The proper examination of a profound subject like this one, would ordinarily call for a clinical or scholarly tone. But the point of this writing is to spark a wider discussion; particularly with your comments below.
So here, with simple language yet full-depth, let us examine concepts that have until recently, largely escaped due consideration and common understanding. Let us dispense with the academic tones, and instead, focus on properly examining valid rationales.
In what is written in this article and in your comments below; let us shine our reasoned perceptions through the lens of the blogosphere; so that these rough ideas can be polished into refined understanding.
Let us start by accepting that our current, operative theory-in-use is serving us poorly, very, very poorly. As people of good conscience, sound intellect and insightful imagination; we are therefore compelled to devise something better.
Whether these issues are framed as ‘closed loop’ or ‘sustainability’ or ‘sustainable development’ or *survivability* is largely immaterial. What does matter, however we frame it, whether we use our considered rationality or any decent morality we might call upon – what matters is that we devise a better order – one that casts more light and which provides more warmth for those who are today, too often left in the dark and out in the cold.
Please: Let us never forget those who walk this earth with us, but who have no access to the basics of decent human welfare; and not only because to do so would be at our own peril. Let us take pause and contemplate, figure-out and imagineer a better “theory of everything” that we can use to better get-on in this wide world, together.
Exactly what is our current “theory of everything” that is misleading us so terribly and which rationality and morality demands we replace?
It’s called “economics”.
Now before anyone throws-up a whole hoopla, evoking cold war labels and jingoistic lingo; making blanket charges that mischaracterize more than they reveal – before we go one step down that refuse-strewn road – please dear reader, give the following some open-minded thought.
First let us be very clear about what “economics” is (or should be, according to economists, anyway).
This presents us with our first challenge, since there is more than one definition of the term and field. It would seem that different economists will favour one definition or another, depending upon their opinions as to how the field should evolve. One wonders if this also means that no economist is really satisfied with the schemas they themselves use to understand our world, in economic terms. It would seem that the scope and even location of the framework of economics is not defined coherently or otherwise agreed by economists. Instead, economics has become a conceptually generic field, with necessary branding such as ‘capitalist economics’ or ‘supply-side economics’ or ‘demand-side economics’ or ‘trickle-down economics’ or ‘voodoo economics’, as the case may be.
Without launching into an extended examination of all these multifarious definitions; suffice it to say that there are some common aspects to these definitions and a great many variations. To encapsulate all of these for the purposes of this writing and common comprehension…
Economics is the field of inquiry, study and knowledge examining the subset of human behaviours that seek to satisfy material needs and wants. Economics examines the production, distribution, consumption and trade and transfer of wealth and material prosperity. Economics arise wherever this activity is facilitated by the use of monetary instruments as currencies of exchange or otherwise through valuations, quotas or rations made in these terms. Economic theory is applied to improve profitability and productivity (on the micro level); while increasing the living standards within a society (on the macro scale). An economy is an adaptive system wherein individual actors seek to maximize their position; thereby achieving in aggregate, a positive equilibrium. This equilibrium is termed positive as an economy tends towards growth in supply and demand as populations and their wealth increase.
The above definition of economics isn’t exactly pithy. But, it is an honest attempt to capture all of the relevant concepts, if only in spirit. To fully understand this agglomerated definition of economics with all of the implications that pertain here, a number of broad caveats are required.
To properly contemplate each of the following broad caveats on economics; you need to maintain a frame of mind that includes all people, everywhere. Also, you must remember the basic fact, that the whole world cannot aspire to the living standards of the industrialized West, particularly the United States and Canada; without the natural resources of up to six additional planet earths – an impossibility. In other words, we have a dominant system in place (economics); that has little hope to offer the majority of the world’s inhabitants; much less any prospect of a sustainable future.
The need to either ‘fix’ economics, or how economics are practiced, or otherwise to establish the replacement of economics – this need is urgent. Now consider….
All Economics are Unscientific and Political
Economists will try very, very hard to describe their field as a science. They certainly do have some good statistics they can use to make much of their case. But it takes perspective to understand that the ability to eloquently describe a phenomenon; is not quite the same thing as the ability to understand and control a phenomenon, or at least predict its behaviour.
A true and ‘hard science’ seeks to understand and describe reproducible or verifiable phenomena; such that the same experiment or engineering will come out or perform in the same fashion, irrespective of who is carrying it out or where (all other things being equal). For example, it is a scientific constant, how much heat is required to warm a given quantity of water from a known starting temperature, up to the boiling point (given a number of known factors, including barometric pressure, water purity and vessel efficiency, etc.).
Yet, there is no true-and-tried economic formula for sustainable job creation; despite what politicians will tell you.
As a field, this knowledge of economics can only exist within the framework of a political philosophy, and there are many competing political philosophies that economists can choose from. This observation is not offered to impugn economics on these grounds directly; because indeed chemistry is a true ‘hard science’, and yet it can only be properly understood within the field of physics.
The critical distinction between economics and a true-to-life hard science like chemistry is that chemists actually agree on what physics is – the laws of physics – and so they can also agree on what chemistry is. Chemists have an enormous consensus; and this is essentially how the field of chemistry has advanced. This is not the case with economists or economics. Economists are seemingly free to choose the political philosophy that they like best. They subsequently conduct themselves and implement their economic policies with scant regard for differing opinions or even concrete evidence (which is often to the contrary).
Without opening an additional can of worms: Politics is the competition between the interests of various constituencies, conducted by their representatives and agents in government and the broader polity from which they rise. As such, each ‘economic theory’ tends to be concerned primarily with the interests and welfare of one constituency or another. The more comprehensive of the economic theories will address different constituencies; differentially and in different ways. It is the distinctions like these that characterize each ‘brand’ of economics. Different economic brands/ theories/ policies are favoured by and give favour to, different constituencies within a society. This makes economics an inherently political framework, most especially because those in direct control of economic policy tend to be in government (the recent advent of crypto-currencies notwithstanding.)
Understand this: No single economic theory has ever been found that can achieve adequate supply and access to essential goods and services for all, alongside steady prices and full employment. In other words, no economist has ever succeeded by economics alone. This is because, in effect, all value depends on scarcity, and value itself is subject to forces that are akin to erosion and corrosion. Economists call these forces inflation, deflation and cost escalation. Taken to extremes, this scarcity factor and the tendency of value to corrode over time; has lead economists to fight a battle they cannot ever hope to win, on a beachhead that is being washed into the sea with every crashing wave of ‘economic uncertainty’.
Altogether, these are the causes of much inequity, deprivation and even suffering.
Now think about this point for a moment and consider things in practical terms, given all of the lessons of history you can draw upon and you will realize: Prosperity for some always comes at the expense of deprivation for others. Accordingly, the field of economics cannot by itself be considered one that serves the common interest or the common good. The politics of real world economics defeats this worthy ideal, as a matter of course.
The net result is that economists cannot apply any economic theory to predict what is essentially a collective, interconnected, now globalized human *behaviour*. To be clear on this point: Economics is one manifestation of human behaviour and belief, neither of which are concrete properties. Indeed, human behaviour is inherently a variable, never a constant; because people are forever adapting to emergent opportunities and threats. Moreover, beliefs are also highly changeable, because they exist within the imminently changeable human mind (not to mention the herd mentality that prevails in equities markets, especially).
Now add-in consideration for the recent advent of computerized trading in financial markets around the world. Also consider what is happening in ‘futures markets’ and all those options that are being swapped and hedged minute by minute, and millisecond by millisecond. Consider all of these things as well, and you will realize that the entire prospect for cogent, long-term economic prognostication has become an even more dubious entity, by a factor of infinity.
So it would seem, the more economists ‘play their hands’; the less able they are to collectively see past their own noses.
All Economics are Emotional Constructs
So if economics (as a generalized field) is not a science; and it’s not even objective enough to be apolitical; given the fact that ‘bread and butter’ issues are the focus of economics; all brands of economic theory are emotional constructs. Please consider:
Although economics has been called “the dismal science”, it is hardly a rigorous construct like chemistry or physics. Much economic decision-making is made on the basis of such soft – even unquantifiable and often ephemeral and fleeting – factors such as ‘confidence’ and ‘sentiment’ and ‘goodwill’. These are emotions. Now consider the sales process itself; which all the experts will agree are often best motivated by base appeals to envy and fear, otherwise known as “keeping up with the Joneses”. To be sure, seemingly convincing calculations and professional-grade projections might be made that could look science-esque. But these often involve assumptions that are not to be taken for granted, other than for the sake of simplicity.
Within the field of economics, in discussions and discourse between differing economists; the substance and form of those discussions and dialogues all amount to arguments in favour or against either “interventionist” or “free market” economists. In a nutshell, these arguments center on the degree to which governing authorities should have a say in what is produced, provided, transacted and how all this is done and taxed and regulated.
Take for example the uncertainty surrounding the long-term value of the US dollar, or the Euro, or any number of other currencies. Many factors would be weighed during such fortune-telling, particularly when large sums are in the balance. For treasurers, figuring-out how much to hold, and how long to hold it for; is a complex consideration that will weigh many dumbed-down yet dressed-up expressions of confidence, sentiment and goodwill. This is because there can be no reliable way to know how much money will be added to the money supply; and what the demand for that currency will be (if any). Future value is essentially unknowable, and the farther ahead you guess, the more dubious are your assumptions. To bring a modicum of workability to these calculations; economic models will unashamedly “freeze” these variables at a convenient point in time, and handle them as unchanging fixed points that can be relied upon. This is necessarily a farce.
Going on little more than the say-so of ratings agencies, pension fund experts have poured millions and billions of their client’s money into holdings that have received triple-A grades, but which should have received a flunking-F instead. Yet when the investments fall apart, it’s never important to the people who inked the deal, never mind anyone who gave it a triple-A thumbs-up. Those people took their profits upfront, while the ink was barely dry. Many pension funds were partially or entirely drained in this fashion, and such hits were so hard for countries like Iceland and Greece, that nationwide economic collapse was the result.
This must mean, if the ratings agencies are as unreliable as they have been proven to be; if the values they (and all of us) ascribe to holdings and even currencies cannot be considered as constant or even solid under any circumstance, never mind the long-term; if this is the state of finance and economics, how can we trust in it? How can we make rational decisions based on it? What about important decisions that will play-out over many years and decades – how can economics be relied upon to make such significant decisions?
Just because we can label our money problems things like inflation, devaluation and cost escalation; doesn’t mean that anyone has any grasp of these things. An understanding of leading economic indicators might give one the impression of being able to prognosticate or predict; and since forever, economic experts have studied “the business cycle” with a view towards seeing ahead.
For years, ‘big cheeses’ on top shelves could hold the financial press in suspended apprehension, as they reported on every point and pause. In retrospect, we can now see that their valued expertise from that time, actually created the set-up for a much larger failure – a systemic failure – most apparent during the default-swap cascade, resulting ‘credit crunch’ and subsequent US-triggered financial collapse of 2008.
The ‘fix’ implemented by Americans was to add even more money to the supply (what else to do?), with the dispersion of funds going to the too-big-to-fail US megabanks, making them fewer in number and even bigger than they were ever before. This is what passes for a re-set/ short-term solution. The pack of American megabanks that were too big to fail, are now fewer in number, and even bigger; and this with the economy of the most widely held ‘reserve currency’ that (still) underwrites the bulk of globalized trade.
Now consider how U.S. and European finance and economics have progressed since then, with austerity and increased money supply (certainly more so in the U.S.). Both of these are policy directions that have caused currency devaluation, and so have spread the contagion of inflation worldwide. Effectively, the world’s financial overlords seem to be trying to clean up their (uneconomic) mess, by spreading it around and soaking it up with the world’s savings.
Given this state of affairs, it is understandable that emotions enter into economics, given how far someone else’s economics have encroached into our individual and collective peace of mind.
Now of course, there will be some hard-nosed and uncompromising disciple of some economic theory or another, who will proclaim how deeply rational and entirely logical is their economic theory, policy, outlook or forecast. That’s their business. But people with perspective must take that statement for what it is – an expression of confidence – and also consider what confidence is; which is something adjacent to an article of faith – something akin to hope.
If you too can partake of the same confidence, it’s probably because you (think you) can look past all that fluff and see the numbers for what they (are really supposed to) say. Of course, you’ve got to be equally comfortable with all of the other things that must be taken for granted with propositions such as these; and come to terms with the fact that just because “happily ever after” is somewhat of a cliché, doesn’t mean it holds sway at the end of the day. To be fully ‘adult’ about these matters, we’ve got to make peace with the fact that financially and economically speaking, we’re still just looking at a bunch of numbers. More to the point; all of these numbers are none other than different-aspect expressions of the same unit of measurement – money – an abstraction, any way you want to measure it.
The above is a PARTIAL DRAFT EDITION of an upcoming article, TO BE COMPLETED VERY, VERY SOON and posted in this place, in cyberspace! Please come back and continue reading from this point onward. Thanks!