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.