Economics: dismal, but not a science

naked economist

Today's neoclassical economist is an emperor with no clothes who's fooled us all long enough.

When Thomas Carlyle coined the term “dismal science” in 1849, he was contrasting the downer theories of Thomas Malthus with the life-enhancing craft of writing poetry and songs. Carlyle seemed to prefer sweet tunes over sour warnings about overpopulation and starvation.

Today, people who worry about the effect of climate change and peak oil on the economy are likely to embrace the healing power of the arts without a need to reject Malthusian warnings about ecological overshoot. Indeed, from the Club of Rome and EF Schumacher to Herman Daly and peak oiler John Michael Greer, thinkers who connect the economy to the environment have tried to convince us that Malthus was right all along — that the limits of our planet’s resources will limit the ability of the world economy to continue growing at some point.

Philip B. Smith and Manfred Max-Neef agree with Daly and others that the world economy has already reached ecological overshoot— they say that now we’re using the equivalent of 1.3 earths to run our current lifestyle.

Economics Unmasked book cover

Economics Unmasked by Phillip B. Smith and Manfred Max-Neef, Green Books, 2011, 200 pp, paperback, $21.95

And in Economics Unmasked: From Power and Greed to Compassion and the Common Good Smith (American-Dutch physicist) and Max-Neef (German-Chilean economist) write that mainstream economists are not being honest with the public about this story. Instead, economists are telling us that the world can continue to enjoy economic growth well into the future and that this will produce ever rising levels of prosperity.

Why would a whole academic discipline devote itself to spreading a thesis that experience has proven to be untrue? Because economics, dominated by the neoclassical approach that favors unrestricted global trade at the expense of workers and the environment, is less a science than it is propaganda for the greediest of the very rich.

Our economy is no accident

Against idealists who complain that plutocrats have somehow hijacked a democratic free market over the last few decades, Smith and Max-Neef counter that there was never any free market to hijack in the first place.

“The economic arrangement of society is to the liking of those who profit most from it. And it is no coincidence that they are exactly those who wield the power — the power to maintain intact the arrangement that suits them,” write the authors.

And while Smith and Max-Neef find that economies throughout history have distributed wealth unequally, they single out today’s gap between rich and poor — both between industrial nations and the rest and inside the industrial nations themselves — as unprecedented.

The worst example of income inequality is the United States, which the authors cite as the world’s leading “underdeveloping nation,” beggaring its citizens by allowing corporations to ship jobs overseas at an ever-increasing rate.

Yet, today’s American voter is far more likely to work herself into a lather about the federal debt — a favorite issue of the rich and a perennial excuse to cut programs from social security to food stamps that benefit the poor and middle class — than to complain about wealthy tax dodgers who contribute to that debt or trade policies that support offshoring and lead to high unemployment.

What’s good for General Motors

The average American worker either rabidly supports or at least quietly acquiesces to policies against her own interest because economists have fooled us all into thinking that putting more wealth into the hands of big corporations and Wall Street will help the whole country.

Smith and Max-Neef find our trust in economists to be misplaced. Little more than cheerleaders for plutocracy, economists have gained the prestige of objective scientists by emulating the methods of physics and chemistry. Creating artificial models of reality and concepts like “marginal utility” that work in the world of mathematics but not in real life, economists have encouraged the public to keep our faith in their prescriptions despite their failures to predict such events as the Great Depression and the crash of 2008.

The authors quote Edward Fullbrook, a historian of economics who finds that, starting in the nineteenth century, economics began to detach itself from facts on the ground and in place of religion, history, psychology, culture and ethics, it installed a new model: markets. “For those who take the model seriously, the solution to all human problems is to make the real world look like the neoclassical make-believe world.”

In the neoclassical make-believe world everything, like in a fairy tale, works wonderfully well. There is never any unemployment, markets of all kinds always clear instantly; everyone gets exactly what they deserve; market outcomes are always “optimal”; everyone maximizes their potential; and all citizens possess a crystal ball that infallibly foresees the future…There is no government ownership, no regulation, no corporate accountability, no building codes, no health and safety standards…etc. Instead, there are just “markets.” Markets, markets, markets.

Such reductionism has made mainstream economics worse than useless to explain how people, money and economies interact. By casting a veil over the way markets squander irreplaceable natural resources and threaten the environment, neoclassical economists imperil our species and many others.

Mum’s the word

Smith and Max-Neef think it’s as pointless to try to convince the neoclassical economics establishment out of Chicago or Stanford to change its tune as it would be to convince the rich to voluntarily give up the power and wealth they enjoy today out of fairness to the rest of us or even to save the whole project of civilization in the long term. Apparently, we’ll just have to wait for today’s generation of economists to die off before we can get an economics that corresponds to reality.

In the meantime, the authors urge activists to take matters into their own hands and to do so in their own local communities. “It is a cause for optimism that there is nothing so small and so weak that it cannot provoke an enormous and massive positive change; and that there is nothing so big and strong that it cannot dramatically collapse.”

Probably the best that can happen to those of us who believe in community, in respect for all forms of life and in a more human economy, is to remain as invisible as possible as long as the fight goes on. Invisibility, while fighting, may be after all our greatest strength. If we reach victory at the end of the day, then visibility may be welcomed again.

As appealing as invisibility may be to people involved in movements like Transition that seek to build resilient communities around the world but would like to keep under the radar of nasties like the Tea Party or the US Chamber of Commerce as long as possible, flying too low may handicap the loose confederation of citizen groups around the world who the authors see as humanity’s last and best hope to avoid catastrophe.

In a culture saturated by corporate controlled media, people who would think for themselves tread a lonely path by definition. Local community-builders need practical information so they don’t have to re-invent the wheel on ways to make their communities more resilient — from local currencies to time banks to starting Energy Descent Action Plans. But perhaps more importantly, local activists also need inspiration to boost the morale they need to keep swimming against the tide of public opinion.

Ironically, Economics Unmasked can provide just this kind of inspiration. With its survey of ideas from the Natural Step to peasant cooperatives in Latin America, the book reminds us of the many ways to enjoy prosperity and abundance outside of the corporate economy.

By putting these ideas on the table now, the authors also help us prepare for the time when the promises of the market economy will become so obviously bankrupt as to tip public opinion in favor of change.

Or, in the words of just the kind of economist that Smith and Max-Neef hate, Milton Friedman: “Only a crisis produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.”

— Erik Curren, Transition Voice

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  1. tamnaa says

    This sounds like a very good book.

    I have never taken a course in economics but, some years ago, I had the opportunity to discuss the subject with a professor of economics, a member of my extended family. During the course of several long, wine fueled debates, I was often astounded by what he said and what, evidently, was being taught to students.

    First, he claimed that the only way we can ascertain the value of anything is by the price it will fetch on the open market. Anything that people were willing to pay money for was therefor, to that extent, valuable.

    Crack cocaine? I would have thought that has a negative value for society as a whole.

    His reaction to any suggestion of this kind was always to accuse me of supporting “government intervention in the marketplace”

    I wasn’t aware of it at the time, but I’ve since recognized much of what he said to be parroting Milton Friedman.

    Then I would push him. Prostitution?… child porn? …

    Of course!, if someone will pay money for these goods and services they contribute positively to the economy. (toxic derivatives? sure why not)

    I asked him; How about slavery?

    I remember his face took on a sly grin as he answered; Well, there’s something to be said for slavery!

    This was a published and tenured professor who made a good career out of the vogue for the Friedmanesque, Chicago school doctrines.

    We are seeing now the harm this kind of economic dogma has done to the common good. Sadly, this is only the beginning.

  2. says

    Our “green” reading just finished reading this amazing book and now I would like to pose a comment as to how can we get C Span book tv to interview this amazing economist? I have written several times to them with no response. Maybe if a few of us could also write them with our suggestion they may think that now would be a good time to introduce alternative ideas like cooperatives similar to Mondragon in Spain.
    I will post this article to my FB page and see if anyone is up to at least forwarding the article to C Span.

    • Erik Curren says

      Good idea, Elizabeth. We need to expose the failures of classical economics and re-introduce some diversity into the field, especially the perspective of a more realistic, environmental economics.

  3. Econ All Star says

    This is rude. Are you even an economist? Do you not realize not every economist is in policy? Educate yourself fool.

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