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Question: Why are we using mainstream economic ideas rooted in the 19th century to deal with 21st century challenges to our global civilization and to our national economies?  No wonder political debates can seem like running in mud. Progressives are constantly being dragged down into a fantasy world of perfect markets, balanced budgets, and very limited government intervention.  Neoclassical economics was not designed to deal with the complexities of a global industrial civilization that is endangering its own existence ecologically with global warming and ecosystem destruction, and economically with an out-of-control financial sector. It wasn’t designed to solve the problems of the world central economy, the United States, and its seriously declining manufacturing sector.

Originally posted on NewDeal20.org

Any efforts to extricate ourselves from outdated economic thinking gets the basic response: whatever needs to be done can’t and shouldn’t be done by the government.  Should the government support a revival of manufacturing, which, as I argued previously is central to the economy?  No, is the answer. The market will work itself out. And if the market has decided that manufacturing should be exported to countries outside the US, then the market must be right.  Should we prepare for a society in which oil is much, much more expensive?  No, comes the response. The market will take care of that, too. If oil becomes too expensive, something else will magically pop up to replace it.  Should the government create new jobs since we have a huge unemployment problem?  No, the market knows when to hire.  In fact, the thinking goes, since taxes can only prevent the market from setting the best price, all taxes are suspect, and all regulation is, too, even for a financial sector that caused a global depression.

I will argue in this set of articles that the only way out of this intellectual straightjacket is to construct an entirely new paradigm of how the economy works. Here’s a start: what if the economy is really an ecosystem centered , say, on manufacturing? If we looked at it this way, we would think very differently about the way governments intervene in its functioning.

An economy has many parts – a financial system, a manufacturing sector, a transportation system, natural ecosystems, and many others. Each part is, in turn, made of many other parts.  In the neoclassical world, the economy is divided up into individual firms – and these are not differentiated in any meaningful way.  In every introductory economics class, the professor explains that many identical firms exist in a perfectly competitive industry, and that the interaction of these firms leads to a particular price for a product.

As Philip Mirowski showed in his classic work, “More Heat than Light”, the men who created neoclassical economics were very much influenced by the “hot” science of the day, statistical mechanics.  If engineered properly, a gas or fluid system will remain stable. Such a system (for example, your plumbing) will settle back down to a stable state even after being disturbed.  Statistical mechanics achieves its great power because it is able to treat each part of a system as identical.  There are no categories or large, differentiated parts of such a system; all water molecules, for example, are the same.

What has this got to do with conservative economic activities, such as corporate lobbying against regulations?  The lobbyists use the argument that, left alone, like a plumbing system, a market will settle down to “the best of all possible worlds” – left alone by the government, that is.  Many economists began academic life in the physical sciences – Mirowski relates how Leon Walras, the creator of equilibrium analysis, the bedrock of current economics, was an engineer who kept a copy of a statistical mechanics textbook next to his bed.  If many other branches of academia have “physics envy” – that is, they can’t predict with the precision and elegance of physics – then economists have grabbed the golden ring, and try to claim “scientific” accuracy.

Except, of course they aren’t accurate. As Dean Baker has pointed out numerous times, the vast majority of economists missed the recent housing bubble.  Economies are not made up of identical parts – they are made up of a plethora of very different parts, and like ecosystems, these parts can be thought of as niches, that is, as functionally differentiated parts of an ecosystem, all of which are necessary for the growth and health of the whole.  Even if a part of an ecosystem – say, manufacturing, in the case of an economy – does not comprise the majority of the production of the ecosystem, that does not mean that the part is not the most important, or the source of the most important changes.  Even a very small niche – say, machine tools in an economy – can have a very oversized effect on the system as a whole.

In the 20th century biological systems, such as ecosystems, increasingly became the focus of scientific research.  Even in the field of mechanics, scientists such as Ilya Prigone helped to invent the field of “chaos theory”, or nonlinear dynamics, that is, the study of systems that are not stable.  Evolutionary theory, first developed by Charles Darwin, showed that you could have a science that did not predict exact outcomes –- how can you predict the creation of a new species, or ecosystem? The interaction of discrete niches and species, all different, does not lead to complete “chaos”, it is possible to make some broad predictions about how an ecosystem will develop, thrive, and die.

In the same way, we can make statements about how an economy will develop, thrive, and die, when we view an economy as a set of identifiable “chunks”, like manufacturing, or transportation systems, or natural ecosystems like rivers and the climate, and seek to understand how these parts fit together.  When the way that a set of parts fits together effects how the set of parts act together, then we know that we are looking at a system — that is, as the saying goes, the whole is greater than (or different than) the sum of the parts (in the language of systems, we say that structure allows for new properties to emerge).

If each part of the economy –- including the natural ecosystems –- is important for the functioning of the entire economy, and if some ways of putting those pieces together are better than others, than it is the government’s responsibility to make sure that those pieces are thriving and fitting together in a productive way.  The market cannot design the system as a whole. If, on the other hand, the pieces of an economy are interchangeable – if manufacturing is just as valuable for the economy as, say, tourism – then the government has very little to do, as the neoclassical viewpoint would have it.

In the next couple of posts I’ll develop the idea that thinking of the economy as an ecosystem — and as a manufacturing-centered ecosystem — is a better way to understand the economy and to create economic policy than the mainstream, neoclassical route.  A manufacturing-centered economics will allow progressives to move forward toward a sustainable, middle-class economy.

Originally posted to JonRynn on Tue May 31, 2011 at 09:31 AM PDT.

Also republished by ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement, A Perfect Conversation, Money and Public Purpose, and Community Spotlight.

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Comment Preferences

  •  I Think Absolutely Everybody Missed the Housing (9+ / 0-)

    bubble back when it really needed spotting. Hardly anybody today seems to realize that housing had passed 100-year peaks around the time of Clinton's impeachment.

    Click to enlarge.

    Of course that was hardly the only Clinton era bubble. It's because we've had 2 parties of Reaganomics for 30 years, and Reagnomics is completely unstable and unsustainable.

    My take on the reason for a healthy-ecosystem type of economy is that the "logic" of letting markets decide what kinds of sectors nations should have is based on businesses, which also get to decide what sectors of humans to keep and let go. Unless we're prepared to deport people whose intellectual talents are for example best suited for manufacturing and other labor, it's profoundly unjust to deport the types of work they've historically had.

    Thanks for posting, I'll be looking forward to the rest of the series.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Tue May 31, 2011 at 10:09:06 AM PDT

    •  Nobody "missed" it - they deliberately (5+ / 0-)

      ignored it and/or suppressed any timely remedies for it . . .

      •  So they could use it for massive profits (3+ / 0-)
        Recommended by:
        Wolf10, MrSandman, salmo

        while claiming "Oh the market did it!" and "Who ever would have thought that was a bubble!" while selling worthless derivatives and shorting their own position before the crash... hmmmm.....

        Seriously. This manipulation crap has got to stop.

        Progress occurs when courageous, skillful leaders seize the opportunity to change things for the better. -- Harry S Truman

        by YucatanMan on Tue May 31, 2011 at 03:12:32 PM PDT

        [ Parent ]

      •  So did they also get to write off (2+ / 0-)
        Recommended by:
        psyched, salmo

        their losses?  Our loan was $240,000 when they foreclosed.  They sold the house 10 months later for $130,000.  If they had simply reduced our principle to match what the house was suddenly worth, we could have stayed.  Instead, they had lots of cleanup to do before they could turn it over, plus they didn't get any payments for months, so the only thing that makes sense is that they knew they could write it all off.  Multiply that by millions and it adds up.

        •  CA Nana - write offs are never worth (1+ / 0-)
          Recommended by:
          salmo

          as much as cash. No one ever takes a cash loss so they can book a write off. The maximum value of a write off is the effective tax rate. So even if the tax rate was as high as 40% a write off is only worth 40 cents on the dollar and a dollar of profit is worth 60 cents. They foreclosed on your home for other reasons.

          "let's talk about that"

          by VClib on Tue May 31, 2011 at 07:10:51 PM PDT

          [ Parent ]

          •  Insurance, (1+ / 0-)
            Recommended by:
            alizard

            they may have had a derivative that pays for their losses.

            But, more importantly, the people driving the housing bubble had already taken their profits and moved on by the time of the collapse.

            A ponzi scheme ends up "losing" a lot of money too -- but by the time it's due the cons have fled for the Caribbean.

    •  Here is a list of people (3+ / 0-)

      who did not miss the Housing Bubble:

      1) George Soros

      2) Nassim Nicholas Taleb

      3) Dean Baker

      4) L. Randall Wray

      5) Warren Mosler

      6) Bill Mitchell

      7) Nouriel Roubini

      People who did miss the Housing bubble include mainstream economists whether left of right, including Paul Krugman and Joe Stieglitz. And all Government policy makers and fiscal gurus.

    •  Ironically, Reaganomics is like Communism (4+ / 0-)
      Recommended by:
      greatferm, notrouble, salmo, marsanges

      "Reaganomics" of "Laissez Faire Capitalism" or Milton Friedman's "Free market theory" (what ever you want to call it) is exactly like "Communism"....

      They are failed ideologies that sound great on paper but don't work in the real world!

      "Reaganomics" produced lower prices for consumers due to greater competition in the beginning because of the removal of regulations but in the long term it led higher prices as "super-conglomerates" and monopolies formed and fixed prices as we see in health care... oil and energy... and even in media.

      We constantly hear that "American workers can't compete with Chinese workers making $.86 an hour and that they will have to settle for less." The riechwingers demonize the unions and blame them for companies going offshore.

      This is absolute Crap! There is a working model in the world that people should be talking about and that is Germany...

      Germany is subject to the same financial and   technological pressures that the US is but some how they have managed to:

      1. Have a GDP almost double what the US has.

      2. Their economy is based heavily on exports from their manufacturing sector. Yes... head on with the Chinese!

      3. They have a large trade surplus!

      3. They have the lowest unemployment in 18 years and are now suffering from a shortage of skilled labor.

      4. They are almost a full year and a half ahead of meeting their deficit reduction goals,

      In recession battle, Germany and China are winners

          excerpt:

          Most Americans, I suspect, believe we're losing manufacturing because we can't compete against cheap Chinese labor. But Germany has remained a manufacturing giant notwithstanding the rise of East Asia, making high-end products with a workforce that is more unionized and better paid than ours. German exports came to $1.1 trillion in 2009 -- roughly $125 billion more than we exported, though there are just 82 million Germans to our 310 million Americans. Germany's yearly trade balance went from a deficit of $6 billion in 1998 to a surplus of $267 billion in 2008 -- the same year the United States ran a trade deficit of $569 billion. Over those same 10 years, Germany's annual growth rate per capita exceeded ours.

          Germany has increased its edge in world-class manufacturing even as we have squandered ours because its model of capitalism is superior to our own. For one thing, its financial sector serves the larger economy, not just itself. The typical German company has a long-term relationship with a single bank -- and for the smaller manufacturers that are the backbone of the German economy, those relationships are likely with one of Germany's 431 savings banks, each of them a local institution with a municipally appointed board, that shun capital markets and invest their depositors' savings in upgrading local enterprises. By American banking standards, the savings banks are incredibly dull. But they didn't lose money in the financial panic of 2008 and have financed an industrial sector that makes ours look anemic by comparison.

          So even as Germany and China have been busily building, and selling us, high-speed trains, photovoltaic cells and lithium-ion batteries, we've spent the past decade, at the direction of our CEOs and bankers, shuttering 50,000 factories and springing credit-default swaps on an unsuspecting world. That's not to say our CEOs and bankers are conscious agents of foreign powers. But given what they've done to America, they might as well have been.

      http://www.washingtonpost.com/...

      Germany's new boom: making money by making stuff

      While the UK and US increasingly relied on the financial sector, Germany concentrated on manufacturing

      Excerpt:

      Sinn believes that falling unemployment will eventually lead to increases in wages, which in turn will boost consumer spending. There is, though, little sign of Germany's policy-makers hastening this process. They seem quite content with the combination of factors that help explain Germany's comeback.

      The first is Germany's economic and political structure. Prosperity is far more widely spread across the country, with none of the excessive concentration of wealth in one region found in Britain. There is an emphasis on long-term growth rather than flipping assets, and boom-busts in the housing market are unknown.

      Germany was not immune from the speculative mania, and one reason Angela Merkel is prepared to bail out the struggling economies of the eurozone is that German banks are up to their eyeballs in Greek, Spanish, Irish and Portuguese debts. But there was still an industrial bedrock. Thomas Mayer, chief economist at Deutsche Bank, agrees. "Looking back, some economies were putting too many of their resources into sectors such as real estate. Perhaps they overdid it. Germany benefits from an old-fashioned structure. What looked old fashioned was more durable. The UK has overdone it but it is not the only one. The Americans, the Irish and the Spanish all overdid it."


      http://www.guardian.co.uk/...
      •  more ironic (1+ / 0-)
        Recommended by:
        Flint

        in the Soviet economy, the concept of "supply side" dynamics driving the economy wasn't complete nonsense.  When people are standing in line for hours, you have demand in excess of supply, thus boosting supply is an effective way to grow the economy.

        That situation is more or less unheard of in modern America.

        •  Nice Twist! (0+ / 0-)

          I hadn't thought of that but now that you mention it... yup! It is all about whose side is getting supplied.

          I heard the former Gov. of Michigan talking and she was talking about the auto industry success in her state...

          "People have to realize that in the global economy, government has to take a more active role in creating jobs especially where we are competing against governments who do"

          They are "winning" and we are not.

      •  for high-volume manufactured goods (0+ / 0-)

        using automated assembly, the cost of labor shouldn't be more than 10% or so of unit price, higher hourly rates are averaged out over far more units, as workers are supervising automated machinery, not assembling stuff by hand. Also, the higher quality of automated assembly means lower warranty return costs over the life of the product and higher customer satisfaction. One also has reduced shipping costs within the primary US markets and somewhat reduced shipping costs to EU.

        People have gone with cheap labor in Third World countries on the basis of short-term financial perspectives about tying up capital by buying actual machines with it. It's about short-term CEO bonuses, not long-term shareholder value.

        The CEO of Foxconn has said in a recent interview that he could sell automated assembly services in the USA for prices comparable to what he uses manual labor for in China, but he chooses not to due to a philosophical objection to having to comply with labor and environmental laws.

        Paul Krugman believes that it's impossible for the US to compete in manufacturing due to higher labor rates.

        ONE of the two builds iPods for a living. Actually, this belief is prevalent among mainstream economists, and I see no basis for it. I've worked in electronics production, and I'm about to build a small batch of prototypes for a personal project.

        Peak Oil is NOW! Looking for intelligent energy policy alternatives? Try here.

        by alizard on Thu Jun 02, 2011 at 01:27:10 AM PDT

        [ Parent ]

        •  Germany says bugger all... (0+ / 0-)

          To those who say America can't compete in manufacturing...

          From the WAPO article above:

          Most Americans, I suspect, believe we're losing manufacturing because we can't compete against cheap Chinese labor. But Germany has remained a manufacturing giant notwithstanding the rise of East Asia, making high-end products with a workforce that is more unionized and better paid than ours.

          Those who croon the tired meme that we can't compete have yet to explain how Germany does it. This is where "theory" and "reality" collide.

          Further... on Krugman:

          Making Things in America
          By PAUL KRUGMAN
          Published: May 19, 2011

          Excerpt:

          And one potential disaster has been avoided: the U.S. auto industry, which many people were writing off just two years ago, has weathered the storm. In particular, General Motors has now had five consecutive profitable quarters.

          America’s industrial heartland is now leading the economic recovery. In August 2009, Michigan had an unemployment rate of 14.1 percent, the highest in the nation. Today, that rate is down to 10.3 percent, still above the national average, but nonetheless a huge improvement.

          I don’t want to suggest that everything is wonderful about U.S. manufacturing. So far, the job gains are modest, and many new manufacturing jobs don’t offer good pay or benefits. The manufacturing revival isn’t going to make health reform unnecessary or obviate the need for a strong social safety net.

          Still, better to have those jobs than none at all. Which brings me to those right-wing critics.

          First, what’s driving the turnaround in our manufacturing trade? The main answer is that the U.S. dollar has fallen against other currencies, helping give U.S.-based manufacturing a cost advantage. A weaker dollar, it turns out, was just what U.S. industry needed.

          more...

          http://www.nytimes.com/...

          Germany protects itself against artificially cheap imports from China by using a VAT tax to level the playing field and as a result they have a trade surplus.

          Suggestions that we do the same have been met with charges of "protectionism" but in reality it is nothing more than self defense.

          That also doesn't explain how other countries find their prices on manufactured goods to be affordable though.

          The Chinese howled over QE I & II because they knew this would happen, but Obama went ahead with it and is also calling for an overhaul of our business tax structures because he knows where this must go if we are to preserve our manufacturing base.

  •  Excellent post (8+ / 0-)

    Here's the basic problem with the conservative mindset:

    What has this got to do with conservative economic activities, such as corporate lobbying against regulations?  The lobbyists use the argument that, left alone, like a plumbing system, a market will settle down to “the best of all possible worlds” – left alone by the government, that is.

    That would be fine and dandy if you had only one government involved.  However, how that we're much more globalized, the United States government is not the only government influencing the market.

    This is why the United States government should be involved in the process of creating jobs, even industries, to compete globally.  We're no longer a self-contained system.  We can't be.

    "People should not be afraid of their government; governments should be afraid of their people." --V

    by MikeTheLiberal on Tue May 31, 2011 at 10:21:23 AM PDT

    •  Governments have always supported industry (13+ / 0-)

      because they didn't want to fall behind the leaders -- unless, of course, the leaders took them over and wouldn't let them support industry.  So, the US imposed tariffs on British goods and supported "infant industries", to use Alexander Hamilton's phrase, in an effort to catch up to the leader and not be completely overwhelmed.  On the other hand, India's industries were destroyed by the British after they took India over.

      Usually, governments have been very worried to keep their industries on top, by any means necessary, because clearly global power emanates from industrial power...except that in the US, that doesn't seem to be considered a legitimate idea anymore.  As far as the neoclassicals are concerned (more or less -- I'm generalizing), there are no nations, just a global market.  Not that nations are so great, but if you happen to be a weak one in a sea of strong ones, you get gobbled up.  The idea is to make everyone strong, and to do that you need government support, everywhere.

      •  As I've said before (6+ / 0-)

        If we don't have an official industrial policy, what we wind up with is an unofficial one written by foreign governments.

        "We recommend, as a precautionary measure, that people with respiratory infections should be advised not to blow their vuvuzela in enclosed spaces and where there is a risk of infecting others."

        by ebohlman on Tue May 31, 2011 at 02:51:33 PM PDT

        [ Parent ]

      •  Which is the triumph of high finance over (4+ / 0-)
        Recommended by:
        Wolf10, Egalitare, salmo, happymisanthropy

        real economic wealth and power.  The Goldman-Sachsing of the economy....

        Progress occurs when courageous, skillful leaders seize the opportunity to change things for the better. -- Harry S Truman

        by YucatanMan on Tue May 31, 2011 at 03:14:12 PM PDT

        [ Parent ]

      •  You've summarized my objections to globalism (3+ / 0-)

        I'll grant that nation states have caused a lot of trouble over the years, but I trust governments more than multinational corporations any day of the week. The proponents of globalism (just one more "ism," in my view) seem to fail to recognize that the system they are promoting is centralizing power in fewer and fewer hands, while simultaneously destroying local economies.

        And as for the market, I would trust God more than the market. The market is nothing more than the mob mentality of a million stock-jobbers' devolving to the state of monkeys, or perhaps to our reptilian ancestors. The market is a human construct. It was made by man, and is made of men. The fact that it can be and has been manipulated and subverted many times is a known historical fact. To attribute to it any degree of infallibility, as the neoclassicals have done, is absurd. This form of economics might have worked tolerably well two hundred years ago, when economies were much more localized. A failure in one place, even a catastrophic failure, would not greatly affect people far away from it. That is no longer the case. The globalists have gotten their wish; the world is now intimately and tightly connected, and has been for over a century. A hundred years ago it was said, "When America catches a cold, Japan gets pneumonia." Similar states of affairs have only become more common over the last century. The conventional economics need to be discarded in favor of something that works better.

        The worst thing about neoclassicals and their ilk is that they seem to forget that the market was intended to serve the people, not the other way around.

        •  Those evil markets. (0+ / 0-)

          They forced us to drive Edsels, use Microsoft Bob to operate our computers, drink New Coke and watch Gigli.

          •  Yes there's no other alternatives (0+ / 0-)

            between destroying markets, or letting markets absolutely run our lives, rule our society, and set policy at every level of government.

          •  I think you miss my point (0+ / 0-)

            I am in favor of markets. I am opposed to the deification of markets. Markets, as I pointed out and as you have also pointed out, exist to serve people, not the other way around. People demand a good product, and the market provides it. That is how it ought to work.

            What I am opposed to, in contrast, is when the market is dominated by increasingly larger, increasingly fewer, "too big to fail" conglomerates, because when one of those big boys go down, it's not like the corner grocery or barbershop going out of business (which can be devastating enough, depending on the community). When one of those goes down, it destroys not only the jobs of all the people who worked there, but it also impacts the jobs of the dozens of smaller companies that that one contracted work out to, that it bought parts and machinery from, and so on. It impacts not only the people who lost their jobs, but their families as well; their sons and daughters, husbands and wives. And then there's the havoc it wreaks on the stock market. When a large company goes under, others who are not even directly connected to the failed company are affected through no fault of their own.

            So I will say it again. Capitalism exists for the good and benefit of people, not the other way around. Markets are a means to an end. They are not an end in themselves, and we have both the right and the responsibility to regulate them for the benefit of all.

    •  Every other government is. The USA is uniquely (2+ / 0-)
      Recommended by:
      Wolf10, happymisanthropy

      handicapped in this regard.

      Progress occurs when courageous, skillful leaders seize the opportunity to change things for the better. -- Harry S Truman

      by YucatanMan on Tue May 31, 2011 at 03:13:03 PM PDT

      [ Parent ]

      •  This probably doesn't count (0+ / 0-)

        This is probably an urban legend.  But supposedly, Hong Kong's tax form was 2 pages.  And it was only that because one page was English and the other was in Chinese and you could choose which language you filed in.

        And Hong Kong's government just used the taxes for roads, police and courts.  Even the subway there was privately owned.

        But I'm not sure we could follow that example.

        Woo hoo!  My family and I are 8 days away from the country that gave us Pemex; a rather profound argument against government intervention in the economy.

  •  If you know the dynamics, you can jimmy the system (5+ / 0-)

    That's the flaw in over-applying physical theories on human-influenced systems.

    In a hydraulic system, like plumbing, none of the entities are actively altering the functioning of the system to support a selfish agenda.

    A water molecule doesn't decide which path through the system would most benefit itself, and then start manipulating the system to go there. The hot water heater doesn't actively try to thwart it's own temperature regulating system because it believes it can get a short term gain from constantly being overheated, regardless of the stresses this would cause to the rest of the system, and the cost to the owner for energy consumption, system repairs, and shower scaldings...

    The reason the plutocrats push the idea that governments should not exert controls on economic systems is because the plutocrats themselves want a free hand in manipulating any available controls. This allows them to jimmy the system for their own greed, by offering unlimited exploitation of labor, consumers, resources, and the ecosystem.

    Enjoy your tornadoes, floods, droughts, e-coli & salmonella outbreaks, joblessness, lack of health care, and wars, et al.

    And remember to celebrate "Hug a Plutocrat" day, which should be replacing Labor Day relatively soon...

  •  Food, Shelter and Clothing (4+ / 0-)
    Recommended by:
    3rdOption, opinionated, koNko, greatferm

    It can be argued these are the roots of our economic system. Much of the sectors such as transport, manufacturing, and what not orient to these, and without these we have nothing else.

    In building an ecological paradigm we have to begin with the roots, which is the biological ecosystem of Planet Earth, and our reliance on the Mother for survival. A new paradigm must be based on this first, and all economic activities then build off of this core principle. In doing so sustainability and environmental awareness must be the priorities for a functional economic system, this is the lesson we must learn- money/stuff first does not work because it will literally kill us.

    Looking forward to more of this series, thank you.

    "Without LOVE in the dream it will never come true..." -Hunter/Garcia

    by US Blues on Tue May 31, 2011 at 04:09:25 PM PDT

    •  Manfred Max Neef explains this. (2+ / 0-)
      Recommended by:
      opinionated, koNko

      He's a Chilean economist.

      Here's the first part of a Democracy Now interview with him.

      And his Wikipedia page.

      Well worth the time listening to this professor.

    •  Yes, is sustainable growth possible? (1+ / 0-)
      Recommended by:
      koNko

      I will try to tackle that one in the next post.  On the one hand, you have the world of people who want to see growth, and on the other, you have the world of people who understand that growth, unconstrained, will destroy civilization.  It's basic ecology -- a successful species can destroy the basis of its survival.  On the other hand, we need to understand how manufacturing, or more generally, production, takes place, so that we can understand how to accomplish it sustainably.  I don't think it's easy, but I do think it's possible -- so both the people who say that in order to have a wealthy society we have to destroy the planet are wrong, and the people who say that in order to prevent the destruction of the planet we have to be what we would call poor are wrong...at least, that's the hypothesis.

      •  How Is Wealth Defined? (0+ / 0-)

        If it is defined as having money and stuff, well we see already that this does not work ecologically or economically. And it also doesn't work psychologically, there are studies which have shown that, as the Beatles so aptly said: "money can't buy you love."

        The challenge is to orient to real happiness, maybe that's what our whole ecological/economical crises is here to teach us.

        "Without LOVE in the dream it will never come true..." -Hunter/Garcia

        by US Blues on Wed Jun 01, 2011 at 07:05:48 PM PDT

        [ Parent ]

  •  Obviously there's more to come (1+ / 0-)
    Recommended by:
    Utahrd

    but I have questions about the premise that "Neoclassical economics was not designed to deal with the complexities of a global industrial civilization that is endangering its own existence ecologically with global warming and ecosystem destruction, and economically with an out-of-control financial sector. It wasn’t designed to solve the problems of the world central economy, the United States, and its seriously declining manufacturing sector."

    Simply to state the most obvious, certainly the principles behind "neoclassical economics" (who, precisely?) are the classical principles of Smith and Ricardo et al. And certainly they thought that they were grappling with questions of both domestic and international economies. Smith, of course, didn't really argue that any given market always "knew" best, but that overall, over time, collective decision-making in what he called his "system of natural liberty" (aka capitalism), was both morally superior to and more palatable than being told by governments what to do, what to wish for.

    Perhaps, "The market cannot design the system as a whole." But I can't say that I'm less than suspicious that "government" (what kind? how empowered? under what circumstances?) will fill the bill.

    Beyond that, I wonder somewhat at a critique of contemporary economics (all of it?) on the grounds of failure to predict certain outcomes. Does this mean that the proposed substitute will be shown to be a better predictor of events to come. The way such things are usually done is by using historical data to demonstrate superior prediction in hindsight. Is this what is going to be shown—even if more on a model of evolutionary theory, as opposed to fluid mechanics?

    As a say, just some preliminary questions that I hope will be addressed. I look forward to reading the rest.

    •  hmi, good questions (0+ / 0-)

      and I will certainly address them.  The Big Point here was, what kind of economics, or framework, do we use in order to craft strategic national economic policy?  Do we rely on something, neoclassical economics, that is well-suited for understanding the short-term behavior of a competitive industry?  Or do we try to craft something else, which uses different scientific models of systems, that is more relevant to the real world?  How do we mix governments and markets so that both do what they do best, without just assuming that one or the other is best at everything?   Obviously we have mixed economies, so is there some way we can get closer to how they "mix", and how they should "mix".  Anyway, thanks for your questions.

  •  Great start on an importiant topic (0+ / 0-)

    Unfortunately most discussions on the subject here bog down in debates centered on what are essentially obsolete ideas applied to a globalized world economy and the concept of recovering what were already struggling industries.

    I very much look forward to your next diary.

    What about my Daughter's future?

    by koNko on Tue May 31, 2011 at 08:40:56 PM PDT

  •  Tax rates (0+ / 0-)

    I used to work for a company that outsourced some of its manufacturing to Taiwan.

    Taiwan?  They make almost as much money as we do.  And if you can believe that movied "Eat Drink Man Woman", they live better than we do.  

    But their tax rates are lower.  So my employer wanted to move its operations that create more profits to a place where these profits would be taxed less.  

    While high corporate tax rates are certainly morally justified, we have to remember that some progressive European countries have lower corporate tax rates than we do.  These countries also don't have illegal wars to pay for and fewer 300-pound citizens that need government health care.

  •   Aren't all economic theories (0+ / 0-)

    born out of an era of cheap energy?  The assumption of economic growth and the ethos of it being an intrinsic good is only possible given a massive fossil fuel energy resource.  Without that, a lot of economic theory seems purely acadamic.  If energy=wealth, what happens when we run out of gas?

    In a world of dwindling fuels, I think our future find al new paradigm for manufacturing.  It'll be less like a computerized Asian Nike factory and more like a local cobbler, crafting sandals by hand out of obsolete auto tires.

    It's not the voting that's democracy, it's the counting

    by martinjedlicka on Tue May 31, 2011 at 09:10:07 PM PDT

    •  Oil is not necessary (1+ / 0-)
      Recommended by:
      alizard

      I'm not sure if I'll touch on that in the next post, but I'll try.  the point is, it is possible to run high-tech, modern factories, using recycled goods, and emitting little or no pollution, including carbon.  and using renewable electricity.  So I don't think we will need to "make things by hand", as james howard kunstler claims, for example, although if civilization collapses before we rebuild it that could possibly happen

  •  Conservative economic theory is based on a false (1+ / 0-)
    Recommended by:
    3rdOption

    premise.

    The informed customer will seek the optimum value.

    Yes.  Fine.  But how does the customer become informed?  Then that information itself becomes a commodity that the market will strive to control regulate.  

    It's * STILL * the economy, stupid.

    by hillgiant on Tue May 31, 2011 at 09:35:00 PM PDT

  •  Prigogine and complexity theory (0+ / 0-)

    Jon, I agree with the general thrust of your piece and on your view of the role of Government and the instability and unsustainability of market economies. But I must point out that your characterization of Ilya Priogine's work is, at best, misleading. Prigogine is known for his theory of dissipative structures and his pioneering work in developing the theory of self-organizing complex systems. His focus was on the development of  order out of molecular chaos and also the view that biological systems could not be accounted for using deterministic models (neo-liberal economics uses such deterministic models).

    I'll look forward to the appearance of the rest of your series.

    •  Yes, but... (0+ / 0-)

      of course, Prigogene did not hold forth in the same way I did, and I apologize if I gave that impression.  The important thing about him is that he started (or encouraged) a trend away from assuming that the physical world always follows the processes of classic statistical mechanics.  This isn't even particularly necessary for what I am saying -- I mainly think it's interesting that you don't have to have the level of predictive capacity of, say, statistical mechanics in order to be considered a science.

  •  I enjoyed your diary. (0+ / 0-)

    You've some compelling and intriguing ideas in there.

    Waiting for the next piece :)

    IF THEY ARE GOING TO SCREW THE PEOPLE, MAKE THEM OWN IT. #opengeekorg

    by potatohead on Tue May 31, 2011 at 10:23:47 PM PDT

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