Sustainability scientists challenge the dominant economic system
Mark Diesendorf
It is a rare event whenever scientists directly challenge the theory, political power and cultural embeddedness of conventional economics. And yet such a challenge is needed because neoclassical economics (NCE) theory and neoliberal economics practice together form one of the principal driving forces of environmental destruction and social injustice.
They do this by treating our life support system, the environment, as an add-on to the economic system, assuming it’s just an infinite source of raw materials and an infinite waste dump. They reinforce the capitalist commitment to endless growth on a finite
planet that’s destroying the environment. They spread the notion that wealth trickles down from the rich to the poor, despite empirical research that refutes this.
Our paper, just published in an international, peer-reviewed journal, offers a comprehensive critique of NCE. But first, this article examines NCE and neoliberalism more closely.
Pseudo-science
The proponents of NCE call their discipline a science. But many of its details are shrouded from the view of noninitiates by advanced mathematical models with little relevance to the real world. It uses terminology borrowed from physics forces, equilibrium and efficiency but without the scientific content of physics. Its priests, certified by degrees in economics, disseminate its ideology among politicians, the public service, and the mass media. It has even created its own “Nobel Prize”, actually the Sveriges Riksbank (Bank of Sweden) Prize in Economic Sciences in Memory of Alfred Nobel.
Alternatives to NCE
Dissatisfaction with NCE has stimulated the creation of new approaches to economics, for example, behavioural economics, which is more psychology than economics, and political economics, which underwent s long struggle for survival at the University of Sydney
eventually being finding a place in the Faculty of Arts.
Even stronger dissatisfaction led to the creation in the 1980s of the transdisciplinary field of ecological economics and its journal of the same name. And unlike NCE, ecological economics treats the economy as a subsystem of society, which is in turn a subsystem of the natural environment. Its researchers include enlightened economists, natural scientists, engineers, sociologists and lawyers. It is very different from environmental economics, a branch of NCE which considers that environmental protection can simply be achieved by pricing in markets.
Despite its attempts to become “respectable” in the eyes of NCE, ecological economics is taught as a whole subject in very few universities around the world. Australia has one, at Torrens University. The grip of NCE is still very strong.
Although ecological economics has grown substantially over several decades, this has been achieved partly by allowing neoclassical economists to dominate the editorial board and the content of the journal Ecological Economics. Concern about a possible takeover of ecological economics by NCE has led to a proposal for a new transdisciplinary field with a stronger emphasis on environmental protection and social justice: social ecological economics.
A new critique of NCE
Our team of four sustainability scientists and an ecological economist have just published a paper entitled “Sustainability Scientists’ Critique of Neoclassical Economics”. Since NCE claims to be a science and uses the language of physical science, it is appropriate that NCE be critiqued by scientists.
Because there are many definitions of NCE, the authors focused on one that’s common to almost all versions based on a paper co-authored by economist and former Minister of Finance for Greece, Yanis Varoufakis. The latter paper argues that there are three unproven assumptions which define all variants of NCE: methodological individualism, methodological equilibration and methodological instrumentalism. Let’s unpack these formidable-sounding terms.
Methodological individualism
This assumption asserts that socioeconomic phenomena can be described in terms of subjective personal motivations by individual actors not influenced by other actors or society. But, in the real world, individual decisions are influenced by advertising, fashion, friends and relatives, laws and other institutions.
Furthermore, methodological individualism cannot credibly explain major global problems such as climate change, war, limited global resources, poverty and pandemics. These involve complex socioeconomic and political systems in which the whole is greater than the sum of its parts – in other words, they have emergent properties.
Methodological equilibration
This assumption asserts that economic systems are generally in or near a state of “general equilibrium”, where supply and demand are balanced in all markets. In the real world, boom and bust cycles and other financial crises demonstrate that economic systems are often far from equilibrium.
Methodological equilibration depends on the notion the humans behave like Homo economicus, that is, they are entirely self-interested, consistently “rational” in the sense of economics, can access and process all available information on prices etc., and can optimise their decisions.
However, economist Joseph Stiglitz, applied mathematician John Blatt, and others have shown theoretically that there is no assurance of equilibrium or optimality or stability in economic systems.
The notion of Homo economicus has also been refuted by findings in anthropology and sociology that cooperation exists together with competition in all societies known to humankind. The field of behavioural economics was developed because of the failure of the Homo economicus model.
Methodological instrumentalism
This assumption asserts that NCE’s economic theories do not have to explain the real economic system or predict future trends, provided they are not contradicted by observation. NCE’s hypotheses and claims are refuted by observation of real socioeconomies, by elementary logic and by lack of internal consistency.
Concluding remarks
Our paper also refutes seven additional hypotheses and four claims made by some neoclassical economists. It argues inter alia that the natural environment cannot be separated from the economic system; that NCE’s concept of a Pareto efficient economy, used by neoliberals to argue against government intervention in the market, does not exist in the real world; that tax deductions for high-income-earners do not generally benefit the poor; and that government budget deficits are not generally inflationary.
Our critical examination of the unproven hypotheses underlying NCE shows that NCE fails to describe the behaviour of the real economies of industrial society. Each hypothesis fails to satisfy one or more of the basic requirements of scientific practice. NCE is fundamentally flawed, bad science, irrational in the common meaning of the word, and biased towards the rich and powerful. It damages democracy by giving support to state capture by vested interests. Therefore, it should not be used as a guide for government policies.
Source: Pearls & Irritations, 27 Sep 2024 https://johnmenadue.com/sustainabilityscientists-challenge-the-dominanteconomic-system/
