Tag Archives: economics

Unsustainable beliefs of the ‘theology’ of economics

Mark Anielski:

“I was taught a series of beliefs that formed the ‘theology’ of economics based on neoclassical economic theorems. I was taught to accept, without question, a set of theorems and beliefs in which human beings are reduced to income-constrained, rational consumers and utility maximizers operating within an economy where prices for goods and services and income distribution are determined through the dynamics of supply and demand. The central belief within neoclassical economics is that “growth is good”, that there are no limits to growth and that the key measure of progress is the Gross Domestic Product (GDP).

I then recognized the flaws and inconsistencies in the theology of neoclassical economics. What if all individuals are not motivated by utility maximization and materialism? Does the model fall apart if people act with compassion and altruism and choose not to consume but would rather live a life of simplicity? What is utility anyway? Is a “util” a unit of happiness? Can happiness be measured and monetized? I realized that markets were never perfect and were often ignorant or blind to the conditions of real assets such as natural capital and ecosystem services. There was no accounting by nations or corporations for the value of natural assets in their system. There was no accounting of risks to the environment from unsustainable economic growth or the damaging effects of industry on the environment.

(…)

Moreover, I learned that all nations and governments around the world operate without a full inventory of their human, social, natural and built assets: governments were operating without a balance sheet.

(…)

I realized that the reason economists and politicians kept calling for “more economic growth” as the path to sustained and improved wellbeing was because more GDP (more consumption and output of goods and services by business) was required to help manage the growing and unsustainable mountain of debt.

(…)

Part of the shift necessary in moving from the current economy of consumption, materialism and eternal economic growth will require increasing awareness among all people about how this “matrix” actually operates and the underlying belief system that sustains the system. In many ways, we are all complicit in keeping this economic matrix alive by our collective state of ignorance. Moreover, we believe in the lie of scarcity and the myth of money.

(…)

Economics may ultimately return to a discipline that concerns itself with evaluating the conditions of wellbeing of households in relationship with natural systems, as I imagine Aristotle originally envisioned in Greece“.

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Elinor Ostrom: “The last thing aid agencies want to do is analyse things as a complex system!”

Ben Ramalingam:

“When Elinor Ostrom won the Nobel Prize in 2009, the Swedish Royal Academy of Sciences made the following statement:

‹‹[she] has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concluded that the outcomes are, more often than not, better than predicted by standard theories››.

(…)

Indeed, her 2009 Nobel Prize Lecture – she was the first and, to date, only woman to win the Economics Prize – builds on the distinction between simple and complex human systems, and closes with the following words:

‹‹We should continue to use simple models where they capture enough of the core underlying structure and incentives that they usefully predict outcomes. When the world we are trying to explain and improve, however, is not well described by a simple model, we must continue to improve our frameworks and theories so as to be able to understand complexity and not simply reject it››.

(…)

(In an interview in 2010)

‹‹I get so upset when people use complexity as a reason not to do things – complexity and context are essential for operating in many different situations. In order to make sure decisions are relevant, we have to understand the context of decisions, and the complexity of the situation. My take on complexity is that it is a key set of concepts which are essential for understanding how the world works››.

(…)

How would you apply these ideas to international aid agencies?

‹‹The last thing aid agencies want to do is analyse things as a complex system! (laughs) But how do you unpack systems without such analyses? In biology and ecology, there is a necessity of using complexity science and related ideas as a model – although it is not always acknowledged, they do have to use it. For example, in a situation with 10, 15, 20 species, how do you understand the potential impact of the elimination of one species, when one unit being eradicated would cause disaster rather than simply being important. We can’t address these questions without drawing on complexity theory in some way.

The lack of long timeframes and a lack of supporting cultures means that aid agencies don’t help people learn how to think about and change the structure of the situations they are facing. In many situations, this is because of colonial roots of aid, which did not respect local institutions – they didn’t understand them so they were treated as non-existent››.

(…)

What three things would you change among aid agencies to get them to take more account of complex realities?”

‹‹The number one thing is the ‘spend it or lose it’ mentality – it is common to most bureaucracies, but getting it changes is essential if aid is going to be tailored to the complex realities of development. This institutional change will allow many others to come about, and so it is a very important one.

Number two is getting aid agencies to be more of a learning enterprise and less of a doing enterprise. This means feedback, training, reflection. This means not assuming we have the answer. We need to create an environment where discussion and debate are openly welcomed, and where redundancy is not always seen as bad, just excessive redundancy.

Third, we need to reward people for developing imaginative ideas that draw on the complexity of the real world, that leave people in developing countries more autonomous, less dependent, and more capable of crafting their own future››.

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Believing the assumptions of economics

Andy Haldane (Executive Director of Financial Stability at the Bank of England):

“Again, I have an evolutionary story as to why economics ended up in this place. I don’t think it’s because people were taking pay-checks from consultants or countries to cook the answers. I don’t think for a minute that was the core of it. It was driven by the quest for certainty, and mathematisation of economics was a means of achieving that certainty. It was the desire to have the laws of economics as well-defined as seemingly were the laws of physics or other natural sciences, as a basis for policy experimentation. They were all good reasons for wanting to make the discipline rigorous and robust.

I think one of the great errors we as economists made in pursuing that was that we started believing the assumptions of economics, and saying things that made no intellectual sense. The hope was that, by basing models on mathematics and particular assumptions about ‘optimising’ behaviour, they would become immune to changes in policy. But we forgot the key part, which is that the models are only true if the assumptions that underpin those models are also true. And we started to believe that what were assumptions were actually a description of reality, and therefore that the models were a description of reality, and therefore were dependable for policy analysis.”

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