Revisiting my old university economics textbook – how did I ever fall for this nonsense?

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Posted Sep 8 2016 by Dave Darby of Lowimpact.org
Dave's old economics textbook

I haven’t opened my old university economics textbook (Economics, by David Begg, Stanley Fischer and Rudiger Dornbusch) since the 1980s, so I was curious to see how I would respond to what I was taught 30 years ago. I’ve read the introduction (comprising the first three chapters) and already I’m horrified by the damaging nonsense that’s taught to economics undergraduates.

Chapter One introduces the ‘production possibility frontier’, and how production outside the frontier is impossible, even though ‘it would be nice to have even more food and films’. Would it? Would a country like the US benefit from more food? But of course it’s not possible for output to lie beyond the production possibility frontier – that’s why it’s a frontier. However, like true economists, their approach is that more is always better. ‘To select a point inside the production possibility frontier is to sacrifice output unnecessarily’. Really? Unnecessarily? Limiting obesity, traffic congestion, pollution, habitat destruction, waste and resource use is all unnecessary? According to mainstream, classical economics, yes it is.

Chapter Two continues the nonsense in another vein – the one that labels economics a science. With breathtaking arrogance, they even compare themselves to astronomers. ‘Like astronomy, economics is primarily a non-experimental science. Just as astronomers cannot suspend planetary motion to examine the relation between the earth and the sun in isolation, so economists can rarely suspend the laws of economic activity to conduct controlled experiments.’ Astronomy may not be an experimental science, but they can predict comets, or tell us if an asteroid is about to hit the earth. Economists, on the other hand, couldn’t tell us that a sub-prime tsunami was about to wipe away a huge chunk of the global economy. I wonder if they meant astrology – that would make more sense. Furthermore, any discipline claiming to be a science would incorporate information from other scientific disciplines, and yet economics steadfastly refuses to see the effects of our economy on ecology, and where that is leading us. More on that below, but it certainly contributes to undermining economists’ claim to be scientists.

Chapter Three makes it clear that the discipline of economics presupposes the existence of the corporate, neoliberal ‘free market’, which, for too many reasons to go into here, is anything but free (but think political donations, the lobby industry, corporate jobs for politicians, tax avoidance, Stagecoach running free buses to put local bus companies out of business, sweatshops etc.) – it’s completely rigged in favour of the corporate sector. At its heart, mainstream economics is biased – even positive (rather than normative) economics never seems to point out the difficulties of small businesses when it comes to competing with corporate giants that have corrupted our economic and political systems.

Interestingly, Chapter Two ends with a list of criticisms of economics as a discipline. They include the concern that getting two economists to agree on anything is almost impossible; that economic models are too simple to reflect the real world; and that people are not as mercenary as economists make out. They respond to those criticisms, but not to mine. The two main criticisms that I would like to have seen here are: 1) that it deliberately ignores (or possibly even veils) the corrupt nature of our corporate system; but more importantly, 2) that it is ignorant of the discipline of which it is a subset – ecology.

Economics and ecology

One of the foundations of economics is the false premise that perpetual growth is achievable. It is not, and the reason most people can’t see this is that they can’t see the connection between the size of an economy and it’s overall spending power. As an economy grows, spending power grows – real spending power, to buy more real things, that you can touch – cars, roads, aeroplanes, second homes and third homes, fridges for those homes, and boilers and TVs and computers and furniture and carpets and paint and curtains. These things are material. It’s not possible to recycle 100%, and it requires energy anyway. Nobody has built a perpetual motion machine – but that’s not because no-one’s worked out how to do it yet, it’s because it’s not possible in this universe. Similarly, perpetual growth in the activity of one species is not possible, and any species that is not checked will be eliminated. We’re in a position where there’s nothing else to keep us in check – so we have to do it ourselves. It’s a waiting game now – to see if we can learn to behave differently from a cancer before it’s too late. So growth in the human economy can’t continue forever – that’s just physics. Any attempt to do so will result in a biosphere that doesn’t function any more, and that will be fatal for us. And for what – just so that people can aspire to ever-more material things? It’s not worth it.

I’m happy to debate this here with anyone who thinks that we can have perpetual economic growth. If that’s you, you’ll probably see economics as a perfectly valid discipline, rather than the ideology it is, and you almost definitely won’t know anything about the current mass extinction event that’s happening all around us – so it will be difficult to find common ground. I know that many people who visit this site understand the need for a stable rather than a growing economy, so I ask those people – how do we communicate this obvious message, in the face of corporate control of the media and (more and more) of academia and science too?

I recently had a conversation with an economics student. I said that economists don’t realise that the human economy is a subset of global ecology. He proved my point by saying that in fact, it was the other way round – global ecology is a subset of the human economy. Apologies if this is completely obvious to you, but I had to explain that if the human economy (i.e. the subset) were taken away from global ecology, the latter would be perfectly fine – it would thrive, in fact. But if global ecology was taken away, then the human economy would disappear (along with humans) – because it’s a subset.

Economics as propaganda

In Chapter Three we’re told that it might seem like a good idea to set price ceilings for essential foodstuffs, so that the poor don’t go hungry. But if we look at the demand and supply curves, we can see that if there are maximum prices, even though demand will go up, supply will go down because companies just won’t be prepared to supply enough at that price. Less food will be produced and the poor will suffer. But where are the alternatives? Why don’t the poor produce their own food? Many, many people are quite capable of having a smallholding and providing food for their families and for local markets. When you understand that a food economy based on smallholdings can feed more people than one based on large-scale, monoculture agribusiness, it makes even more sense to start to think about restructuring agriculture and the food sector. But it doesn’t maximise profits and is therefore rejected by economists.

Let’s take if further, and explore why people are poor in the first place – especially in Western countries where mere distribution would solve the problem of poverty overnight. But the most desperate poverty is in non-Western countries, where relatively recent horrors include the Green Revolution in India. New crop varieties did indeed increase yields, but inputs became too expensive for small farmers, who were bought up by bigger farmers, who then employed the ex-smallholders until they replaced them with machinery and chemicals bought from the West, turning many millions of small farmers into urban slum-dwellers in one generation. But it made money and stimulated growth, and therefore received the stamp of approval from economists. A similar process happened in Europe several centuries earlier, as the Enclosures forced poor people from smallholdings into wage labour in cities. Economists assume that poor people can’t have land to feed, house and employ themselves without being at the mercy of a rigged corporate market. The market is what’s important to economists, because if we don’t feed the beast (even if it ruins people’s lives), it will be bad for all of us in the long term. In this they couldn’t be more wrong.

They point out that rent controls and minimum wages are bad for poor people too. If rents are controlled, private landlords don’t provide as much housing, as it’s not as lucrative, and poor people have fewer houses and rooms to rent. If wages are too high, employers can’t afford to employ people (or at least, profits won’t be high enough to make it worthwhile). Again, within this system, they’re right, but they can see no alternatives. Why are landlordism or extractive, profit-oriented employment options at all? It’s a sure-fire way to transfer wealth from poor to rich. How about an economy based on self-ownership of housing and employment – either as individuals or as co-operatives? Then there would be no need for minimum wages or rent controls, because everyone would be both employer and employee, and landlord and tenant at the same time. It would be self-defeating to be exploitative. Economics assumes landlordism and exploitative employment practices – it doesn’t have the imagination (or the inclination) to visualise other ways of doing things.

So to summarise – economists are telling us that things like a minimum wage, price ceilings for life’s essentials or rent controls are all ultimately bad for us. If we really cared for the poor, we would make sure that their food and their rents are as expensive as possible, and that their wages are as low as possible. Ridiculous propaganda of course, but not because the state should start flexing its muscles. I’m not attacking their position from a Marxist perspective of having the state impose floors, ceilings or anything else – it’s too administratively onerous and open to abuse. I’m talking about mutualism – a free market system but without landlordism or the parasitical profits extracted from communities. People can own their own homes and their own jobs, either individually or co-operatively, and they can afford the essentials of life perfectly easily if part of their income isn’t creamed off to pay distant (and almost definitely already wealthy) shareholders. We don’t need the unfairness and exploitation (human and ecological) of corporatism or the bureaucracy of statism in a mutualist, co-operative economy. After all, there is no market in slaves any more (officially, anyway), and there are no complaints about that (generally speaking). Let’s use our imagination to visualise a society without exploitative housing, employment and trade or ecological damage. It isn’t that idealistic – we’ll have to live sustainably at some point, or become extinct. Those are our only two options.

Yes, state-imposed floors and ceilings wouldn’t work in this system, but it’s seen as unrealistic to talk about any other way of providing the essentials of life, other than allowing our economy to be controlled by giant corporate entitites and predicated on a myth of eternal growth. Economics is pointless as a discipline unless it incorporates ideas about power structures and ecology. You can’t have a ‘free market’ or anything like it in a world where so much wealth and power is concentrated in so few hands – and it’s infantile to promote eternal growth on a planet where that particular quest has brought us to the brink of ecological collapse. Mainstream economics refuses to absorb these ideas, because mainstream economics is a de facto propaganda machine rather than a serious academic discipline.

There are ecological economists and steady-state economists but they’re marginalised. The vast majority of academic economists are traditional, growth economists – it’s intellectually dishonest and very dangerous. We are told that every rational person wants to maximise their consumption. That would only be true if all humans were morons, and that’s not the case. We have to be constantly persuaded to consume via multi-billion dollar advertising budgets. It’s an attitude that lies at the heart of the current Western obesity epidemic, of climate change and every other environmental problem – and of most crime. I don’t want to maximise my consumption and neither to the people I hang out with. It’s most definitely not rational.

Neoliberals are fond of quoting their hero Adam Smith and his invisible hand. I believe that were Adam Smith alive today, he would be an enemy of neoliberalism. He was a supporter of free enterprise and small businesses, and would have been repelled by a corporate sector that makes all our High Streets look the same, provides boring jobs on zero-hours contracts, kills small businesses, sucks money out of our communities and corrupts our political system. I like to think that he’d be a mutualist, like me. One thing’s for sure though – my old economics lecturers were lucky that I didn’t know any of this when I was twenty.