{"id":129672,"date":"2019-03-25T12:01:32","date_gmt":"2019-03-25T12:01:32","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=129672"},"modified":"2019-04-01T11:59:35","modified_gmt":"2019-04-01T10:59:35","slug":"failed-economics","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2019\/03\/failed-economics\/","title":{"rendered":"Failed Economics"},"content":{"rendered":"

\u201cThe rich get richer, and the poor get poorer,\u201d is an ancient maxim that dates back thousands of years. In our era, we must add: \u201cAnd wild nature gets trampled.\u201d <\/em><\/p><\/blockquote>\n

\"\"<\/a>

A recently cleared forest in West Kalimantan, Indonesia.\u00a0
\u00a9 Ulet Ifansasti \/ Greenpeace<\/p><\/div>\n

17 Mar 2019 – <\/em>At the end of 2018, Credit Suisse published its updated report<\/a> on global wealth. Forty-two-million millionaires and billionaires comprise the richest 0.5% of the world\u2019s population. That translates to 0.8% of adults in the report, possessing 44.8% of the world\u2019s economic wealth. A decade ago, researchers commonly reported that the wealthy 15% of humanity owned 85% of the resources. Today, 6.2% (9.5% of adults) now claim 85% of the wealth. The rich got richer.<\/p>\n

The super-elites, the 2,208 billionaires \u2014 those who attend Global Economic Summits, own banks, buy off governments, pollute with impunity, and hold political influence in virtually every nation in the world \u2014 comprise not the \u201c1%\u201d but only 28-millionths of a percent of the human population. According to Forbes<\/a> magazine, the average billionaire makes about $635 million dollars every year, $12 million per week, even when they\u2019re on holiday.<\/p>\n

For these people, neo-classical economic theory works just fine, but only if one ignores the human and ecological costs: poverty, squalor, homelessness, migrations, biodiversity loss, global heating, disappearing forests, toxic land and water, and rising, acidic oceans. Capitalism is designed to benefit those who have capital, the wealthy. For most of humanity, modern neo-classical economics erodes well being. For the ecosystem at large, neo-classical economics serves as a rationalisation for plunder.<\/p>\n

A Prize for Ecological Ignorance<\/strong><\/p>\n

Last year, international economists awarded their colleague, William Nordhaus, the \u201cNobel Memorial Prize in Economics.\u201d This is not a genuine Nobel prize, but rather an award sponsored by Sveriges Riksbank \u201cin Memory of Alfred Nobel.\u201d<\/p>\n

In the 1970s and 80s, Nordhaus played a key role in dismissing the now-confirmed<\/a>, \u201cLimits to Growth\u201d study. In a 1991 paper<\/a>, \u201cTo slow or not to slow,\u201d Nordhaus argued that although economic growth increases carbon emissions, nations should not sacrifice growth to combat climate change. He discouraged carbon emissions reduction because, in his estimation, global heating just doesn\u2019t hurt the world\u2019s economy that much. \u201cDon\u2019t let anyone distract you from the work at hand,\u201d Nordhaus told his students, upon winning the prize, \u201cwhich is economic growth.\u201d<\/p>\n

Climate scientists and ecologists have blamed Nordhaus for rationalising the failure of governments to take urgent climate action. Some fellow economists \u2014 Nicholas Stern at the London School of Economics; Martin Weitzman, at the US National Bureau of Economic Research; and others \u2014 have disputed Nordhaus\u2019 assumptions, calculations, and conclusions. In February, at the Scottish Economics Conference in Glasgow, Steve Keen, Head of the Economics, History and Politics School at Kingston University in London, explained<\/a> errors and omissions in Nordhaus\u2019 theories, which lead to what Keen calls his \u201cabsurd\u201d conclusions about climate action.<\/p>\n

Nordhaus and other economists choose, arbitrarily, to discount the future. If we valued future generations equally to ourselves, we would assume a discount rate of zero. Nordhaus prefers to discount the future at 6% annually, which presumes that communities twelve years from now have less than half the value of a community today. A community or individual 70 years from now has only 1% of our value. The high discount rate allows Nordhaus and colleagues to argue that the economic cost of reducing emissions today is too high compared to the \u201clow\u201d benefit of protecting people in the future. No wonder the youth are in rebellion<\/a>.<\/p>\n

\"\"<\/a>

Students in Brussels go on strike for the climate.
\u00a9 Nicolas Maeterlinck \/ AFP \/ Getty<\/p><\/div>\n

Furthermore, neo-classical economic theory discounts the poor, since they don\u2019t add much to economic growth. For example, Nordhaus dismisses the global heating threat to agriculture, forestry, and fishing because these enterprises contribute only about 4% of global GDP. Should food production decline, starvation in poor nations will hardly impact global GDP. Furthermore, these economists discount the entire biosphere \u2014 insects, birds, whales, forests, rivers, and dying coral reefs. The thousands of species that go extinct each year due to human activity don\u2019t matter since they were not, allegedly, adding anything to human economics or well-being. This suite of discounts bolsters the Nordhaus argument that slowing carbon emissions is not important.<\/p>\n

In a 1992 paper<\/a>, Nordhaus feigned to take the 1972 Limits to Growth<\/a> study seriously, while shrewdly mocking the study, referring to its acceptance by the \u201cpopular imagination\u201d and by \u201cthe anti-growth school \u2026 of pessimism,\u201d wherein people \u201cfretted\u201d over trivialities such as \u201cclimates overheated by greenhouse gases.\u201d \u00a0Meanwhile, he implied that sophisticated economists, such as himself, understood that \u201can efficiently managed economy need not fear \u2026 resource exhaustion,\u201d nuclear meltdowns, or global heating.<\/p>\n

By insisting on linear, simplified economic models, dismissing biophysical limits as trivial, status quo economists ignore the way dynamic living systems actually function. Biological growth in living ecological system necessarily encounters complex interactions, resource depletion, population limits, waste recycling, feedbacks, and system-changing tipping points. All of this remains virtually absent in Nordhaus and most of modern economics.<\/p>\n

Nordhaus admits that his analysis relies on \u201coversimplifications\u201d of \u201cclimatic complexities,\u201d but claims that \u201coversimplifications are necessary \u2026 allowing greater transparency.\u201d What he means here by \u201ctransparency,\u201d is that he can substitute easily understood mathematical formulae for genuine ecological complexity. This is convenient, but not necessarily accurate. The map is not the territory.<\/p>\n

The Damage Function<\/strong><\/p>\n

According to Keen, one of classic economists\u2019 biggest blind-spots is that their theories \u201cleave out energy.\u201d Keen adds that this is \u201can enormous error \u2026 a huge hole in economic theory.\u201d Energy transformation appears as a central, key process within every biophysical system. Since human society is a subsystem within Earth\u2019s ecological system, Human economics must acknowledge the roll of energy. Keen explains that neo-classical economics retains \u201ca labour and capital theory of production. Production without energy?\u201d asks Keen. \u201cAbsurd.\u201d<\/p>\n

This failure to correctly account for energy transformations leads to what systems-theory economists believe is Nordhaus\u2019 central error regarding climate change: The so-called \u201cNordhaus Damage Function,\u201d a mathematical construction that allegedly accounts for future damages from climate change.<\/p>\n

In his 2017 paper, just prior to his \u201cNobel Memorial\u201d prize, Nordhaus claimed \u2014 based on his Damage Function \u2014 that a 3\u00b0C change in average Earth temperature would only reduce global GDP by 2.1%, and that a soaring 6\u00b0C change would only slow GDP by 8.5%. Nordhaus considers these economic losses acceptable, concluding that climate action is unnecessary. For this, he won his profession\u2019s highest honour.<\/p>\n

\"\"<\/a>

Drought in Maharashtra, India. \u00a9 Subrata Biswas \/ Greenpeace<\/p><\/div>\n

According to Keen, this \u201ctakes the cake for stupid assumptions by economists.\u201d \u00a0Keen claims that the Nordhaus quadratic function of temperature change is \u201cnonsense\u201d because it does not include any factors for sharp thresholds, tipping points, or non-monetary social or biological impacts. Nordhaus and his supporters, says Keen, are \u201cplaying with your future.\u201d<\/p>\n

To understand how absurd the Nordhaus Damage Function is, consider two scenarios. First, imagine that Earth got colder and froze. According the Nordhaus Damage Function, this would cause a 40% loss in economic activity. Really? Sixty percent of human economic activity could continue on a frozen Earth?<\/p>\n

Secondly, assume Earth warmed up to the 6\u00b0C that Nordhaus assumes is acceptable with an 8.5% loss in global economy. The last time Earth heated up by that magnitude, during the Permian age, 235-million years ago, the warming took millions of years, and led to the largest extinction event of all time, during which 95% of Earth\u2019s species went extinct. The last time Earth sustained an average temperature 6\u00b0C higher than today, no humans existed on Earth<\/strong>.<\/p>\n

Real ecosystems remain complex and non-linear. Consider that a 1\u00b0C rise in average ocean temperature can produce a 4-6\u00b0C increase in shallow coastal zones, killing off seagrass, the food and shelter source for small fish, thus depriving larger fish of food and creating anoxic dead zones. None of this would be captured in Nordhaus\u2019 prize-winning mathematical function.<\/p>\n

We know that dangerous feedbacks from global heating have already appeared after a 1\u00b0C temperature increase, including methane releases, forest die-off, wildfires, and Earth\u2019s reflective index due to melting ice. A 6\u00b0C increase would likely push us into a hothouse Earth<\/a> scenario.<\/p>\n

According to the Global CCS Institute<\/a>, a research lab for carbon emissions abatement, \u201cthere is no economic or scientific basis,\u201d for the Nordhaus Damage Function. \u00a0Peter Howard and Thomas Sterner, in a study for the Agricultural & Applied Economics Association<\/a>, found that Nordhaus\u2019 \u201cdamage function significantly under-estimates climate damages by a factor of two to three.\u201d They are probably being conservative. In a 2014 paper in Nature<\/a>, Richard Revesz and colleagues report that that some academics believe the uncertainties of climate tipping points \u201crender the estimate useless.\u201d They point out that \u201cclimate-economic models need to be extended to a wider range of social and economic impacts.\u201d<\/p>\n

\u201c<\/strong>The risks from unmanaged climate change,\u201d wrote Nicholas Stern in the \u00a0Journal of Economic Literature<\/a>, are \u201cpotentially immense.\u201d He noted that \u201cthe scientific models, because they omit key factors \u2026 substantially underestimate these risks [and] come close to excluding the possibility of catastrophic outcomes.\u201d<\/p>\n

By ignoring biological and physical patterns of nature, Keen believes economics has become \u201cinconsistent, unscientific and empirically unsupported.\u201d He claims that \u201cneoclassical economics is a degenerative research program, not generating new knowledge but growing a belt of protective auxiliary hypotheses to shield its core beliefs from critique.\u201d<\/p>\n

\u201cNeoliberal economics is ecologically and behaviorally ignorant,\u201d laments Dr. William Rees, developer of ecological footprint analysis. \u201cIt is a social construction utterly devoid of useful reference to the structure, function, behaviour or time-relevant properties of the\u00a0 biophysical and social systems with which the actual economy interacts in the real world.\u201d<\/p>\n

Modern neoliberal economics serves only billionaires and bankers. The rest of humanity and all of wild nature get crushed under its simplistic, rationalising theories.<\/p>\n

Resources and Links<\/strong>:<\/p>\n

\u201cGlobal Wealth Report, 2018,\u201d Credit Suisse<\/a>, December, 2018.<\/p>\n

\u201cProfit Maximization, Industry Structure, and Competition: A critique of neoclassical theory,\u201d Steve Keen & Russel Standish, J. Physica A<\/a> 370, 81\u201385, 2006.<\/p>\n

\u201cDebunking Economics: The Naked Emperor of the Social Sciences,\u201d Steve Keen, Pluto Press<\/a> Australia, 2001.<\/p>\n

\u201cDamages Function Estimates,\u201d \u00a0Global CCS Institute<\/a>.<\/p>\n

\u201cWhat is the \u2018Damages Function\u2019 for Global Warming and what difference might it make?\u201d Martin L. Weitzman, Department of Economics, Harvard University, 2010, World Scientific<\/a>.<\/p>\n

\u201cLoaded DICE: Refining the Meta-analysis Approach to Calibrating Climate Damage Functions,\u201d Peter H. Howard, New York University School of Law; Thomas Sterner, University of Gothenburg; Agricultural & Applied Economics Association<\/a>, 2014<\/p>\n

\u201cAs Bad as it Gets: How Climate Damage Functions Affect Growth and the Social Cost of Carbon,\u201d Lucas Bretschger, Aimilia Pattakou, Environmental and Resource Economics<\/a>, January 2019, Volume 72, Issue 1.<\/p>\n

\u201cGlobal warming: improve economic models of climate change,\u201d Revesz R.L. et al. Nature<\/a>, 508:173\u2013175, 2014.<\/p>\n

\u201cThe structure of economic modelling of the potential impacts of climate change: grafting gross underestimation of risk onto already narrow science models,\u201d Nicholas Stern, Journal of Economic Literature<\/a>, 2013.<\/p>\n

\u201cHow sensitive is Nordhaus to Weitzman? Climate policy in DICE with an alternative damage function,\u201d W.J.Wouter Botzena, Jeroen C.J.M.van den Bergh, Economics Letters<\/a>, V.117, Issue 1, October 2012,<\/p>\n

\u201cGHG targets as insurance against catastrophic climate damages,\u201d Martin Weitzman, National Bureau of Economic Research, Cambridge, Journal of Public Economic Theory<\/a>, Volume14, Issue2, 2012.<\/p>\n

\u201cGlobal warming is unstoppable while capitalism blocks prevention,\u201d Ed Finn<\/p>\n

Rabble.ca<\/a>, February 1, 2019.<\/p>\n

\u201cAre we on the road to civilisation collapse?\u201d Luke Kemp, BBC<\/a>, 19 February 2019.<\/p>\n

\u201cThe Structure of Economic Modelling of the Potential Impacts of Climate Change: Grafting Gross Underestimation of Risk onto Already Narrow Science Models.\u201d Nicholas Stern, Journal of Economic Literature<\/a>, v.1, n.3, 2013.<\/p>\n

William Rees on neoliberal economics: Via personal email.<\/p>\n

_________________________________________________<\/p>\n

\"\"<\/a><\/strong>Rex Weyler was a director of the original Greenpeace Foundation, the editor of the organisation’s first newsletter, and a co-founder of Greenpeace International in 1979. Rex’s column reflects on the roots of activism, environmentalism, and Greenpeace’s past, present, and future. <\/em><\/p>\n

 <\/p>\n

Go to Original \u2013 greenpeace.org<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

17 Mar 2019 – The super-elites, the 2,208 billionaires \u2014 those who attend Global Economic Summits, own banks, buy off governments, pollute with impunity, and hold political influence in virtually every nation in the world \u2014 comprise not the \u201c1%\u201d but only 28-millionths of a percent of the human population. According to Forbes magazine, the average billionaire makes about $635 million dollars every year, $12 million per week, even when they\u2019re on holiday. <\/p>\n","protected":false},"author":4,"featured_media":129675,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[197,55,146],"tags":[],"class_list":["post-129672","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-special-feature","category-capitalism","category-economics"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/129672","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=129672"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/129672\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media\/129675"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=129672"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=129672"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=129672"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}