The false nostrums of the pseudo-science of neoclassical economics have been used to create a system that promotes endlessly increasing consumption of resources and endless elaboration of technology. This system already operates far beyond the needs of people. Our survival requires that we rein in the machine and return to proven and durable, social and moral forms of organisation.
Growth has a fundamental place in the biological world, of which we humans are a part. Unchecked growth has no place, outside of the microbial world. Unchecked growth is called a plague, an epidemic or a cancer.
Growth, among mainstream economists, has become a reflexive, mindless goal, specifically growth of the Gross Domestic Product. Growth of the GDP is the dominant global criterion for allegedly successful management of an economy. GDP is an indiscriminate measure of what we spend money on: some things good, some useless, some bad and, increasingly, some attempting to repair damage from previous spending. GDP is not a useful measure of our quality of life, whose improvement should be the real goal, but it does correlate with resource use and resource waste, also known as pollution.
Neoclassical economics is without scholarly integrity. It does not belong in universities. It certainly should not be the dominant source of policy advice to governments.
Most scholarly disciplines, be they history, physics or ecology, have a conception of appropriate standards by which the evidential basis of an argument is presented and the reasoning leading to conclusions is explained. The goal is to shed light on the workings of the world, and a criterion for a successful study is that observations or records are consistent with the study’s conclusions.
Neoclassical economics, the strand of economics that has dominated world policies for several decades, fails these criteria. Its conclusions are regularly contradicted by developments in the real world. A dominant criterion for a successful study is that its logic is internally consistent; it thus confuses mathematics with the science it claims to be. It is variously claimed that assumptions on which a theory is based don’t matter, or that the better the theory the more unrealistic the assumptions, or that all theories are wrong. It imagines its theories are useful approximations to reality, and fails to appreciate that more reasonable assumptions can lead to radically different conclusions, so its theories may be deeply misleading.
Analyses of the economic effects of global warming by prominent economists are based on patently invalid arguments, profound ignorance of the global response to solar energy and basic misrepresentation of scientific sources. Their conclusion that the effects are minor is egregiously in error and use of their analyses to advise governments has placed the world in peril.
Economist Steve Keen has published a critique (and summary) of analyses by William Nordhaus and others of the effects of global warming on the global economy. Those analyses, incorporated into official IPCC reports, suggest the effects of global warming are minor. Keen’s critique reveals the analyses to be absurdly deficient, reflecting not only profound ignorance but patently invalid arguments and a lack of scholarly integrity.
As Menzies foresaw, we have had economic anarchy, and both security and progress have disappeared.
A spirited contest of ideas has already started regarding how we emerge from the coronavirus shutdown. The Prime Minister is talking about ‘snapping back’ to what we were before. Some would like to use the crisis to jump to essentially an authoritarian corporate hegemony. Others would like to see a more sharing society with a more active government and embedded in a healthy natural world.
We are highly unlikely to just snap back, but if we want a more caring, equitable and durable society then we need to get clear about what needs to be done. Some are allowing that neoliberalism is dead, but few seem to be clear about what might replace it. Going back to something like our postwar system might be a good start, but we can do better.
Why would the Government buy bonds as it sells bonds? Why would it borrow money when it has its own money?
Various explanations have been appearing lately that purport to explain how the Government is raising the money it is suddenly splashing around to support (some) people through the Covid-19 shutdown. There are also explanations of how the Reserve Bank of Australia is engaging in ‘quantitative easing’ (QE) to support the economy through the shutdown and beyond.
It seems there may be at least three things happening: the RBA is buying bonds in order to inject extra money (‘liquidity’) into the financial sector and keep interest rates low; the RBA is funding some spending by the Government; the Government is borrowing money from the private sector by selling bonds.
We can’t allow growth to continue forever, simply because the Earth is finite. But can we stop it? And if so how? And anyway, growth of what?
Not only do many people agree we need to change our economic system, many are already doing really good things, like forming cooperatives or firms with a social purpose, promoting repair and recycling, growing healthy local food, reducing greenhouse gas emissions and so on. But all these good efforts struggle against the ever-rising tide of ‘growth’. What if our economic system supported the good things instead of subverting them? Could that be possible?
The problem with the housing bubble is not a shortage of housing, the problem is an excess of money. The solution is to restrict the amounts banks can loan. The solution is a credit squeeze. But it would have to be done carefully and the government would have to be willing to spend.
The housing market is rebounding. It is through the slump. The downturn is over and the market is making gains. So say the media reports, written by the property industry. Rising house prices are good.
[This is a talk given to the Canberra Hub of New Economy Network Australia, 23 June 2019 on the topic ‘What could our economy look like in 2030?’ Check out NENA, I think it is a very promising network.]
At present our economy is structured and managed in ways that subvert the many good things people like us are trying to do.
I think it is possible to change that, so the larger economy supports clean, local, healthy living, strong communities and a thriving planet.
First, a few examples of good things that are already happening and just need to be promoted, examples involving food and energy: Continue reading →