8.8 Conclusions: Controversies in Economics

 

 

8.8 Conclusions: Controversies in Economics


In conclusion, it is useful to remember that economics evolved originally out of the moral philosophy of David Hume, Adam Smith and then the utilitarianism of Jeremy Bentham (whose mummified body can still be seen on display at the London School of Economics at his own request). Mainstream economics is anthropocentric and takes for granted that Planet Earth is there for human use. In this world view nature is turned into a human artefact available as a resource for our consumption. It could not be more different from a view of nature as Pachamama, for example, loosely translated as mother earth, which is the world view of indigenous peoples in the Andes to whom the extractive exploitative economics of “advanced economies” is an anathema, which is why they have passed laws, for example in Ecuador, embodying rights for eco-systems in their constitution.

The utilitarian philosophy from which economics was developed assumed that the welfare of individuals would be reflected in their preferences based on what gives pleasure or reduces pain and these “welfare” seeking motivations are reflected in what prices people are prepared to pay, or will accept in payment for things, including for a clean or safe environment. These preferences are sacrosanct to many neo-classical economists and the attempt of politicians or officials to decide about the environment is held to be inferior to decision mechanisms in which what people are willing to pay, or to accept in payment, for ‘environmental goods’ is held to most accurately reveal the best choices to maximise “welfare”. This way of thinking then leads to benefit cost analysis and to so called "Least Common Denominator Utilitarianism” embodied in the Kaldor-Hicks compensation principle – a policy change is justified if the winners (measured in strictly economic terms) can compensate the losers of a policy and still have something left over.

Quite how this is supposed to work when future generations are not yet here to express their preferences and to be compensated remains unexplained. Nor does the economics mainstream have anything to say about how preferences are formed. Ask people what they are prepared to pay to protect pandas and polar bears and you might get a positive sum of money offered – but a survey of uninformed people are probably less prepared to pay for the bamboo that pandas eat and even less for the creepy crawlies that are integral part of the eco-system in which pandas... and humans.... find themselves. All of this suggests that for environmental policy to be appropriate it must be well informed and the subject of collective deliberation in decision making processes that are quite unlike how we express our preferences in purchasing decisions between the alternatives of baked beans and spaghtti hoops in a supermarket.

The matter of available information is particularly important because many environmental decisions are about issues where there is a great deal of uncertainty in what outcomes will be. Mainstream economics does not have a good record in taking uncertainty into account, especially where it is what is called “strong uncertainty” - unknown unknowns or known unknowns but where risks and probabilities cannot be calculated.

In order to show from its starting assumptions that competitive markets optimally allocate resources in the best of all possible worlds, economic theorists have constructed theoretical models that assume that market actors have “perfect information” now and about the future. This seems a long way from the real world in which none of us have a divine ability to foresee the future, in which it takes time and effort to find about current situations, in which people have great reluctance to accept unpleasant realities, in which there are taboos against some kinds of knowledge because of ideological allegiances in groups, in which there is a massive network of arrangements to ensure that many business dealings, including environmentally destructive ones, are kept secret - and in which there is good deal of misinformation put out by the public relations industry hired by vested interests in order to throw doubt on inconvenient truths – for example about climate science.

Nor is it true that all people decide on environmental issues based on maximising their personal welfare. Many people decide to do things not because those things will give them pleasure, or reduce their pain, but because they think that they ought to or because they think that it is the right thing to do. This includes doing things that do not give them pleasure but are perhaps risky, or involve considerable self sacrifice. The world is full of war memorials celebrating dead people who were clearly not motivated by utilitarian principles.

In conclusion, as the economy reaches the limits to economic growth new ways of thinking are needed in order to be able understand what is happening, approaches that are transdisciplinary. Unfortunately there is considerable inertia in the realm of ideas and considerable fragmentation of subjects which makes the broad viewpoint that is needed unavailable to mainstream economics, a discipline that has become over-specialised. Even worse, the thinking of economists typically reflects the viewpoint of powerful vested interests, taking for granted the world view and agendas of wealthy clients as self evident and unproblematic. The physicist Max Planck argued that in science, new ideas rarely displace old ones because an old guard are converted to new ways of thinking - Saul does not become Paul on the road to Damascus. Rather the old guard retires and dies and a new generation replaces them who are familiar with a different way of thinking. It is important that training engineers familiarise themselves with the new way of thinking in economics for the very different and difficult world we are entering.