Those of you Kossacks who might have had occasion to read any of my comments over the last year know that I frequently speak of the need for a new economic paradigm. The release of the latest IPCC report and the news of the certain collapse of the West Antarctic ice sheet make that need all the more pressing. Human civilization has now reached a crisis point where the choices we make in the very near future will irrevocably determine the fate of countless generations of all forms of life on this planet, including our own descendants.
An unsettling number of observers and analysts have looked at our situation and become convinced that collapse is now unavoidable; they see absolutely no likelihood for the type of system-wide transformation that is needed at this point. I can’t say that I blame them, frankly. Things really do look pretty bleak and hopeless.
I cannot and will not share that sentiment, however; I am by nature an optimistic person and believe that a fundamental shift in society’s trajectory is still possible.
I recently submitted an abstract for a paper I am writing on this subject to the journal ephemera, which was accepted for inclusion in an upcoming special issue on Organizing for the Post-Growth Economy. This and my next four diaries are an adapted version of the presentation I was invited to give at last week’s related Post-Growth Conference at the Copenhagen Business School but which I was unable to attend. And so, I shall present my thoughts on this subject to you, my fellow Kossacks. I hope you enjoy them. Below the fold, then, shall we?
Next month, Andrew Haldane, an outspoken central banker that Time Magazine named as one of the 100 most influential people in the world, will become the Chief Economist of the Bank of England. He will be taking the helm of the 320-year-old institution at a time of socioeconomic instability and uncertainty unparalleled in human history. He summed up the magnitude of the situation as it relates to the discipline of economics in a recent letter that has received significant notice up and down the corridors of the powers that be:
In the light of the financial crisis, those [macro and micro model] foundations no longer look so secure. Unbridled competition, in the financial sector and elsewhere, was shown not to have served wider society well. Greed, taken to excess, was found to have been bad. The Invisible Hand could, if pushed too far, prove malign and malevolent, contributing to the biggest loss of global incomes and output since the 1930s. The pursuit of self-interest, by individual firms and by individuals within these firms, has left society poorer.These extraordinary remarks dropped a bombshell on the economics profession. They are an admission that the “neoclassical” economic paradigm that has defined and described the world economy for the last century is fundamentally flawed. They signaled to the global economic policymakers that their world is about to drastically change. An economic paradigm shift is about to happen; the neoclassical framework is imploding on itself.
The crisis has also laid bare the latent inadequacies of economic models with unique stationary equilibria and rational expectations. These models have failed to make sense of the sorts of extreme macro-economic events, such as crises, recessions and depressions, which matter most to society. The expectations of agents, when push came to shove, proved to be anything but rational, instead driven by the fear of the herd or the unknown.
...we are a co-operative species every bit as much as a competitive one. This is hardly a surprising conclusion for sociologists and anthropologists. But for economists it turns the world on its head.
In this light, it is time to rethink some of the basic building blocks of economics.
The problem is, they have nothing to replace it with.
Mr. Haldane is only the most recent (if the most prominent) analyst to have come to this radical conclusion. Over the last year or so a growing chorus of voices has been sounding the alarm, and the arrival of Thomas Piketty’s Capital in the 21st Century has vindicated those voices and put the final nail in the neoclassical coffin. And although Piketty has offered little in the way of proposing the practical steps that need to be taken, he has at the very least identified just how far-reaching and comprehensive the task before us now is. As Peter Radford at the New World Economic Review put it recently,
He has reintroduced history. He has explicitly reintroduced political economy. He has delved deeper into the foundations of capitalism and produced a fact that needs a response. It needs a new theory. He has not produced that theory, he has simply pointed out the natural asymmetries within capitalism.An unprecedented opportunity has opened up that beckons to us to seize. We have now, for the first time in over a century, a chance to rebuild economics from the ground up. We can reach across the political spectrum and discuss shared goals and values, define new measures of wealth and capital, declare the best pathways forward, and demand of our national leaders that they change the rules of the game so that everyone benefits instead of just a few. The economy, and the planet it is a subset of, are in too dire a need of fundamental healing transformation for this undertaking to be left to the professionals. The time has come for all of us to become economists.
Further, he has done in much of Marx. For all the same reasons.
Both left and right now need to reformulate their thinking.
This starts at the bottom, because … the top isn’t listening.
But we need a new conceptual framework - - a new economic paradigm - - to do this.
This paradigm does not yet exist; it must be built. How might we do this? It makes sense to inspect the collapsed pile of old paradigm building blocks lying at our feet to see if we could reuse some of them at our new building site next door. In some cases we might be able to. In other cases not - - for some problems we are going to have to quarry new rock and shape it with our own hammers and chisels to make what we need. Because the situation we are facing is not a list of problems with identifiable solutions we can implement. That time has passed. We are now in an era of multiple interconnected dilemmas that have no solutions. At best our current predicaments will only be able to be managed for the rest of our foreseeable future.
But let’s leave aside that rather discouraging reality for a moment and talk about paradigms.
The word paradigm can take on any number of meanings in its usage, ranging from popular articles on golf and pastries to deep philosophical essays of this sort (quite the read!). Being an avid student of science I tend to the standard Kuhnian definition, especially as it unfolded in the history of quantum and relativity theories. From that perspective I like to think about paradigms as being able to provide the following three things:
Understanding: first and foremost, a new paradigm provides new insights to existing problems that the current paradigm does not or cannot provide;
Vision: next, a new paradigm provides new investigative approaches that lead in novel directions inconceivable within the existing paradigm;
Action: lastly, a new paradigm must be able to utilize existing investigatory tools and techniques in order to test and apply its usefulness.
A fourth characteristic might be, and for lack of a better descriptor, Communicability. A new paradigm must be capable of being expressed in a way that is readily comprehensible. This may or may not include the introduction of new terminologies and vocabularies, and in some cases visualizations (for example, in Feynman Diagrams). Ideally, the most effective new paradigms can be reduced to very simple concepts that can be understood by the general public, Einstein’s famous E = mc2 equation being the most recognizable example. This is especially helpful if we desire it to gain widespread and rapid acceptance.
Now, to use the example from quantum theory, what was happening to those physicists a century ago was that recently-developed scientific instruments were generating data that they could not make sense of. The existing conception of physical reality was that matter consisted of ever-smaller point particles and light/energy acted in a continuous wave-like fashion; their new observations of wave-particle duality threw that millennia-old idea right out the window. Then physicists started looking at the data from a completely different mindset using new concepts and terminologies. Over a brief period of time, as a result of this collective effort, the new quantum theory of matter and energy emerged and totally subsumed the old atomistic model.
Today in economics we are in a very similar, yet very different set of circumstances. Economics has increasingly become a very narrow-minded discipline that has lost most of its explanatory power. The century-old model that assumes economic agents act rationally in markets that eventually reach equilibrium no longer works. This is exacerbated by the reality of global resource constraints and the biosphere’s inability to assimilate the material loading we are placing upon it. The economy is not behaving the way it is supposed to according to the existing economic paradigm. So it must be replaced with a new one.
So where to begin? As with physics, with observations, of course. Easily enough done. We see evidence all around us of what works and what doesn’t. However, economics is not a science like physics is, in spite of the dense equations one encounters in any econometrics textbook. Not only is it a fuzzy discipline because it involves human behavior, it is inherently normative - - economics at its core is a moral practice. Most economists would like to deny that fact, and fortunately a few of them are beginning to acknowledge it. We can’t and shouldn’t wait for them all to come around to that realization, however. We haven’t the time.
To begin this undertaking, then, what follows is my own “laundry list” of observations: what I think a new paradigm should include and address; what I think it should proscribe and prescribe. There is a lot of overlap and intersectionality in the items below, and unabashed moral judgments. I also might have missed some obvious ones. Please add your own as you feel moved. Here we go:
Limits to Growth: It should go without saying that our growth-focused industrial civilization fueled by non-renewable material and energy resources exists on a finite planet - - but for the most part it unfortunately does. For nearly every single one of our politicians, policymakers, and media pundits, the inevitable certainty that we have now reached the Limits to Growth predicted four decades ago is the 1600-pound bull elephant in the room that cannot be discussed. Within academia, the discipline of Environmental Economics has addressed limits better than any other field. However, all too often Environmental Economists work within the existing neoclassical paradigm and introduce limits as a set of new constraints or variables attached to existing mainstream models. This must change; the planetary limits on all our resources must be incorporated into every fabric of the new paradigm we seek to weave.
New Economy Initiatives: As I and others have diaried about previously, there is an ongoing explosion of economic initiatives that are based on cooperative principles. Worker’s cooperatives, time banks, maker’s spaces, transition towns, complementary currencies, and all manner of hybrid organizations such as this one, are not amenable to analysis and policy formulation using an economic paradigm that views competition as the primary human economic drive. Our new economic paradigm must view competitive forces as only one social dynamic among many that humans occasionally partake in when circumstances allow.
Inter-temporal Needs: One of the unique characteristics of our species is that we (supposedly) possess sapience: the ability to do long-term strategic planning and implement those plans. We are able to do this fairly well when we have adequate material resources, and the more resources we have the further into the future we can act. With those resources in decline, it is becoming more difficult for the average person to care about the needs of our descendants beyond those that they can see and touch right now. And unfortunately, this is happening at precisely the time when the need to apply our sapience has never been more urgent. The current economic paradigm attempts to address this issue through what is called a future discount rate. However, inasmuch as this approach is treated as a mere additional variable in an equation in a fundamentally flawed model, it is not working and most probably will not accomplish its objectives within the existing system. Our new economic paradigm must treat the needs of future generations in a much more explicit and implicit manner.
Definitions of Wealth and Capital: It’s been recognized for many years that GDP is a lousy metric for measuring wealth and productivity. In the last few years alternatives to GDP have been developed, such as the Genuine Progress Indicator (GPI), a beta version of which is being tested in Maryland. Another alternative way of measuring wealth, and more for accounting and auditing purposes, is the Global Reporting Initiative. It is time for these tools to be implemented full-force on a wide basis across all sectors of the economy. This will be more readily accomplished within the conceptual and analytical framework of our new economic paradigm, which will at its inception contain these types of qualitative and quantitative measures as an essential building block. It could also likely prove to be essential for the transformation of our financial sectors in particular, as the transition to an economy based on steady-state operating principles is going to especially unsettling for them.
Inequality: Thomas Piketty’s groundbreaking work has empirically confirmed what Progressives have instinctively known for a very long time. That the one solution he has proposed is a simplistic and unrealistic global wealth tax is testament to the inability to find effective solutions to this ongoing problem within neoclassical economics. The question thus before us now is how to act on that realization within the framework of our new economic paradigm.
Organizational Transformation: Although the New Economy Initiatives noted above are a not insignificant and growing part of the economy, overall they are still a pretty minor part of it. If the analysts I cited in my first link in this diary are correct, their growth is unlikely to occur fast enough to ensure that sufficiently resilient socioeconomic structures are in place when serious power-down begins. Thus, it would be very helpful if our new economic paradigm provided us with the theoretical and practical means to accomplish a rapid transition of existing competitive-oriented production structures to forms based more on cooperative principles. Such a project may not be as hard to envision as it might seem on first consideration. As Julie Nelson eloquently and very accessibly describes in her work, socioeconomic institutions are products of the human imagination; the rules by which they operate can be changed very quickly. The strength in proposing such a bold undertaking is that at the heart of every organization are ordinary people who (the occasional sociopath aside) mostly have a set of shared values that are common to all humans. A new economic paradigm, if it utilizes a new conceptual vocabulary unassociated with the polarizing ideological economic discourse so widespread today, might be able to use framing techniques to facilitate the rapid and widespread organizational transformation that is very likely going to be needed in the coming years.
Consumption Ethic: In my opinion this is going to be the most challenging and problematic issue to deal with. While a portion of the general population “gets it”, by and large the Western industrialized world is wedded to consuming stuff. It is embedded in and essential to the healthy functioning of the current economic system and enabled by a long cultural history of the desirability of owning an ever-increasing number of material possessions. Such a mindset is obviously not congruent with a steady-state economy on a finite planet. This situation is only going to get more complicated in the near future when an additional two billion people in the still-developing world join the global on-line community and are presented that level of expectations as an attainable goal. Our new paradigm must be prepared to deal with this from the very beginning.
Sustainability: Ahh, sustainability. What to say about this that others have already said much more eloquently than I am capable of? From Lisa Fernandes’ insightful essay, “Sustainability Sucks” to Wayne Visser’s apt observation that sustainability “is about as exciting as watching lettuce wilt under the midday sun”, it is clear that sustainability as a useful term has lost any recognizable meaning; it is time to delineate and clearly define the concept and its goals and vision, and that must be one of the top jobs for any successful new economic paradigm. I think Joe Confino put it best when he recently observed,
The greatest risk to the sustainability movement is that it is struggling and so far failing to articulate a vision of a future that is both prosperous while remaining within planetary boundaries.I agree that this should be one of our primary immediate tasks in this undertaking. We must find this new narrative and articulate this prosperous vision, and this will only be possible within the conceptual framework of a new economic paradigm. We must heed the earlier advice of Mr. Haldane and Mr. Radford and construct this new paradigm with new building blocks, from the bottom up.
Until it is able to showcase a plausible paradigm shift, then no-one is going to feel safe letting go of the current system that is driving us towards the edge of an environmental and social abyss.
So what can we do about this? What I am hearing from numerous experts is that we need to find a new narrative that creates a sense of confidence to take more radical steps.
In my next diary we’ll head over to the building site, and without the laundry list for the time being. And you won’t have to bring your hammers and chisels just yet, either, you can leave those back at the house, too. But do bring your rakes and shovels, though; we’ve got some rubble to sift through and some digging to do first. Please join us!
~ vasudhaiva kutumbakam ~