can’t measure.

Perhaps the best definition of economics is that it is ‘secular theology’. Economics adopts the veneer of science, but, like theology, is based on untestable definitions. The most pervasive dualism is the equivalence between income and productivity. Fix (2022) Dualism

The cult of math modl-ing. Palley (2021) Life among the Econs - 50 years on (pdf)

Never underestimate economists’ ability to convince themselves that the world works in a way that’s convenient for their equations!

The failure of economics to cultivate the sustained acceptance of externalities is increasingly becoming the most pertinent fact about the whole discipline. Not only did economics – the ‘science of markets’ – not encourage acceptance of externalities, but it also made strenuous effort to downplay or even trivialize them. Austin (2021) (pdf)

Economy, understood as the material production that all societies must undertake to reproduce themselves, needs to be abstracted from nature for its particular study if the concrete interactions between any socioeconomic organization and nature is to be understood. Soriano

Humans typically assume that the world is ruled by uncertainty and apply according decision making rules. Experimental economists, by contrast, only consider well-defined, resolvable problems and usually don’t understand that their problems do not correspond to real life problems.

If wants are unlimited, as economists assume they are, then the world is scarce by definition – a scarcity that can be confronted only by more work and growth. Growth promises everyone more tomorrow; but at the same time, there is never ‘enough for everyone to have a decent share’

Any sufficiently advanced religion is indistinguishable from economics. Ian Wright

So entrenched has economic thinking become within modern culture that we are not aware it is the root cause of climate change and nature crises.

Empirics is wonderful when we’re in a stable and steady regime; theory is what you need when you have big shocks and possible regime changes

By ‘exogenous’, economists really mean a cause that they don’t care to think about.

In economic calculation it is easy to make too much of opportunity costs. They are, after all, hypothetical.

Ceteris Paribus

Economics cuts and reduces to formulate tractable problems that admit of elegant solutions, but the process inevitably renders economics a deeply decontextualized body of knowledge.

The discipline concerns itself only with the monetizable subdomain of broader societal and ecological relations.

1.1 Politcal Economy

Fix

From its outset, the field of political economy was not designed, in any meaningful sense, to understand resource flows. Instead, it was designed to explain class relations. The goal of early political economists was to justify the income of different classes (workers, landowners and capitalists). They chose to do so by rooting this income in the ‘production of wealth’. What followed from this original sin was centuries of conflating income with ‘production’. This conflation is what allowed Robert Solow to proclaim that the world could “get along without natural resources”.

Fix (2020) Can the World Get Along Without Natural Resources?

1.2 Macroeconomics

If there’s one thing you should know about macroeconomics, it’s this: Convincing evidence is really really hard to come by, so people end up relying a lot on theory and making a lot of assumptions.

In macroeconomics it’s very hard to get the kind of clean, convincing evidence that we have for policies; macroeconomic stuff affects everything and is affected by everything, so it’s incredibly hard to disentangle cause and effect.

1.3 Outdated Marginalism

With its fixation on equilibrium thinking and an exclusive focus on market factors that can be precisely measured, the neoclassical orthodoxy in economics is fundamentally unequipped to deal with today’s biggest problems. Change within the discipline is underway, but it cannot come fast enough.

Nowhere are the limitations of neoclassical economic thinking – the DNA of economics as it is currently taught and practiced – more apparent than in the face of the climate crisis. While there are fresh ideas and models emerging, the old orthodoxy remains deeply entrenched. Change cannot come fast enough.

The economics discipline has failed to understand the climate crisis – let alone provide effective policy solutions for it – because most economists tend to divide problems into small, manageable pieces. Rational people, they are wont to say, think at the margin. What matters is not the average or totality of one’s actions but rather the very next step, weighed against the immediate alternatives.Such thinking is indeed rational for small discrete problems. Compartmentalization is necessary for managing competing demands on one’s time and attention. But marginal thinking is inadequate for an all-consuming problem touching every aspect of society.Economists also tend to equate rationality with precision. The discipline’s power over public discourse and policymaking lies in its implicit claim that those who cannot compute precise benefits and costs are somehow irrational. This allows economists – and their models – to ignore pervasive climate risks and uncertainties, including the possibility of climatic tipping points and societal responses to them. And when one considers economists’ fixation with equilibrium models, the mismatch between the climate challenge and the discipline’s current tools becomes too glaring to ignore.

Brookes and Wagner (2021) Economics Needs a Climate Revolution

1.4 Market Primacy

Austin

The key driver of the ecological crisis is our hunger for ‘economic growth’ that continues to overwhelm our fast-developing – fast-recovering? – sense of the need to protect the global environment. Of course, efforts are being made to tackle the problem, but so entrenched has economic thinking become within modern culture that we are not yet reconciled to the fact that the form of economic thinking may be the root cause.

Hence the dominant strategy we have adopted to address the sustainability crisis is that of ‘voluntary market-based’ approaches, under different banners: ‘sustainable development’, ‘sustainable capitalism’, ‘green growth’, ‘win-win’, and an ESG (environmental, social and governance) movement more generally. Alas, it is increasingly apparent that this overall strategy amounts merely to a grafting of environmental concern onto an economic system that remains stubbornly ‘business as usual’ in its deeper workings. Perversely, our concern for the environment has been transmuted into a potential new source of products and business lines: ‘eco’ as a new marketing seam to be mined, ‘green’ as a splendid new runway for growth!

In other words, it is becoming a classic case of the ‘solution’ exacerbating the problem. The human mind has become aware of a problem it recognizes as serious, but its increasingly frantic efforts to address the problem seem unable to escape an imprisoning logic.

That ‘logic’ is the entrenched norm of market primacy, to which Western cultures had iterated to by the late 1970s, for reasons that entirely predate our awareness of the Anthropocene and the Great Acceleration. The market primacy of our current ‘neoliberal’ social order emerged from political arguments seeking to safeguard individual rights and from decades of complementary economic theorizing that appeared to build a case for the superiority – almost infallibility – of market outcomes.

Recognize our sustainability problems as ultimately a matter of collective cognition

Austin (2021) The Matrix of the Emissary - Market Primacy and The Sustainability Cris
is

1.4.1 Shocks -All Problems are Exogenous

Roberts

The premise of mainstream economics is that market economies (theoretically) move smoothly along until hit by ‘shocks’ that push it off course. The job of economists is to get market economies back on course with some suitable policy adjustments and perhaps look for ways to defend the market economy from future ‘shocks’. There is no acceptance that there could be inherent fault-lines within the market economy itself – all problems are exogenous.

Roberts (2023) ASSA 2023 part one: the mainstream – fiction and reality