A New Way to Think About Economics? Or Not.

I eagerly followed a link to “A Totally Different Way to Think About Economics – with Visionary Charles Eisenstein” (by Adam Parsons) hoping to find some foundations for the “fourth way” economics I keep hoping to find, because I don’t think I am smart enough to invent it on my own.

But apparently the visionary way to think about economics is “not”. Eiesenstein’s eager disciple was advised to wander “around the college grounds, mulling over our most pressing problems, until being drawn to something in nature – a bug, a leaf, or a spiders web perhaps – that we then stared at for a long time, awaiting an answer to our quandary. … I soon found myself quite enjoying these exercises and the opportunity they gave to explore my untapped inner potential and reconnect with nature.”

Well that’s all well and good, and I mean that in the most sincere possible way, except that it doesn’t constitute a way to think about economics, new or otherwise. Parsons concludes with more tantalizing words “How rare to meet someone who is capable of dissecting the finer points of reserve-free credit-based monetary systems, who at the same time conducts consciousness-raising workshops of the mind-body-spirit variety, and yet still manages to cut through the spiritual mumbo jumbo of New Age thinking.” A pity he hasn’t found a way to share those finer points about, you know, economics.

The course apparently has the following reading list: The Unsettling of America, by Wendell Berry; The Gift, by Lewis Hyde; Debt, by David Graeber; and Confessions of an Economic Hit Man, by John Perkins. Has anyone got any insights about whether these books are actually helpful, or about Eisenstein himself? I will start by saying that Wendell Berry is a great poet and a fine essayist and practically the epitome of doomster Second Way thinking. I love to listen to his words of wisdom about life, but I have to dismiss his actual technical advice as woefully unrealistic.

Is there any substance here to pursue? Parsons leaves me in doubt.

Comments:

  1. The problem is that the truth hurts.

    For everyone to be as rich as we in the West we would need three planets the size of Earth. The world population is growing. So in the future we will need four planets!

    So either we find a way of making the West poorer or there will be a global catastrophe.

    Who do you think will win the US presidential election? Romney who is promising to make everyone richer, or Obama who claims he has done the best he can?

  2. Eisenstein appears (to me) to be discussing other systems of status and resource allocation besides the Western-style market. I don't have time right now to dig up many references but IIRC many Amerindian cultures practiced a system of status-enhancement through the giving of gifts (potlatch). AFAIK many client-patron systems also involve the transfer of wealth (in return for status) in ways different from the market-dominated system we normally think of.

    These distinctions and cultural differences have a long history of discussion: Herodotos discusses differences between Hellenes and Persians in this regard.

    This type of thing isn't completely absent from our market-driven economy, all sorts of status-enhancing transfers of wealth take place, even sometimes by corporations (e.g. donations to charity). Depending on the circumstances they aren't even necessarily detrimental to the bottom line, since employees and customers can be influenced by such things.

  3. So either we find a way of making the West poorer or there will be a global catastrophe.

    Or we increase efficiency. There is not need to become poorer if we figure out how to maintain our standard of living with less.

    I think the biggest piece of good news on the sustainability front is that human populations are expected to stabilize at around 10 billion people. This gives us a fixed target to work towards.

    I think Hans Rosling (as a small part of his amazing magic washing machine video) lays out what we need to do:

    http://www.youtube.com/watch?v=BZoKfap4g4w

  4. Graeber's Debt is in line on my shelf. My impression is that it takes a historical/anthro view of the title subject, the thesis being that debt came before currency and that barter arises mostly with the breakdown of currencies, a reverse of the standard sequence told by economics. A complaint about the book is that it gets a lot of economics wrong, but is worth reading for the historical perspective.

    Brad Delong for his intro course assigns Partha Dasgupta's "Economics: A Very Short Introduction", which I think is useful for showing that the field is broader than you guess (or I guessed). It also has what appears to be a solid bibliography for further reading.

    Doug Henwood's Wall Street also gets high praise even from people who don't share his politics, and it's available as a free download. He seems very good at skeptical analysis of economic ideology, left and right.

  5. PS- Graeber is known for having anarchist tendencies of an anti-organizational, New Left sort that tend to accompany your Second Way, which is probably how he fits into the picture you present. Henwood is good at cutting through this kind of thing (see his blog and website).

  6. Dan,

    That washing machine is not real, and neither is his plan!

    Once these guys have a washing machine they'll all be wanting cars as well 🙁 Moreover, being more efficient is just double speak for getting poorer. Of course I could swap my SUV for a Fiat Cinquecento and use 50% less oil. I could downsize from a four to a two bedroom home, and eat half as much, but that seems like being poorer to me. And if I did that, I would have half my salary left over to spend, and produce more consumption. Of course you could half my salary or double the price of every thing, but would that be acceptable to Joe Six-pack, especially now he only gets three cans?

    Cheers, Alastair.

  7. If you want a current example of a gift-oriented community consider the open-source movement. Many developers contribute to this either as gifts of their own, or on time paid for by cooperative employers. And many companies provide open-source software or other distributable goods.

    They don't do this out of the "goodness of their hearts". Rather because they see (potential) benefits. For individuals it's a way to enhance their status through open demonstrations of competence. For organizations, they may well influence customers or the wider business community, but the greatest advantage (AFAIK) is that they can attract and hire employees who won't work for an employer who doesn't allow them to do some open-source development on company time.

    The very existence of the community becomes a value for employers. If they find themselves in need of emergency development consultants, their own employees have the connections and often the status in the open-source community to find and hire the people needed.

    This points up the fact that a partly "non-monetized" sub-economy can develop right within our monetized economy, when the right incentives are present.

  8. Honestly I think you completely missed the point of the video and of what I (and I suspect most people) mean by efficiency.

    Of course people will want more than a washing machine. It is addressed directly in the video when Hans Rosling talks about the "new east". When he says "If you have democracy people will vote for the washing machine" he isn't referring to just the washing machine. It is a metaphor.

    As for efficiency, the examples you give are not really gains in efficiency but real cutbacks. Efficiency gains mean you can do the same with less. You aren't any poorer is your house is more efficient (and still the same size).

    You are correct to bring up Jevons paradox. This underscores why efficiency is not enough, but policy (like perhaps that carbon tax I keep advocating for) can successfully mitigate this issue. The ideal being that your total energy costs remain the same (so no money left over for new toys) even though your energy use is less (thanks to efficiency).

    The larger point I was making is that if we assume that human population will grow without limit then maximum sustainable piece of the pie that each of us gets becomes increasing smaller. Thankfully this doesn't seem to be the case.

    We now know that our individual slice of pie will not get smaller forever. The importance of this cannot be overstated.

  9. Graeber is good for an outside perspective on what economics is actually about - and how little of what actually happens (gift, exchange, ritual, command, social structure and so on) makes it into formal economics. Not so good on actual economic alternatives. And leave the last chapter. The discussion on Crooked Timber is a useful start.

    As for thinking about a 4th way, I don't know if economics is the place to start. The economy is, in part, about rules of accounting. The rest is politics - get that right and the economics follows.

  10. Dan,

    I do understand what most people mean by efficiency, but what I was trying to say is that I don't believe those efficiency savings are not possible. I have to agree that my reasoning was not convincing so here is another attempt by me to explain why those efficiency targets are unachievable on economic grounds.

    There is an economic principle called the law of diminishing returns. Take a man with a field of one acre in which he produces one ton of hay. If he adds a hundred weight of fertiliser, then he get 1.5 tons of hay. If he adds 2 cwt of fertiliser he gets 1.8 tons of hay. If he adds 3 cwt he gets 2 tons, and if he adds 4 cwt he gets 1.9 tons. so how much is he going to add? Let's say it is obviously 3 cwt. How much will farmers be adding at present? 3 cwt. So how can he double his efficiency? Modern production is all run at maximum efficiency otherwise they would be undercut by their competitors. That is the free market in operation. So, in general, increasing efficiency is not possible.

    The carbon tax also seems like a good idea but does not work in a the real world. Either the proceeds of the tax are spent by the government resulting in more energy use, or they are used to pay off the deficit. If the latter, it will cause a recession. Less spending means a contraction of the GNP. That is why the Republicans insisted on cutting the US deficit. They knew it would cause the economy to contract and make Obama's re-election more unlikely. If the Americans pay off their debt then they will have to cut their standard of living. If they, or anyone else, wants to cut their CO2 emissions then they will have to cut their standard of living too. There is no such thing as a free lunch.

    This is where the greenies are being dishonest. Implementing policies to curb carbon emissions are going to hurt. But not as much as if we do nothing.

    Cheers, Alastair.

  11. "Get the politics right and the economics follows" is my basic belief about this. But what does "right" mean and how do we do a better job of thinking about that? Particularly, how do we do that in a way that doesn't actually cause harm to future generations? We need a way to weigh our options.

  12. Michael, is it too much to ask people to read Marcus Aurelius's Meditations or learn the conduct of the community of friends of Epicurus's Garden or the teachings of the Buddha? Practical philosophy has proven techniques that turn Less into More.

    Pipe dream? I think so. But the Responsible Stewardship community is not being 100% forthcoming and honest if they don't talk about the Blessing of Less, and the practical consequences including the positive ones.

  13. Modern production is all run at maximum efficiency otherwise they would be undercut by their competitors.

    That is the ideal but we are far from that ideal. This is especially true when one can dump tons of CO2 into the atmosphere for free.

    The carbon tax also seems like a good idea but does not work in a the real world.

    Sure it does. At least it does here in British Columbia and I see no reason why it wouldn't elsewhere. The economic theory behind it seems perfectly sound. Internalize the externalities, this allows the free market to effectively deal with the problem.

    This is where the greenies are being dishonest. Implementing policies to curb carbon emissions are going to hurt. But not as much as if we do nothing.

    I agree, they will hurt. I have seen a few estimates now that claim that it will take somewhere near the ball park of 1% global GDP to solve the problem. That is a lot of money (that that is an understatement).

    But there are two reasons why this might not be as bad as it seems. The first is that there is a long record of the costs of environmental regulations being overestimated. Nut just by industry, but also by academics and the governments who are implementing them. Generally the free market is able to adapt to the new rules faster and for less money than anyone expected.

    Second the money spent on combating climate change isn't thrown away. It is spent on new technology, or monitoring equipment or additional employees. The point is that 1% is spent which stimulates the economy.

    So yes it will hurt, but there are reasons to suspect it will hurt less than we estimate. Regardless it will hurt much less than than the suffering caused by inaction.

  14. Dan Moutal --- "In 2011, the GWP totalled approximately US$78.95 trillion in terms of purchasing power parity (PPP)..." from Wikipedia. One percent of that is about what the US spends on DoD and some of the related agencies (DoE in support of DoD). About the same, US$750 billion per year, is what in the USA is wasted while providing medical services according to a recent Institute of Medicine (NAS/NRC) report.

    I could go a long way towards over 100% mitigation for that sum yearly over many decades. [Over because of the desire to draw down CO2.]

  15. I did not know they had introduced a carbon tax in British Columbia but I did know that they are introducing one in Australia. What I will be interested in seeing is whether it does reduce the carbon emissions from BC and Oz.

    But even if it does, will these be real reductions? Won't it just lead to more imports from countries where goods can be produced tax free? In other words it won't cut the emissions just export them to developing countries.

    One answer to that problem would be to have a global carbon tax set by the UN. But is that politically feasible?

    The 1% cost proposed by the Stern Review is a gross underestimation from my POV. There was talk of the need to cut emissions by more than 50% and that means to me that everyone has to get 50% poorer. If the poor are to get their fair share then we in the West will have to get even poorer still.

    To my mind Hans Rosling's ideas are similar to someone arguing that all our problems would be solved if we invented a perpetual motion machine. They realise it is difficult but we only have to invent one, and that should not be beyond the wit of Man. Nothing is impossible!

  16. Alastair McDonald --- I will address two or three of your points. First, Oz emissions cuts are not real because at the same time coal exports will increase. Second, the Stern report stated 1--2% of GWP. The larger figure is close to what a recent report states GWP went down in 2011 due to climate change impacts, about US$1.2 trillion.

    The Russians latest completed nuclear power plant NPP) build cost but about US$2.6/W. Unbeatable low cost, so I'll assume an average of US$3/W, which is still low. With US$1.2 trillion per annum, we could build 400 gigawatt-sized NPPs per year. Each typically can displace about 2 coal burners, of which there are thousands in the world. Then, the power generated can be used to make so-called carbon neutral transportation fuels; the end of petroleum.

    But nobody is poorer. In fact everybody lives in cleaner air with no coal burning for anything (except steel making) or wood burning for cooking. So everybody is better off.

    But more. SLR is largely prevented by drawing down the excess CO2 in the air, possibly by

    Irrigated afforestation of the Sahara and Australian Outback to end global warming
    http://www.springerlink.com/content/55436u2122u77525/

    creating employment in regions where there is no enough (Magreb).

  17. But even if it does, will these be real reductions?

    This is an important concern. But it doesn't appear to be the case here in BC, the reductions seem to be real.

    What the BC example shows is that it is possible to take a first step without exporting emissions. Of course there is a limit to how much one single juisdiction can do alone. Importantly that limit is greater than zero (something that critics of the carbon tax here and else where often forget).

    To my mind Hans Rosling’s ideas are similar to someone arguing that all our problems would be solved if we invented a perpetual motion machine.

    With the exception that perpetual motion violates the laws of physics. Regardless this seems like the obvious answer:)


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