The Delusion of Economics
Human beings are in a state of denial about the calamity of calamities our economy is actively engineering. Unfortunately, we needn’t look far to find one of its major sources, namely, the modern study of economics (in particular, Economics 101). Each year, millions of students have their noses forced into textbooks that investigate or illuminate no causal connection extending from the economy to the ecosphere. (In this formulation, the environment provides fuel for industry, but suffers no return impact from it.)
We’ve known for centuries, of course, that some environmental costs attend economic advance, but it wasn’t until the 19th century that we saw the size of industrial appetites—or impacts. What happened? When the global economy moved away from muscle energy, it began to acquire the means to cause lethal damage to the ecosphere.
It has now been half a century since the natural sciences began to articulate the irreversible harm the economy can do the ecosphere. While the focus of economics remains narrow—it is, simply, the study of the economy—has it shown any capacity for widening the jurisdiction of its inquiry?
In these 50 years, the answer is no. There have been brilliant and intellectually brave economists, of course, like the creators of “ecological economics.” (In fact, some have contributed to this special issue.) But their work goes ignored by 9 in 10 economists, and nearly all professors. In the academy, it’s 19th-century theory that continues to hold sway. And students, catastrophically, go on studying a model of the economy that obscures fundamental facts about it uncovered by natural science. Let’s take a look at how this censorship is achieved.
Gregory Mankiw’s Principles of Economics is the world’s most popular economics textbook, and the prototype for nearly all others. It is a huge volume. The index of its fourth edition comprises 18 pages, and some 2,500 entries; it also illustrates the near-total shutout of environmental consideration from economics tuition. Take these 11 common terms for describing the relationship between the economy and our life-support system:
biosphere, climate change, climate science, climatology, ecosphere, ecosystem, emissions, global warming, greenhouse gas, threshold, tipping point
How many of them appear in Mankiw’s 2,500 entries? None. Nor are any found among the book’s 13 section titles, 36 chapter titles, or 700 sub-chapter titles. Why?
Because the basic theoretical structure of economics will not accommodate the bidirectional causal link between the economy and the ecosphere. In the 19th century, when today’s mainstream economics was invented, the global economy was too small to create observable effects on the ecosphere—and none were anticipated. (Even then, of course, economies damaged their immediate environment, but the effects were small enough to reasonably ignore.) This is how it came to be that economists dumped an economy’s ill outcomes into a broad conceptual category called “externalities”—and why, in Economics 101, you find them there still.
“Negative externalities,” according to Mankiw, are the not so nice things that happen when “market equilibrium fails to maximize the total benefit to society as a whole”—in other words, when unforeseen problems arise.
He offers two examples:
• “The exhaust from automobiles . . . because it creates smog that other people have to breathe.”
• “Barking dogs . . . because neighbours are disturbed by the noise."
Further on, Mankiw argues that today’s “environmental degradation” is analogous to the problem of overgrazing in the Middle Ages.
Climatologists see the problem of externalities as more serious than barking dogs and overgrazing.
The eminent climatologist Will Steffen sums it up this way:
“It’s clear the economic system is driving us towards an unsustainable future and people of my daughter’s generation will find it increasingly hard to survive.”
And: “History has shown that civilizations have risen, stuck to their core values, and then collapsed because they didn’t change. That’s where we are today.”
Humanity has been hoodwinked by a central delusion of Economics 101—that the ecosphere and the economy are connected in one direction only. This is one reason we stand now at the precipice. As John Maynard Keynes noted, “The ideas of economists, both when they are right and when they are wrong, are more powerful than is commonly understood.” And no economists’ ideas have proven more wrong, or more adept at doing wrong, than those force-fed the economics students of today. Thanks to natural scientists, we now understand that the longer a mass indoctrination into this fantasy world persists, the likelier looms the ultimate disaster. It is not only with bombs and gas that crimes against humanity are committed. It is also with ideas. Everyone connected with economics, most of all the students, needs to ask what he or she can do to help correct course. Our hope is that this special issue of Real-World Economics Review assists in that questioning.
— adapted from Economics 101: Dogs barking, overgrazing and ecological collapse, by Edward Fullbrook, in Real- World Economics Review, issue no. 87