Where Free-Market Economists Go Wrong

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Mar 8, 2006
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www.thephylumonline.com
#1
Subsidies, stimulus, regulations, protectionism, trade restrictions, government-bank collusion, zoning, bailouts and more do not equal a "free" market.



Sheldon Richman | August 19, 2012

Depressing as it is, politics usually trumps economics. There’s nothing new in that, but free-market advocates ought to learn some lessons and adjust their strategy accordingly.

The politicians who run the government—and think they run the country—are afraid to appear as though they are doing nothing. We saw this when the recession hit. They were particularly worried about seeming to put party above the public good.

As the Wall Street Journal put it back then,

The speed with which Washington hashed out the [stimulus] plan was driven mostly by the drumbeat of bad economic news. Behind the scenes, it was greased by other powerful motivations. Congressional Democrats needed to demonstrate they were capable of results after a year of gridlock. Republican lawmakers, up for re-election, wanted to show sensitivity to voters’ economic woes. And the White House didn’t want ‘recession’ added to its legacy.

Political interest was universally aligned against good economic sense. The politicians could get away with this because most of the public is economically illiterate. The “seen” overshadows the “unseen.” Such is how we get economic policy. It’s happening now.

As free-market economists point out, government cannot affirmatively stimulate what we misleadingly call “the economy.” (It’s not a machine; it’s people using their property to engage in transactions.) All government can do is move money around. To make some people able to spend more it must make other people spend less. Politicians imply that they know who ought to have more and who ought to have less, but beside the obvious injustice of the matter, they simply can’t know.

Economists Fall Short

I said the government can’t affirmatively stimulate the economy, but it can encourage productive activity. How? By not discouraging it. Here is where some free-market economists fall short in shaping the public debate. Too much of what they say is along these lines: “The economy is fundamentally healthy. Recessions are a necessary correction of errors. So just let the economy work through its current problems. The government need do nothing.”

That message should make advocates of individual liberty squirm because it implies that the market today is essentially as free as it needs to be. For example, a few years ago the news media proclaimed that gasoline prices were at historic highs. In fact, when adjusted for inflation they were not. But the economists pointing this out sounded a little too defensive, as though they were the defending the free market’s honor against its critics. What should we say if next week gasoline does hit a historic high and the anti-market folks blame the free market? I know what I’d say: What free market? (With all the subsidies and regulations on the books, can there possibly be a free market?)

The same defensiveness can be seen whenever a left-statist charges that the gap between rich and nonrich has widened or income mobility has ceased. Whatever the truth of these charges, libertarians shouldn’t react as though the free market’s honor is being assaulted. The critics may think it’s the free market they’re attacking. But—I say again— we have no free market.

Similarly, if economic activity slows down, it can’t be the free market’s fault.

What we have—and have had for a long time—is corporatism, an interventionist system shot through with government-granted privileges mostly for the well-connected–who tend to be rich businesspeople. This system is maintained in a variety of ways: through taxes, subsidies, cartelizing regulations, intellectual “property” protections, trade restrictions, government-bank collusion, the military-industrial complex, land close-offs, zoning, building codes, restrictions on workers, and more. As a result, people can get rich at the expense of the government’s victims. Even some who have prospered apparently by market means have actually done so through government intervention, such as transportation subsidies and eminent domain. Wealth can be transferred in many ways besides welfare and Medicaid, some of them quite subtle. Most transfers are upward.

Overlooked Facts

Free-market economists know this, but they often seem to forget it, such as when they indiscriminately defend firms (such as oil and pharmaceutical companies) in today’s corporatist economy. These economists convey the message that since in a free market people get rich and companies get big only by serving consumers, anyone who is rich today and any company that is big today must have gotten that way by serving consumers. The flaw in the argument should be obvious.

Given the corporatist nature of the economy, it is a mistake—as well as strategically foolish—to say the government should do nothing when a recession might be coming on or when recovery is disappointingly sluggish. There’s much it should do—or rather undo. Freedom’s advocates must spell this out in detail, revealing how existing government privilege harms the mass of people who have no political connections. In contrast, when an economist who proclaims his support for the free market says the current economy will fix itself, he brands himself a defender of the statist quo and turns his back on the State’s victims.

The freedom philosophy is a radical idea that looks ahead, rather than to some mythical golden era or Panglossian present. Every time we pass up an opportunity to make this point, we alienate potential allies who are concerned about those who are having a tough time of things. Yes, living standards have improved for decades and being poor in the United States is not what it used to be—thank goodness. That only shows that even a marketplace hampered by government privilege can produce astounding wealth. But to be satisfied with that is to be willing to trade freedom and justice for a mess of pottage.

F.A. Hayek never spoke more wisely than when he wrote, in The Intellectuals and Socialism:

What we lack is a liberal Utopia, a programme which seems neither a mere defence of things as they are nor a diluted kind of socialism, but a truly liberal radicalism which does not spare the susceptibilities of the mighty (including the trade unions), which is not too severely practical and which does not confine itself to what appears today as politically possible. . . . Those who have concerned themselves exclusively with what seemed practicable in the existing state of opinion have constantly found that even this has rapidly become politically impossible as the result of changes in a public opinion which they have done nothing to guide. Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds, the prospects of freedom are indeed dark. But if we can regain that belief in power of ideas which was the mark of liberalism at its best, the battle is not lost. [Emphasis added.]

Hayek wrote that over 60 years ago. We haven’t progressed as much as we like to think.
http://reason.com/archives/2012/08/19/where-free-market-economists-go-wrong


Although I support the premise of the article, I would argue that free-market economists have been saying this since the 1950s. Nobody of any consequence has been listening, at least not to the point where anything gets done. Spending other peoples' money is too much fun to let those pesky free-market economists spoil the party, better to just marginalize them than address the merits of their particular arguments.
 

ThaG

Sicc OG
Jun 30, 2005
9,597
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#11
OK, I will post them directly below:


A MEANS OF CONTROL
The Last Scheduled BRAIN FOOD
by Jay Hanson, 01/01/00
Revised 02/15/00
(Archived at http://dieoff.com/page185.htm )
Permission to reprint is expressly granted.

Treason doth never prosper: what's the reason?
For if it prosper, none dare call it treason.
-- John Harington, 1618

Man still bears in his bodily frame the indelible stamp of his lowly origin.
-- Charles Darwin, 1871

Males typically obtain meat in human and nonhuman primate societies
and then attempt to use it to manipulate or control females.
-- Craig B. Stanford, 1999

A feeling arose in the Renaissance -- and crystallized by the seventeenth century -- that moralizing and preaching religious doctrine could no longer be trusted to restrain the destructive passions of men. [[2]] A new means of control had to be found:

"Peasant rebellions were not exceptional events. They erupted so frequently in the course of these four centuries that they may be said to have been as common in this agrarian society as factory strikes would be in the industrial world. In southwestern France alone, some 450 rebellions occurred between 1590 and 1715. No region of Western Europe was exempted from this pattern of chronic violence. The fear of sedition was always present in the minds of those who ruled. It was a corrective, a salutary fear -- since only the threat of insurrection could act as a check against unlimited exactions." [[3]]

Bernard Mandeville (1670?-1733) suggested that a society based on the deadliest of the seven deadly sins [[4]] -- "avarice" -- would create common Machiavellian interests and suppress irrational passions. Mandeville’s ideal society was one where the unwitting cooperation of individuals, each working for his or her own interest, would result in the greatest benefit to society at large. Mandeville anticipated laissez-faire economic theory, which promoted self-interest, competition, and little government interference in the workings of the economy.

The utopian agenda of economic liberalism to set up a self-regulating market system was fully realized in the American political model -- one dollar, one vote:

"In 1884, one of the wealthiest men of his time, Henry B. Payne, wanted to become the next United States senator from Ohio. Payne's son Oliver, the treasurer of Standard Oil, did his best to help. Just before the election for Ohio’s seat, son Oliver "sat at a desk in a Columbus hotel with a stack of bills in front of him, paying for the votes of the state legislators," who then elected U.S. senators." [[5]]

The most important function of a market system is its political function. [[6]] The market system serves as a stealth political system to foster rational thought, universal values based on calculation, and world peace based on self-interest. Great idea! But despite good intentions, inherently defective economic methodology has led to two world wars with millions killed:

"By the end of the seventies the free trade episode (1846-79) was at an end; the actual use of the gold standard by Germany marked the beginnings of an era of protectionism and colonial expansion… the symptoms of the dissolution of the existing forms of world economy -- colonial rivalry and competition for exotic markets -- became acute. The ability of haute finance to avert the spread of wars was diminishing rapidly… For another seven years peace dragged on but it was only a question of time before the dissolution of nineteenth century economic organization would bring the Hundred Years' Peace to a close." [p. 19]

"The origins of the cataclysm lay in the utopian endeavor of economic liberalism to set up a self-regulating market system." [p. 29] [[7]]

Today, this same flawed economic methodology is being taught to students all over the world and is leading to a new generation of world wars with billions killed.

SOCIAL PHYSICS

The true nature of the highly artificial economic organization on which peace rested becomes of utmost significance to the historian.
-- Karl Polanyi

Modern economics is shrouded in idiosyncratic self-serving definitions, arcane mathematics, and circular arguments which make it very difficult to understand. But once one gets the scorecard straight, it can be seen that modern economics is nothing more than a social imitation of nineteenth-century physics:

"[ With the development of modern physics ] it became possible to see orthodox economic theory for what it really was: a bowdlerized imitation of nineteenth-century physics…It was not the methods of science that were appropriated by the early neoclassicals as it was the appearances of science, for the early neoclassicals possessed a singularly inept understanding of the physics they so admired… [ Neoclassical economists attempt ] to reduce all social institutions such as money, property rights, and the market itself to epiphenomena of individual constrained optimization calculation. All these attempts have failed, despite their supposed dependence upon mathematical rigor, because they always inadvertently assume what they aim to deduce… Conservation principles are the key to the understanding of a mathematical formulation of any phenomenon, and it has been there that the neoclassicals have been woefully negligent." [[8]]

Economists are trained to believe that "money" is to the economy what "energy" is to the physical world. This leads them to believe that whatever is "economically" possible is "physically" possible too. What economists fail to realize is that the economy is a subsystem of the physical system, and thus constrained by universal physical laws that they have not studied.

Economists do not know that something must be physically possible before it can be economically possible. Since they only study money, they have no idea where the physical limits, and thus, economic limits are.

Since economists study the prices of everything, they feel they are qualified to issue opinions about everything. But the reality is quite the opposite. Economists first abstract all commodities to money -- which of course, obliterates all physical differences between the commodities themselves. This leaves economists uniquely unqualified to know the physical relationships between the commodities they purport to study. Because of their total dependence on the measure of "money", today's leading economists do not know the difference between "libraries" and "oil":

"Should we be taking steps to limit the use of these most precious stocks of society's capital so that they will still be available for our grandchildren? … Economists ask, Would future generations benefit more from larger stocks of natural capital such as oil, gas, and coal or from more produced capital such as additional scientists, better laboratories, and libraries linked together by information superhighways? … in the long run, oil and gas are not essential." [Nobel Laureate Paul Samuelson and William Nordhaus] [[9]]

Obviously, the economics taught by Samuelson and Nordhaus has nothing to do with science. [[10]] If it isn't science, it's ideology. Since economics has a political agenda, it becomes nothing more than politics in disguise.

POLITICS IN DISGUISE

I see the White House is like a subway -- you
have to put in coins to open the gates.
-- Johnny Chung (1997)

The economist's political agenda is pretty simple: establish a global self-regulating economic system. In order to convert economic students into lifelong politicians, they are programmed via circular argument and "post hoc, ergo propter hoc" (after-the-fact) reasoning to believe the most flagrant violations of reality. Consider five of the most outrageous.

#1. Economists are trained to believe that people are "rational utility maximizers" (calculate decisions according to "Bayes' Theorem"; i.e., Bentham's old "Felicity Calculus" in a new bottle). Although this belief was common one hundred years ago, only economists are still taught it: "Neoclassical economics is based on the premise that models that characterize rational, optimizing behavior also characterize actual human behavior." (R. Thaler, 1987). This premise was shown to be false several years ago. [[11]] Thus, the entire modern economic edifice is nothing but junk!

#2. Economists are trained to believe that "money" has nothing to do with politics and is simply a medium of exchange. But even the casual observer can see that money is social power because it "empowers" people to buy and do the things they want -- including buying and doing other people: politics. Money is, in a word, "coercion", [[12]] and "economic efficiency" is correctly seen as a political concept designed to conserve social power for those who have it -- to make the rich, richer and the poor, poorer.

#3. Economists are trained to believe that people always "benefit" from free market transactions. Nobel Prize-winning economist Milton Friedman explains: "Adam Smith's key insight was that both parties to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange will take place unless both parties do benefit." [[13]]

Since economists do not explicitly define "benefit", one wonders how Friedman could possibly know? In fact, he doesn't. Friedman is brainwashing his students to further his own personal political agenda. Economic professors like Friedman resort to meaningless, circular arguments to turn his students into robotic broadcasting devices.

Economists assume people make "rational" [[14]] decisions but abstain from testing that assumption. Instead of testing, economists invoke "revealed preferences theory" which states that choices are rational because they are based on preferences that are known through the choices that are made. [[15]] In other words, meaningless, circular arguments.

#4. Economists are trained to believe there are no "limits to growth". Because they abstract everything to money, even leading economists like William Nordhaus can't imagine an economy that is physically limited by energy. The best Nordhaus can do is to model increasing energy prices:

"The estimate is based on an energy model I constructed several years ago. To estimate the drag on economic growth, I calculated the difference between the economic growth rate with actual energy supplies versus a case in which current (low cost) fuels were available in infinite quantities. In the first case, energy prices would be rising, while in the second case of superabundence, relative energy prices would be constant. This study indicated that the resource-limited case would lower net output in the middle of the next century by about 10 percent." [[16]]

Although Nordhaus thinks he is modeling "energy", he is actually modeling "energy prices". There is a big difference! What would have happened if he had modeled declining energy inputs instead of rising energy prices? We already know the answer to that one:

"In late 1973 the first OPEC oil shock struck, as oil prices quadrupled and the general inflation indexes shot up to 11 percent. More important, gasoline lines appeared. Waiting in line to buy a basic commodity like gasoline is something that no American had ever experienced. Shock and irritation were high, but those lines were like the first small heart attack -- an indication of mortality. Maybe the American economy was growing old and becoming vulnerable. Maybe the American economic dream of an ever rising standard of living was over. Small may be beautiful, but if that phrase meant a lower standard of living, then the average American considered it a nightmare.

"The Nixon-Ford Administration responded with oil and gas price controls. As a vehicle for holding down prices, controls were bound to fail. For one thing, world prices would have to be paid on that part of consumption imported from abroad; for another, controls make it too easy for oil companies to hold oil in the ground or not to look for new supplies of oil until prices rose. When controls did fail, the public's feeling that the federal government and its economists were incapable of managing anything efficiently was further reinforced.

"What was worse, economists could pose no solution to the energy problem. Influential professionals, such as Milton Friedman, predicted that the oil cartel would quickly fall apart. It didn't. Other economists recommended that prices be allowed to climb to world levels, but that wasn't a solution to the problem faced by the average American. Higher prices would force him to change his life style. He might respond to higher prices with smaller cars and colder houses as economists predicted, but he liked doing neither and he could vote. No one considered a forced change in life style a solution.

"Once again, falling back on the principle that higher unemployment would produce lower inflation, monetary authorities tightened the rate of growth of the money supply in an effort to slow the economy, raise unemployment, and push inflation out of the economy. This time the policies produced a credit crunch. For six months in late 1974 and early 1975 the GNP fell at the fastest rate ever recorded. Even the rates of decline in the Great Depression had been less precipitous -- although of course longer and deeper. Anxieties quickly shifted from an unacceptable inflation rate to an unacceptable unemployment rate, and the term 'stagflation' was born.

"Stagflation was both a term and an indictment, since economists had taught that the phenomena -- slow growth, rising unemployment, and rising inflation -- could not all exist at the same time. Yet they did." [[17]]

#5. Economists are trained to believe that we will never "run out" of a commodity. This is because as prices increase, we will use less-and-less of it, but there will always be some available at some finite price. Practically every economics textbook teaches this. But every economics textbook is wrong because "energy" is fundamentally different from every other commodity. There is no substitute for energy. Energy is the prerequisite for all other commodities, so if we "run out" of energy, we will "run out" of everything else too.

By definition, energy "sources" must produce more energy than they consume, otherwise they are called "sinks". By definition, energy sources have "run out" when they consume more energy than they produce. This universal energy law holds no matter how high the money price of energy goes. Economists completely overlook this basic energy law and have misled government regulators all over the world.

Here is part of an interview with Nobel Prize-winning economist Milton Friedman (worth quoting at length because of his colossal stupidity):

Ravaioli: But there are many other environmental problems ...

Nobel Laureate Friedman: Of course. Take oil, for example. Everyone says it's a limited resource: physically it may be, but economically we don't know. Economically there is more oil today than there was a hundred years ago. When it was still under the ground and no one knew it was there, it wasn't economically available. When resources are really limited prices go up, but the price of oil has gone down and down. Suppose oil became scarce: the price would go up, and people would start using other energy sources. In a proper price system the market can take care of the problem.

Ravaioli: But we know that it takes millions of years to create an oil well, and we can't reproduce it. Relying on oil means living on our capital and not on the interest, which would be the sensible course. Don't you agree?

Nobel Laureate Friedman: If we were living on the capital, the market price would go up. The price of truly limited resources will rise over time. The price of oil has not been rising, so we're not living on the capital. When that is no longer true, the price system will give a signal and the price of oil will go up. As always happens with a truly limited resource.

Ravaioli: Of course the discovery of new oil wells has given the illusion of unlimited oil …

Nobel Laureate Friedman: Why an illusion?

Ravaioli: Because we know it’s a limited resource.

Nobel Laureate Friedman: Excuse me, it's not limited from an economic point of view. You have to separate the economic from the physical point of view. Many of the mistakes people make come from this. Like the stupid projections of the Club of Rome: they used a purely physical approach, without taking prices into account. There are many different sources of energy, some of which are too expensive to be exploited now. But if oil becomes scarce they will be exploited. But the market, which is fortunately capable of registering and using widely scattered knowledge and information from people all over the world, will take account of those changes. [[18]]

(In fact, none of the Club of Rome's predictions has failed. Economists like Friedman routinely misrepresent the study in order to further their global political agenda.)

POLITICS IN ACTION

Once the economist's neurons and dendrites are fully programmed (usually for life), economists serve as robotic broadcasting devices explicitly designed to hide the political nature of the economy from the public. In other words, the economist serves no function in society except to protect the ruling elites from public scrutiny while they loot the planet.

The United Nations, the World Trade Organization, and the International Monetary Fund have all followed the American lead and attempted set up a global self-regulating market system based on these same elaborate economic lies:

"There are no... limits to the carrying capacity of the earth that are likely to bind any time in the foreseeable future. There isn't a risk of an apocalypse due to global warming or anything else. The idea that we should put limits on growth because of some natural limit, is a profound error and one that, were it ever to prove influential, would have staggering social costs."
-- World Bank chief economist, Lawrence H. Summers, Nov., 10, 1991

Endless economic growth is the sine qua non of the economist's agenda. If there are, in fact, limits to growth, then the fraud will be exposed and public attention will shift from economic "growth" to economic "redistribution". This is why the ruling elites work so hard to discredit (via their economist robots like Summers) anyone who claims that limits to growth do, in fact, exist. Also see THE ECONOMIST, December 1997:

"So, according to the Club of Rome, [petroleum] reserves should have been overdrawn by 50 billion barrels by 1990. In fact, by 1990 unexploited reserves amounted to 900 billion barrels -- not counting the tar shales, of which a single deposit in Alberta contains more than 550 billion barrels.

"The Club of Rome made similarly wrong predictions about natural gas, silver, tin, uranium, aluminum, copper, lead and zinc. In every case, it said finite reserves of these minerals were approaching exhaustion and prices would rise steeply. In every case except tin, known reserves have actually grown since the Club’s report; in some cases they have quadrupled." [[19]]

But THE ECONOMIST is just plain wrong! The Club of Rome expected reserves to quintuple! Here are the actual scans from the book: http://dieoff.com/LimitsToGrowth.htm . Economists routinely misrepresent the Club of Rome's pioneering work. [[20]]

ENERGY IS THE KEY

Oil has literally made foreign and security policy for decades. Just since the turn of this century, it has provoked the division of the Middle East after World War I; aroused Germany and Japan to extend their tentacles beyond their borders; the Arab Oil Embargo; Iran versus Iraq; the Gulf War. This is all clear.
-- Secretary of Energy, Bill Richardson, December 9, 1999


Although economists treat energy just like any other resource, it’s not like any other resource. Available energy is the precondition for all resources -- including more available energy.

For many years, geologists and petroleum engineers have published estimates of how much oil can be recovered from any given basin. This is known as "Estimated Ultimately Recoverable" (or EUR) oil. Remarkably, estimates of total worldwide EUR oil have varied little over the past half century! [[21]]

Forty years ago, geologist M. King Hubbert developed a method for projecting future oil production and predicted that oil production in the lower 48 states would peak about 1970. This prediction has proved to be remarkably accurate. Both total and peak yields have risen slightly compared to Hubbert's original estimate, but the timing of the peak and the general downward trend of production were correct. Hubbert showed that oil production begins to peak and starts to decline when approximately half of the EUR oil has been recovered.

The petroleum industry itself has announced that global oil production will "peak" in less than ten years!

IHS Energy Group (formerly Petroconsultants) is the world's leading provider of data and analysis for oil exploration and production. The company maintains its headquarters at a custom-built communications center in Geneva. It also has offices in London, Houston, Calgary, Sydney, Perth, Singapore and Hong Kong and a global information network. The backbone of the company is a staff of 300, embracing numerous nationalities, cultures and professions, specializing in petroleum geology, geophysics, petroleum engineering, economics, political science, petroleum legislation, cartography, computer science and information technology. [[22]]

In 1995, Petroconsultants published a report for oil industry insiders ($32,000 per copy) titled WORLD OIL SUPPLY 1930-2050 which concluded that world oil production could peak as soon as the year 2000 and decline to half that level by 2025. Large and permanent increases in oil prices were predicted after the year 2000. [[23]]


ECONOMIST VS GEOLOGIST

According to Philip K. Verleger, Jr.: "No person has had a greater influence on the thinking of experts who have become government regulators of the world's oil and gas industries than Morry Adelman." [[24]] If Verleger is right, then government regulators all over the world are going to be in big trouble soon because according to economist Adelman:

"Minerals are inexhaustible and will never be depleted. A stream of investment creates additions to proved reserves, a very large in-ground inventory, constantly renewed as it is extracted… How much was in the ground at the start and how much will be left at the end are unknown and irrelevant." [[25]]

Could Adelman be right? Hardly! Obviously, oil and gas are not "renewed" as they are extracted, otherwise energy companies wouldn't have to keep drilling new holes. But more importantly, Adelman doesn’t realize that oil and gas are in such great demand because they are sources of "energy" -- not because they are "minerals". Economists like Adelman are blind to the unique properties of energy because they abstract everything to money and, thus, know nothing about energy.

Adelman: "There are plenty of fossil fuels and no limit to potential electrical capacity. It is all a matter of money." [[26]] But Adelman is just plain wrong. It's not a matter of "money" -- it's a matter of "energy". It's a bit late, but regulators are starting to get the message because leading petroleum engineers and geologists are actively opposing the economists.

In November 1997, the International Energy Agency (IEA) convened an Oil Conference in Paris. Jean Laherrère and Colin Campbell [[27]] presented three papers on oil depletion (against Adelman and Lynch from MIT). [[28]]

As a result of this conference, IEA prepared a paper for the G8 Energy Ministers' Meeting in Moscow March 31, 1998. IEA followed Laherrere and Campbell's view and forecast a peak in conventional oil for 2010 at 78.9 Mb/d and a decrease in 2020 at 72.2 Mb/d. [[29]]

According to Richard Duncan, this represents a significant reversal of the IEA position: "This is a real stand-down for them because until recently they were in the Julian Simon no-limits camp." [[30]]

THE UTOPIAN AGENDA HAS FAILED -- AGAIN!

The prerequisite for a global self-regulating market system is peace, which in turn requires ever increasing standards-of-living:

"War analyst Stanislav Andreski concluded that the trigger for most wars is hunger, or even 'a mere drop from the customary standard of living.' Anthropologists Carol and Melvin Ember spent six years studying war in the late 1980s among 186 preindustrial societies. They focused on precontact times in hopes of collecting the 'cleanest, least distorted' data. Andreski, it seems, was right. War's most common cause, the Embers found, was fear of deprivation. The victors in the wars they studied almost always took territory, food, and/or other critical resources from their enemies. Moreover, unpredictable disasters-droughts, blights, floods, and freezes -- which led to severe hardships, spurred more wars than did chronic shortages.

"This also holds true among modern nations. In 1993, political scientists Thomas E Homer-Dixon, Jeffrey H. Boutwell, and George W. Rathjens examined the roots of recent global conflicts and concluded, 'There are significant causal links between scarcities of renewable resources and violence.'

"In short, many wars seem to be a mass, communal robbery of another social group's life-support resources." [[31]]

Ever increasing standards-of-living require ever increasing per-capita energy use: "If one considers the last one hundred years of the U.S. experience, fuel use and economic output are highly correlated." [[32]]



But Richard Duncan discovered that the utopian agenda failed in 1978!


Global energy-use per capita increased during the sub-interval from 1850 to 1909 by a strong 3.88%. Then -- despite World War I, the Great Depression, and World War II -- energy-use per capita from 1909 to 1945 still managed to increase by 0.92%. Next came the exuberant post-war years from 1945 to 1973 when energy-use per capita grew by a remarkable 3.51%. Then strong growth ended abruptly in 1973. Thereafter, world energy-use per capita peaked in 1978 and then went into an irregular decline, averaging 0.36 % per year from the peak in 1978 through 1997.

Although global energy use per capita has been declining at an average of 0.36% per year since 1978, energy use in the US has increased an average of 0.7 % per year since 1983:


The near-term "peak" in global oil production will make it physically impossible -- thus economically impossible -- for the so-called "developing" countries to ever "develop":

THE GLOBAL, ENERGY-LIMITED ECONOMY!

An "energy-limited economy" is one where more energy cannot be had at any price. The global economy will become "energy-limited" once global oil production peaks in less than ten years (perhaps much less). J. Gever et al. has calculated that if society waits for the "market signal" before embarking on a crash program of alternative energy development, then the net energy available for non-energy sectors of the economy could drop to about 25% of present values before starting to climb again. In other words, about a 75% drop in energy available for non-energy GDP!


In an energy-limited economy, it is physically impossible -- thus, economically impossible -- to provide a constant level of energy for non-energy sectors of the economy during a shift to alternative energy. Keeping the production of goods and services at current levels will require more energy than we can presently generate. To have more energy in the future means that energy must be diverted now from non-energy sectors of the economy into future energy generation.

In an energy-limited economy, economic development projects must "compete" with each other for the limited available energy. The rich and powerful will buy up -- or simply take -- all the energy they need and the poor will be consigned to the grave. [[33]]

HOW COULD IT BE OTHERWISE?

What becomes of the surplus of human life? It is either, 1st. destroyed by infanticide, as among the Chinese and Lacedemonians; or 2d. it is stifled or starved, as among other nations whose population is commensurate to its food; or 3d. it is consumed by wars and endemic diseases; or 4th. it overflows, by emigration, to places where a surplus of food is attainable.
-- James Madison, 1791

For want of a nail the shoe is lost, for want of a shoe the horse is lost, for want of a horse the rider is lost.

Worldwide, more than 10 million hectares of agricultural land are abandoned annually because of serious soil degradation. During the last 40 years, about 30 percent of total world arable land was abandoned because it was no longer productive. About half of the current arable land now in cultivation will be unsuitable for food production by the middle of the twenty-first century. [[34]]

Within the first decade of the 21'st century, industrial activity will rise high enough for it to seriously degrade land fertility. This will occur because of contamination by heavy metals and persistent chemicals, climate change, salinization, topsoil loss, falling water tables, and increased levels of ultraviolet radiation from a diminished ozone layer.

Global oil production will peak soon and the spike in oil prices will quickly exacerbate other major problems facing industrial agriculture. Food grains produced with modern, high-yield methods (including packaging and delivery) now contain between four and ten calories of fossil fuel for every calorie of solar energy. It has been estimated that about four percent of the nation's energy budget is used to grow food, while about 10 to 13 percent is needed to put it on our plates. In other words, a staggering total of 17 percent of America's energy budget is consumed by agriculture! [[35]]

By 2040, we would need to triple the global food supply in order to meet the basic food needs of the eleven billion people who are expected to be alive. But doing so would require a 1,000 percent increase in the total energy expended in food production. [[36]] But the depletion of oil will make it physically impossible -- thus economically impossible -- to provide enough net energy to agriculture: "A recent review of the future prospects of all alternatives has been published. The summary conclusion reached is that there is no known complete substitute for petroleum in its many and varied uses." [[37]] Global food production will drop to a fraction of today’s numbers: "If the fertilizers, partial irrigation [in part provided by oil energy], and pesticides were withdrawn, corn yields, for example, would drop from 130 bushels per acre to about 30 bushels." [[38]] Obviously, death certificates have already been issued for billions of unsuspecting people.

The dependence of industrial agriculture on fossil fuels, the declining fertility of the land, and the positive feedbacks imposed by declining net energy will force the economy to divert much more investment into the agriculture and energy sectors as part of a desperate attempt to maintain agricultural output. Government budgets must also decline in real terms as greater and greater fractions of the economy are diverted into the resource sectors.

As resource quality and land fertility continue to fall, society will be forced to allocate more and more capital to the agriculture and resource sectors, otherwise the scarcity of food, materials, and fuels would restrict production still more -- it's circular, there is no way to avoid the positive feedback. Ultimately, industrial capacity will decline rapidly taking with it the service and agricultural sectors, which depend upon industrial inputs.

Constrained by the laws of thermodynamics, the availability of life-supporting resources will go into a permanent, steep decline.

In less than 20 years, the self-regulating market system will have "run out of gas" and vanished. With the market system gone, the ruling elites will fall back on the good old-fashioned means of control: a police state. In the US alone, 200 million guns in private ownership guarantee that this police state will quickly devolve into rebellion and anarchy.

If the anarchy scenario were to reach its natural conclusion, the global elites would be eliminated by the angry masses. Those who managed to escape would die more miserably than the poor since they are unsuited for day-to-day survival because they lived their lives like queen bees.

But when the above scenario seems inevitable, the elites will simply depopulate most of the planet with a bioweapon. [[39]] When the time comes, it will be the only logical solution to their problem. It's a first-strike tactic that leaves the built-infrastructure and other species in place and allows the elites to perpetuate their own genes into the foreseeable future: "War is a male reproductive strategy. All that is needed for the strategy to evolve, is that aggressors fight and win more often than they lose". [[40]]

The global genocide will be rationalized as a second chance for humanity -- a new Garden of Eden -- a new Genesis. The temptation will prove irresistible:

"Strangelove said, 'Offhand, I should say that in addition to the factors of youth, health, sexual fertility, intelligence, and a cross section of necessary skills, it would be absolutely vital that our top government and military men be included, to foster and impart the required principles of leadership and tradition.'

"The arrow had not missed its mark, and around the table there was an outbreak of sober, nodding heads. Attention was concentrated more than ever on Doctor Strangelove.

"Strangelove went on. 'Naturally they would breed prodigiously, eh? There would be much time and little to do. With the proper breeding techniques, and starting with a ratio of, say, ten women to each man, I should estimate the progeny of the original group of two hundred thousand would emerge a hundred years later as well over a hundred million…'"

How could it be otherwise?

WHAT YOU CAN DO!

#1. Move out of the city! Sometime in the next couple of decades, civil authority in large US cities will simply disintegrate. And when authority goes, we know exactly what's going to happen.

Remember the Rodney King rebellion? All that old class hatred and jealousy comes boiling to the surface. It's really going to be ugly -- you don't want to be there!

Go somewhere where the climate is warm, with plenty of rain (just don't come here to the Kona Coast.) I don't think "ethnic cleansing" will be a big problem except in the cities (at least, not to start with).

#2. Prepare yourself to survive without municipal power, water, or sewer services. You won't have to live without hookups initially, but you will be forced to do without them sometime in the next few decades.

Most of the country's groundwater is already contaminated, and once sewage systems and dumps are abandoned, it will ALL become contaminated. Without power to pump or chlorine to disinfect groundwater, you really have no option except to rely on rain catchment for drinking water.

#3. In order to survive, you are going to need a large garden. An oversized garden would allow you to exchange your extra produce to your neighbors for hard goods -- like ammunition.

#4. Remember that you will not be able to rely on complex technology, because once supply lines break down, you won't be able to get spares. So limit yourself to technology that you can fix with a hammer and forge. (If you don't know what a "forge" is, go see an old cowboy movie.)

Beyond these four points, just try to fit in with your community as best you can. Perhaps join a church, lodge, or club -- find someone who is willing to help you in case you are attacked.

Obviously, I don't follow all of my own suggestions, but it's something to think about.

Good luck,
Jay


[1] Seattle police fire teargas as protesters run outside the site of the WTO conference. (Andy Clark/Reuters)

[2] p. pp. 14-15, THE PASSIONS AND THE INTERESTS, Albert O. Hirschman & Amartya Sen; Princeton, 1997; http://www.amazon.com/exec/obidos/ASIN/0691015988/brainfood.a

[3] p 80, AFTER THE BLACK DEATH, George Huppert; Indiana Univ. Pr., 1998; http://www.amazon.com/exec/obidos/ASIN/0253211808/brainfood.a

[4] The Seven Deadly Sins are pride, avarice, lust, anger, gluttony, envy, and sloth. These seven sins are not singled out because they are all grievous sins or because of their severity, but because they are the inevitable source of other sins.

[5] p. 12, THE MAXIMUM WAGE, Sam Pizzigati; Apex, 1992; http://www.amazon.com/exec/obidos/ASIN/0945257457/brainfood.a

[6] See THE FOULEST OF THEM ALL, at http://dieoff.com/page168.htm

[7] THE GREAT TRANSFORMATION, Karl Polanyi; Beacon, 1957; http://www.amazon.com/exec/obidos/ASIN/0807056790/brainfood.a

[pp.5-7 ] "But if the breakdown of our civilization was timed by the failure of world economy, it was certainly not caused by it. Its origins lay more than a hundred years back in that social and technological upheaval from which the idea of a self-regulating market sprang in Western Europe. The end of this venture has come in our time; it closes a distinct stage in the history of industrial civilization.

"In the final part of the book we shall deal with the mechanism which governed social and national change in our time. Broadly, we believe that the present condition of man is to be defined in terms of the institutional origins of the crisis.

"The nineteenth century produced a phenomenon unheard of in the annals of Western civilization, namely, a hundred years’ peace -- 1815-1914. Apart from the Crimean War -- a more or less colonial event -- England, France, Prussia, Austria, Italy, and Russia were engaged in war among each other for altogether only eighteen months. A computation of comparable figures for the two preceding centuries gives an average of sixty to seventy years of major wars in each. But even the fiercest of nineteenth century conflagrations, the Franco-Prussian War of 1870-71, ended after less than a year’s duration with the defeated nation being able to pay over an unprecedented sum as an indemnity without any disturbance of the currencies concerned.

"This triumph of a pragmatic pacifism was certainly not the result of an absence of grave causes for conflict. Almost continuous shifts in the internal and external conditions of powerful nations and great empires accompanied this irenic pageant. During the first part of the century civil wars, revolutionary and anti-revolutionary interventions were the order of the day. In Spain a hundred thousand troops under the Duc d’Angoulème stormed Cadiz; in Hungary the Magyar revolution threatened to defeat the Emperor himself in pitched battle and was ultimately suppressed only by a Russian army fighting on Hungarian soil. Armed interventions in the Germanies, in Belgium, Poland, Switzerland, Denmark, and Venice marked the omnipresence of the Holy Alliance. During the second half of the century the dynamics of progress was released; the Ottoman, Egyptian, and the Sheriffian empires broke up or were dismembered; China was forced by invading armies to open her door to the foreigner and in one gigantic haul the continent of Africa was partitioned. Simultaneously, two powers rose to world importance: the United States and Russia. National unity was achieved by Germany and Italy; Belgium, Greece, Roumania, Bulgaria, Serbia, and Hungary assumed, or reassumed, their places as sovereign states on the map of Europe. An almost incessant series of open wars accompanied the march of industrial civilization into the domains of outworn cultures or primitive peoples. Russia’s military conquests in Central Asia, England’s numberless Indian and African wars, France’s exploits in Egypt, Algiers, Tunis, Syria, Madagascar, Indo-China, and Siam raised issues between the Powers which, as a rule, only force can arbitrate. Yet every single one of these conflicts was localized, and numberless other occasions for violent change were either met by joint action or smothered into compromise by the Great Powers. Regardless of how the methods changed, the result was the same. While in the first part of the century constitutionalism was banned and the Holy Alliance suppressed freedom in the name of peace, during the other half -- and again in the name of peace -- constitutions were foisted upon turbulent despots by business-minded bankers. Thus under varying forms and ever-shifting ideologies -- sometimes in the name of progress and liberty, sometimes by the authority of the throne and the altar, sometimes by grace of the stock exchange and the checkbook, sometimes by corruption and bribery, sometimes by moral argument and enlightened appeal, sometimes by the broadside and the bayonet -- one and the same result was attained: peace was preserved.

"This almost miraculous performance was due to the working of the balance of power, which here produced a result which is normally foreign to it. By its nature that balance effects an entirely different result, namely, the survival of the power units involved; in fact, it merely postulates that three or more units capable of exerting power will always behave in such a way as to combine the power of the weaker units against any increase in power of the strongest. In the realm of universal history balance of power was concerned with states whose independence it served to maintain. But it attained this end only by continuous war between changing partners. The practice of the ancient Greek or the Northern Italian city-states was such an instance; wars between shifting groups of combatants maintained the independence of those states over long stretches of time. The action of the same principle safeguarded for over two hundred years the sovereignty of the states forming Europe at the time of the Treaty of Mònster and Westphalia (1648). When, seventy-five years later, in the Treaty of Utrecht, the signatories declared their formal adherence to this principle, they thereby embodied it in a system, and thus established mutual guarantees of survival for the strong and the weak alike through the medium of war. The fact that in the nineteenth century the same mechanism resulted in peace rather than war is a problem to challenge the historian.

"The entirely new factor, we submit, was the emergence of an acute peace interest. Traditionally, such an interest was regarded as outside the scope of the state system. Peace with its corollaries of crafts and arts ranked among the mere adornments of life. The Church might pray for peace as for a bountiful harvest, but in the realm of state action it would nevertheless advocate armed intervention; governments subordinated peace to security and sovereignty; that is, to intents that could not be achieved otherwise than by recourse to the ultimate means. Few things were regarded as more detrimental to a community than the existence of an organized peace interest in its midst. As late as the second half of the eighteenth century, J. J. Rousseau arraigned trades people for their lack of patriotism because they were suspected of preferring peace to liberty.

"After 1815 the change is sudden and complete. The backwash of the French Revolution reinforced the rising tide of the Industrial Revolution in establishing peaceful business as a universal interest. Metternich proclaimed that what the people of Europe wanted was not liberty but peace. Gentz called patriots the new barbarians. Church and throne started out on the denationalization of Europe. Their arguments found support both in the ferocity of the recent popular forms of warfare and in the tremendously enhanced value of peace under the nascent economies.

"The bearers of the new 'peace interest' were, as usual, those who chiefly benefited by it, namely, that cartel of dynasts and feudalists whose patrimonial positions were threatened by the revolutionary wave of patriotism that was sweeping the Continent. Thus, for approximately a third of a century the Holy Alliance provided the coercive force and the ideological impetus for an active peace policy; its armies were roaming up and down Europe putting down minorities and repressing majorities. From 1846 to about 1887 -- 'one of the most confused and crowded quarter centuries of European history' -- peace was less safely established, the ebbing strength of reaction meeting the growing strength of industrialism. In the quarter century following the Franco-Prussian War we find the revived peace interest represented by that new powerful entity, the Concert of Europe."

[8] pp. 5-6, AGAINST MECHANISM: Protecting Economics from Science, by Philip Mirowski; Rowman and Littlefield, 1988; http://www.amazon.com/exec/obidos/ASIN/0847676951/brainfood.a

[9] p. 328, ECONOMICS, Paul Samuelson and William Nordhaus; McGraw-Hill, 1998; http://www.amazon.com/exec/obidos/ASIN/0070579474/brainfood.a

[10] SCIENCE, RATIONALITY, AND NEOCLASSICAL ECONOMICS, L.D. Keita; Delaware, 1992. http://www.amazon.com/exec/obidos/ASIN/0874134102/brainfood.a

"The bulk of this text was taken up with examining the claims of neoclassical economic theory to scientific status. Given contemporary views on the nature of scientific theory, I examined neoclassical economic theory in terms of both its historical and contemporary phases. I demonstrated that the cardinal theory of utility that formed the foundation for early neoclassical theory foundered on account of its inability to measure utility in any acceptable scientific way. Its substitute, the ordinal theory of utility, was shown to be equally unacceptable. The scientific pretensions of ordinal utility theory and its correlate, revealed preference theory, were shown compromised by the normative structure of the foundational postulate of rationality. The unscientific nature of ordinal utility theory was further shown to be reinforced by the insulating role played by the ceteris paribus proviso.

"This general critique was extended not only to the neoclassical theory of individual agent choice but also to general equilibrium theory and positive neoclassical welfare economic theory. Given the general dissatisfaction with neoclassical theory, a number of alternative theories have been proposed, but the problem with the latter is that, with few exceptions, they are founded on the premise that an objective science of economics is still possible despite its present failings. I pointed out the shortcomings of those theories and argued that on account of the nature of human decision making, no analysis of it could be scientific in the way in which the natural sciences are scientific. Mental states that must be invoked to explain behavior are just not subject to empirical analysis. The attempts by theorists to establish explanatory theories by appeal to heuristic concepts such as rationality were shown to be unsuccessful. The point is that 'rationality' plays a normative role similar to that of 'goodness' in ethical theory.

"The sociologist can indeed record the behavior of individuals in terms of cultural norms of 'goodness,' 'badness,' 'deviancy,' and so on, but he or she must recognize that theories of behavior founded on such concepts are necessarily normative. Similarly, the neoclassical theorist who embraces a particular notion of rationality and grounds his or her theories on such a notion is certainly formulating a normative theory. My analysis showed that the neoclassical theorist of economic behavior is confronted with the dilemma of restricting his or her analysis to a case-by-case taxonomy of individual agent choice, given the inaccessibility to mental states, or grounding his or her explanatory theories on the normative heuristic of rational choice. Neither alternative yields scientific results." [pp. 150-151]

[11] e.g., Kahneman, Slovic, Tversky, 1982; H. Simon, 1986, etc.

[12] To "coerce" is to compel one to act in a certain way – either by reward or punishment. When I use "politics" or "political", I simply mean, "one coercing another" in the broadest sense.

[13] pp. 1-2, FREE TO CHOOSE, Milton and Rose Friedman; Harvest, 1980; http://www.amazon.com/exec/obidos/ASIN/0156334607/brainfood.a

[14] DECISION MAKING: Alternatives to Rational Choice Models, by Mary Zey; Sage, 1992; http://www.amazon.com/exec/obidos/ASIN/0803947518/brainfood.a

"The social sciences have a long, rich history of writings on rationality. In the tradition of neoclassical economic science, as in the writings of Pareto (1935), an action is rational when it corresponds with the ends or goals sought. Rationality means the adaptation of means to ends. The more congruent the means to the ends, the more efficient the decision and, therefore, the more rational the organization (Weber 1947). Economists abstain from applying the test of rationality to ends." [p.16]

[15] p. 31, RATIONAL CHOICE THEORY AND ORGANIZATIONAL THEORY: A Critique, by Mary Zey; Sage, 1998; http://www.amazon.com/exec/obidos/ASIN/0803951361/brainfood.a

[16] p. 31, LETHAL MODEL 2: The Limits to Growth Revisited, in ECONOMIC ACTIVITY #2; Brookings, 1992; http://www.amazon.com/exec/obidos/ASIN/9992971517/brinfood.a

[17] pp. 34-36, DANGEROUS CURRENTS, by Lester Thurow; Random, 1983; http://www.amazon.com/exec/obidos/ASIN/0394723686/brianfood.a http://dieoff.com/page162.htm

[18] Milton Friedman quoted in p. 33, ECONOMISTS AND THE ENVIRONMENT, Carla Ravaioli; Zed, 1995; http://www.amazon.com/exec/obidos/ASIN/1856492788/brainfood.a

[19] http://www.economist.com/editorial/freeforall/20-12-97/xm0002.html

[20] See, for example, LOS SANGRE ES EN TUS MANOS at http://dieoff.com/page169.htm

For recent disinformation about the Club of Rome, see FOREIGN AFFAIRS, January/February, 2000; THE SHOCKS OF A WORLD OF CHEAP OIL, by Amy Myers Jaffe and Robert A. Manning.

(Amy Myers Jaffe, former Senior Economist for Petroleum Intelligence Weekly, directs the Energy Research Program at the James A. Baker III Institute for Public Policy at Rice University http://riceinfo.rice.edu/projects/baker/roundtable.html . ROBERT A. MANNING is Senior Fellow and Director of Asian Studies at the Council on Foreign Relations and author of the forthcoming The Asian Energy Factor Revisited)

"Oil Prices have been flirting recently with $25-$30 per barrel, levels almost reminiscent of the oil shocks of the 1970s. Rising energy prices have been accompanied by the usual hysteria about dwindling supplies and potentially dangerous transfers of wealth, tempting policymakers to consider ways of dealing with a coming oil crisis. But contrary to much received wisdom, the energy problem looming in the early 21st century is neither skyrocketing prices nor shortages that herald the beginning of the end of the oil age. Instead, the danger is precisely the opposite; long-term trends point to a prolonged oil surplus and low oil prices over the next two decades."

"Both the popular and the elite media -- from Parade asking "Could It Happen Again?" to Scientific American, no less, proclaiming "The End of Cheap Oil" -- are peppered with forecasts of gloom and doom about energy security. But the "sky-is-falling" school of oil forecasting has been systematically wrong for more than a generation. In its dramatic 1972 "Limits to Growth" report, the group of prominent experts known as the Club of Rome wrote that only 550 billion barrels of oil remained and that they would run out by 1990. In fact, the world consumed 600 billion barrels of oil between 1970 and 1990, and there are today more than a trillion barrels of proven reserves (recoverable at current prices under current conditions). This figure is likely to continue rising even as global consumption exceeds the current 73 million barrels a day. Indeed, the International Energy Agency says that there are 2.3 trillion barrels in ultimate recoverable reserves, and if unconventional sources such as tar sands and shale are included, the number may well be greater than 4 trillion barrels.

"The scarcity forecasters -- in some cases, the same people who forecast in the 1970s that oil would cost $100 per barrel by 2000 -- are not only still wrong, they also have it exactly backward. The world's problem is not scarcity but glut. This is true despite the current Saudi-engineered production cutbacks by the Organization of Petroleum Exporting Countries (OPEC), which boosted oil prices off their $8-per-barrel lows. Seasoned oil-market watchers know that this fragile deal among oil producers could dissipate quickly, particularly as financial pressures ease over time, tempting OPEC to release some of the 5 million barrels per day currently being held back from the market." [pp. 16-17]

[21] OIL AS A FINITE RESOURCE: When Is Global Production Likely to Peak? by James J. MacKenzie; World Resources Institute, 1996; http://www.wri.org/wri/climate/finitoil/eur-oil.html

[22] See http://www.petroconsultants.com

[23] THE DEATH OF THE OIL ECONOMY, by Ted Trainer; Earth Island Journal, Spring 1997; http://dieoff.com/page116.htm

[24] Verleger quoted on the jacket of Adelman's book. For more on Verleger, see http://www.iie.com/STAFF/verleger.htm

[25] p. xi, THE ECONOMICS OF PETROLEUM SUPPLY, by M. A. Adelman; MIT, 1993; http://www.amazon.com/exec/obidos/ASIN/0262011387/brainfood.a.

Professor of Economics, Emeritus, Adelman has long been one of the world's foremost energy and resource economists and a leading analyst of international oil and gas markets. He has served as North American Editor of the Journal of Industrial Economics and on the editorial boards of The Energy Journal, Energy Economics, Energy Policy, and Resources and Energy. Professor Adelman has also served on the American Petroleum Institute's Coordinating Committee for Statistics and Economics, the Federal Power Commission's Executive Advisory Committee, the Gas Research Institute's Advisory Council, the American Economic Association's Advisory Committee to the Bureau of the Census, and the National Academy of Science's Panel on Natural Gas Statistics. He has received awards from the American Institute of Mining, Metallurgical and Petroleum Engineers and the International Association of Energy Economists (IAEE), and he has served as President of the IAEE. But Adelman doesn't understand energy!

[26] p. 483, Ibid.

[27] THE END OF CHEAP OIL, by Colin J. Campbell and Jean H. Laherrère, Scientific American, March 1998; http://dieoff.com/page140.htm

THE IMMINENT PEAK OF WORLD OIL PRODUCTION, by C.J. Campbell, Presentation to a House of Commons All-Party Committee on July 7th 1999; http://www.hubbertpeak.com/campbell/commons.htm

[28] Evolution of "development lag" and "development ratio", by Jean Laherrère, presented at the International Energy Agency "Oil reserve conference" in Paris November 11, 1997; http://dieoff.com/page182.htm

Distribution and evolution of "recovery factor", by Jean Laherrère, presented at the International Energy Agency "Oil reserves conference" in Paris November 11, 1997; http://dieoff.com/page183.htm

[29] Jean Laherrère personal correspondence. See WORLD ENERGY PROSPECTS TO 2020; http://www.iea.org/g8/world/oilsup.htm

[30] Richard Duncan personal correspondence. See Duncan's energy paper THE WORLD PETROLEUM LIFE-CYCLE at: http://dieoff.com/page133.htm

[31] p. 190, THE DARK SIDE OF MAN: Tracing the Origins of Male Violence, by Michael P. Ghiglieri; Perseus, 1999; http://www.amazon.com/exec/obidos/ASIN/073820076X/brainfood.a

[32] SUMMARY OF ENERGY AND THE US ECONOMY: A Biophysical Perspective by Cutler J. Cleveland, Robert Costanza, Charles A.S. Hall, and Robert Kaufmann; Science 225: 890-897; http://dieoff.com/page17.htm#ENERGY

[33] The US will make an offer that the major oil producers (e.g., Saudi Arabia and Venezuela) can't refuse. For a fascinating account of how American government operates in the black, read VICTORY: The Reagan Administration's Secret Strategy That Hastened the Collapse of the Soviet Union, by Peter Schweizer; Grove/Atlantic, 1996; http://www.amazon.com/exec/obidos/ISBN=0871136333/brainfood.a

Schweizer book is endorsed New York Times, the Washington Times, and Forbes. Schweizer was sponsored by the Hoover Institution. "This extensively researched study is fast-moving, exciting, and accurate." -- FORBES magazine about Schweizer's VICTORY.

According to Peter Schweizer, the Saudis cooperate with the US in exchange for intelligence on dissidents [p. 31], satellite pictures, AWACS aircraft [p. 51], Stinger missiles [p. 190], advanced fighters, direct military protection, and were even "leaked" information when the Treasury Department planned to devalue the dollar so they could shift investments into nondollar assets. [p. 233]

During the Cold War, the Saudis worked in the black with the CIA to lower global oil prices and thereby deprive the USSR of the much-needed hard currency it needed to operate. Each $1 drop in oil price cost the USSR about one billion dollars in revenue.

A $5 drop in the price of a barrel of oil would increase the US GDP by about 1.4 percent. Poindexter: "It was in our interest to drive the price of oil as low as we could." [p. 218] Weinberger: "One of the reasons we were selling all those arms to the Saudis was for lower oil prices." [p. 203] Alan Fiers: The Saudis were also providing financial aid to the mujahedin and the contras. [p. 202]

In the first few weeks of the Saudi push, daily production jumped from less than 2 million barrels to almost 6 million. By late fall of 1985, crude production would climb to almost 9 million barrels a day. [p. 242]

Shortly after Saudi oil production rose, the international price of oil sank like a stone in a pond. In November 1985, crude oil sold at $30 a barrel; barely five months later it stood at $12. [p. 243]

In the spring of 1986, the downward plunge in international oil prices was causing serious worries around the world but also among some quarters in the Reagan administration. Vice President George Bush was preparing for a highly visible ten-day tour of the Persian Gulf area. A product of the Texas oil country, Bush saw danger, not hope, in the dramatic and recent decline in oil prices. [p. 259]

Bush was acting on his own against the Reagan administration! While Reagan, Casey and Weinberger were trying to talk oil prices lower, Bush was meeting with Yamani and Fahd trying to talk oil prices higher! [p. 260]

In 1983, the Treasury Department had done a secret study that found the optimum oil price for the US economy was about $20 a barrel. [p. 141]

[34] p. 293, FOOD, ENERGY, and SOCIETY; Pimentel, 1996. http://www.amazon.com/exec/obidos/ASIN/0870813862/brainfood.a

[35] p. 172, BEYOND OIL, Gever et al.; Univ. Pr. Colorado 1991; http://www.amazon.com/exec/obidos/ASIN/0870812424/brainfood.a

[36] p. 291, FOOD, ENERGY, and SOCIETY; David Pimentel, 1996. http://www.amazon.com/exec/obidos/ASIN/0870813862/brainfood.a

[37] THE POST-PETROLEUM PARADIGM -- AND POPULATION, by Walter Youngquist; Population and Environment: A Journal of Interdisciplinary Studies Volume 20, Number 4, March 1999; http://www.dieoff.com/page171.htm.

[38] Ibid. Pimentel, D. (1998a).

[39] http://cryptome.org/bioweap.htm -- http://www.emergency.com/1999/alibek99.htm

[40] p. 165, THE DARK SIDE OF MAN: Tracing the Origins of Male Violence, by Michael P. Ghiglieri; Perseus, 1999; http://www.amazon.com/exec/obidos/ASIN/073820076X/brainfood.a

Here's more: "Chimp social structure would be unique were it not for humans acting similarly. This is no coincidence. By most taxonomic criteria, chimps and humans are sibling species. Overall, chimp society is not only extremely sexist -- with all adult males dominant over females -- but also xenophobic to the extent of killing all alien males, many infants, and some old females who enter their territory. To some readers, my use of the word war may seem too strong to describe what male kin groups do. But systematic, protracted, deliberate, and cooperative brutal killings of every male in a neighboring community, plus genocidal and frequent cannibalistic murder of many of their offspring, followed by usurpation of the males' mates and annexation of part or all of the losers' territory, matches or exceeds the worst that humans do when they wage war.

"Wild chimps reveal the natural contexts of territoriality, war, male cooperation, solidarity and sharing, nepotism, sexism, xenophobia, infanticide, murder, cannibalism, polygyny, and mating competition between kin groups of males -- behaviors that have evolved through sexual selection. Also significant is the fact that none of these apes learned these violent behaviors by watching TV or by being victims of socioeconomic handicaps -- poor schools, broken homes, bad fathers, illegal drugs, easy weapons, or any other sociological condition. Nor were these apes spurred to war by any political, religious, or economic ideology or by the rhetoric of an insane demagogue. They also were not seeking an 'identity' or buckling under peer pressure. Instead, they were obeying instincts, coded in the male psyche, dictating that they must win against other males." [p. 176]

"The central 'truth' of sociologists is that nature, especially that of humankind, is nice and that people are designed to do things that, all in all, favor the survival of their species. Hence people could never be equipped by nature with instincts to kill other people. This idea comes from the Bambi school of biology, a Disneyesque vision of nature as a collection of moralistic and altruistic creatures. It admires nature for its harmony and beauty of form and for its apparent 'balance' or even cooperativeness. It admires the deer for its beauty and fleetness, and it grudgingly admires the lion for its power and nobility of form. If anything is really wrong with us, it explains, it is a sociocultural problem that we can fix by resocializing people. It is not a biological problem.

"Nature, however, is actually a dynamic state of recurring strife of relentless competition, dedicated predators and parasites, and selfish defense. The deer owes its beauty and fleetness to predators such as mountain lions, which kill the clumsiest and slowest deer first; to competitors for food; and to competition between males to mate. Without predators, deer would not only lack fleetness; they would lack legs altogether. They would be slugs oozing from one plant to another. Yet even if these deer-slugs were the only animals out there, natural selection would favor the evolution of faster and more aggressive deer-slugs and would favor any other trait that made them superior competitors against each other. This would include the killing of one deer-slug by another in situations where it boiled down to kill or die.

"Moreover, the power and noble visage of the lion (or of the family cat or dog, for that matter) rest entirely on natural selection having shaped not only a fleet predator and efficient killing machine but also a very violent competitor against its own kind in situations where the options were narrowed to exclude or kill, or else kill to survive or reproduce." [p. 179]
There are graphs there though so it it is better to read the original
 

ThaG

Sicc OG
Jun 30, 2005
9,597
1,687
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#12
MYTHS OF THE POLITICAL-ECONOMIC WORLD VIEW


from ENERGY AND THE ECOLOGICAL ECONOMICS OF SUSTAINABILITY,
by John Peet; Island Press, 1992. http://www.islandpress.com
Phone: 800-828-1302 or 707-983-6432; FAX: 707-983-6164
http://www.amazon.com/exec/obidos/ISBN=1559631600

A MYTH IS a traditional story that offers an explanation of some fact or phenomenon. Myths are neither wholly true nor wholly untrue. They may have been more true in the past than now, but people act as if they are still true, even when they no longer really believe in them. Some modem usages of the word have connotations that suggest that myths are irrelevant or wrong, but this is not necessarily so. Myths are of considerable importance to people, and for some, they may reflect ultimate personal truth. The critical need is for people to be given the opportunity to find out which myths are meaningful and which are not.

THE MEANING OF MYTHS

A myth is a mental model with which people try to interpret reality and respond to it. Myths have value in enabling us to organize the way we perceive facts and see ourselves and the world. Myths speak through rich symbols, helping to bring order into what may otherwise be a chaos of personal experience. Whether true or not, myths help us make sense of what is going on around us. Myths can provide a valuable doorway into the value structure of a society or culture and may give insights that are difficult to achieve by more conventional means.

Some myths, like belief in fairies, are probably harmless. Others may be dangerous if they distort the way we see the world and the ways we deal with problems. How does one tell the difference? How does one help people recognize the existence of other perspectives of reality without offending deeply held beliefs? One good way to start examining a myth is to find out what it meant to those who created it (the process of exegesis). Many social and scientific myths of the twentieth century originated in the seventeenth and eighteenth centuries, so this is not difficult to do. The next task is to find out what the present-day followers of the tradition of a myth mean by it (the process of hermeneutics). The final task is to compare the myth with the reality it seeks to represent. This stage often runs into trouble with adherents because to them, a myth cannot be questioned without challenging the believer's self.

Most myths present themselves as authoritative and able to account for facts, no matter how completely at variance they may be with the real world. A myth gains its authority not by proving itself but by presenting itself. And the greater the political authority that lies behind the myth and the more often it is presented, the less likely it is to be challenged. Such is the case with many political and scientific myths of the twentieth century.

Over the past two hundred years, Western societies have cast aside many of the myths and institutions that had served them for hundreds of years. The great belief systems-the idea of a divine lawgiver; the sanctity of the family kin group, or tribe; the rituals, customs, conventions, ceremonies, and festivals that gave meaning and purpose to the smaller communities of earlier times-are mostly in ruins. But in the haste to throw off apparently outmoded burdens, people also lost the valuable side of those myths and institutions. The feelings created by people's confidence in their place in nature and in the stability of the social systems that supported them have been vandalized. Many people are left with nothing but the despair engendered by new myths that they do not understand, often because the myths have been imposed on them without explanation. 1

The Myth of Unlimited Resources
Perspectives on the use of resources and on technology's ability to achieve anything we might want are clouded with scientific and political-economic myths. Consider, for example, the following statement "Through technological advance we [will] seek to simulate and redesign to our liking all biological processes, so that we may achieve ever more control over the conditions of life." Myths such as these are widely held, but their foundations are so weak that they need to be replaced with others to guide our thinking as we set our course toward the twenty-first century.

The Prime Myth
The prime myth in the context of this book claims that lower grade resources will always be available to humankind in a continuing and virtually endless sequence.

Since exploitation of resources always, and without exception, requires expenditure of available and accessible energy, as I pointed out in chapter 3, this myth is critically dependent on the continuing availability of energy resources. For that reason, I will reword it into a more specific form: Lower grade energy resources will always be available to humankind in a continuing and virtually endless sequence.

Nicholas Georgescu-Roegen, a trenchant critic of the myth, states: "The favorite thesis of standard and Marxist economists alike . . . is that the power of technology is without limits. We will always be able not only to find a substitute for a resource which has become scarce, but also to increase the productivity of any kind of energy and material."

William Catton exposes further flaws in this "favorite thesis": Two non-repeatable achievements had made possible four centuries of magnificent progress. Those two achievements were ( I ) the discovery of a second hemisphere, and (2) development of technology that could unearth and exploit the planet's energy savings, its fossil fuel deposits. Humankind's increasingly relentless search for new sources of energy and for more costly energy technologies expresses our wish to deny that achievements like those two were uniquely resultant from bygone circumstances.

Part of the problem of evaluating the prime myth is that economists usually think of resources in monetary terms-in other words, as homogeneous. The inadequate information supplied by market prices for resources means that conventional (neoclassical) economics is largely incapable of according resources-especially nonhomogeneous, nonrenewable fossil energy resources-the meaning they actually possess.

In order to give the prime myth the attention it deserves, we need to examine some of the myths on which it depends or that are used to derive policies stemming from it. These myths are deeply ingrained in the Western cultural tradition and are central to many areas of decision making. The reader is invited not to reject those that may be ill founded (and I strongly emphasize this point) but to treat them always as partial truths and partial perceptions of reality. They may be useful under certain limited circumstances, but they should never be used outside those narrow confines.

I would also make the point that by the term "resources," I include ecosystem services along with the conventional meaning of extractable resources.

The Myth of Divine Authority
According to some writers, Western culture, shaped by interpretations of the Bible, particularly the early books of the Old Testament, pictured humans as separate from all other creatures and dominating them. Many still feel what is almost a divine imperative to "master" nature. It stems from a linear, hierarchical, authoritarian world view in which God is above, nature is below, and man is in between, set above everything but God (not forgetting that woman is set hierarchically below man). The British theologian C. S. Lewis suggested that the truth is rather more prosaic: "What we call Man's power over Nature turns out to be a power exercised by some men over other men with Nature as its instrument."

Recent theological studies have shown that the belief of God giving man authority over nature is not necessarily supported by the Bible. The dominant themes go far beyond what is gained from literal interpretation of specific verses (e.g., Genesis 1). In reality, there are two creation myths in Genesis: the "Yahwistic" (Genesis 2 4, in which man was created out of dust) and the "priestly" (Genesis 1:24, in which man was "given dominion," etc.). The Yahwistic version, dating from around 1000 B.C., is closer to a holistic, "systems" view, but it was apparently superseded by the priestly version, dating from around 600 B. C. The latter clearly reflects dominance of political structures, which may have been as strong in the relationships between priests and kings in ancient Hebrew society as they are today between economists and politicians.

A full analysis must also combine major themes from both the Old Testament and the New Testament. These do not support the view that humans are above nature but suggest the contrary-that they are part of it. In Genesis 1, God declared plants and animals good independently of humans; they are therefore interdependent. In a sense, God, humanity, and nature exist in a systems relationship. From a biblical viewpoint, stewardship is the primary function of humanity, whose function is to take care of God's creation, giving special (but not exclusive) attention to itself, including future generations. Stewardship requires extending brotherhood and sisterhood not only to all existing people but also to future and past people, and to all other life forms, in appropriate degrees.

The Myth of Primacy of the Individual
The conventional political-economic viewpoint depends on two crucial assumptions about the individual: that the individual is the best judge of his or her own interests and that over time, tastes (i.e., preferences) do not change-or, if they do, they change as a result of better information. These are often summarized as "the independence of individual preferences."

Although these assumptions apparently have the status of received wisdom when seen from one viewpoint, they are at best half-truths. It may be politically expedient to declare that everyone is the best judge of his or her own interest, but few people would not want to undo many of their past mistakes. The fact that many apparently normal people subject themselves voluntarily to various forms of psychoanalysis, or indulge in the search for truth through religion, or follow the forecasts of astrologers, means that in respect to the larger questions that govern their lives, they are far from certain where their true interests lie.

The modem liberal view of the place of the individual in the marketplace expressed by such philosophers as Friedrich von Hayek, is interesting in this context. As described by Bruce Jesson, their view is that ``true individualism . . . is a social individualism. It requires a society with a stable family structure, voluntary community associations, and conformity to tradition and convention . . . true individualism requires a rigid moral code and a sense of social responsibility. It bears little resemblance to the acquisitive, self-indulgent and amoral spirit of modem individualism . . . (which) is deficient in its lack of ethics."

This model reflects cultural factors coming from groups rather than individuals. By breaking down group behavior into "socially responsible" individual behavior, one may pave the way for authoritarian controls on group action, nominally to increase individual freedom. Even though this may be done in the name of freedom, in reality it reduces the power of those with whom individuals are associated and on whom they may depend. Trade unions, under threat in many countries, are an example.

The assumption that the individual is in some sense supreme in the marketplace axiomatically leads to the conclusion that reliance on individual self-interest is the only requirement of the economic (and indeed the political) system. But a free market assumes that people have equal access to information about what is taking place and that they are all sufficiently self-reliant to exist without buying or selling. This reflects a utopian situation, found only in some small communities (in which group cohesion is a central element of community structure). It has long been known by anthropologists, sociologists, and psychologists that in most societies, group behavior is markedly different from that of individuals. Long-term goals of families and communities take into account factors that seldom enter into the decision making of isolated individuals, and this is nowhere more important than in the context of relationships with the environment.

From the systems perspective, the view of economist Lester Thurow is helpful "Societies are not merely statistical aggregations of individuals engaged in voluntary exchange but something much more subtle and complicated. A group or a community cannot be understood if the unit of analysis is the individual taken by himself. A society is clearly something greater than the sum of its parts despite what the price-auction model would maintain."

Conventional economics is mainly built on simplistic and outmoded concepts drawn from nineteenth-century behavioral psychology. When economists talk about "economic man"-Homo oeconomicus-they make assumptions about rational behavior, human needs, goals, and values that have been largely demolished by workers in the social sciences. The demolition occurred mainly in sociology and adult education, by empirical testing (using the Popperian criterion of falsifiability) 21 and by use of more modem ideas of behavior, such as humanistic psychology and the human potential movements.

The idea that the individual is the central (and sole) unit of decision making in society is rejected by many cultures. Indeed, the idea is in many respects deeply offensive, and it goes against centuries of their history. For settlers of (usually) European cultures to impose that ideology on people is yet another example of the long history of insensitivity and brutality that has characterized colonization. The idea also must be recognized as relatively new in human history, gaining its main strength from political theories of the seventeenth and eighteenth centuries in Britain and Europe. To many Europeans, the more cooperative social structures of the past may now be too far distant to be clearly remembered, but such is not the case in most other cultures. The dominance of European-based cultures enabled the ideology of individualism to be spread far and wide, but the historical fact of its acceptance does not prove it is "right"; the reality is that its supporting political, economic, and military structures were more powerful than those they supplanted.

The phenomenal successes of advertising, the vast amounts of money spent on it, and the involvement of psychologists supply evidence that up to a point, it is quite possible (and certainly very lucrative) to change people's preferences. The methods used owe more to psychological manipulation than to any inherent law of human nature in that planning is extended to the consumer to ensure that he or she will "want" what is produced.


The Myth of Rational Behavior
It is widely believed that some form of the "rational behavior" observed of particles in classical physics must also be present in human behavior. The idea of rationality in human behavior was in the eighteenth century, however, and still is, only an analogy with classical physics. Since the nineteenth century, the idea has been shown to be a very weak one. It is more a political theory, a code of human behavior, than a reflection of natural laws. Nevertheless, rational behavior is at the core of neoclassical economics and its modem offshoots. The approach is reductionist, looking at the individual in order to try to understand the economy. It relies on the assumption that a whole is the sum of its parts.

There are actually two quite different meanings of the term "rationality."

According to Karl Popper, the rationality principle means that "having constructed our model, our situation, we assume no more than that the actors act within the terms of the model, or that they 'work out' what was implicit in the situation." Popper makes it clear that the rationality principle "has little or nothing to do with the empirical or psychological assertion that [people] always, or in the main, or in most cases, act rationally."

In other words, the rationality principle applies to the a priori domain of development of models. It has nothing to do with the empirical domain of observed human behavior. Popper goes on:

Rationality as a personal attitude is the attitude of readiness to correct one's beliefs.

In its intellectually most highly developed form it is the readiness to discuss one's beliefs critically, and to correct them in the light of critical discussions with other people.

I am a rationalist. By a rationalist I mean a [person] who wishes to understand the world, and to learn by arguing with others. (Note that I do not say a rationalist holds the mistaken theory that [people] are wholly or mainly rational.

The difference between the two meanings is vitally important, but they are commonly confused. In the general sense, rationality is an a priori concept, but when the word is applied carelessly to the empirical world, the result is the expectation of rational behavior (i.e., actions performed according to a model of behavior) rather than acknowledgment of the richly human, creative, intellectual behavior of a rational person, who takes a critical attitude to his or her beliefs.

From careful consideration of the emphasized sentence in the latter quotation from Popper, I am led inescapably to the conclusion that a rationalist should never believe in rational behavior! To do so is to accept a model as a standard for behavior rather than to observe critically the empirical reality of actual behavior. The two meanings are inherently in conflict, and Popper exposes the point very effectively: a belief in rational behavior is in itself irrational!

At the empirical level, the underlying assumptions of rational behavior are largely untested and probably untestable. Despite this, many economics textbooks still promote the model of rational Homo oeconomicus. That many economists recognize its inadequacies but continue to teach (and preach) the concepts gives me cause for concern about the scientific basis of political economic theories. (The economist Mark Blaug suggests that some economists play tennis with the net down!)

The imposition (e.g., through fiscal policies) of the requirement that people act in conformity with a model of behavior in order to gain access to some privileges of citizenship (employment, education, health care, welfare, etc. ) is inherently authoritarian and violent. It induces-and often forces- people into individualistic behavior against their natural instincts. Nor does the rational behavior model give adequate attention to changes in value over time, that is, to intergenerational equity. Deeply human ideas, such as leaving resources for one's grandchildren or planning allocation by need rather than greed, have no clear place in its calculus; that sort of behavior is labeled as irrational. (Proponents of economic rationality commonly apply this label to those who disagree with them, especially to those who value the environment highly. )

In this context, it is worth noting that in law, there is the concept of the reasonable person, who (in contrast to the rational person) is: "a person who is not only protective of his/her own rights, but also has a fair regard for the welfare of others." The reasonable person is concerned with justice and fairness with equity rather than efficiency. Justice and fairness are absent in much of conventional economics, yet they are central to most people's ideas about how society should be run. Humanistic economics is all about replacing the model of the rational person with that of the reasonable person.

The Myth of Bounded Rationality
More recently, concepts of rationality have been extended to include ideas such as bounded rationality, in which people make decisions without perfect knowledge. In some respects, the approach is an alternative world view to that of neoclassical economics, and it reflects the fact that human behavior consistently violates economic principles of rationality.

Basically, the bounded rationality approach acknowledges that people have limited cognitive capabilities. This implies limitations in attention, perception, memory, and abilities to process information and communicate. Use of bounded rationality criteria results in simpler problem-solving approaches and attention to subgoals rather than overall goals. Altruism and opportunism are incorporated in some theories of bounded rationality.

From a systems point of view, the approach appears to be limited in application. It works only when a system can be broken down into its parts and each part studied separately (in systems terminology, such a system is loosely coupled). In real systems, feedbacks and nonlinearities are usually strong, and one cannot change one part without affecting another. The result is that application of the ideas of bounded rationality can result in suboptimization and system dysfunction. Thus, these developments appear not to have much relevance to practical aspects of policymaking. Rather than testable hypotheses (in a scientific sense), I see them as sincere attempts to correct the logic of rational behavior for obvious deficiencies. (Blaug, using Popperian arguments, warns against the use of "ad-hoc auxiliary assumptions," or "immunizing stratagems," when working toward verification of theories.)


The Myth of Freedom
It is a central belief of those of the mainstream market liberal political-economic viewpoint that freedom of the individual is the most important characteristic of a society. For these people, freedom is entirely an economic construct. Freedom exists in the unfettered market and ceases to exist if market processes are hedged about by regulation. Freedom thus has a meaning akin to choice, the availability of alternatives in a marketplace.

For most people in society, freedom has entirely different meanings, few of them capable of codification. Freedom from hunger and want? Freedom of speech and of association? Freedom from arbitrary constraints? Freedom to be creative and artistic? These are not the same as freedom of choice.

Free-marketers hold to a negative freedom. "Freedom from.... " What is important is freedom from restrictions that prevent them from getting on with whatever they want to do (mainly the accumulation of wealth). Positive freedom, on the other hand, is the more creative "freedom to . . . ," such as the freedom to live within a context that encourages the pursuit of things spiritual and creative. The assiduous promotion of ideas of negative freedom, especially in the market liberal context beloved of Treasury officials and business roundtables, is yet another step in the attempt to mold Homo sapiens into Homo oeconomicus-"the human as consumer"-the manipulated market cipher who will always behave as markets require. "Freedom" in this con. text has many characteristics of a myth. It also involves the hijacking of a word with an old and honorable meaning into a new and dishonorable service.


The Myth of Universal Property Rights
A basic requirement of the market model is that anything individually owned is tradable. It is a small step to believe that in order to make full use of the "efficiency" of the marketplace, everything that possibly can be, must be in private ownership.

For many people, the idea that natural resources can be regarded as private property, let alone as tradable, is bizarre. When the first English settlers "bought" land from the Maori in Aotearoa-New Zealand, they believed that they were carrying out a simple transaction giving them ownership rights. To many of the Maori (at least in the early years), the transaction had no such meaning; it was the exchange of the gift of the temporary use of land for other gifts, some of them monetary. When the full weight of the colonists' laws (and military forces) was used to enforce exclusive occupation, the Maori found out what had happened; it was then too late. North American Indians had comparable experiences, as did many of the indigenous peoples of Africa, India, and Asia.

Some extreme free-market proponents argue that "scarce resources" such as elephants would be better safeguarded by assigning people ownership of the animals than by collective action (e.g., cessation of the ivory trade). The idea is that if someone "owned" and "farmed" the elephants, and earned the resources needed to head off poachers, the elephants would survive.

I note that such suggestions usually come from people who live in societies in which the levels of wealth are such as to be the prime causes of stress on less-developed countries and their ecosystems, through their excessive consumption habits. 38 As a further, nontrivial point, in practice, the initial assignment of property rights in such situations tends to be associated more with local power ploys and corruption than with equity and long-term environmental factors. This outcome seems to be common to developed and developing countries and to political systems of both left and right.

In the systems context, hierarchies and nonlinearities indicate that all things are not equal and some take precedence over others. For social system stability, the rights of the collective must always take precedence over those of individuals; individual rights can never be paramount. To be more specific, the rights of some individuals must never be allowed to take automatic precedence over those of the collective.


The Myth of the Free Market
In practice, free markets do not exist. 39 What commonly happens is that some organizations and corporations become large enough to dominate production of their particular commodity (e.g., automobiles or soaps and detergents), in which case theirs is termed an oligopoly. In an oligopoly, all participants have a degree of common interest and none is willing to rock the boat; competition is polite, not predatory.

Nevertheless, most economists still see the market in the sense of the equilibrium price auction, in which the individual is a utility-maximizing consumer or producer within free markets that establish equilibrium prices for goods and services. Because so much of standard economic theory depends on this erroneous assumption, one must be careful not to ascribe power to the market that it does not possess, while acknowledging that there are indeed many socioeconomic functions that the market appears to carry out effectively and well.

As an example, in many countries, centralized planning has produced major blunders when governments became involved in projects in which the private sector declined to take part. This is usually taken as evidence that planning is inherently inefficient and that a market will do better. The first statement is probably correct (although planners are so subject to interference from politicians that one cannot claim the planning process itself was to blame). It is not axiomatic, however, that the conclusion is also valid; the world is full of stories of corporate blunders and cruelties. Real-life decision making is not the sole preserve of caricatures such as the individual on the one hand or the state on the other.

Further, according to some eminent economists, free markets do not work-indeed, they cannot work-in situations in which externalities are important. As I have pointed out in several places in this book, externalities are everywhere, albeit seldom acknowledged.

According to the economist Lester Thurow, who is critical of aspects of the market philosophy, free-market theory also extends far beyond the realm of conventional economics: "It is, in short . . . also a political philosophy, often becoming something approaching a religion."

Free-market theory can also be expressed in mathematical form, which lends it the appearance of scientific truth and renders it incomprehensible to all but the initiated. This book is not the place to review these criticisms. Suffice it to record that the fundamental assumptions of market theory are considered by some economists to be so weak that it fails as a predictive tool or as a scientifically based theory. In short, it has many characteristics of a myth. This is not to say that the underlying qualitative model is not useful or important; the point is that it is not a reliable indicator of social behavior. It remains a means for gaining insight into some of what goes on in part of society, and it is a useful microeconomic tool.


The Myth of Utility
The core problem in economics is that of measurement of utility, the satisfaction obtained by an individual from the use of goods and services. The theories of economics depend on the assumption that each individual seeks to maximize his or her utility from a limited income. Since the utility an individual supposedly seeks to maximize cannot be observed or measured directly, and since the assumption therefore cannot be tested, the argument is tautological. The presumed existence of utility is rooted in political-economic beliefs and ideologies rather than empirical science. The fact that the problem is acknowledged by economists and then circumvented (or fudged) by imputing utility maximization from subsequent actions does not detract from this conclusion. Lester Thurow writes:

No other discipline attempts to make the world act as it thinks the world should act. But of course what Homo sapiens does and what Homo oeconomicus should do are often quite different. That, however, does not make the basic model wrong, as it would in every other discipline. It just means that actions must be taken to bend Homo sapiens into conformity with Homo oeconomicus. So, instead of adjusting theory to reality, reality is adjusted to theory.

As an example, in modem economies, governments actually account for a substantial proportion of all transactions. Economic theories that attempt to describe the behavior of economies on the basis of individuals, each assumed to be maximizing his or her own utility, thus provide limited insight. The conventional response of free-market economists is, of course, to get governments out of supplying services so that the market can do the job. Thus, the economy is modified to fit the theory.


The Myth of Value
To most of us, some things or people in our lives or in nature are priceless. That does not mean that they have no value, nor does it mean that their value is infinite; it just means what it says-that they have no price! The idea that some things may not be capable of valuation in terms of cash seems to me entirely sensible, but it is inadmissible to conventional economists. It is central to mainstream economics that the price a good or service fetches in a marketplace is a measure of that item's value to the buyer in his or her personal life. As the lawyer Richard Posner put it, "Value . . . is defined by willingness to pay."

This sort of economics largely sidesteps the issues of ethics and equity involved with the ability to pay, which is of course related to the potential buyer's level of wealth. In other words, it assumes a dollar is worth exactly the same to a billionaire as to a beggar.


Money Fetishism
It is a short step further to the associated assumption that the sum total (in dollars) of production or consumption in an economy (e.g., expressed as GNP) is a measure of the value of life-or of general welfare-in that society.

That view has been described as money fetishism, in which the abstract symbol becomes indistinguishable from the reality. 46 For example, since abstract exchange value flows in a circle in the neoclassical economic model, so must real goods and services. Or, since money can grow forever at compound interest, so too can real wealth. What is true for the token of wealth is held to be true for the artifacts of concrete wealth itself.

Since the "paper economy" offers more scope for "growth" than the real economy, monetary activity (in the form of mergers, takeovers, junk bonds, and tax avoidance) has in many instances become more profitable than production of the very goods and services that are essential for life in society.

Insofar as economics concerns itself with (and, in its application, depends on measurements of) monetary value measured in the marketplace and manipulated as abstract symbols or tokens in the paper economy, it concerns itself with only a tiny part of life's value. This is not to say that market value is not important or useful, only that it is an inadequate measure of total value. The fact that such total value (or total welfare) cannot be measured is no excuse for not acknowledging its existence, nor, on the other hand, for claiming more for gross economic measures than they deserve.

The economist E. F. Schumacher put the problem into focus thus:

To press non-economic values into the framework of the economic calculus, economists use the method of cost benefit analysis. This is generally thought to be an enlightened and progressive development as it is at least an attempt to take account of costs and benefits which might otherwise be disregarded altogether. In fact, however, it is a procedure by which the higher is reduced to the level of the lower and the priceless is given a price. It can therefore never serve to clarify the situation and lead to an enlightened decision. All it can do is lead to self deception or to the deception of others; for to undertake to measure the immeasurable is absurd.... The logical absurdity, however, is not the greatest fault of the undertaking; what is worse and destructive of civilization is the presence that everything has a price or, in other words, that money is the highest of all values.

The Myth of Discounting
As we saw in chapter 4, a dollar in the hand today is worth more than a dollar in a year's time, and a dollar in the future is worth less than a dollar today. This arises from the fact that money can be invested to produce a return and thus can increase in value over time. It is when this arithmetic is applied to real things that problems arise.

For example, it can be logically argued that if different people's lives are of equal "value," at a 10 percent discount rate, an action that would save I person's life today is effectively of the same value as a similar action that would save 117 people's lives in fifty years' time (see table 7.1). Thus, it would be better, for example (if funds are scarce), to spend one's money on saving 2 people today than 117 in fifty years. Similar logic tells us that risks left to future generations, such as toxic waste dumps, are of insignificant importance to today's decision makers. It can be highly "economic" (in cost' benefit analysis terms) to save money today by leaving major problems for future generations to solve.

This arithmetic arises from the use of CBA in an area in which it has no validity. To discount physical and social things and people in the same care' less way as is done for money in a bank account is absurd and immoral. It is yet another example of money fetishism and the fallacy of misplaced con' creteness. This is a good illustration of why major issues, such as ozone layer depletion or accelerated global warming, must not be left in the hands of free-market economists.


The Myth of the Invisible Hand
Adam Smith's doctrine of the invisible hand that guides each individual who acts in his or her self interest to promote the interests of the society in which he or she lives is strongly supported by many people today. 49 Followers of the doctrine forget, however, that the society within which Smith developed his theories was very different from today's. In Smith's time, there were strong social and community constraints on individual behavior, derived from shared morals, religion, custom, and education. These are not present to the same extent today, and indeed there are strong forces opposing them. In Smith's time, however, these social mores were so pervasive and so obvious that he would have felt it unnecessary to include them in his argument. Two hundred years ago, for example, there was no question but that God was an all-powerful Being with the ability to affect the lives of each and every individual. It was a society in which self-interest included the responsibility before God to answer for life's actions and transgressions on the Day of Judgment. To change Smith's argument into a license for limitless self-gratification distorts his writings beyond recognition.

The invisible hand must be acknowledged as a partial truth-in other words, a myth. Some form of invisible-hand model is probably valid to describe some of what happens in a village marketplace of the type Smith described. But the belief that the sum total of market actions, each derived from individual self-interest (in practice massively influenced by advertising and distorted by externalities), in some way adds up to a guarantee of the best interests of society as a whole stretches the imagination to the breaking point. Group identity, collective responsibility, and respect for common property are also known to be critically important cultural components of any stable society. Important areas of human social activity (concern about the distant future; respect for land, resources, and environment; spirituality; etc.) have little to do with independent individual preferences.

Markets must always be held accountable to the greater social interest, something that may be forgotten by those caught up in the excitement of economic reform. The greater environmental interest is no less important.


The Myth of Competition
According to the political-economic world view, competition is the normal way in which people and animals interact. Economists are beginning to acknowledge, however, and social scientists have known for a long time, that a more basic mode of interaction among people is cooperation, within small and large groups. This is especially true in the context of people's attitudes toward their environment.

It is even more true in ecological systems, in which competition among animals or plants may be obvious to the onlooker but cooperation is the dominant process in ecosystem stability. In many cases, cooperation is far more efficient than competition in terms of the output gained from a given set of inputs. The motives behind cooperative behavior may in some cases still be those of a form of self-interest; group cooperation may be a better and more efficient way than individual competition of achieving species advantage. However, that is not the same as atomistic self-interest in free-market economics.

For powerful groups in society, the whole point of competition is to create an unfair market. According to some economists, many important markets are oligopolies anyway. To the extent that the "free" market exists, it does so in villages or in situations in which production is a function of large numbers of small producers such as farmers, motor repair shops, and small businesses.


The Myth of Efficiency
According to lawyer Richard Posner, "Efficiency means exploiting economic resources in such a way that human satisfaction measured by aggregated consumer willingness to pay for goods and services is maximized." Efficiency is defined in economics with respect to the presumed existence of an optimum allocation of resources, nominally best achieved through the actions of a marketplace. It is known, however, that even in the limited context of economic theory, optimum allocation depends on the initial distribution of resources among members of society. As an example, a Pareto optimal distribution is achieved when resources cannot be reallocated to make at least one person better off without making someone else worse off. But the prices that are determined in the free market, and that determine the final allocation, are themselves preempted by the initial allocation. In a market in which there are a few rich people and a lot of poor people when trading starts, the final allocation of wealth will be very different from that in a market in which everyone had the same resources at the start. As an economist put it, "A Pareto-optimum is said to obtain when nothing more can be given to the hungry, the cold, the ragged and the homeless without incommoding the glutton, the miser, the usurer and the play-boy." A similar situation arises in the context of ownership and use of natural resources, including ecosystem services.

Imperfect markets are the norm; free markets are figments of the theoretician's imagination. Anything like a free market usually results in large, powerful firms taking over or putting out of business smaller, weaker ones. Al though this is often claimed to be the result of "efficiency," other arguments suggest that it has more to do with the economic muscle of large organizations. The idea of economic efficiency has so many unknowns that it remains unvalidated in practice, although undisputed in theory. The term is also used widely by politicians but in most cases as an almost meaningless buzzword.

None of this is to suggest that markets have no place. On the contrary, no matter how imperfect, markets often have an extremely useful function in allocation of resources. The point is that any such achievement of the market has to be acknowledged as being, at best, one of obtaining an improvement in allocation, not of achieving an optimum. Determination of whether an improvement has actually taken place involves empirical political and social measurements, not a priori arguments.

The systems approach cautions us against falling into the trap of suboptimization. The whole of a system is always more than the sum of its parts. If links among parts of the system are ignored or oversimplified, it is easy to optimize only one or more subunits, to the detriment of the whole. The function of most optimization studies in economics is to seek an improvement (e.g., in allocation), on the assumption that all other things remain unchanged. This assumption is more often than not heroic in practice.


The Myth of Stability
It is assumed in much of conventional economic theory that the world is an unchanging, static system, or else it is only slowly changing. In discussions of growth, for example, it is believed that steady growth is a natural state of economies. Nonlinearities, time delays, and the distinction between stocks and flows are seldom taken into account in these models. From systems considerations, it is clear that these assumptions may be very misleading in practice. The historical record of social and natural systems is actually one of change. Change has sometimes been slow, but it has often been sudden and unpredictable. Wars, floods, famines; the changing habits of consumers, producers, and investors; stock market crashes; technological and business innovation; and political follies of every description are factors external to economic models that influence them in countless ways. Human history is more turbulent than is commonly acknowledged, and static and other simple models are rendered less real because of it.


The Myth of Substitution
Most economists have sufficient faith in the free-market price mechanism to assert that it will prevent any resource scarcity. They believe that as the price of one resource rises due to scarcity, another will step in when the price is right and take over the market. In the short term-say, until the early years of the twenty-first century-they are probably right. In the longer term, I believe there is increasing evidence that they are badly wrong. I showed in chapter 6 that the theory of the free market has serious deficiencies in the field of energy resources. There is also some empirical evidence to support a lack of faith in the theory.

The proposed substitution of crude oil by shale oil has been investigated in some detail in North America over many years, and the conclusions are highly relevant to this discussion. The fallacy in the traditional economic substitution argument arises from a problem of logic, which has been clarified by the engineer Malcolm Slesser. It was asserted in the early 1970s that shale oil production would be economically viable when the price of conventional oil reached $6 per barrel. The assertion was made on the implicit as' gumption that the shale oil facility could be built with the cheap oil. In other words, it assumed the same energy base for industries in the economy and the same price structure as at the time of the assertion. Obviously, while conventional oil at $2 was available, no one would build a shale oil facility producing at $6. Unfortunately, when conventional oil rose in price above $6, it was no longer possible to build a shale oil facility that could deliver product at $6. When reevaluated, the new shale oil price was found to be $5 above the new crude price.

This behavior is consistent with the biophysical systems perception of the world but not with the political-economic approach. It is worth noting that conventional economic theory has been unable to explain many effects of the oil price rises of the 1970s. According to economists at Resources for the Future "Neither energy's share of GNP nor the slow rate at which energy consumption patterns change accounts for the sharp changes in production, productivity, unemployment, or inflation that occurred in 1974 and 1979. It appears that something amplifies the effect of oil price swings."

The substitution argument is questionable in the context of accessibility of primary energy resources. It has even less validity in the context of such global problems as destruction of the ozone layer, global warming, and buildup of toxic wastes. Prices in the marketplace are relevant to short- and perhaps medium-term decisions, within a static context. They are crude but useful means for allocating a given resource flow from nature among alternative uses in the service of a given population of already existing people with a given distribution of wealth and income. Market prices should not be allowed to decide how fast a resource is used or how to distribute resources among different people or generations. William Rees suggests that "Perhaps most important in the long run are the philosophical arguments against market approaches. 'Commoditizing' the ecosphere is a technical solution that merely extends the materialist world view without questioning society's fundamental values and assumptions. If the world is to be salvaged the motivation will flow more from changing attitudes than it will from improved economic incentives."


Label 19
Content 19


MYTHS OF MARKET FAILURE

Much of what humankind regards as important has nothing to do with any kind of market. Mark Sagoff comments that in many situations, there are no relevant markets to have failed-these include situations involving "matters of knowledge, wisdom, morality and taste that admit of better or worse, right or wrong, true or false, and not mere economic optimality. Surely environ' mental questions-the protection of wilderness, habitats, water, land, and air as well as policy toward environmental safety and health-involve moral and aesthetic principles and not just economic ones." 65

The term "market failure" presupposes that whenever market forces do not produce the best possible allocation, it is an exception to the rule. Since the existence of the market is questionable in the first place, this presupposition makes use of a circular argument in which exceptions to a rule are explained in terms of the rule itself. Even if we accept the presupposition, we should still, to be logical, describe what the market is aiming to achieve-efficiency, equity, sustainability, and so forth. Although seldom specified, the market, and therefore its failure, means something different in each case. 66

THE MYTH OF ENERGY AS COMMODITY

To many mainstream economists, energy is simply a commodity whose attributes, although unique and important, do not distinguish it in any significant way from other commodities, such as water, steel, butter, or carrots. Thus, energy should not be singled out for individual care and attention. 67

This view reflects a basic misunderstanding of the science of energy in that it does not distinguish between two markedly different meanings of the word "energy." The everyday meaning relates to the fuels wood, coal, oil, and gas. These are often referred to as energy, but they are more correctly termed sources of potential energy, or energy carriers. The scientifically important meaning relates to energy as the generalized attribute of physical transformation and change.

Specific fuels can be treated as (substitutable) commodities in many situations, but energy itself cannot. The laws of thermodynamics apply not only to heat and work processes in machines but also to the heat and "work" associated with chemical and biochemical transformations of all types. Thus, the laws apply to the processes of photosynthesis, growth, decomposition, and decay in the natural world; to the processes of circulation and precipitation in the global atmosphere; and to the processes of production and consumption in an economy every bit as much as to the processes in the mechanical worlds of physics and engineering.

THE MYTH OF ENVIRONMENT AS COMMODITY

My government's philosophy was given in the following statement: "To give the environment a fair hearing, and represent it across the entire alignment with development, you have to communicate in economic terms." 68 Conventional economics asserts that if the environment and its resources can be seen as similar to other goods or services (like cheese, toothpaste, or carrots), the market is the appropriate place for valuation to be carried out. This approach has a number of fatal flaws. 69

The first is that the "prices" of widespread child abuse, or of losing the Amazon forests, for example, are not available; there are no markets in which they may be "valued." Economists then have to invent a "shadow price" to take them into account. But these shadow prices are only estimates of transactions associated with the events-for example, hospital and/or psychiatric counseling costs (in dollars) of treatment of a physically or psychologically abused child. 70 They in no sense evaluate the misery and hurt experienced by the child. Nor do shadow prices evaluate the long-term loss of social income or ecosystem services from the absent forest, let alone the cost of restoring something whose loss may be intolerable and/or irreversible.

The second flaw comes about by virtue of the fact that no numerical value can possibly take account of people's spiritual relations with their environment or with one another. To attempt to reduce emotions and spirituality to numbers leads to the debasement of everything.

PROBLEMS IN ECONOMICS

It will be apparent that there is a great deal of concern about the validity of much of standard economic theory. 71 This comes mainly from within the economics profession itself; in these pages, I have only reported a few of the criticisms that economists have been making of their own discipline, since 1970 at least. 72 The critic Irving Kristol recently commented. in reviewing a book by Lester Thurow, an economist who is critical of many current theories, that "on the one side, he shows that much of what passes for 'scientific methodology' in economics is pretentious pseudoscience. On the other, he reveals to what extent economists propel themselves into a muddle by a simple-minded identification of homo oeconomicus with homo sapiens." 73

Much of theoretical economics has ceased to be related to real human societies. 74 This is part of the reason why mainstream market liberal economics on the one hand and anthropology, sociology, and psychology on the other have drifted so far apart. The latter are based largely on empirical observation; the former, largely on a nineteenth-century logical-mathematical approach. The economist Peter Wiles has commented, "The main thing that is wrong with economics is its disrespect for fact." 75 That same economist also commented that "it is perfectly possible for a science to be sick, and ours is now." 76

Marilyn Waring has pointed out that since early this century, the standard economic approach has been first, to observe facts in order to gain an insight into economic relations; second, to deduce the general laws of political economy from premises drawn from the prior observations; and third, to test the laws by inductive verification. 77 This method is contrary to the requirements of modern science. The ultimate empirical test of a hypothesis is whether its propositions correspond to reality (using the criterion of falsifiability). In a priori science, all that is required is that the deductions from a given set of axioms are logically correct. 78 So long as the axioms of mainstream economics remain divorced from the reality they claim to represent, their results will be unacceptable to those who study, let alone those who suffer from, their outcomes.

The Myth of Objectivity in Economics

Economics is so closely related to political theories that many of its practitioners fail to remember the ideological underpinnings of their studies. 79 The economist Mark Blaug suggests, for example, that the scope of positive economics is smaller, and that of normative economics larger, than is frequently claimed by economists. 80 It is also common, as Mark Lutz and Kenneth Lux write, for the positive "is" analysis to be carried on, perhaps unconsciously, to the normative "ought to be" conclusion. 81

Robert Kuttner points out:

The study of who gets what and why, unlike the study of plants or planets, cannot help being an ideologically charged undertaking. Despite the laborious techniques and scientific pretensions, most brands of economics are covertly ideological.

Marxian economics, with its labor theory of value, assumes the inevitability of class conflict, and hence the necessity of class struggle. Keynesianism, with its conviction that industrial capitalism is systemically unstable, offers an equally "scientific" rationale for government intervention. Neoclassical economics, with its reliance on the efficiency of markets, is an embroidered brief for laissez-faire. 82

As D. Paarlberg puts it, "It is impossible to give the right answer to the wrong question; the tragedy is that we spend so much of our time asking the wrong question and trying to answer it." 83

THE PLACE OF ECONOMICS

It does not in any way follow from these arguments that I believe conventional economics has nothing interesting, useful, or important to say about socioeconomic policy. I cannot emphasize that point too highly. But what conventional economics has to say-according to many critics from within the profession itself-is of a general nature and is not easily translatable into the specifics of policy. This is why, when it comes to policy matters, economists are often in disagreement. Interpreting information about what is happening in the economy is an art, not a science.

Let us not forget that economics as a discipline is very young. In many respects, it is conceptually at the stage physics was in the Middle Ages, before Galileo showed that the sun, not the earth, was at the center of the known universe. 84 Economic laws are mainly generalizations, perceptions of regularities of economic behavior that are in reality conditioned by cultural and social relations and institutional settings. 85 If we realize this, we will see the predictive capabilities of economics in a more realistic and modest context than that engendered by computers and stock markets.

The main purpose of economics is to gain insight into the workings of economies, not to develop theories for every action and reaction. 86 In such matters, a mixture of intuition, imagination, worldly experience, a good sense of history, and plain common sense is more important than any sophisticated acquaintance with theory, mathematics, or computers. 87

In practice, many elaborate models of politics and economics are inherently and deeply flawed in their basic structures. 88 They are incapable of giving other than a rough indication of what might happen in the future, and then only with the proviso that other things remain equal. Given the known indeterminacy of socioeconomic systems, that proviso cannot be valid in practice. It is therefore not possible to set a specific question to a model and expect a demonstrably valid answer.

There is one exception, however, and that is where legal and/or fiscal mechanisms are set in place to require or induce people to behave "rationally." In other words, a model will "predict" accurately if people are required to modify their behavior to satisfy the requirements of the model. I suspect that many current policies are being prepared in the expectation that they will be backed by legislative and fiscal powers to achieve their end result. The resultant (and inevitable) social conformity will be the logical consequence of following policies built on assumptions that elevate the idea of "freedom of the individual" to its peak. This outcome is described as "economic imperialism" by some authors. 89

This discussion exposes a fundamental problem relating to the place of markets. Democracy is usually defined in terms of freedom, but in practice, the "free" market is inherently incapable of achieving what I (and many others) believe democracy is all about.

A WIDER PERSPECTIVE FOR ECONOMICS

It has been suggested that mainstream economists ought to be less reductionist and more alert to the sociological, political, or even aesthetic dimensions of the human condition than they are. A clearer understanding of the relatively modest potentialities of their discipline alone will make them better economists. To quote Thurow again, "If economists are to be charged with any crime, it is not that of knowing too little relative to what they can know, but with the crime of being too certain about what they think they do know." 90

Since there are real physical and ethical constraints on the options available for human economic development, it is also important for politicians to embrace the view that noneconomic scientific tools may be of comparable importance (and may even be the most important) in areas where they seek advice on the social resolution of resource allocation problems. As the economist Charles Perrings points out:

Once we begin to conceptualize the behaviour of economy-environment systems over time, unprotected by the assumption that the price system contains all the information we need to know, we find not the comfortable order of stable or relatively stable equilibria but a seemingly chaotic drive to change, paralleled only in the recent findings of physicists investigating the time behaviour of structures far from equilibrium. More important, we observe little warrant for the simple Smithian faith in the invisible hand that underpins the market solution, and no war rant at all for the argument that forward markets will compel private interests to secure the information that renders the price system complete. 91

"Economics" has the same linguistic root as "ecology." Interpreted narrowly-as the currently dominant viewpoint requires-economics reduces everything and everyone to economic neuters: items of production, consumption, and exchange in an imaginary marketplace. Interpreted broadly and humanistically in its equally valid meaning of "loving care of the household," it could incorporate a systemwide meaning that encompasses the stewardship role of humans in our relationship with all things in the global household. It is my fervent hope that the profession of economics will rapidly move in the latter direction. In the words of Boris Pasternak, "What is laid down, ordered, factual, is never enough to embrace the whole truth; life always spills over the rim of every cup."

Myths of Science and Energy

THE PHILOSOPHER OF science Karl Popper once said, "Science must begin with myths, and with the criticism of myths." 1 With the passing of many old myths, a new set has emerged. Trust in science ("scientism") is one. In this myth, science has the last word in establishing answers to questions, ultimate truth is revealed by science instead of by, say, the Bible. The accounts of Genesis were the ultimate truth of creation until a century ago; they still are for many people, for whom biological evolution is a myth.

There are many other myths in science and technology. In order not to be overimpressed by so-called scientific views and opinions, it is necessary to review some of them to obtain a more balanced view of the strengths and weaknesses of science, especially as applied to human affairs and policymaking. That some of these myths are more often held by nonscientists does not invalidate their discussion here, because they are commonly associated with science and technology.

THE MYTH OF LINEARITY

Much of what is known in science has been built around simple models in which cause and effect are related through what are called "linear" mechanisms. In other words, if whatever causes an effect is changed by a given amount, the effect changes by a proportional amount. If an electric heater is switched from half to full power, for example, twice as much heat is given out.

This sort of relationship-that of direct proportionality-is in fact very common, but only up to a point. Beyond that point, the effect may be quite out of proportion to the cause. Take the biblical story of the straw that broke the camel's back. Every individual straw added until that point added an equal amount to the load, with steadily increasing (but reversible) stress on the animal's back. But then another factor came in-the camel's back, unable to take any more weight, broke. The linear relationship that had been valid up to that point suddenly failed; the relationship became nonlinear (actually, discontinuous) and irreversible.

In nature, this sort of thing is normal. Up to a point, which usually cannot be predicted in advance, the system may respond in a way that is repeatable and even reversible. Beyond that point, it does not-its behavior is unpredictable and irreversible. This is a normal characteristic of complex systems such as dissipative structures; it is also a characteristic of virtually all structures and processes known to humanity. As the threshold of nonlinear behavior is approached, much of classical science (and most of standard economics) becomes inapplicable. The claim made in the nineteenth century that "nature does not make jumps" has been shown time and time again to be erroneous. 2 For example, the cost to a person of taking just one more step may be to fall over a cliff or be hit by a truck!

For these reasons, it is important not to extrapolate. That something has happened reliably up to a certain point is no reason to suppose that going beyond that point will give rise to the same effect. It may do so, but it may not. Without a detailed study of what happens beyond the point at which one's existing knowledge runs out, extrapolation is dangerous; it may break the camel's back, or it may not. Only by doing several (presumably fatal) experiments to determine the breaking load of camels' backs is it possible to know how heavy a load other camels are likely to be able to carry-and then only approximately. Extrapolation is inherently a risky business. Many disasters have occurred because scientists and technologists pushed components and systems beyond the point at which their knowledge was reasonably certain. Less well known, but nonetheless real, are the social disasters produced by application of political-economic theories of human behavior to societies and economies beyond the point at which knowledge was reasonably reliable.

THE MYTH OF SCIENTIFIC OBJECTIVITY

One would hope that all scientists are indeed experts who attempt to be objective in their pronouncements. Alas, the evidence is clearly to the contrary. There is a long history of gullibility, ignorance, and stupidity among scientists. 3 It usually results from their taking on responsibility for pronouncements in areas beyond their expertise. This in turn is a consequence of many of them having an inflated opinion of their ability to determine the truth of a situation from what is often nothing more than a cursory study. 4 The ability of many experts to ignore anything but their own world view may not be readily apparent, 5 but when a scientist takes on the role of advocate and makes authoritative-sounding claims without presenting clear supporting evidence for them, one should beware. 6

Science is supposed to be objective. That means that when applied meticulously, the scientific method is a step-by-step approach to the study of something, with testing of hypotheses at every stage. In practice, science is carried out not by robots but by people. It is thus less than perfect and more than just a method. It is a creative, and intensely human, activity.

Scientists and technologists like to picture themselves as rational, pragmatic beings who are unswayed by emotion or dreams. Paradoxically, they have also been responsible for large numbers of technological fantasies: moon landings, aircraft powered by nuclear reactors, spaceships powered by atomic bombs, biological weapons, psychosurgery to cure undesirable behavior, feeding the poor of the world by using more fertilizers and hydroponics, "Star Wars" defense systems, and so on. Some of these dreams have been achieved-at a price Others are so flawed in their views of the real world that they may never succeed. 7 Engineers and economists are perhaps more to blame than most in this context. Narrowness of vision and understanding and arrogance in dealing with others are not peculiar to them, however; such failings are commonly found in all of the professions and show up the dangers inherent in specialization.

THE MYTH OF THE TECHNICAL FIX

In the book The Next Hundred Years, prepared in 1957 by several eminent technologists with the assistance of executives of some of the United States's largest corporations, the authors provided the following vision of what they called an emerging "technical-industrial civilization":

If we are able in the decades ahead to avoid thermonuclear war, and if the present underdeveloped areas of the world are able to carry out successful industrialization programs, we shall approach the time when the world will be completely industrialized. And as we continue along this path we shall process ores of continually lower grade, until we finally sustain ourselves with materials obtained from the rocks of the earth's crust, the gases of the air, and the waters of the seas.

By that time the mining industry as such will long since have disappeared and will have been replaced by vast, integrated multipurpose chemical plants supplied by rock, air, and sea water, from which will flow a multiplicity of products, ranging from fresh water to electric power, liquid fuels, and metals. 8

It was believed that the main obstacle to attainment of this resource El Dorado was not a shortage of resources (nor the threat of overpopulation) but a lack of enough trained scientists and engineers to build and maintain the technical wonderworks needed by the developing countries. It was a time when there were "no problems, only solutions." Many scientists and engineers would now assert, however, that in reality there is no complete technical or economic solution to the resource problems that face us. I have discussed several aspects of this in previous chapters. There is also no simple solution to problems such as the tragedy of the commons. The solution can come only from an ethical or moral base.

Jacques Ellul, a trenchant critic of unthinking use of technology, suggests, "History shows that every technical application from its beginning presents certain unforeseeable secondary effects which are more disastrous than the lack of the technology." 9 He also suggests that "every successive technique has appeared because the ones which preceded it rendered necessary the ones which followed." 10 Although these claims might seem somewhat overstated, it is true that neither the full extent nor the nature, let alone the approximate sum of external costs, of major developments is known. No method exists to give more than a rough estimate of the cost of even the direct, short-term external consequences of new technologies. When indirect effects are concerned (good examples being accelerated global warming and destruction of the ozone layer), conventional methods are powerless. Thus, no possibility exists for Ellul's claim to be validated. It remains a somber warning, for which there is significant circumstantial evidence and which should not be ignored.

THE MYTH OF CHEAP ENERGY

Countries with large reserves of fossil fuels or hydroelectric potential are often encouraged to use their "cheap energy" as a means of encouraging rapid economic development. Although such countries may indeed have cheaper resources than many others, it is a fact that no country incorporates the environmental or social externalities of fuel use in the price of its resources, and thus all of them distort the economics of fuel supply. Thus, consistent undervaluing of resources becomes part of economic policy and prevents decisions being made that have the potential both to improve overall economic efficiency and to protect local and global environments. In reality, there is no such thing as cheap energy; it is the social and environmental costs of its supply that are artificially cheapened in many economies.

THE MYTH OF RENEWABILITY

Many people believe that some forms of energy (the renewable ones) are more environmentally benign than others. This is generally true, since hydroelectricity and wood fuel can usually be produced with lower pollution and environmental damage than can coal-fired electricity and oil fuels. Nevertheless, the assumption that resources such as these are entirely benign is more than a little naive.

Hydroelectric dams create substantial damage to local soil and vegetation systems and to river ecology, both before and after construction. The indirect effects of production of the cement, steel, and machinery used in their construction create other problems further back in the economic system. Hydroelectric dams also have a limited life. Depending on the characteristics of the river that supplies them, they can be expected to silt up, perhaps as soon as a decade after construction. The electricity produced from them may be renewable for a while, but the river itself is irreversibly changed.

Fuel production from trees is another example. Wood production from a forest appears, on the surface, to be possible in perpetuity. After all, if the forests have been in existence for millions of years, can this situation not continue forever? The answer lies in the fact that in its natural state, a forest is approximately a closed system, in that mineral matter and soil remain within it (water, oxygen, and carbon dioxide obviously enter and leave the forest system via air movement). When a tree dies, it decomposes and in doing so provides food for a myriad of bacteria, fungi and other organisms, and small animals, which in turn provide food for higher animals. The end result is that the minerals, the trace elements, and a great deal of organic matter are recycled back into what is a complex ecosystem for use by the next generation of plants, organisms, and animals. When timber is removed from the ecosystem for use in an economy, via sawmills or pulp mills, the recycling process stops. Unless the timber that is removed is only a small proportion of the total biomass of the forest ecosystem, the system can suffer severe, possibly devastating, damage. Thus, extractive wood production is not normally renewable in the long term, although it may appear so within the limited lifetime of individual decision makers. The ecosystem itself seldom survives regular timber extraction.

THE MYTH OF SUSTAINABILITY OF INDUSTRIALIZED SOCIETY

If we cannot rely forever on stock fossil and other energy resources, only the sun is left (together with wind, rain, and other solar-related flows). Can one conceive of a developed, industrialized society that takes all the energy it needs, directly or indirectly, from the sun? This question is at the center of a great deal of current research work in many countries. No unequivocal answer can yet be given.

The biggest problem we face is that it is not clear whether it is possible, using purely solar energies, to carry out many of the energy-intensive activities that we now depend on. Smelting of iron and manufacture of liquid fuels are obvious examples. At present, it is only by using fossil fuel to construct plant and machinery that these processes are carried out. In other words, we cannot yet see how it is possible for a society to make everything from solar' derived energy flows if that society continues along the industrial path. No matter what directions are chosen, for some time to come societies will have to use stock resources, if only to make the equipment that will enable solar sources to be harnessed (using steel, copper, glass, etc. ). Provided this use is at a modest level, there should be no significant problems either of supply or pollution.

In short, the use of solar energy as the sole primary energy source for a technologically advanced consumerist society has not yet been shown to be viable. It is therefore vital that we start to move toward making careful use of the valuable stock resources we now have, to ensure that at least some will be available for future generations for as long as possible. In this way, breathing space will be available to examine options for future social and technological developments. Regrettably, the standard political-economic world view denies the possibility that humankind will not be able to achieve any technological feat that may be needed, and in the meantime, resources are being used without any thought for the future.

THE PLACE OF SCIENCE

Science is the attempt to be objective about the study of nature. Scientists themselves, however, are only human. For this reason, the process of scientific endeavor has always had, and always will have, a substantial element of human subjectivity. According to the critic Stanislav Andreski, "The natural sciences did not advance in virtue of the universal appeal of rationality. Their theological, classicist and metaphysical opponents were not converted but displaced . . . scientific method has triumphed throughout the world because it bestowed upon those who practiced it power over those who did not." 11

The place of science in human decision making is to help people understand why things happen. It can also help distinguish what is possible from what is not. I feel this is the most important contribution that thermodynamics and systems theory can provide in the field of resource use. Thermodynamics sets limits to social phenomena through its ability to predict constraints on the use of energy sources and materials in economic processes, now and in the future. Regardless of how economic value is established, the economic process cannot violate natural laws. Nevertheless, thermodynamics does not govern decisions within the economic process; it is a constraint on some important aspects of the social valuation (price) mechanism, not a direct determinant of it.
 

ThaG

Sicc OG
Jun 30, 2005
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MYTHS OF THE POLITICAL-ECONOMIC WORLD VIEW


from ENERGY AND THE ECOLOGICAL ECONOMICS OF SUSTAINABILITY,
by John Peet; Island Press, 1992. http://www.islandpress.com
Phone: 800-828-1302 or 707-983-6432; FAX: 707-983-6164
http://www.amazon.com/exec/obidos/ISBN=1559631600

A MYTH IS a traditional story that offers an explanation of some fact or phenomenon. Myths are neither wholly true nor wholly untrue. They may have been more true in the past than now, but people act as if they are still true, even when they no longer really believe in them. Some modem usages of the word have connotations that suggest that myths are irrelevant or wrong, but this is not necessarily so. Myths are of considerable importance to people, and for some, they may reflect ultimate personal truth. The critical need is for people to be given the opportunity to find out which myths are meaningful and which are not.

THE MEANING OF MYTHS

A myth is a mental model with which people try to interpret reality and respond to it. Myths have value in enabling us to organize the way we perceive facts and see ourselves and the world. Myths speak through rich symbols, helping to bring order into what may otherwise be a chaos of personal experience. Whether true or not, myths help us make sense of what is going on around us. Myths can provide a valuable doorway into the value structure of a society or culture and may give insights that are difficult to achieve by more conventional means.

Some myths, like belief in fairies, are probably harmless. Others may be dangerous if they distort the way we see the world and the ways we deal with problems. How does one tell the difference? How does one help people recognize the existence of other perspectives of reality without offending deeply held beliefs? One good way to start examining a myth is to find out what it meant to those who created it (the process of exegesis). Many social and scientific myths of the twentieth century originated in the seventeenth and eighteenth centuries, so this is not difficult to do. The next task is to find out what the present-day followers of the tradition of a myth mean by it (the process of hermeneutics). The final task is to compare the myth with the reality it seeks to represent. This stage often runs into trouble with adherents because to them, a myth cannot be questioned without challenging the believer's self.

Most myths present themselves as authoritative and able to account for facts, no matter how completely at variance they may be with the real world. A myth gains its authority not by proving itself but by presenting itself. And the greater the political authority that lies behind the myth and the more often it is presented, the less likely it is to be challenged. Such is the case with many political and scientific myths of the twentieth century.

Over the past two hundred years, Western societies have cast aside many of the myths and institutions that had served them for hundreds of years. The great belief systems-the idea of a divine lawgiver; the sanctity of the family kin group, or tribe; the rituals, customs, conventions, ceremonies, and festivals that gave meaning and purpose to the smaller communities of earlier times-are mostly in ruins. But in the haste to throw off apparently outmoded burdens, people also lost the valuable side of those myths and institutions. The feelings created by people's confidence in their place in nature and in the stability of the social systems that supported them have been vandalized. Many people are left with nothing but the despair engendered by new myths that they do not understand, often because the myths have been imposed on them without explanation. 1

The Myth of Unlimited Resources
Perspectives on the use of resources and on technology's ability to achieve anything we might want are clouded with scientific and political-economic myths. Consider, for example, the following statement "Through technological advance we [will] seek to simulate and redesign to our liking all biological processes, so that we may achieve ever more control over the conditions of life." Myths such as these are widely held, but their foundations are so weak that they need to be replaced with others to guide our thinking as we set our course toward the twenty-first century.

The Prime Myth
The prime myth in the context of this book claims that lower grade resources will always be available to humankind in a continuing and virtually endless sequence.

Since exploitation of resources always, and without exception, requires expenditure of available and accessible energy, as I pointed out in chapter 3, this myth is critically dependent on the continuing availability of energy resources. For that reason, I will reword it into a more specific form: Lower grade energy resources will always be available to humankind in a continuing and virtually endless sequence.

Nicholas Georgescu-Roegen, a trenchant critic of the myth, states: "The favorite thesis of standard and Marxist economists alike . . . is that the power of technology is without limits. We will always be able not only to find a substitute for a resource which has become scarce, but also to increase the productivity of any kind of energy and material."

William Catton exposes further flaws in this "favorite thesis": Two non-repeatable achievements had made possible four centuries of magnificent progress. Those two achievements were ( I ) the discovery of a second hemisphere, and (2) development of technology that could unearth and exploit the planet's energy savings, its fossil fuel deposits. Humankind's increasingly relentless search for new sources of energy and for more costly energy technologies expresses our wish to deny that achievements like those two were uniquely resultant from bygone circumstances.

Part of the problem of evaluating the prime myth is that economists usually think of resources in monetary terms-in other words, as homogeneous. The inadequate information supplied by market prices for resources means that conventional (neoclassical) economics is largely incapable of according resources-especially nonhomogeneous, nonrenewable fossil energy resources-the meaning they actually possess.

In order to give the prime myth the attention it deserves, we need to examine some of the myths on which it depends or that are used to derive policies stemming from it. These myths are deeply ingrained in the Western cultural tradition and are central to many areas of decision making. The reader is invited not to reject those that may be ill founded (and I strongly emphasize this point) but to treat them always as partial truths and partial perceptions of reality. They may be useful under certain limited circumstances, but they should never be used outside those narrow confines.

I would also make the point that by the term "resources," I include ecosystem services along with the conventional meaning of extractable resources.

The Myth of Divine Authority
According to some writers, Western culture, shaped by interpretations of the Bible, particularly the early books of the Old Testament, pictured humans as separate from all other creatures and dominating them. Many still feel what is almost a divine imperative to "master" nature. It stems from a linear, hierarchical, authoritarian world view in which God is above, nature is below, and man is in between, set above everything but God (not forgetting that woman is set hierarchically below man). The British theologian C. S. Lewis suggested that the truth is rather more prosaic: "What we call Man's power over Nature turns out to be a power exercised by some men over other men with Nature as its instrument."

Recent theological studies have shown that the belief of God giving man authority over nature is not necessarily supported by the Bible. The dominant themes go far beyond what is gained from literal interpretation of specific verses (e.g., Genesis 1). In reality, there are two creation myths in Genesis: the "Yahwistic" (Genesis 2 4, in which man was created out of dust) and the "priestly" (Genesis 1:24, in which man was "given dominion," etc.). The Yahwistic version, dating from around 1000 B.C., is closer to a holistic, "systems" view, but it was apparently superseded by the priestly version, dating from around 600 B. C. The latter clearly reflects dominance of political structures, which may have been as strong in the relationships between priests and kings in ancient Hebrew society as they are today between economists and politicians.

A full analysis must also combine major themes from both the Old Testament and the New Testament. These do not support the view that humans are above nature but suggest the contrary-that they are part of it. In Genesis 1, God declared plants and animals good independently of humans; they are therefore interdependent. In a sense, God, humanity, and nature exist in a systems relationship. From a biblical viewpoint, stewardship is the primary function of humanity, whose function is to take care of God's creation, giving special (but not exclusive) attention to itself, including future generations. Stewardship requires extending brotherhood and sisterhood not only to all existing people but also to future and past people, and to all other life forms, in appropriate degrees.

The Myth of Primacy of the Individual
The conventional political-economic viewpoint depends on two crucial assumptions about the individual: that the individual is the best judge of his or her own interests and that over time, tastes (i.e., preferences) do not change-or, if they do, they change as a result of better information. These are often summarized as "the independence of individual preferences."

Although these assumptions apparently have the status of received wisdom when seen from one viewpoint, they are at best half-truths. It may be politically expedient to declare that everyone is the best judge of his or her own interest, but few people would not want to undo many of their past mistakes. The fact that many apparently normal people subject themselves voluntarily to various forms of psychoanalysis, or indulge in the search for truth through religion, or follow the forecasts of astrologers, means that in respect to the larger questions that govern their lives, they are far from certain where their true interests lie.

The modem liberal view of the place of the individual in the marketplace expressed by such philosophers as Friedrich von Hayek, is interesting in this context. As described by Bruce Jesson, their view is that ``true individualism . . . is a social individualism. It requires a society with a stable family structure, voluntary community associations, and conformity to tradition and convention . . . true individualism requires a rigid moral code and a sense of social responsibility. It bears little resemblance to the acquisitive, self-indulgent and amoral spirit of modem individualism . . . (which) is deficient in its lack of ethics."

This model reflects cultural factors coming from groups rather than individuals. By breaking down group behavior into "socially responsible" individual behavior, one may pave the way for authoritarian controls on group action, nominally to increase individual freedom. Even though this may be done in the name of freedom, in reality it reduces the power of those with whom individuals are associated and on whom they may depend. Trade unions, under threat in many countries, are an example.

The assumption that the individual is in some sense supreme in the marketplace axiomatically leads to the conclusion that reliance on individual self-interest is the only requirement of the economic (and indeed the political) system. But a free market assumes that people have equal access to information about what is taking place and that they are all sufficiently self-reliant to exist without buying or selling. This reflects a utopian situation, found only in some small communities (in which group cohesion is a central element of community structure). It has long been known by anthropologists, sociologists, and psychologists that in most societies, group behavior is markedly different from that of individuals. Long-term goals of families and communities take into account factors that seldom enter into the decision making of isolated individuals, and this is nowhere more important than in the context of relationships with the environment.

From the systems perspective, the view of economist Lester Thurow is helpful "Societies are not merely statistical aggregations of individuals engaged in voluntary exchange but something much more subtle and complicated. A group or a community cannot be understood if the unit of analysis is the individual taken by himself. A society is clearly something greater than the sum of its parts despite what the price-auction model would maintain."

Conventional economics is mainly built on simplistic and outmoded concepts drawn from nineteenth-century behavioral psychology. When economists talk about "economic man"-Homo oeconomicus-they make assumptions about rational behavior, human needs, goals, and values that have been largely demolished by workers in the social sciences. The demolition occurred mainly in sociology and adult education, by empirical testing (using the Popperian criterion of falsifiability) 21 and by use of more modem ideas of behavior, such as humanistic psychology and the human potential movements.

The idea that the individual is the central (and sole) unit of decision making in society is rejected by many cultures. Indeed, the idea is in many respects deeply offensive, and it goes against centuries of their history. For settlers of (usually) European cultures to impose that ideology on people is yet another example of the long history of insensitivity and brutality that has characterized colonization. The idea also must be recognized as relatively new in human history, gaining its main strength from political theories of the seventeenth and eighteenth centuries in Britain and Europe. To many Europeans, the more cooperative social structures of the past may now be too far distant to be clearly remembered, but such is not the case in most other cultures. The dominance of European-based cultures enabled the ideology of individualism to be spread far and wide, but the historical fact of its acceptance does not prove it is "right"; the reality is that its supporting political, economic, and military structures were more powerful than those they supplanted.

The phenomenal successes of advertising, the vast amounts of money spent on it, and the involvement of psychologists supply evidence that up to a point, it is quite possible (and certainly very lucrative) to change people's preferences. The methods used owe more to psychological manipulation than to any inherent law of human nature in that planning is extended to the consumer to ensure that he or she will "want" what is produced.


The Myth of Rational Behavior
It is widely believed that some form of the "rational behavior" observed of particles in classical physics must also be present in human behavior. The idea of rationality in human behavior was in the eighteenth century, however, and still is, only an analogy with classical physics. Since the nineteenth century, the idea has been shown to be a very weak one. It is more a political theory, a code of human behavior, than a reflection of natural laws. Nevertheless, rational behavior is at the core of neoclassical economics and its modem offshoots. The approach is reductionist, looking at the individual in order to try to understand the economy. It relies on the assumption that a whole is the sum of its parts.

There are actually two quite different meanings of the term "rationality."

According to Karl Popper, the rationality principle means that "having constructed our model, our situation, we assume no more than that the actors act within the terms of the model, or that they 'work out' what was implicit in the situation." Popper makes it clear that the rationality principle "has little or nothing to do with the empirical or psychological assertion that [people] always, or in the main, or in most cases, act rationally."

In other words, the rationality principle applies to the a priori domain of development of models. It has nothing to do with the empirical domain of observed human behavior. Popper goes on:

Rationality as a personal attitude is the attitude of readiness to correct one's beliefs.

In its intellectually most highly developed form it is the readiness to discuss one's beliefs critically, and to correct them in the light of critical discussions with other people.

I am a rationalist. By a rationalist I mean a [person] who wishes to understand the world, and to learn by arguing with others. (Note that I do not say a rationalist holds the mistaken theory that [people] are wholly or mainly rational.

The difference between the two meanings is vitally important, but they are commonly confused. In the general sense, rationality is an a priori concept, but when the word is applied carelessly to the empirical world, the result is the expectation of rational behavior (i.e., actions performed according to a model of behavior) rather than acknowledgment of the richly human, creative, intellectual behavior of a rational person, who takes a critical attitude to his or her beliefs.

From careful consideration of the emphasized sentence in the latter quotation from Popper, I am led inescapably to the conclusion that a rationalist should never believe in rational behavior! To do so is to accept a model as a standard for behavior rather than to observe critically the empirical reality of actual behavior. The two meanings are inherently in conflict, and Popper exposes the point very effectively: a belief in rational behavior is in itself irrational!

At the empirical level, the underlying assumptions of rational behavior are largely untested and probably untestable. Despite this, many economics textbooks still promote the model of rational Homo oeconomicus. That many economists recognize its inadequacies but continue to teach (and preach) the concepts gives me cause for concern about the scientific basis of political economic theories. (The economist Mark Blaug suggests that some economists play tennis with the net down!)

The imposition (e.g., through fiscal policies) of the requirement that people act in conformity with a model of behavior in order to gain access to some privileges of citizenship (employment, education, health care, welfare, etc. ) is inherently authoritarian and violent. It induces-and often forces- people into individualistic behavior against their natural instincts. Nor does the rational behavior model give adequate attention to changes in value over time, that is, to intergenerational equity. Deeply human ideas, such as leaving resources for one's grandchildren or planning allocation by need rather than greed, have no clear place in its calculus; that sort of behavior is labeled as irrational. (Proponents of economic rationality commonly apply this label to those who disagree with them, especially to those who value the environment highly. )

In this context, it is worth noting that in law, there is the concept of the reasonable person, who (in contrast to the rational person) is: "a person who is not only protective of his/her own rights, but also has a fair regard for the welfare of others." The reasonable person is concerned with justice and fairness with equity rather than efficiency. Justice and fairness are absent in much of conventional economics, yet they are central to most people's ideas about how society should be run. Humanistic economics is all about replacing the model of the rational person with that of the reasonable person.

The Myth of Bounded Rationality
More recently, concepts of rationality have been extended to include ideas such as bounded rationality, in which people make decisions without perfect knowledge. In some respects, the approach is an alternative world view to that of neoclassical economics, and it reflects the fact that human behavior consistently violates economic principles of rationality.

Basically, the bounded rationality approach acknowledges that people have limited cognitive capabilities. This implies limitations in attention, perception, memory, and abilities to process information and communicate. Use of bounded rationality criteria results in simpler problem-solving approaches and attention to subgoals rather than overall goals. Altruism and opportunism are incorporated in some theories of bounded rationality.

From a systems point of view, the approach appears to be limited in application. It works only when a system can be broken down into its parts and each part studied separately (in systems terminology, such a system is loosely coupled). In real systems, feedbacks and nonlinearities are usually strong, and one cannot change one part without affecting another. The result is that application of the ideas of bounded rationality can result in suboptimization and system dysfunction. Thus, these developments appear not to have much relevance to practical aspects of policymaking. Rather than testable hypotheses (in a scientific sense), I see them as sincere attempts to correct the logic of rational behavior for obvious deficiencies. (Blaug, using Popperian arguments, warns against the use of "ad-hoc auxiliary assumptions," or "immunizing stratagems," when working toward verification of theories.)


The Myth of Freedom
It is a central belief of those of the mainstream market liberal political-economic viewpoint that freedom of the individual is the most important characteristic of a society. For these people, freedom is entirely an economic construct. Freedom exists in the unfettered market and ceases to exist if market processes are hedged about by regulation. Freedom thus has a meaning akin to choice, the availability of alternatives in a marketplace.

For most people in society, freedom has entirely different meanings, few of them capable of codification. Freedom from hunger and want? Freedom of speech and of association? Freedom from arbitrary constraints? Freedom to be creative and artistic? These are not the same as freedom of choice.

Free-marketers hold to a negative freedom. "Freedom from.... " What is important is freedom from restrictions that prevent them from getting on with whatever they want to do (mainly the accumulation of wealth). Positive freedom, on the other hand, is the more creative "freedom to . . . ," such as the freedom to live within a context that encourages the pursuit of things spiritual and creative. The assiduous promotion of ideas of negative freedom, especially in the market liberal context beloved of Treasury officials and business roundtables, is yet another step in the attempt to mold Homo sapiens into Homo oeconomicus-"the human as consumer"-the manipulated market cipher who will always behave as markets require. "Freedom" in this con. text has many characteristics of a myth. It also involves the hijacking of a word with an old and honorable meaning into a new and dishonorable service.


The Myth of Universal Property Rights
A basic requirement of the market model is that anything individually owned is tradable. It is a small step to believe that in order to make full use of the "efficiency" of the marketplace, everything that possibly can be, must be in private ownership.

For many people, the idea that natural resources can be regarded as private property, let alone as tradable, is bizarre. When the first English settlers "bought" land from the Maori in Aotearoa-New Zealand, they believed that they were carrying out a simple transaction giving them ownership rights. To many of the Maori (at least in the early years), the transaction had no such meaning; it was the exchange of the gift of the temporary use of land for other gifts, some of them monetary. When the full weight of the colonists' laws (and military forces) was used to enforce exclusive occupation, the Maori found out what had happened; it was then too late. North American Indians had comparable experiences, as did many of the indigenous peoples of Africa, India, and Asia.

Some extreme free-market proponents argue that "scarce resources" such as elephants would be better safeguarded by assigning people ownership of the animals than by collective action (e.g., cessation of the ivory trade). The idea is that if someone "owned" and "farmed" the elephants, and earned the resources needed to head off poachers, the elephants would survive.

I note that such suggestions usually come from people who live in societies in which the levels of wealth are such as to be the prime causes of stress on less-developed countries and their ecosystems, through their excessive consumption habits. 38 As a further, nontrivial point, in practice, the initial assignment of property rights in such situations tends to be associated more with local power ploys and corruption than with equity and long-term environmental factors. This outcome seems to be common to developed and developing countries and to political systems of both left and right.

In the systems context, hierarchies and nonlinearities indicate that all things are not equal and some take precedence over others. For social system stability, the rights of the collective must always take precedence over those of individuals; individual rights can never be paramount. To be more specific, the rights of some individuals must never be allowed to take automatic precedence over those of the collective.


The Myth of the Free Market
In practice, free markets do not exist. 39 What commonly happens is that some organizations and corporations become large enough to dominate production of their particular commodity (e.g., automobiles or soaps and detergents), in which case theirs is termed an oligopoly. In an oligopoly, all participants have a degree of common interest and none is willing to rock the boat; competition is polite, not predatory.

Nevertheless, most economists still see the market in the sense of the equilibrium price auction, in which the individual is a utility-maximizing consumer or producer within free markets that establish equilibrium prices for goods and services. Because so much of standard economic theory depends on this erroneous assumption, one must be careful not to ascribe power to the market that it does not possess, while acknowledging that there are indeed many socioeconomic functions that the market appears to carry out effectively and well.

As an example, in many countries, centralized planning has produced major blunders when governments became involved in projects in which the private sector declined to take part. This is usually taken as evidence that planning is inherently inefficient and that a market will do better. The first statement is probably correct (although planners are so subject to interference from politicians that one cannot claim the planning process itself was to blame). It is not axiomatic, however, that the conclusion is also valid; the world is full of stories of corporate blunders and cruelties. Real-life decision making is not the sole preserve of caricatures such as the individual on the one hand or the state on the other.

Further, according to some eminent economists, free markets do not work-indeed, they cannot work-in situations in which externalities are important. As I have pointed out in several places in this book, externalities are everywhere, albeit seldom acknowledged.

According to the economist Lester Thurow, who is critical of aspects of the market philosophy, free-market theory also extends far beyond the realm of conventional economics: "It is, in short . . . also a political philosophy, often becoming something approaching a religion."

Free-market theory can also be expressed in mathematical form, which lends it the appearance of scientific truth and renders it incomprehensible to all but the initiated. This book is not the place to review these criticisms. Suffice it to record that the fundamental assumptions of market theory are considered by some economists to be so weak that it fails as a predictive tool or as a scientifically based theory. In short, it has many characteristics of a myth. This is not to say that the underlying qualitative model is not useful or important; the point is that it is not a reliable indicator of social behavior. It remains a means for gaining insight into some of what goes on in part of society, and it is a useful microeconomic tool.


The Myth of Utility
The core problem in economics is that of measurement of utility, the satisfaction obtained by an individual from the use of goods and services. The theories of economics depend on the assumption that each individual seeks to maximize his or her utility from a limited income. Since the utility an individual supposedly seeks to maximize cannot be observed or measured directly, and since the assumption therefore cannot be tested, the argument is tautological. The presumed existence of utility is rooted in political-economic beliefs and ideologies rather than empirical science. The fact that the problem is acknowledged by economists and then circumvented (or fudged) by imputing utility maximization from subsequent actions does not detract from this conclusion. Lester Thurow writes:

No other discipline attempts to make the world act as it thinks the world should act. But of course what Homo sapiens does and what Homo oeconomicus should do are often quite different. That, however, does not make the basic model wrong, as it would in every other discipline. It just means that actions must be taken to bend Homo sapiens into conformity with Homo oeconomicus. So, instead of adjusting theory to reality, reality is adjusted to theory.

As an example, in modem economies, governments actually account for a substantial proportion of all transactions. Economic theories that attempt to describe the behavior of economies on the basis of individuals, each assumed to be maximizing his or her own utility, thus provide limited insight. The conventional response of free-market economists is, of course, to get governments out of supplying services so that the market can do the job. Thus, the economy is modified to fit the theory.


The Myth of Value
To most of us, some things or people in our lives or in nature are priceless. That does not mean that they have no value, nor does it mean that their value is infinite; it just means what it says-that they have no price! The idea that some things may not be capable of valuation in terms of cash seems to me entirely sensible, but it is inadmissible to conventional economists. It is central to mainstream economics that the price a good or service fetches in a marketplace is a measure of that item's value to the buyer in his or her personal life. As the lawyer Richard Posner put it, "Value . . . is defined by willingness to pay."

This sort of economics largely sidesteps the issues of ethics and equity involved with the ability to pay, which is of course related to the potential buyer's level of wealth. In other words, it assumes a dollar is worth exactly the same to a billionaire as to a beggar.


Money Fetishism
It is a short step further to the associated assumption that the sum total (in dollars) of production or consumption in an economy (e.g., expressed as GNP) is a measure of the value of life-or of general welfare-in that society.

That view has been described as money fetishism, in which the abstract symbol becomes indistinguishable from the reality. 46 For example, since abstract exchange value flows in a circle in the neoclassical economic model, so must real goods and services. Or, since money can grow forever at compound interest, so too can real wealth. What is true for the token of wealth is held to be true for the artifacts of concrete wealth itself.

Since the "paper economy" offers more scope for "growth" than the real economy, monetary activity (in the form of mergers, takeovers, junk bonds, and tax avoidance) has in many instances become more profitable than production of the very goods and services that are essential for life in society.

Insofar as economics concerns itself with (and, in its application, depends on measurements of) monetary value measured in the marketplace and manipulated as abstract symbols or tokens in the paper economy, it concerns itself with only a tiny part of life's value. This is not to say that market value is not important or useful, only that it is an inadequate measure of total value. The fact that such total value (or total welfare) cannot be measured is no excuse for not acknowledging its existence, nor, on the other hand, for claiming more for gross economic measures than they deserve.

The economist E. F. Schumacher put the problem into focus thus:

To press non-economic values into the framework of the economic calculus, economists use the method of cost benefit analysis. This is generally thought to be an enlightened and progressive development as it is at least an attempt to take account of costs and benefits which might otherwise be disregarded altogether. In fact, however, it is a procedure by which the higher is reduced to the level of the lower and the priceless is given a price. It can therefore never serve to clarify the situation and lead to an enlightened decision. All it can do is lead to self deception or to the deception of others; for to undertake to measure the immeasurable is absurd.... The logical absurdity, however, is not the greatest fault of the undertaking; what is worse and destructive of civilization is the presence that everything has a price or, in other words, that money is the highest of all values.

The Myth of Discounting
As we saw in chapter 4, a dollar in the hand today is worth more than a dollar in a year's time, and a dollar in the future is worth less than a dollar today. This arises from the fact that money can be invested to produce a return and thus can increase in value over time. It is when this arithmetic is applied to real things that problems arise.

For example, it can be logically argued that if different people's lives are of equal "value," at a 10 percent discount rate, an action that would save I person's life today is effectively of the same value as a similar action that would save 117 people's lives in fifty years' time (see table 7.1). Thus, it would be better, for example (if funds are scarce), to spend one's money on saving 2 people today than 117 in fifty years. Similar logic tells us that risks left to future generations, such as toxic waste dumps, are of insignificant importance to today's decision makers. It can be highly "economic" (in cost' benefit analysis terms) to save money today by leaving major problems for future generations to solve.

This arithmetic arises from the use of CBA in an area in which it has no validity. To discount physical and social things and people in the same care' less way as is done for money in a bank account is absurd and immoral. It is yet another example of money fetishism and the fallacy of misplaced con' creteness. This is a good illustration of why major issues, such as ozone layer depletion or accelerated global warming, must not be left in the hands of free-market economists.


The Myth of the Invisible Hand
Adam Smith's doctrine of the invisible hand that guides each individual who acts in his or her self interest to promote the interests of the society in which he or she lives is strongly supported by many people today. 49 Followers of the doctrine forget, however, that the society within which Smith developed his theories was very different from today's. In Smith's time, there were strong social and community constraints on individual behavior, derived from shared morals, religion, custom, and education. These are not present to the same extent today, and indeed there are strong forces opposing them. In Smith's time, however, these social mores were so pervasive and so obvious that he would have felt it unnecessary to include them in his argument. Two hundred years ago, for example, there was no question but that God was an all-powerful Being with the ability to affect the lives of each and every individual. It was a society in which self-interest included the responsibility before God to answer for life's actions and transgressions on the Day of Judgment. To change Smith's argument into a license for limitless self-gratification distorts his writings beyond recognition.

The invisible hand must be acknowledged as a partial truth-in other words, a myth. Some form of invisible-hand model is probably valid to describe some of what happens in a village marketplace of the type Smith described. But the belief that the sum total of market actions, each derived from individual self-interest (in practice massively influenced by advertising and distorted by externalities), in some way adds up to a guarantee of the best interests of society as a whole stretches the imagination to the breaking point. Group identity, collective responsibility, and respect for common property are also known to be critically important cultural components of any stable society. Important areas of human social activity (concern about the distant future; respect for land, resources, and environment; spirituality; etc.) have little to do with independent individual preferences.

Markets must always be held accountable to the greater social interest, something that may be forgotten by those caught up in the excitement of economic reform. The greater environmental interest is no less important.


The Myth of Competition
According to the political-economic world view, competition is the normal way in which people and animals interact. Economists are beginning to acknowledge, however, and social scientists have known for a long time, that a more basic mode of interaction among people is cooperation, within small and large groups. This is especially true in the context of people's attitudes toward their environment.

It is even more true in ecological systems, in which competition among animals or plants may be obvious to the onlooker but cooperation is the dominant process in ecosystem stability. In many cases, cooperation is far more efficient than competition in terms of the output gained from a given set of inputs. The motives behind cooperative behavior may in some cases still be those of a form of self-interest; group cooperation may be a better and more efficient way than individual competition of achieving species advantage. However, that is not the same as atomistic self-interest in free-market economics.

For powerful groups in society, the whole point of competition is to create an unfair market. According to some economists, many important markets are oligopolies anyway. To the extent that the "free" market exists, it does so in villages or in situations in which production is a function of large numbers of small producers such as farmers, motor repair shops, and small businesses.


The Myth of Efficiency
According to lawyer Richard Posner, "Efficiency means exploiting economic resources in such a way that human satisfaction measured by aggregated consumer willingness to pay for goods and services is maximized." Efficiency is defined in economics with respect to the presumed existence of an optimum allocation of resources, nominally best achieved through the actions of a marketplace. It is known, however, that even in the limited context of economic theory, optimum allocation depends on the initial distribution of resources among members of society. As an example, a Pareto optimal distribution is achieved when resources cannot be reallocated to make at least one person better off without making someone else worse off. But the prices that are determined in the free market, and that determine the final allocation, are themselves preempted by the initial allocation. In a market in which there are a few rich people and a lot of poor people when trading starts, the final allocation of wealth will be very different from that in a market in which everyone had the same resources at the start. As an economist put it, "A Pareto-optimum is said to obtain when nothing more can be given to the hungry, the cold, the ragged and the homeless without incommoding the glutton, the miser, the usurer and the play-boy." A similar situation arises in the context of ownership and use of natural resources, including ecosystem services.

Imperfect markets are the norm; free markets are figments of the theoretician's imagination. Anything like a free market usually results in large, powerful firms taking over or putting out of business smaller, weaker ones. Al though this is often claimed to be the result of "efficiency," other arguments suggest that it has more to do with the economic muscle of large organizations. The idea of economic efficiency has so many unknowns that it remains unvalidated in practice, although undisputed in theory. The term is also used widely by politicians but in most cases as an almost meaningless buzzword.

None of this is to suggest that markets have no place. On the contrary, no matter how imperfect, markets often have an extremely useful function in allocation of resources. The point is that any such achievement of the market has to be acknowledged as being, at best, one of obtaining an improvement in allocation, not of achieving an optimum. Determination of whether an improvement has actually taken place involves empirical political and social measurements, not a priori arguments.

The systems approach cautions us against falling into the trap of suboptimization. The whole of a system is always more than the sum of its parts. If links among parts of the system are ignored or oversimplified, it is easy to optimize only one or more subunits, to the detriment of the whole. The function of most optimization studies in economics is to seek an improvement (e.g., in allocation), on the assumption that all other things remain unchanged. This assumption is more often than not heroic in practice.


The Myth of Stability
It is assumed in much of conventional economic theory that the world is an unchanging, static system, or else it is only slowly changing. In discussions of growth, for example, it is believed that steady growth is a natural state of economies. Nonlinearities, time delays, and the distinction between stocks and flows are seldom taken into account in these models. From systems considerations, it is clear that these assumptions may be very misleading in practice. The historical record of social and natural systems is actually one of change. Change has sometimes been slow, but it has often been sudden and unpredictable. Wars, floods, famines; the changing habits of consumers, producers, and investors; stock market crashes; technological and business innovation; and political follies of every description are factors external to economic models that influence them in countless ways. Human history is more turbulent than is commonly acknowledged, and static and other simple models are rendered less real because of it.


The Myth of Substitution
Most economists have sufficient faith in the free-market price mechanism to assert that it will prevent any resource scarcity. They believe that as the price of one resource rises due to scarcity, another will step in when the price is right and take over the market. In the short term-say, until the early years of the twenty-first century-they are probably right. In the longer term, I believe there is increasing evidence that they are badly wrong. I showed in chapter 6 that the theory of the free market has serious deficiencies in the field of energy resources. There is also some empirical evidence to support a lack of faith in the theory.

The proposed substitution of crude oil by shale oil has been investigated in some detail in North America over many years, and the conclusions are highly relevant to this discussion. The fallacy in the traditional economic substitution argument arises from a problem of logic, which has been clarified by the engineer Malcolm Slesser. It was asserted in the early 1970s that shale oil production would be economically viable when the price of conventional oil reached $6 per barrel. The assertion was made on the implicit as' gumption that the shale oil facility could be built with the cheap oil. In other words, it assumed the same energy base for industries in the economy and the same price structure as at the time of the assertion. Obviously, while conventional oil at $2 was available, no one would build a shale oil facility producing at $6. Unfortunately, when conventional oil rose in price above $6, it was no longer possible to build a shale oil facility that could deliver product at $6. When reevaluated, the new shale oil price was found to be $5 above the new crude price.

This behavior is consistent with the biophysical systems perception of the world but not with the political-economic approach. It is worth noting that conventional economic theory has been unable to explain many effects of the oil price rises of the 1970s. According to economists at Resources for the Future "Neither energy's share of GNP nor the slow rate at which energy consumption patterns change accounts for the sharp changes in production, productivity, unemployment, or inflation that occurred in 1974 and 1979. It appears that something amplifies the effect of oil price swings."

The substitution argument is questionable in the context of accessibility of primary energy resources. It has even less validity in the context of such global problems as destruction of the ozone layer, global warming, and buildup of toxic wastes. Prices in the marketplace are relevant to short- and perhaps medium-term decisions, within a static context. They are crude but useful means for allocating a given resource flow from nature among alternative uses in the service of a given population of already existing people with a given distribution of wealth and income. Market prices should not be allowed to decide how fast a resource is used or how to distribute resources among different people or generations. William Rees suggests that "Perhaps most important in the long run are the philosophical arguments against market approaches. 'Commoditizing' the ecosphere is a technical solution that merely extends the materialist world view without questioning society's fundamental values and assumptions. If the world is to be salvaged the motivation will flow more from changing attitudes than it will from improved economic incentives."


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MYTHS OF MARKET FAILURE

Much of what humankind regards as important has nothing to do with any kind of market. Mark Sagoff comments that in many situations, there are no relevant markets to have failed-these include situations involving "matters of knowledge, wisdom, morality and taste that admit of better or worse, right or wrong, true or false, and not mere economic optimality. Surely environ' mental questions-the protection of wilderness, habitats, water, land, and air as well as policy toward environmental safety and health-involve moral and aesthetic principles and not just economic ones." 65

The term "market failure" presupposes that whenever market forces do not produce the best possible allocation, it is an exception to the rule. Since the existence of the market is questionable in the first place, this presupposition makes use of a circular argument in which exceptions to a rule are explained in terms of the rule itself. Even if we accept the presupposition, we should still, to be logical, describe what the market is aiming to achieve-efficiency, equity, sustainability, and so forth. Although seldom specified, the market, and therefore its failure, means something different in each case. 66

THE MYTH OF ENERGY AS COMMODITY

To many mainstream economists, energy is simply a commodity whose attributes, although unique and important, do not distinguish it in any significant way from other commodities, such as water, steel, butter, or carrots. Thus, energy should not be singled out for individual care and attention. 67

This view reflects a basic misunderstanding of the science of energy in that it does not distinguish between two markedly different meanings of the word "energy." The everyday meaning relates to the fuels wood, coal, oil, and gas. These are often referred to as energy, but they are more correctly termed sources of potential energy, or energy carriers. The scientifically important meaning relates to energy as the generalized attribute of physical transformation and change.

Specific fuels can be treated as (substitutable) commodities in many situations, but energy itself cannot. The laws of thermodynamics apply not only to heat and work processes in machines but also to the heat and "work" associated with chemical and biochemical transformations of all types. Thus, the laws apply to the processes of photosynthesis, growth, decomposition, and decay in the natural world; to the processes of circulation and precipitation in the global atmosphere; and to the processes of production and consumption in an economy every bit as much as to the processes in the mechanical worlds of physics and engineering.

THE MYTH OF ENVIRONMENT AS COMMODITY

My government's philosophy was given in the following statement: "To give the environment a fair hearing, and represent it across the entire alignment with development, you have to communicate in economic terms." 68 Conventional economics asserts that if the environment and its resources can be seen as similar to other goods or services (like cheese, toothpaste, or carrots), the market is the appropriate place for valuation to be carried out. This approach has a number of fatal flaws. 69

The first is that the "prices" of widespread child abuse, or of losing the Amazon forests, for example, are not available; there are no markets in which they may be "valued." Economists then have to invent a "shadow price" to take them into account. But these shadow prices are only estimates of transactions associated with the events-for example, hospital and/or psychiatric counseling costs (in dollars) of treatment of a physically or psychologically abused child. 70 They in no sense evaluate the misery and hurt experienced by the child. Nor do shadow prices evaluate the long-term loss of social income or ecosystem services from the absent forest, let alone the cost of restoring something whose loss may be intolerable and/or irreversible.

The second flaw comes about by virtue of the fact that no numerical value can possibly take account of people's spiritual relations with their environment or with one another. To attempt to reduce emotions and spirituality to numbers leads to the debasement of everything.

PROBLEMS IN ECONOMICS

It will be apparent that there is a great deal of concern about the validity of much of standard economic theory. 71 This comes mainly from within the economics profession itself; in these pages, I have only reported a few of the criticisms that economists have been making of their own discipline, since 1970 at least. 72 The critic Irving Kristol recently commented. in reviewing a book by Lester Thurow, an economist who is critical of many current theories, that "on the one side, he shows that much of what passes for 'scientific methodology' in economics is pretentious pseudoscience. On the other, he reveals to what extent economists propel themselves into a muddle by a simple-minded identification of homo oeconomicus with homo sapiens." 73

Much of theoretical economics has ceased to be related to real human societies. 74 This is part of the reason why mainstream market liberal economics on the one hand and anthropology, sociology, and psychology on the other have drifted so far apart. The latter are based largely on empirical observation; the former, largely on a nineteenth-century logical-mathematical approach. The economist Peter Wiles has commented, "The main thing that is wrong with economics is its disrespect for fact." 75 That same economist also commented that "it is perfectly possible for a science to be sick, and ours is now." 76

Marilyn Waring has pointed out that since early this century, the standard economic approach has been first, to observe facts in order to gain an insight into economic relations; second, to deduce the general laws of political economy from premises drawn from the prior observations; and third, to test the laws by inductive verification. 77 This method is contrary to the requirements of modern science. The ultimate empirical test of a hypothesis is whether its propositions correspond to reality (using the criterion of falsifiability). In a priori science, all that is required is that the deductions from a given set of axioms are logically correct. 78 So long as the axioms of mainstream economics remain divorced from the reality they claim to represent, their results will be unacceptable to those who study, let alone those who suffer from, their outcomes.

The Myth of Objectivity in Economics

Economics is so closely related to political theories that many of its practitioners fail to remember the ideological underpinnings of their studies. 79 The economist Mark Blaug suggests, for example, that the scope of positive economics is smaller, and that of normative economics larger, than is frequently claimed by economists. 80 It is also common, as Mark Lutz and Kenneth Lux write, for the positive "is" analysis to be carried on, perhaps unconsciously, to the normative "ought to be" conclusion. 81

Robert Kuttner points out:

The study of who gets what and why, unlike the study of plants or planets, cannot help being an ideologically charged undertaking. Despite the laborious techniques and scientific pretensions, most brands of economics are covertly ideological.

Marxian economics, with its labor theory of value, assumes the inevitability of class conflict, and hence the necessity of class struggle. Keynesianism, with its conviction that industrial capitalism is systemically unstable, offers an equally "scientific" rationale for government intervention. Neoclassical economics, with its reliance on the efficiency of markets, is an embroidered brief for laissez-faire. 82

As D. Paarlberg puts it, "It is impossible to give the right answer to the wrong question; the tragedy is that we spend so much of our time asking the wrong question and trying to answer it." 83

THE PLACE OF ECONOMICS

It does not in any way follow from these arguments that I believe conventional economics has nothing interesting, useful, or important to say about socioeconomic policy. I cannot emphasize that point too highly. But what conventional economics has to say-according to many critics from within the profession itself-is of a general nature and is not easily translatable into the specifics of policy. This is why, when it comes to policy matters, economists are often in disagreement. Interpreting information about what is happening in the economy is an art, not a science.

Let us not forget that economics as a discipline is very young. In many respects, it is conceptually at the stage physics was in the Middle Ages, before Galileo showed that the sun, not the earth, was at the center of the known universe. 84 Economic laws are mainly generalizations, perceptions of regularities of economic behavior that are in reality conditioned by cultural and social relations and institutional settings. 85 If we realize this, we will see the predictive capabilities of economics in a more realistic and modest context than that engendered by computers and stock markets.

The main purpose of economics is to gain insight into the workings of economies, not to develop theories for every action and reaction. 86 In such matters, a mixture of intuition, imagination, worldly experience, a good sense of history, and plain common sense is more important than any sophisticated acquaintance with theory, mathematics, or computers. 87

In practice, many elaborate models of politics and economics are inherently and deeply flawed in their basic structures. 88 They are incapable of giving other than a rough indication of what might happen in the future, and then only with the proviso that other things remain equal. Given the known indeterminacy of socioeconomic systems, that proviso cannot be valid in practice. It is therefore not possible to set a specific question to a model and expect a demonstrably valid answer.

There is one exception, however, and that is where legal and/or fiscal mechanisms are set in place to require or induce people to behave "rationally." In other words, a model will "predict" accurately if people are required to modify their behavior to satisfy the requirements of the model. I suspect that many current policies are being prepared in the expectation that they will be backed by legislative and fiscal powers to achieve their end result. The resultant (and inevitable) social conformity will be the logical consequence of following policies built on assumptions that elevate the idea of "freedom of the individual" to its peak. This outcome is described as "economic imperialism" by some authors. 89

This discussion exposes a fundamental problem relating to the place of markets. Democracy is usually defined in terms of freedom, but in practice, the "free" market is inherently incapable of achieving what I (and many others) believe democracy is all about.

A WIDER PERSPECTIVE FOR ECONOMICS

It has been suggested that mainstream economists ought to be less reductionist and more alert to the sociological, political, or even aesthetic dimensions of the human condition than they are. A clearer understanding of the relatively modest potentialities of their discipline alone will make them better economists. To quote Thurow again, "If economists are to be charged with any crime, it is not that of knowing too little relative to what they can know, but with the crime of being too certain about what they think they do know." 90

Since there are real physical and ethical constraints on the options available for human economic development, it is also important for politicians to embrace the view that noneconomic scientific tools may be of comparable importance (and may even be the most important) in areas where they seek advice on the social resolution of resource allocation problems. As the economist Charles Perrings points out:

Once we begin to conceptualize the behaviour of economy-environment systems over time, unprotected by the assumption that the price system contains all the information we need to know, we find not the comfortable order of stable or relatively stable equilibria but a seemingly chaotic drive to change, paralleled only in the recent findings of physicists investigating the time behaviour of structures far from equilibrium. More important, we observe little warrant for the simple Smithian faith in the invisible hand that underpins the market solution, and no war rant at all for the argument that forward markets will compel private interests to secure the information that renders the price system complete. 91

"Economics" has the same linguistic root as "ecology." Interpreted narrowly-as the currently dominant viewpoint requires-economics reduces everything and everyone to economic neuters: items of production, consumption, and exchange in an imaginary marketplace. Interpreted broadly and humanistically in its equally valid meaning of "loving care of the household," it could incorporate a systemwide meaning that encompasses the stewardship role of humans in our relationship with all things in the global household. It is my fervent hope that the profession of economics will rapidly move in the latter direction. In the words of Boris Pasternak, "What is laid down, ordered, factual, is never enough to embrace the whole truth; life always spills over the rim of every cup."

Myths of Science and Energy

THE PHILOSOPHER OF science Karl Popper once said, "Science must begin with myths, and with the criticism of myths." 1 With the passing of many old myths, a new set has emerged. Trust in science ("scientism") is one. In this myth, science has the last word in establishing answers to questions, ultimate truth is revealed by science instead of by, say, the Bible. The accounts of Genesis were the ultimate truth of creation until a century ago; they still are for many people, for whom biological evolution is a myth.

There are many other myths in science and technology. In order not to be overimpressed by so-called scientific views and opinions, it is necessary to review some of them to obtain a more balanced view of the strengths and weaknesses of science, especially as applied to human affairs and policymaking. That some of these myths are more often held by nonscientists does not invalidate their discussion here, because they are commonly associated with science and technology.

THE MYTH OF LINEARITY

Much of what is known in science has been built around simple models in which cause and effect are related through what are called "linear" mechanisms. In other words, if whatever causes an effect is changed by a given amount, the effect changes by a proportional amount. If an electric heater is switched from half to full power, for example, twice as much heat is given out.

This sort of relationship-that of direct proportionality-is in fact very common, but only up to a point. Beyond that point, the effect may be quite out of proportion to the cause. Take the biblical story of the straw that broke the camel's back. Every individual straw added until that point added an equal amount to the load, with steadily increasing (but reversible) stress on the animal's back. But then another factor came in-the camel's back, unable to take any more weight, broke. The linear relationship that had been valid up to that point suddenly failed; the relationship became nonlinear (actually, discontinuous) and irreversible.

In nature, this sort of thing is normal. Up to a point, which usually cannot be predicted in advance, the system may respond in a way that is repeatable and even reversible. Beyond that point, it does not-its behavior is unpredictable and irreversible. This is a normal characteristic of complex systems such as dissipative structures; it is also a characteristic of virtually all structures and processes known to humanity. As the threshold of nonlinear behavior is approached, much of classical science (and most of standard economics) becomes inapplicable. The claim made in the nineteenth century that "nature does not make jumps" has been shown time and time again to be erroneous. 2 For example, the cost to a person of taking just one more step may be to fall over a cliff or be hit by a truck!

For these reasons, it is important not to extrapolate. That something has happened reliably up to a certain point is no reason to suppose that going beyond that point will give rise to the same effect. It may do so, but it may not. Without a detailed study of what happens beyond the point at which one's existing knowledge runs out, extrapolation is dangerous; it may break the camel's back, or it may not. Only by doing several (presumably fatal) experiments to determine the breaking load of camels' backs is it possible to know how heavy a load other camels are likely to be able to carry-and then only approximately. Extrapolation is inherently a risky business. Many disasters have occurred because scientists and technologists pushed components and systems beyond the point at which their knowledge was reasonably certain. Less well known, but nonetheless real, are the social disasters produced by application of political-economic theories of human behavior to societies and economies beyond the point at which knowledge was reasonably reliable.

THE MYTH OF SCIENTIFIC OBJECTIVITY

One would hope that all scientists are indeed experts who attempt to be objective in their pronouncements. Alas, the evidence is clearly to the contrary. There is a long history of gullibility, ignorance, and stupidity among scientists. 3 It usually results from their taking on responsibility for pronouncements in areas beyond their expertise. This in turn is a consequence of many of them having an inflated opinion of their ability to determine the truth of a situation from what is often nothing more than a cursory study. 4 The ability of many experts to ignore anything but their own world view may not be readily apparent, 5 but when a scientist takes on the role of advocate and makes authoritative-sounding claims without presenting clear supporting evidence for them, one should beware. 6

Science is supposed to be objective. That means that when applied meticulously, the scientific method is a step-by-step approach to the study of something, with testing of hypotheses at every stage. In practice, science is carried out not by robots but by people. It is thus less than perfect and more than just a method. It is a creative, and intensely human, activity.

Scientists and technologists like to picture themselves as rational, pragmatic beings who are unswayed by emotion or dreams. Paradoxically, they have also been responsible for large numbers of technological fantasies: moon landings, aircraft powered by nuclear reactors, spaceships powered by atomic bombs, biological weapons, psychosurgery to cure undesirable behavior, feeding the poor of the world by using more fertilizers and hydroponics, "Star Wars" defense systems, and so on. Some of these dreams have been achieved-at a price Others are so flawed in their views of the real world that they may never succeed. 7 Engineers and economists are perhaps more to blame than most in this context. Narrowness of vision and understanding and arrogance in dealing with others are not peculiar to them, however; such failings are commonly found in all of the professions and show up the dangers inherent in specialization.

THE MYTH OF THE TECHNICAL FIX

In the book The Next Hundred Years, prepared in 1957 by several eminent technologists with the assistance of executives of some of the United States's largest corporations, the authors provided the following vision of what they called an emerging "technical-industrial civilization":

If we are able in the decades ahead to avoid thermonuclear war, and if the present underdeveloped areas of the world are able to carry out successful industrialization programs, we shall approach the time when the world will be completely industrialized. And as we continue along this path we shall process ores of continually lower grade, until we finally sustain ourselves with materials obtained from the rocks of the earth's crust, the gases of the air, and the waters of the seas.

By that time the mining industry as such will long since have disappeared and will have been replaced by vast, integrated multipurpose chemical plants supplied by rock, air, and sea water, from which will flow a multiplicity of products, ranging from fresh water to electric power, liquid fuels, and metals. 8

It was believed that the main obstacle to attainment of this resource El Dorado was not a shortage of resources (nor the threat of overpopulation) but a lack of enough trained scientists and engineers to build and maintain the technical wonderworks needed by the developing countries. It was a time when there were "no problems, only solutions." Many scientists and engineers would now assert, however, that in reality there is no complete technical or economic solution to the resource problems that face us. I have discussed several aspects of this in previous chapters. There is also no simple solution to problems such as the tragedy of the commons. The solution can come only from an ethical or moral base.

Jacques Ellul, a trenchant critic of unthinking use of technology, suggests, "History shows that every technical application from its beginning presents certain unforeseeable secondary effects which are more disastrous than the lack of the technology." 9 He also suggests that "every successive technique has appeared because the ones which preceded it rendered necessary the ones which followed." 10 Although these claims might seem somewhat overstated, it is true that neither the full extent nor the nature, let alone the approximate sum of external costs, of major developments is known. No method exists to give more than a rough estimate of the cost of even the direct, short-term external consequences of new technologies. When indirect effects are concerned (good examples being accelerated global warming and destruction of the ozone layer), conventional methods are powerless. Thus, no possibility exists for Ellul's claim to be validated. It remains a somber warning, for which there is significant circumstantial evidence and which should not be ignored.

THE MYTH OF CHEAP ENERGY

Countries with large reserves of fossil fuels or hydroelectric potential are often encouraged to use their "cheap energy" as a means of encouraging rapid economic development. Although such countries may indeed have cheaper resources than many others, it is a fact that no country incorporates the environmental or social externalities of fuel use in the price of its resources, and thus all of them distort the economics of fuel supply. Thus, consistent undervaluing of resources becomes part of economic policy and prevents decisions being made that have the potential both to improve overall economic efficiency and to protect local and global environments. In reality, there is no such thing as cheap energy; it is the social and environmental costs of its supply that are artificially cheapened in many economies.

THE MYTH OF RENEWABILITY

Many people believe that some forms of energy (the renewable ones) are more environmentally benign than others. This is generally true, since hydroelectricity and wood fuel can usually be produced with lower pollution and environmental damage than can coal-fired electricity and oil fuels. Nevertheless, the assumption that resources such as these are entirely benign is more than a little naive.

Hydroelectric dams create substantial damage to local soil and vegetation systems and to river ecology, both before and after construction. The indirect effects of production of the cement, steel, and machinery used in their construction create other problems further back in the economic system. Hydroelectric dams also have a limited life. Depending on the characteristics of the river that supplies them, they can be expected to silt up, perhaps as soon as a decade after construction. The electricity produced from them may be renewable for a while, but the river itself is irreversibly changed.

Fuel production from trees is another example. Wood production from a forest appears, on the surface, to be possible in perpetuity. After all, if the forests have been in existence for millions of years, can this situation not continue forever? The answer lies in the fact that in its natural state, a forest is approximately a closed system, in that mineral matter and soil remain within it (water, oxygen, and carbon dioxide obviously enter and leave the forest system via air movement). When a tree dies, it decomposes and in doing so provides food for a myriad of bacteria, fungi and other organisms, and small animals, which in turn provide food for higher animals. The end result is that the minerals, the trace elements, and a great deal of organic matter are recycled back into what is a complex ecosystem for use by the next generation of plants, organisms, and animals. When timber is removed from the ecosystem for use in an economy, via sawmills or pulp mills, the recycling process stops. Unless the timber that is removed is only a small proportion of the total biomass of the forest ecosystem, the system can suffer severe, possibly devastating, damage. Thus, extractive wood production is not normally renewable in the long term, although it may appear so within the limited lifetime of individual decision makers. The ecosystem itself seldom survives regular timber extraction.

THE MYTH OF SUSTAINABILITY OF INDUSTRIALIZED SOCIETY

If we cannot rely forever on stock fossil and other energy resources, only the sun is left (together with wind, rain, and other solar-related flows). Can one conceive of a developed, industrialized society that takes all the energy it needs, directly or indirectly, from the sun? This question is at the center of a great deal of current research work in many countries. No unequivocal answer can yet be given.

The biggest problem we face is that it is not clear whether it is possible, using purely solar energies, to carry out many of the energy-intensive activities that we now depend on. Smelting of iron and manufacture of liquid fuels are obvious examples. At present, it is only by using fossil fuel to construct plant and machinery that these processes are carried out. In other words, we cannot yet see how it is possible for a society to make everything from solar' derived energy flows if that society continues along the industrial path. No matter what directions are chosen, for some time to come societies will have to use stock resources, if only to make the equipment that will enable solar sources to be harnessed (using steel, copper, glass, etc. ). Provided this use is at a modest level, there should be no significant problems either of supply or pollution.

In short, the use of solar energy as the sole primary energy source for a technologically advanced consumerist society has not yet been shown to be viable. It is therefore vital that we start to move toward making careful use of the valuable stock resources we now have, to ensure that at least some will be available for future generations for as long as possible. In this way, breathing space will be available to examine options for future social and technological developments. Regrettably, the standard political-economic world view denies the possibility that humankind will not be able to achieve any technological feat that may be needed, and in the meantime, resources are being used without any thought for the future.

THE PLACE OF SCIENCE

Science is the attempt to be objective about the study of nature. Scientists themselves, however, are only human. For this reason, the process of scientific endeavor has always had, and always will have, a substantial element of human subjectivity. According to the critic Stanislav Andreski, "The natural sciences did not advance in virtue of the universal appeal of rationality. Their theological, classicist and metaphysical opponents were not converted but displaced . . . scientific method has triumphed throughout the world because it bestowed upon those who practiced it power over those who did not." 11

The place of science in human decision making is to help people understand why things happen. It can also help distinguish what is possible from what is not. I feel this is the most important contribution that thermodynamics and systems theory can provide in the field of resource use. Thermodynamics sets limits to social phenomena through its ability to predict constraints on the use of energy sources and materials in economic processes, now and in the future. Regardless of how economic value is established, the economic process cannot violate natural laws. Nevertheless, thermodynamics does not govern decisions within the economic process; it is a constraint on some important aspects of the social valuation (price) mechanism, not a direct determinant of it.
 

ThaG

Sicc OG
Jun 30, 2005
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A SECT WITH A CREED AND A POLITICAL PROGRAM

A SECT WITH A CREED AND A POLITICAL PROGRAM
by Jay Hanson, 11/13/2001, www.dieoff.org

(Permission to reprint explicitly granted.)

Beware of Greeks bearing gifts.quot;
-- Virgil, 30 BC

A sect with a creed and a political program naturally presents many aspects and calls for interpretative analysis from many standpoints other than ours.
-- Joseph Schumpeter, 1954

Religion is the opposite of science. Science attempts to make its doctrine conform to the physical world, but religion attempts to make the physical world conform to its doctrine. Moreover, scientific doctrine is based upon "observation and experiment" (and is subject to revision), but religious doctrine is based upon "revealed truth" (and is immutable).

Modern economics is shrouded in idiosyncratic self-serving definitions, arcane mathematics, and circular arguments which make it very difficult to understand. But if one removes the math and jargon from modern economics, one finds the revealed truth of eighteenth century liberalism codified in the economic dogma of the French Physiocrats -- which was "nothing but reformulations of scholastic doctrine":

"Quesnay's theories of state and society were nothing but reformulations of scholastic doctrine. The motto, Ex natura jus, ordo, et leges might have been, though it presumably was not, taken from St. Thomas. The physiocrat odre naturel (to which there corresponds in the world of real phenomena an odre positif) is the ideal dictate of human nature as revealed by human reason. What difference there is between Quesnay and the scholastics is not to the formers credit...

"In his paper on Droit naturel, Quesnay defined Physical Law as the 'regulated (regle) course of all physical events which is evidently the most advantageous to mankind,' and Moral Law as 'the rule (regle) of every human action conforming to the physical order evidently most advantageous to mankind': these 'laws' form together what is called 'natural law,' and they are all immutable and the 'best possible ones' (les meilleures lois possibles). In the case of the scholastic doctors, such principles were confined to the realm of metaphysics and not directly applied to historically conditioned patterns. In the case of Quesnay they were directly applied to particular institutions, such as property. And Quesnay's political theory -- both analytically and normatively -- turned upon a monarchical absolutism in an uncritical and unhistoric manner that, as we have seen, was also quite foreign to the scholastics.

"Now, we know how well the old natural-law system fared in the eighteenth century and how acceptable it proved to be, in its essential features, to la raison. Therefore, Quesnay's particular form of it, some non-essential frills excepted, fell in with the intellectual fashion of the hour: everybody readily understood this part of his teaching, sympathized with it from the start, and felt at home when discussing it. And, unlike other votaries of La raison, Quesnay harbored no hostility either to the Catholic Church or to the monarchy. Here, then, was La raison, with all its uncritical belief in progress, but without its irreligious and political fangs. Need I say that this delighted court and society?" [1]

Lionel Robbins has described David Hume (1711-1776) as "the greatest philosophical mind in the English language". Hume was a Scottish historian and philosopher whose ideas profoundly influenced the development of skepticism and empiricism.

Hume -- like empiricists (scientists, engineers) even to this day -- did not understand the futility of pointing out to an economist that his dogma does not agree with observation or experiment. Hume simply did not understand that economics was a religion based on revealed truth, and thus, immutable. In fact he became so exasperated after a heated exchange with the physiocrat Turgot that he wrote to Morellet:
"I see you take care in your prospectus not to offend your economists by a declaration of your views; and in this I commend your prudence. But I hope in your work you will batter them, crush them, pound them, reduce them to dust and ashes The fact is they are the most fanciful and arrogant set of men to be found nowadays, since the destruction of the Sorbonne... I ask myself with amazement what can have induced our friend M. Turgot to join them." -- David Hume, July 10, 1769

The Physiocrats were the first to describe the economy as a circular flow and held that whatever increased economic activity was good, and whatever decreased economic activity was bad. [2] According to Joseph Schumpeter, it is possible to trace practically the whole arsenal of liberal argument to the Physiocrats.

The First and Second Laws of Thermodynamics were unknown at the time of Physiocrats. The French physicist N.L.S. Carnot didn't formulate the Second Law concepts until 1824. The German physicist Helmholtz and the British physicist Lord Kelvin didn't explain the First Law until the middle of the 19th century. So when the Physiocrats were inventing modern economics, they simply didn't know that economic activity is limited by available energy, that energy resources themselves are limited -- limited energy stocks "stocks" (e.g., oil) and limited energy "flows" (e.g., wind), or that all economic activity wastes energy. Modern economists don't know it either.

The classical economists Jeremy Bentham, Adam Smith, Robert Malthus, David Ricardo, John Stuart Mill, and Henry George were all operating with the eighteenth-century scientific worldview of the Physiocrats. In the 1870s, neoclassical economists such as William Stanley Jevons in Britain, Leon Walras in France, and Karl Menger in Austria moved even further away from reality by shifting emphasis from limitations on supply to interpretations of consumer choice in psychological terms.

One of the features of the classical framework was the notion of a three-factor production function -- one puts Land (natural resources), Labor (including entrepreneurship) and Capital in one side, and then one gets goods and services out the other side. In contrast, the neoclassical framework combined natural resources with capital in order to make it easier for economists to pretend they were scientists. But if one removes the math and jargon from modern economics, one finds that nothing of substance has changed since the days of the Physiocrats.

Jay -- www.dieoff.org

[1] pp. 128-129, HISTORY OF ECONOMIC ANALYSIS, Joseph Schumpeter; George Allen, 1954 ; http://www.amazon.com/exec/obidos/ASIN/0195105591
[2] THE ECONOMICS OF PHYSIOCRACY: Essays and Translations (Reprints of Economic Classics), by R. L. Meek; Kelly, 1962; http://www.amazon.com/exec/obidos/ASIN/0678014663
"'We must not lose heart', wrote Quesnay in a letter to Mirabeau enclosing the first version of the Tableau Economique, 'for the appalling crisis will come, and it will be necessary to have recourse to medical knowledge.' To cure a patient suffering from an illness requires a knowledge of the principles of physiology;, similarly, to cure a society suffering from grave maladies requires a knowledge of the physiology of the social order. Since for Quesnay the basis of the social order lay in the economic order, an understanding of the laws and regularities governing economic life appeared to be of primary necessity if the sickness of society was to be cured.

"It is difficult to give a short summary of the basic doctrine of Physiocracy without distorting it, and without involving oneself in certain difficult problems of interpretation which I have reserved for discussion in the last part of the present volume. Let me, then, state here more or less dogmatically what I believe to have been the essence of the doctrine, setting aside for the time being all refinements and elaborations, and leaving it to the reader, if he wishes, to study the defence of my interpretation which he will find at the end of the book.

"The Physiocrats assumed that the system of market exchange which it was their main purpose to analyse was subject to certain objective economic laws, which operated independently of the will of man and which were discoverable by the light of reason. These laws governed the shape and movement of the economic order, and therefore (on the Physiocrats' basically materialist hypothesis) the shape and movement of the social order as a whole. Now the relationships between the different variables in a system of market exchange are very intricate -- so much so, indeed, that in a certain sense everything can be said to be dependent upon everything else. If the laws governing the particular type of exchange economy with which the Physiocrats concerned themselves were to be ascertained, therefore, it was necessary to put these variables into manageable form -- in other words, to construct what we would call today an abstract theoretical model of the economy.

"In the construction of this theoretical model, the Physiocrats' main aim was to illuminate the operation of the basic causes which determined the general level of economic activity. For this purpose, they believed that it was useful to conceive economic activity as taking the form of a sort of 'circle', or circular flow as we would call it today. In this circle of economic activity, production and consumption appeared as mutually interdependent variables, whose action and interaction in any economic period, proceeding according to certain socially-determined laws, laid the basis for a repetition of the process in the same general form in the next economic period. Within this circle, the Physiocrats then endeavoured to discover some key variable, movements in which could be regarded as the basic factor causing an expansion or contraction in the 'dimensions' of the circle, i.e. in the general level of economic activity. The variable which they hit upon was the capacity of agriculture to yield a 'net product', i.e. a disposable surplus over necessary cost. Anything which increased this net product would cause an expansion in economic activity, and anything which reduced it would cause a contraction in economic activity. 'The discovery of the net product', wrote Mirabeau, 'which we owe to the venerable Confucius of Europe, will one day change the face of the world. . The whole moral and physical advantage of societies is . summed up in one point, an increase in the net product; all damage done to society is determined by this fact, a reduction in the net product. It is on the two scales of this balance that you can place and weigh laws, manners, customs, vices, and virtues.'

"The leading assumption of the Physiocrats' theoretical system was that this net product was yielded by agriculture, and by agriculture alone. Agriculture was the supreme occupation, not only because it was morally and politically superior to others, not only because its produce was primary in the scale of wants and always in demand, but also -- and mainly -- because it alone yielded a disposable surplus over necessary cost." [pp. 18-20]

Nowadays, the Physiocrats would say that the net product was yielded by "information":
"Twenty years on from the oil shock of the 70s, most economists would agree that oil is no longer the most important commodity in the world economy. Now, that commodity is information." [ Blair with the "big lie" at Davos http://www.asiamedia.ucla.edu/Davos2000/Speeches/Blair.htm ]
 

ThaG

Sicc OG
Jun 30, 2005
9,597
1,687
113
#15
OUR PERPETUAL GROWTH UTOPIA
Fred Charles Ikle (1994)


That capitalism is the best engine for economic growth is now understood throughout the Third World, the former Second World, and—save for some Marxist sects huddled in academia—even the First World. Also, it is universally understood that capitalism can do its good work only where, and as long as, governments follow conservative economic policies. From Shanghai to Prague, everyone now comes to us conservatives for the Rx on economic growth. Clearly, today we enjoy a strong wind in our sails.

But if we don't know where we are sailing, every wind will take us there. To be growing is not a destination—emphatically not a conservative one. Conservatives who propagate economic growth as mankind's highest and overarching goal place themselves in bad company. Benito Mussolini decreed that Fascists must keep expanding Italy's productive capacity. And all Leninist regimes kept promising abundant economic growth; a goal of such supreme value to them that they constantly fabricated—with mind-numbingmendacity —statistics on the growth allegedly accomplished. Hurray, a fifty percent increase in steel production, a hundred percent increase in the potato harvest!

Means don't justify the end. Had communist economies grown vigorously everywhere, would that make communism the desired system for all peoples? The fabulous success of conservative economic policies has seduced many in our midst to mistake economic growth as the defining attribute of conservatism. These brethren now believe that conservative policies can and must make all good things in society grow, and that this good growth can and must continue indefinitely. They act as if conservative thought were nothing but the philosophy of perpetual good growth. Yet, the intended consequences of growth—getting more of all the good things in life— are held in favor by almost any political philosophy. It is the unintended consequences that these conservatives ignore.

The Arrow of "Progress"

Looking at the world through the wrong end of the economist's telescope, our growth enthusiasts regard the standard measures of economic increases (such as in the nation's Gross National Product or in average per capita income) as the sovereign yardstick for evaluating all change in society. Growth in these measures is the arrow of progress; it is the compass needle that shows whether any correlated social change is good, bad, or indifferent.

This way of evaluating society's progress or decline has been elaborated and enriched to create an ideology of truly metaphysical sweep—the Utopia of Perpetual Growth. This ideology holds that continuing population growth, for example, is a good thing if it correlates with economic growth. Likewise, growth in population density is to be welcomed if it is associated with increases in GNP or per capita income. The same, of course, holds true for an increasing flow of immigration. And growth in international travel, increases in global communications, growth in the number of automobiles or television sets per capita, longer vacations, an increase in the average length of life—all these changes represent "good" growth to be cheered along, provided they are more or less correlated with the standard measures of economic growth.

For any social change to be exempt from this rule requires a compelling case. Violent crime normally qualifies as an exception. Even if violent crime rates were perfectly correlated with economic growth, few conservatives would claim that, therefore, crime is a good thing. But for lesser irritants that may correlate with economic growth—such as traffic congestion or pollution of beaches—the growth utopianism has two things to say. First, these irritants must be tolerated as a price worth paying for economic growth. Second such tolerance will be richly rewarded—as if by divine justice—because further economic growth, precisely, will eliminate the squalor and congestion. Indeed, only economic growth can overcome these irritants.

The idea that economic growth is the arrow of progress sounds superficially plausible because many historic examples suggest that, within reason, it holds true. Economic growth brought by the Industrial Revolution and by capitalism's triumphant march through the 1 9th and 20th century has vastly bettered the conditions of human existence. This march of triumph overcame Dickensian squalor in London, the threat of famine in Ireland, widespread poverty in Japan, and in recent decades brought new prosperity and greater freedom from South Korea to Turkey.

What gives the Utopia of Perpetual Growth its veneer of cheerfulness is that it asserts there is no end to this progress, no limit to all this good growth. The utopianism holds that economic growth—together with correlated growth in other social phenomena (such as population size or density)—is a grand historic process; a process that can be perpetual thanks to the laws of nature and rules of history, and that must be made perpetual by dint of man's efforts.

Any limits deliberately imposed on growth by government or private groups are a perversion—a suicidal twisting around of the arrow of progress to point it against our own hearts. Limits that nature might impose are nothing but temporary hurdles, challenges to be overcome by—you guessed it—further growth. Oh yes, in the blue mist of cosmology a misanthrope might descry some ultimate limits; yet even those should be regarded as highly speculative. After all, who can know whether for mankind the planet earth proves to be a finite homestead, or whether all limits will dissolve in a universe that is forever expanding.

The utopianism also asserts that perpetual growth will benefit everyone. A rising tide lifts all boats. If you are one of those who is worried about taxes you are told that the process of perpetual growth will bring relief. A growing economy enables the government to feed its expanding appetite without raising taxes; indeed, if growth is brisk, tax rates can be lowered. Or better yet, we can anticipate these benefits by lowering taxes first, which will accelerate economic growth and in turn make it easy to lower taxes further.

If you are one of those who is worried about the deficit, perpetual growth is also your answer. Economic growth will expand government revenues until they balance the budget. Or, if the deficit should then expand again—as seems likely—further economic growth will come to the rescue. Like the golden pot at the end of the rainbow, the solution is always waiting for us at the horizon.

More Growth, More Government

The strong growth in the US economy during the Reagan years did a great deal of good. Americans in need of jobs found employment, those holding jobs came higher wages, many people on welfare received better benefits, and the nation regained its self-confidence. As Martin Anderson put it in his splendid book on the Reagan Revolution: "It was the greatest economic expansion in: history. Wealth poured from the factories of the Unite States and Americans got richer and richer."

And the government grew and grew. "Spending on social welfare programs," writes Martin Anderson, "increased surely and steadily, perhaps more than Reagan would have liked." Government support for agriculture experienced the biggest percentage increase far higher than defense and at a far steeper rate than the national economy. "In 1980 the federal government paid US farmers and ranchers $8.8 billion", recalls Anderson; seven years later it "was doling out over $31 billion a year." The role of the Federal government; as provider of health care also grew dramatically in this period. So did the amount of taxpayer's money spent on non-military space flight (demanded by some for scientific experiments by others as entertainment, and by NASA as its entitlement). And Congress—always mindful of itself—increased sharply the tax dollars spent on Congress.

Evidently, the law of unintended consequences must have been at work here. (That is, unintended by Ronald Reagan and those who supported his philosophy about big government). George Will may have been a bit too generous when he wrote, in his recent book Restoration, that conservatives do not merely take this law seriously, "they often are conservatives largely because of it and all that it intimates about political life." Would that this were true for some of the most articulate American conservatives today, who cheerfully keep praising the glories of economic growth. Yet, like the little boy who angrily kicks the table after banging his knee against it, they invariably blame bad government for all the evil consequences that growth may entail.

A rising tide, yes, lifts all boats. It lifts the tax collector's boat. It enables every Congressional committee to spend more of the people's money. It "forces" every bureau chief within the Federal bureaucracy to expand his staff and offices "just to keep up with growth". The rising tide also helps governments to cover up gross malfeasance; the citizenry may have to wait for the ebb tide of a recession to see it exposed. At that point, when the body politic is deprived of the spoils that can flow so generously from continuing growth, it may at last be goaded into starting a clean-up. In Japan, it was the recent recession—not "the rising tide"—that has helped to reform, and perhaps save, the democratic system. In Italy, it was the cessation of economic growth that provoked the scrutiny and political discontent which emboldened Rome to take on the mafia. In the United States, it was the ebb tide in real estate that brought action against the S&L crooks. A halt in economic growth of course, will not necessarily expose corruption or help shrink government. The steep economic decline after 1929 ushered in one of the largest government expansions.

Cause and effect are hard to trace in human affairs. Those of us who wish to proffer policy advice need to ponder about circuitous routes of causation. Yet, the message from our growth utopians that most voters will hear is that this forever unfolding cornucopia depends not on how wisely they live and how hard they work, but on how they vote. Or to put it more crudely: the promised:, gratification depends on the government. The people thus become conditioned to regard all good things that come with economic growth as an entitlement owed to them by the government. They will have become hooked on the big-government addiction.

So the fix is on. The addiction is bipartisan. Few of our conservative lawmakers enjoy enough support among their voters to disappoint all those who have been seduced by the growth utopia. Republicans will have to join Democrats to vote for government programs—not because of their merit but because canceling them would deny some group its growth entitlement. Hence, government must give away grazing and mineral rights on Western lands, bestow perpetual benefits through the Rural Electrification Administration, subsidize rich peanut farmers and the sugar industry, and so on. Behold —the left and the right are agreed that big government is good for growth!

Decimating our own Ranks

It is bad enough if some conservatives demand more government just to have government disperse more economic growth. It is folly, if they also drive many of our potential supporters into the enemy camp merely to humor their growth utopianism. Alas, the growth utopians in our midst today attack anyone thinking favorably of the C-word—the people favorably disposed toward conservation, the very people who know, as Edmund Burke put it, "that they should not think it among their rights to cut off the entail, or commit waste on the inheritance." Everywhere and all the time, our Jacobins of growth attack those who wish to conserve forests, seashores, or wildlife. They ridicule any conservationist policy that seeks to preserve our tangible heritage. They oppose all conservationist appeals for slowing immigration. And with these noisy attacks, they are drowning out promising new ideas for market-based approaches to conservation that other conservatives developed; approaches that seek to avoid excessive litigation and government intrusion.

Worse than that, our growth utopians do not realize that with their attacks on the C-word they are driving into the camp of our political opponents a great many young Americans who are predisposed, by sentiment, toward conservatism. William F. Buckley rightly cautioned us that we ought to keep our eyes on "the metaphysical implications" of the environmental movement. As he put it, "it is essentially conservative to conserve".

Many who are attracted to the environmental movement could be our best recruits. We should not heap ridicule on their anxieties about man's revolutionary impact on nature (even if the particular anxieties may be ill founded). We should not condemn their desire to conserve (even if the means they advocate may be badly chosen). And if a touch of pessimism beclouds the philosophy of the environmental movement, this, too, is healthy. True conservatives—unlike utopians—do not promise the perfect future.

Citizens who fear for our vanishing patrimony in nature drink from a well-spring of emotions that nourishes the most enduring conservative convictions. These convictions, since they are rooted in the heart, will survive adversity. If political convictions are anchored only in the intellect they will be blown away by the first ill wind. Young Americans whose deepest convictions draw them to the environmental movement today could become some of the finest supporters of our conservative movement tomorrow. If only we would let them.

Instead, by ridiculing every environmental concern and neglecting sensible solutions, our own Jacobins have invited the revolutionary Left to increase its political strength. We should envy, indeed, the skill of the Left in bringing under its control so much of the worldwide environmental movement. We should weep, however, over our self-destructive folly in assisting this takeover.

Folly likes company. The growth utopians in our midst are not only kicking conservation-minded citizens into the enemy camp, but with their advocacy of high levels of immigration, they are also alienating many traditional conservative voters. A great many Americans of conservative persuasion do not regard their country's borders as merely an obstacle to global free trade, an obsolete "protectionist" contraption that must be done away with. They value the borders as a breakwater that will protect their—yes, their— nation's social fabric and political culture in a stormy world.

Yet, our Jacobins insist on open borders and "free immigration". Whoever disagrees is a "racist"'; never mind that among American blacks, whose forefathers helped build this country, many also disagree. And whoever proposes that the United States should regain control if its borders will be derided as wanting a "Berlin Wall". (Erich Honecker must have been mighty pleased to see distinguished Americans confirm what he always asserted about his wall: that it was never meant to imprison his people, but to keep out "undocumented" Westerners.)

The extreme Left in America is delighted. Like their soul mates in Europe, they have long pined for a split among conservatives that would create a faction they could attack as "fascist", thus forcing all other conservatives to spend their entire time proving that they, by contrast, are not fascist. This stratagem worked in France and Germany, until, the conservative parties at last began to cope with immigration, and thus sharply curtailed their loss of votes to "anti-immigration" splinter parties.

The Bovine Rebuttal of Malthus

Economic growth and population growth are closely intertwined, both entangled in a dense web of social, political, demographic, and economic forces. Does population growth stimulate economic growth, or is it the other way around? Do increasing population densities negate the benefits of economic growth, or are they the very engine for a growing economy?

To disentangle this knurly twist of cause and effect takes more than a simplistic statistical correlation. Yet, our growth utopians, to prove that high population densities bring prosperity, invariably introduce their favorite success story—Hong Kong. According to a Wall Street Journal editorial, the physical limit to the number of people that Hong Kong could absorb "in a short time" has "not even been approached"; more immigration would help since Hong Kong "continues to suffer a labor shortage."

Higher population densities, to be sure, can help economic growth—by permitting a more efficient division of labor, stimulating trade, and enhancing financial markets. But more often than not, higher densities will lead to more government. More crowding means more people will bump into each other; and to mitigate these bumps, people nowadays demand—unfortunately—that government interfere ever more. The more populations are culturally and linguistically divided, the more irritating the bumps will be—hence the louder the demands for government-determined outcomes. To be sure, we conservatives know that we want less government, not more. But many in our midst fail to see that an unintended consequence of all the good growth they are advocating will be more government.

Conservatives addicted to the Utopia of Perpetual Growth, nonetheless, tell us not to worry: an ebullient free market economy (such as in Hong Kong!) will provide taller apartment buildings and larger sewer pipes to accommodate an ever-growing population. To worry about population growth, they tell us, is incorrect thinking, called Malthusianism. Thomas Malthus had this theory that population tends to grow faster than the food supply, pushing mankind toward misery. But since the end of the 18th century when Maltus wrote his book, food supplies grew easily as fast as population— unless foolish government policies interfered.

Because of this history, the pros and cons of population growth continue to be debated as an economic question and, adnauseam, as a question of accommodating more people by feeding them. One might call this the bovine rebuttal to Thomas Malthus. Given capitalist agriculture, it is said, an ever growing human herd will always have enough fodder. Yesterday's world population was two billion people, today's is five billion, tomorrow's will be ten. As the global economy becomes more and more integrated, we will all blend into one growing family, it is said. The happy whirligig will go round and round, faster and faster, more people and more things, at home and abroad, more things and more people, abroad and at home.

Man, however, does not live by fodder alone. Nor can one measure human progress by the growth in per capita income alone. William J. Bennett's Index of Leading Cultural Indicators shows this all too clearly. Measured by many of these indicators, America suffered a cultural decline even during the fabulous economic growth of the 1980s, "the seven fat years" as Robert Bartley's engaging book calls them. For some of these indicators that correlate nicely with past economic growth, even the most dogmatic believers in the growth utopia would agree the trend was bad. Example: illegitimate births quintupled since 1960. Other Bennett indicators, however, they might regard as desirable correlates of "good" growth; for example, the increase in average daily TV viewing. Economic growth brings better TV sets, cheaper TV sets, more TV programs, more leisure, and hence, more time spent in front of the tube.

Conservatives ought to focus less on the bovine interpretation of population growth and pay more attention to its cultural and political implications. Never mind that a growing world economy can feed all the people. The right question for us conservatives is whether cultural values can keep up with this multiplication, and whether the pressures for more government can be kept in check.

Population growth is the paramount, the most elemental anti-conservative force. It unleashes a flood of social change that will cascade onto every level of society. It creates irresistible pressures for farflung, and usually irreversible government interventions, allegedly to cope with all the social changes that rapid population growth has unleashed. It thus helps the radical left to garner political support for its social engineering schemes. It dilutes the reach of religious institutions that seek to preserve society's moral fiber. It empowers the unprincipled and the rootless to tear down vastly more civilizing traditions and riches of culture than they will ever create.

Till Growth Devours Us

Some conservationists have it wrong: an imminent scarcity of raw materials is not the reason why we need to be concerned about population growth. Throughout this century, predictions have been made that mankind faced calamity because it was running out of anthracite or copper, petroleum or fresh water, or some other vital resource for which there could be no substitute. These alleged "limits of growth" were foolish.

The growth utopians in our midst delight in mocking this foolishness. It is of course easier, when confronted by a vexing question to ridicule silly answers others have given than to search for the right answer oneself. But the question will not go away. Either we cling to the belief that the growth of all good things in our society can be perpetual, or we must address the question of limits. As John Gray wrote in his timely book Beyond the New Right (1993), "the project of a social order that does not rest on the prospect of indefinite future betterment creates problems for policy that have as yet been barely addressed by conventional thought, including the mainstream of conservative philosophy."

A stable population would be a critical component of the social order that John Gray refers to. Many population experts see such stability come about through the "demographic transition"—the decline in birth rates often associated with growing prosperity. (How soon this transition might be completed, whether it can take hold in all cultures, and whether it will not be reversed, are open questions.)

Nothing in the growth ideology is more indicative of its utopianism than what it says about the demographic transition. On the one hand, it holds that an increasing population is a godsend for economic growth. On the other hand, it promises that economic growth, all by itself, will usher in the demographic transition and thus halt population growth. Yet, utopianism ignores the cultural conditions that are necessary for the transition to take hold. On the contrary, as soon as a rich country's birth rates have declined enough to keep its population stable, the utopia's high priests condemn such "stagnation", warn of economic and moral decline, a crippling labor shortage, and an aging nation, and insist that population growth must promptly resume—by admitting large numbers of immigrants.

Thus, the utopianism is unmasked as a gigantic, global Ponzi scheme, where each generation can collect its growth entitlement only if a compliant and larger generation steps into the queue behind it. Should we conservatives let this utopianism dominate our movement, no body would be left to stop the fraud and the whole pyramid would eventually collapse, engulfing everyone in vast misery. The cause of this collapse would not be a shortage of material goods but the destruction of society's conservative conscience by our Jacobins of growth.

Fred Charles Ikle a Distinguished Scholar at the Center for Strategic and International Studies, served as under secretary of defense for policy in the Reagan administration and as director of the U.S. Arms Control and Disarmament Agency in the Ford administration.
 

ThaG

Sicc OG
Jun 30, 2005
9,597
1,687
113
#16
FIVE FUNDAMENTAL ERRORS
The Long Version, by Jay Hanson -- http://www.dieoff.org/


(Permission to reprint explicitly granted.)

Modern economics is nothing more than "Social Darwinism" (the politics -- NOT the science) as first revealed by God to the Dominican Friar St. Thomas Aquinas 750 years ago, and then perfected by the Physiocrats 230 years ago. Unfortunately, God didn't bother to reveal the Laws of Thermodynamics to St. Thomas at the same time as he was doing "free markets". But then it's not too surprising considering the fact that God also neglected to mention that the Earth orbited the Sun.

Any ONE fundamental error in Neoclassical theory should be sufficient reason to reject conclusions based upon that theory. Here are five fundamental errors in the theory:

#1. A fundamentally incorrect "method": the economist uses "correlation" and "post hoc, ergo propter hoc" (after-the-fact) reasoning, rather than the "scientific method" and biological theories of behavior:

"Economists enamored of pure markets begin with the theory, and hang models on assumptions that cannot themselves be challenged. The characteristic grammatical usage is an unusual subjunctive -- the verb form 'must be.' For example, if wages for manual workers are declining, it must be that their economic value is declining. If a corporate raider walks away from a deal with half a billion dollars, it must be that he added that much value to the economy. If Japan can produce better autos than Detroit, there must be some inherent locational logic, else the market would not dictate that result. If commercial advertising leads consumers to buy shoddy or harmful products, they must be 'maximizing their utility' -- because we know by assumption that consumers always maximize their utility. How do we know that? Because to do anything else would be irrational. And how do we know that individuals always behave rationally? Because that is the premise from which we begin. The truly interesting institutional questions -- the disjunctures between what free-market assumptions would predict and the actual outcomes -- are dismissed by the tautological and deductive form of reasoning. The fact that the real world is already far from a perfect market is ignored for the sake of theoretic convenience. The dissenter cannot challenge the theory; he can only describe the real world." [p. 9]

"There is at the core of the celebration of markets a relentless tautology. If we begin, by assumption, with the premise that nearly everything can be understood as a market and that markets optimize outcomes, then everything else leads back to the same conclusion -- marketize! If, in the event, a particular market doesn't optimize, there is only one possible inference: it must be insufficiently marketlike. This epistemological sleight of hand is an astonishing blend that blurs the descriptive with the normative. It is a no-fail system for guaranteeing that theory trumps evidence. Should some human activity not, in fact, behave like an efficient market, it must be the result of some interference that should be removed or a stubborn human refusal to appreciate markets. It cannot possibly be that the theory fails to specify accurately how human behavior works." [p. 6, EVERYTHING FOR SALE, Robert Kuttner; Knopf, 1997; http://www.amazon.com/exec/obidos/ASIN/0394583922 ]

"It was not the methods of science that were appropriated by the early neoclassicals as it was the appearances of science, for the early neoclassicals possessed a singularly inept understanding of the physics they so admired… [ Neoclassical economists attempt ] to reduce all social institutions such as money, property rights, and the market itself to epiphenomena of individual constrained optimization calculation. All these attempts have failed, despite their supposed dependence upon mathematical rigor, because they always inadvertently assume what they aim to deduce… Conservation principles are the key to the understanding of a mathematical formulation of any phenomenon, and it has been there that the neoclassicals have been woefully negligent." [ p. 6, AGAINST MECHANISM: Protecting Economics from Science, by Philip Mirowski; Rowman and Littlefield, 1988; http://www.amazon.com/exec/obidos/ASIN/0847676951 ]

"My analysis showed that the neoclassical theorist of economic behavior is confronted with the dilemma of restricting his or her analysis to a case-by-case taxonomy of individual agent choice, given the inaccessibility to mental states, or grounding his or her explanatory theories on the normative heuristic of rational choice. Neither alternative yields scientific results." [p. 151, SCIENCE, RATIONALITY, AND NEOCLASSICAL ECONOMICS, L.D. Keita; Delaware, 1992; http://www.amazon.com/exec/obidos/ASIN/0874134102 ]

SCIENTIFIC METHOD

The "scientific method" is the ONLY way yet discovered for discovering truth amid a world of lies and delusion. The simple version looks something like this:

a. Observe some aspect of the universe.
b. Invent a theory that is consistent with what you have observed.
c. Use the theory to make predictions.
d. Test those predictions by experiments or further observations.
e. Modify the theory in the light of your results.

Go to step c. [ http://www.xnet.com/~blatura/skep_1.html]

ECONOMIST METHOD (by analogy)

Did I ever tell you about my cat? I have a cat that can predict the stock market!!!!!

I got this cat about ten years ago from an old lady who said that it could predict the stock market. She said that if the cat "meowed", the stock market would go up on that day. I didn't believe it at first, but sure-enough it was true. Over the last nine years the cat was right more than it was wrong -- I made millions.

About a year ago, a car killed my cat. I really loved that cat so I had it stuffed and put on the wall. You know what? The cat doesn't meow anymore, but the stock market doesn't go up anymore either. So I am beginning to think that the cat actually CAUSED the stock market to go up or down. Numbers don't lie do they?

Now I am not sure whether the meow was cause or effect... I am sure I can find out which by studying economics. (Although some say there are virtually an infinite number of explanations for the same observation, and only the "scientific method" can separate fact from fiction.)

What do you think? Was the meow cause or effect? Or both? Or neither? Economists run into this problem all the time...

#2. A fundamentally inverted world view: the economist sees the environment as a subsystem of the economy, rather than the other way around. In other words, economists are trained to believe that natural resources come from "markets" rather than the "environment". The historical analogy is Johann Kepler and Tycho Brahe watching the dawn together. Kepler sees the sun come into view as the earth turns; Brahe sees the sun begin its daily journey around a static earth.

The corollary is that economists believe that "man-made capital" can substitute for "natural capital". Nobel Laureate Robert Solow:"... the world can, in effect, get along without natural resources ... at some finite cost, production can be freed of dependence on exhaustible resources altogether... [ 1974 lecture to the American Economic Association cited in p. 117, STEADY-STATE ECONOMICS, Herman E. Daly; Island Press, 1991; http://www.amazon.com/exec/obidos/ASIN/155963071X ]

But the First Law of thermodynamics tells us there is no "creation" -- there is no such thing as "man-made capital". Thus, ALL capital is "natural capital", and the economy is 100% dependent on the "environment" for everything.

#3. A fundamentally incorrect view of "money": the economist sees "money" as nothing more than a medium of exchange, rather than as social power -- or "political power":
"MONEY: Anything which is widely acceptable in exchange for goods, or in settling debts, not for itself but because it can be similarly passed on, has the character of money since it serves the primary function of money, i.e. a means of payment. As a means of payment money is an entity which is transferred when a payment is made; as such it acts as a MEDIUM OF EXCHANGE, a function essential to any economy other than the most primitive." [ p. 285, THE MIT DICTIONARY OF ECONOMICS, Fourth Edition; http://www.amazon.com/exec/obidos/ASIN/0262660784/brainfood.a ].
But even the casual observer can see that money is social power because it "empowers" people to buy and do the things they want -- including buying and doing other people: politics.

If employers have the freedom to pay workers less "political power", then they will retain more political power for themselves. Money is, in a word, "coercion", and "economic efficiency" is correctly seen as a political concept designed to conserve social power for those who have it -- to make the politically powerful, even more powerful, and the politically weak, even weaker.

For a surrealistic glimpse into the utterly insane world of a typical economist, see http://minneapolisfed.org/research/sr/sr140.pdf

#4. A fundamentally incorrect view of his raison d'être: the economist sees "Homo economicus" as a "Bayesian utility maximizer", rather than "Homo sapiens" as a "primate":
"Those who believe society can best be understood as a series of markets begin by positing a rational, calculating individual whose goal is to maximize 'utility.' This premise says everything and nothing, since it is true by definition in all cases. But it is a key aspect of the market model, since it is the behavioral part of the logical argument that whatever the market decides must be optimal." [p. 41, Kuttner, 1997]

"Neoclassical economics is based on the premise that models that characterize rational, optimizing behavior also characterize actual human behavior." (R. Thaler, 1987).

"One of the peculiarities of economics is that it still rests on a behavioral assumption -- rational utility maximization -- that has long since been rejected by sociologists and psychologists who specialize in studying human behavior. Rational individual utility (income) maximization was the common assumption of all social science in the nineteenth century, but only economics continues to use it.

"Contrary behavioral evidence has had little impact on economics because having a theory of how the world "ought" to act, economists can reject all manner of evidence showing that individuals are not rational utility maximizers. Actions that are not rational maximizations exist, but they are labeled "market imperfections" that "ought" to be eliminated. Individual economic actors "ought" to be rational utility maximizers and they can be taught to do what they "ought" to do. Prescription dominates description in economics, while the reverse is true in the other social sciences that study real human behavior." [ p. 216, DANGEROUS CURRENTS, by Lester Thurow; Random, 1983; http://www.amazon.com/exec/obidos/ASIN/0394723686/brainfood.a ; http://dieoff.com/page162.htm ]

Economic Nobel Laureate Herbert Simon: "Subjective expected utility (SEU) theory lies at the foundation of most contemporary economics. In the probabilistic version of SEU theory, Bayes's rule prescribes how people should take account of new information and how they should respond to incomplete information. But empirical studies find that decision makers often overreact to new information, in violation of Bayes's rule." [ DECISION MAKING AND PROBLEM SOLVING, by Herbert A. Simon and Associates; National Academy Press, 1986; http://dieoff.com/page163.htm ]

In other words, contemporary economics and econometrics is WRONG from the bottom up -- and economists know it. The entire discipline of economics is based on a lie. Moreover, if human behavior is not the result of mathematical calculation -- and it isn't -- then in principle, it's impossible for economists to EVER get it right.

#5. A fundamentally incorrect view of economic élan vital: the economist sees economic activity as a function of infinite "money creation", rather than a function of finite "energy stocks" and finite "energy flows".

Economic students are taught that banks "create" money every time they make a loan, and that the economy is powered by money instead of energy. The juxtaposition of these two data (the first is true, the second is false) leads even Nobel Prize-winning economists to conclude they have discovered a perpetual-motion machine:

"Should we be taking steps to limit the use of these most precious stocks of society's capital so that they will still be available for our grandchildren? . Economists ask, Would future generations benefit more from larger stocks of natural capital such as oil, gas, and coal or from more produced capital such as additional scientists, better laboratories, and libraries linked together by information superhighways? ... in the long run, oil and gas are not essential." [ p. 328, ECONOMICS, Nobel Laureate Paul Samuelson and William Nordhaus; McGraw-Hill, 1998; http://www.amazon.com/exec/obidos/ASIN/0070579474/brainfood.a ]

No person has had a greater influence on the thinking of experts who have become government regulators of the world's oil and gas industries than economist Morris Adelman: "There are plenty of fossil fuels and no limit to potential electrical capacity. It is all a matter of money." [ p. 483, THE ECONOMICS OF PETROLEUM SUPPLY, by M. A. Adelman; MIT, 1993; http://www.amazon.com/exec/obidos/ASIN/0262011387/brainfood.a ]

But of course, economists like Samuelson, Nordhaus, and Adelman are wrong. The First and Second Laws of thermodynamics tells us there is a limit to potential electrical capacity -- it's not all a matter of "money", it's all a matter of "energy".

The sudden -- and surprising -- end of the fossil fuel age will stun everyone -- and kill billions. Once the truth is told about gas and oil (it's just a matter of time), your life will change forever

Envision a world where freezing, starving people burn everything combustible -- everything from forests (releasing CO2; destroying topsoil and species); to garbage dumps (releasing dioxins, PCBs, and heavy metals); to people (by waging nuclear, biological, chemical, and conventional war); and you have seen the future.

Envision a world utterly destroyed by a lethal education.
 

ThaG

Sicc OG
Jun 30, 2005
9,597
1,687
113
#17
"Energy and Economic Myths"
by Nicholas Georgescu-Roegen
(Reprinted from Southern Economic Journal 41, no. 3, January 1975)



Hardly anyone would nowadays openly profess a belief in the immortality of mankind. Yet many of us prefer not to exclude this possibility; to this end, we endeavor to impugn any factor that could limit mankind's life. The most natural rallying idea is that mankind's entropic dowry is virtually inexhaustible, primarily because of man's inherent power to defeat the Entropy Law in some way or another.

To begin with, there is the simple argument that, just as has happened with many natural laws, the laws on which the finiteness of accessible resources rests will be refuted in turn. The difficulty of this historical argument is that history proves with even greater force, first, that in a finite space there can be only a finite amount of low entropy and, second, that low entropy continuously and irrevocably dwindles away. The impossibility of perpetual motion (of both kinds) is as firmly anchored in history as the law of gravitation.

More sophisticated weapons have been forged by the statistical interpretation of thermodynamic phenomena -- an endeavor to reestablish the supremacy of mechanics propped up this time by a sui generis notion of probability. According to this interpretation, the reversibility of high into low entropy is only a highly improbable, not a totally impossible event. And since the event is possible, we should be able by an ingenious device to cause the event to happen as often as we please, just as an adroit sharper may throw a "six" almost at will. The argument only brings to the surface the irreducible contradictions and fallacies packed into the foundations of the statistical interpretation by the worshipers of mechanics [32, ch. 6]. The hopes raised by this interpretation were so sanguine at one time that P. W. Bridgman, an authority on thermodynamics, felt it necessary to write an article just to expose the fallacy of the idea that one may fill one's pockets with money by "bootlegging entropy" [11].

Occasionally and sotto voce some express the hope, once fostered by a scientific authority such as John von Neumann, that man will eventually discover how to make energy a free good, "just like the unmetered air" [3, p. 32]. Some envision a "catalyst" by which to decompose, for example, the sea water into oxygen and hydrogen, the combustion of which will yield as much available energy as we would want. But the analogy with the small ember which sets a whole log on fire is unavailing. The entropy of the log and the oxygen used in the combustion is lower than that of the resulting ashes and smoke, whereas the entropy of water is higher than that of the oxygen and hydrogen after decomposition. Therefore, the miraculous catalyst also implies entropy bootlegging. *1*

With the notion, now propagated from one syndicated column to another, that the breeder reactor produces more energy than it consumes, the fallacy of entropy bootlegging seems to have reached its greatest currency even among the large circles of literati, including economists. Unfortunately, the illusion feeds on misconceived sales talk by some nuclear experts who extol the reactors which transform fertile but nonfissionable material into fissionable fuel as the breeders that "produce more fuel than they consume" [81, p. 82]. The stark truth is that the breeder is in no way different from a plant which produces hammers with the aid of some hammers. According to the deficit principle of the Entropy Law .... even in breeding chickens a greater amount of low entropy is consumed than is contained in the product. *2*

Apparently in defense of the standard vision of the economic process, economists have set forth themes of their own. We may mention first the argument that "the notion of an absolute limit to natural resource availability is untenable when the definition of resources changes drastically and unpredictably over time .... A limit may exist, but it can be neither defined nor specified in economic terms" [3, pp. 7, 11]. We also read that there is no upper limit even for arable land because "arable is infinitely indefinable" [55, p. 22]. The sophistry of these arguments is flagrant. No one would deny that we cannot say exactly how much coal, for example, is accessible. Estimates of natural resources have constantly been shown to be too low. Also, the point that metals contained in the top mile of the earth's crust may be a million times as much as the present known reserves [4, p. 338; 58, p. 331] does not prove the inexhaustibility of resources, but, characteristically, it ignores both the issues of accessibility and disposability.*3* Whatever resources or arable land we may need at one time or another, they will consist of accessible low entropy and accessible land. And since all kinds together are in finite amount, no taxonomic switch can do away with that finiteness.

The favorite thesis of standard and Marxist economists alike, however, is that the power of technology is without limits [3; 4; 10; 49; 51; 69; 74]. We will always be able not only to find a substitute for a resource which has become scarce, but also to increase the productivity of any kind of energy and material. Should we run out of some resources, we will always think up something, just as we have continuously done since the time of Pericles [4, pp. 332-334]. Nothing, therefore, could ever stand in the way of an increasingly happier existence of the human species. One can hardly think of a more blunt form of linear thinking. By the same logic, no healthy young human should ever become afflicted with rheumatism or any other old-age ailments; nor should he ever die. Dinosaurs, just before they disappeared from this very same planet, had behind them not less than one hundred and fifty million years of truly prosperous existence. (And they did not pollute environment with industrial waste!) But the logic to be truly savored is Solo's [73, p. 516]. If entropic degradation is to bring mankind to its knees sometime in the future, it should have done so sometime after A.D. 1000. The old truth of Seigneur de La Palice has never been turned around -- and in such a delightful form. *4*

In support of the same thesis, there also are arguments directly pertaining to its substance. First, there is the assertion that only a few kinds of resources are "so resistant to technological advance as to be incapable of eventually yielding extractive products at constant or declining cost" [3, p. 10]. *5* More recently, some have come out with a specific law which, in a way, is the contrary of Malthus's law concerning resources. The idea is that technology improves exponentially [4, p. 236; 51, p. 664; 74, p. 45]. The superficial justification is that one technological advance induces another. This is true, only it does not work cumulatively as in population growth. And it is terribly wrong to argue, as Maddox does [59, p. 21], that to insist on the existence of a limit to technology means to deny man's power to influence progress. Even if technology continues to progress, it will not necessary exceed any limit; an increasing sequence may have an upper limit. In the case of technology this limit is set by the theoretical coefficient of efficiency .... If progress were indeed exponential, then the input i per unit of output would follow in time the law i = i0(1 + r)-t and would constantly approach zero. Production would ultimately become incorporeal and the earth a new Garden of Eden.

Finally, there is the thesis which may be called the fallacy of endless substitution: "Few components of the earth's crust, including farm land, are so specific as to defy economic replacement; . . . nature imposes particular scarcities, not an inescapable general scarcity" [3, pp. 10f]. *6* Bray's protest notwithstanding [10, p. 8], this is "an economist's conjuring trick." True, there are only a few "vitamin" elements which play a totally specific role such as phosphorus plays in living organisms. Aluminum, on the other hand, has replaced iron and copper in many, although not in all uses. *7* However, substitution within a finite stock of accessible low entropy whose irrevocable degradation is speeded up through use cannot possibly go on forever.

In Solow's hands, substitution becomes the key factor that supports technological progress even as resources become increasingly scarce. There will be, first, a substitution within the spectrum of consumer goods. With prices reacting to increasing scarcity, consumers will buy "fewer resource-intensive goods and more of other things" [74, p. 47]. *8* More recently, he extended the same idea to production, too. We may, he argues, substitute "other factors for natural resources" [75, p. 11]. One must have a very erroneous view of the economic process as a whole not to see that there are no material factors other than natural resources. To maintain further that "the world can, in effect, get along without natural resources" is to ignore the difference between the actual world and the Garden of Eden.

More impressive are the statistical data invoked in support of some of the foregoing theses. The data adduced by Solow [74, pp. 44f] show that in the United States between 1950 and 1970 the consumption of a series of mineral elements per unit of GNP decreased substantially. The exceptions were attributed to substitution but were expected to get in line sooner or later. In strict logic, the data do not prove that during the same period technology necessarily progressed to a greater economy of resources. The GNP may increase more than any input of minerals even if technology remains the same, or even if it deteriorates. But we also know that during practically the same period, 1947-1967, the consumption per capita of basic materials increased in the United States. And in the world, during only one decade, 1957-1967, the consumption of steel per capita grew by 44 percent [12, pp. 198-200]. What matters in the end is not only the impact of technological progress on the consumption of resources per unit of GNP, but especially the increase in the rate of resource depletion, which is a side effect of that progress.

Still more impressive -- as they have actually proved to be -- are the data used by Barnett and Morse to show that, from 1870 to 1957, the ratios of labor and capital costs to net output decreased appreciably in agriculture and mining, both critical sectors as concerns depletion of resources [3, 8f, 167-178]. In spite of some arithmetical incongruities, *9* the picture emerging from these data cannot be repudiated. Only its interpretation must be corrected.

For the environmental problem it is essential to understand the typical forms in which technological progress may occur. A first group includes the economy innovations, which achieve a net economy of low entropy -- be it by a more complete combustion, by decreasing friction, by deriving a more intensive light from gas or electricity, by substituting materials costing less in energy for others costing more, and so on. Under this heading we should also include the discovery of how to use new kinds of accessible low entropy. A second group consists of substitution innovations, which simply substitute physicochemical energy for human energy. A good illustration is the innovation of gunpowder, which did away with the catapult. Such innovations generally enable us not only to do things better but also (and especially) to do things which could not be done before -- to fly in airplanes, for example. Finally, there are the spectrum innovations, which bring into existence new consumer goods, such as the hat, nylon stockings, etc. Most of the innovations of this group are at the same time substitution innovations. In fact, most innovations belong to more than one category. But the classification serves analytical purposes.

Now, economic history confirms a rather elementary fact -- the fact that the great strides in technological progress have generally been touched off by a discovery of how to use a new kind of accessible energy. On the other hand, a great stride in technological progress cannot materialize unless the corresponding innovation is followed by a great mineralogical expansion. Even a substantial increase in the efficiency of the use of gasoline as fuel would pale in comparison with a manifold increase of the known, rich oil fields.

This sort of expansion is what has happened during the last one hundred years. We have struck oil and discovered new coal and gas deposits in a far greater proportion than we could use during the same period. Still more important, all mineralogical discoveries have included a substantial proportion of easily accessible resources. This exceptional bonanza by itself has sufficed to lower the real cost of bringing mineral resources in situ to the surface. Energy of mineral source thus becoming cheaper, substitution innovations have caused the ratio of labor to net output to decline. Capital also must have evolved toward forms which cost less but use more energy to achieve the same result. What has happened during this period is a modification of the cost structure, the flow factors being increased and the fund factors decreased. *10* By examining, therefore, only the relative variations of the fund factors during a period of exceptional mineral bonanza, we cannot prove either that the unitary total cost will always follow a declining trend or that the continuous progress of technology renders accessible resources almost inexhaustible -- as Barnett and Morse claim [3, p. 239].

Little doubt is thus left about the fact that the theses examined in this section are anchored in a deep-lying belief in mankind's immortality. Some of their defenders have even urged us to have faith in the human species: such faith will triumph over all limitations. *11* But neither faith nor assurance from some famous academic chair [4] could alter the fact that, according to the basic law of thermodynamics, mankind's dowry is finite. Even if one were inclined to believe in the possible refutation of these principles in the future, one still must not act on that faith now. We must take into account that evolution does not consist of a linear repetition, even though over short intervals it may fool us into the contrary belief.

A great deal of confusion about the environmental problem prevails not only among economists generally (as evidenced by the numerous cases already cited), but also among the highest intellectual circles simply because the sheer entropic nature of all happenings is ignored or misunderstood. Sir Macfarlane Burnet, a Nobelite, in a special lecture considered it imperative "to prevent the progressive destruction of the earth's irreplaceable resources" [quoted, 15, p. 1].

And a prestigious institution such as the United Nations, in its Declaration on the Human Environment (Stockholm, 1972), repeatedly urged everyone "to improve the environment." Both urgings reflect the fallacy that man can reverse the march of entropy. The truth, however unpleasant, is that the most we can do is to prevent any unnecessary depletion of resources and any unnecessary deterioration of the environment, but without claiming that we know the precise meaning of "unnecessary" in this context.

The Steady State: A Topical Mirage

Malthus, as we know, was criticized primarily because he assumed that population and resources grow according to some simple mathematical laws. But this criticism did not touch the real error of Malthus (which has apparently remained unnoticed). This error is the implicit assumption that population may grow beyond any limit both in number and time provided that it does not grow too rapidly. *12* An essentially similar error has been committed by the authors of The Limits, by the authors of the nonmathematical yet more articulate "Blueprint for Survival," as well as by several earlier writers. Because, like Malthus, they were set exclusively on proving the impossibility of growth, they were easily deluded by a simple, now widespread, but false syllogism: since exponential growth in a finite world leads to disasters of all kinds, ecological salvation lies in the stationary state [42; 47; 62, pp. 156-184; 6, pp. 3f, 8, 20]. *13* H. Daly even claims that "the stationary state economy is, therefore, a necessity" [21, p. 5].

This vision of a blissful world in which both population and capital stock remain constant, once expounded with his usual skill by John Stuart Mill [64, bk. 4, ch. 6], was until recently in oblivion. *14* Because of the spectacular revival of this myth of ecological salvation, it is well to point out its various logical and factual snags. The crucial error consists in not seeing that not only growth, but also a zerogrowth state, nay, even a declining state which does not converge toward annihilation, cannot exist forever in a finite environment. The error perhaps stems from some confusion between finite stock and finite flow rate, as the incongruous dimensionalities of several graphs suggest [62, pp. 62, 64f, 124ff; 6, p. 6]. And contrary to what some advocates of the stationary state claim [21, p. 15], this state does not occupy a privileged position vis-Ã -vis physical laws.

To get to the core of the problem, let S denote the actual amount of accessible resources in the crust of the earth. Let Pi and si be the population and the amount of depleted resources per person in the year i. Let the "amount of total life," measured in years of life, be defined by [ formula omitted] , from i = 0 to i = 0o. S sets an upper limit for L through the obvious constraint [ formula omitted ]. For although si is a historical variable, it cannot be zero or even negligible (unless mankind reverts sometime to a berry-picking economy). Therefore, P = 0 for i greater than some finite n, and Pi > 0 otherwise. That value of n is the maximum duration of the human species [31, pp. 12f; 32, p. 304].

The earth also has a so-called carrying capacity, which depends on a complex of factors, including the size of si. *15* This capacity sets a limit on any single Pi. But this limit does not render the other limits, of L and n, superfluous. It is therefore inexact to argue -- as the Meadows group seems to do [62, pp. 91f] -- that the stationary state can go on forever as long as Pi does not exceed that capacity. The proponents of salvation through the stationary state must admit that such a state can have only a finite duration -- unless they are willing to join the "No Limit" Club by maintaining that S is inexhaustible or almost so -- as the Meadows group does in fact [62, p. 172]. Alternatively, they must explain the puzzle of how a whole economy, stationary for a long era, all of a sudden comes to an end.

Apparently, the advocates of the stationary state equate it with an open thermodynamic steady state. This state consists of an open macrosystem which maintains its entropic structure constant through material exchanges with its "environment." As one would immediately guess, the concept constitutes a highly useful tool for the study of biological organisms. We must, however, observe that the concept rests on some special conditions introduced by L. Onsager [50, pp. 89-97]. These conditions are so delicate (they are called the principle of detailed balance) that in actuality they can hold only "within a deviation of a few percent" [50, p. 140]. For this reason, a steady state may exist in fact only in an approximated manner and over a finite duration. This impossibility of a macrosystem not in a state of chaos to be perpetually durable may one day be explicitly recognized by a new thermodynamic law just as the impossibility of perpetual motion once was. Specialists recognize that the present thermodynamic laws do not suffice to explain all nonreversible phenomena, including especially life processes.

Independently of these snags there are simple reasons against believing that mankind can live in a perpetual stationary state. The structure of such a state remains the same throughout; it does not contain in itself the seed of the inexorable death of all open macrosystems. On the other hand, a world with a stationary population would, on the contrary, be continually forced to change its technology as well as its mode of life in response to the inevitable decrease of resource accessibility. Even if we beg the issue of how capital may change qualitatively and still remain constant, we could have to assume that the unpredictable decrease in accessibility will be miraculously compensated by the right innovations at the right time. A stationary world may for a while be interlocked with the changing environment through a system of balancing feedbacks analogous to those of a living organism during one phase of its life. But as Bormann reminded us [7, p. 707], the miracle cannot last forever; sooner or later the balancing system will collapse. At that time, the stationary state will enter a crisis, which will defeat its alleged purpose and nature.

One must be cautioned against another logical pitfall, that of invoking the Prigogine principle in support of the stationary state. This principle states that the minimum of the entropy produced by an Onsager type of open thermodynamic system is reached when the system becomes steady [50, ch. 16]. It says nothing about how this last entropy compares with that produced by other open systems. *16*

The usual arguments adduced in favor of the stationary state are, however, of a different, more direct nature. It is, for example, argued that in such a state there is more time for pollution to be reduced by natural processes and for technology to adapt itself to the decrease of resource accessibility [62, p. 166]. It is plainly true that we could use much more efficiently today the coal we have burned in the past. The rub is that we might not have mastered the present efficient techniques if we had not burned all that coal "inefficiently." The point that in a stationary state people will not have to work additionally to accumulate capital (which in view of what I have said in the last paragraphs is not quite accurate) is related to Mill's claim that people could devote more time to intellectual activities. "The trampling, crushing, elbowing, and treading on each other's heel" will cease [64, p. 754]. History, however, offers multiple examples -- the Middle Ages, for one -- of quasi stationary societies where arts and sciences were practically stagnant. In a stationary state, too, people may be busy in the fields and shops all day long. Whatever the state, free time for intellectual progress depends on the intensity of the pressure of population on resources. Therein lies the main weakness of Mill's vision. Witness the fact that -- as Daly explicitly admits [21, pp. 6-8] -- its writ offers no basis for determining even in principle the optimum levels of population and capital. This brings to light the important, yet unnoticed point, that the necessary conclusion of the arguments in favor of that vision is that the most desirable state is not a stationary, but a declining one.

Undoubtedly, the current growth must cease, nay, be reversed. But anyone who believes that he can draw a blueprint for the ecological salvation of the human species does not understand the nature of evolution, or even of history -- which is that of permanent struggle in continuously novel forms, not that of a predictable, controllable physico-chemical process, such as boiling an egg or launching a rocket to the moon.

Some Basic Bioeconomics *17*

Apart from a few insignificant exceptions, all species other than man use only endosomatic instruments -- as Alfred Lotka proposed to call those instruments (legs, claws, wings, etc.) which belong to the individual organism by birth. Man alone came, in time, to use a club, which does not belong to him by birth, but which extended his endosomatic arm and increased its power. At that point in time, man's evolution transcended the biological limits to include also (and primarily) the evolution of exosomatic instruments, i.e., of instruments produced by man but not belonging to his body. *18* That is why man can now fly in the sky or swim under water even though his body has no wings, no fins, and no gills.

The exosomatic evolution brought down upon the human species two fundamental and irrevocable changes. The first is the irreducible social conflict which characterizes the human species [29, pp. 98-101; 32, pp. 306-315, 348f]. Indeed, there are other species which also live in society, but which are free from such conflict. The reason is that their "social classes" correspond to some clear-cut biological divisions. The periodic killing of a great part of the drones by the bees is a natural, biological action, not a civil war.

The second change is man's addiction to exosomatic instruments -- a phenomenon analogous to that of the flying fish which became addicted to the atmosphere and mutated into birds forever. It is because of this addiction that mankind's survival presents a problem entirely different from that of all other species [31; 32, pp. 302-305]. It is neither only biological nor only economic. It is bioeconomic. Its broad contours depend on the multiple asymmetries existing among the three sources of low entropy which together constitute mankind's dowry -- the free energy received from the sun, on the one hand, and the free energy and the ordered material structures stored in the bowels of the earth, on the other.

The first asymmetry concerns the fact that the terrestrial component is a stock, whereas the solar one is a flow. The difference needs to be well understood [32, pp. 226f]. Coal in situ is a stock because we are free to use it all today (conceivably) or over centuries. But at no time can we use any part of a future flow of solar radiation. Moreover, the flow rate of this radiation is wholly beyond our control; it is completely determined by cosmological conditions, including the size of our globe. *19* One generation, whatever it may do, cannot alter the share of solar radiation of any future generation. Because of the priority of the present over the future and the irrevocability of entropic degradation, the opposite is true for the terrestrial shares. These shares are affected by how much of the terrestrial dowry the past generations have consumed.

Second, since no practical procedure is available at human scale for transforming energy into matter .... accessible material low entropy is by far the most critical element from the bioeconomic viewpoint. True, a piece of coal burned by our forefathers is gone forever, just as is part of the silver or iron, for instance, mined by them. Yet future generations will still have their inalienable share of solar energy (which, as we shall see next, is enormous). Hence, they will be able, at least, to use each year an amount of wood equivalent to the annual vegetable growth. For the silver and iron dissipated by the earlier generations there is no similar compensation. This is why in bioeconomics we must emphasize that every Cadillac or every Zim -- let alone any instrument of war -- means fewer plowshares for some future generations, and implicitly, fewer future human beings, too [31, p. 13; 32, p. 304].

Third, there is an astronomical difference between the amount of the flow of solar energy and the size of the stock of terrestrial free energy. At the cost of a decrease in mass of 131 x 1012 tons, the sun radiates annually 1013 Q -- one single Q being equal to 1018 BTU! Of this fantastic flow, only some 5,300 Q are intercepted at the limits of the earth's atmosphere, with roughly one half of that amount being reflected back into outer space. At our own scale, however, even this amount is fantastic; for the total world consumption of energy currently amounts to no more than 0.2 Q annually. From the solar energy that reaches the ground level, photosynthesis absorbs only 1.2 Q. From waterfalls we could obtain at most 0.08 Q, but we are now using only one tenth of that potential. Think also of the additional fact that the sun will continue to shine with practically the same intensity for another five billion years (before becoming a red giant which will raise the earth's temperature to 1,000°F). Undoubtedly, the human species will not survive to benefit from all this abundance.

Passing to the terrestrial dowry, we find that, according to the best estimates, the initial dowry of fossil fuel amounted to only 215 Q. The outstanding recoverable reserves (known and probable) amount to about 200 Q. These reserves, therefore, could produce only two weeks of sunlight on the globe. *20* If their depletion continues to increase at the current pace, these reserves may support man's industrial activity for just a few more decades. Even the reserves of uranium 235 will not last for a longer period if used in the ordinary reactors. Hopes are now set on the breeder reactor, which, with the aid of uranium 235, may "extract" the energy of the fertile but not fissionable elements, uranium 238 and thorium 232. Some experts claim that this source of energy is "essentially inexhaustible" [83, p. 412]. In the United States alone, it is believed, there are large areas covered with black shale and granite which contain 60 grams of natural uranium or thorium per metric ton [46, pp. 226f]. On this basis, Weinberg and Hammond [83, pp. 415f] have come out with a grand plan. By stripmining and crushing all these rocks, we could obtain enough nuclear fuel for some 32,000 breeder reactors distributed in 4,000 offshore parks and capable of supplying a population of twenty billion for millions of years with twice as much energy per capita as the current consumption rate in the USA. The grand plan is a typical example of linear thinking, according to which all that is needed for the existence of a population, even "considerably larger than twenty billion," is to increase all supplies proportionally. *21* Not that the authors deny that there also are nontechnical issues; only, they play them down with noticeable zeal [83, pp. 417f]. The most important issue, of whether a social organization compatible with the density of population and the nuclear manipulation at the grand level can be achieved, is brushed aside by Weinberg as "transscientific" [82]. *22* Technicians are prone to forget that due to their own successes, nowadays it may be easier to move the mountain to Mohammed than to induce Mohammed to go to the mountain. For the time being, the snag is far more palpable. As responsible forums openly admit, even one breeder still presents substantial risks of nuclear catastrophes, and the problem of safe transportation of nuclear fuels and especially that of safe storage of the radioactive garbage still await a solution even for a moderate scale of operations [35; 36; especially 39 and 67].

There remains the physicist's greatest dream, controlled thermonuclear reaction. To constitute a real breakthrough, it must be the deuterium-deuterium reaction, the only one that could open up a formidable source of terrestrial energy for a long era. *23* However, because of the difficulties alluded to earlier .... even the experts working at it do not find reasons for being too hopeful.

For completion, we should also mention the tidal and geothermal energies, which, although not negligible (in all, 0.1 Q per year), can be harnessed only in very limited situations.

The general picture is now clear. The terrestrial energies on which we can rely effectively exist in very small amounts, whereas the use of those which exist in ampler amounts is surrounded by great risks and formidable technical obstacles. On the other hand, there is the immense energy from the sun which reaches us without fail. Its direct use is not yet practiced on a significant scale, the main reason being that the alternative industries are now much more efficient economically. But promising results are coming from various directions [37; 41]. What counts from the bioeconomic viewpoint is that the feasibility of using the sun's energy directly is not surrounded by risks or big question marks; it is a proven fact.

The conclusion is that mankind's entropic dowry presents another important differential scarcity. From the viewpoint of the extreme long run, the terrestrial free energy is far scarcer than that received from the sun. The point exposes the foolishness of the victory cry that we can finally obtain protein from fossil fuels! Sane reason tells us to move in the opposite direction, to convert vegetable stuff into hydrocarbon fuel---an obviously natural line already pursued by several researchers [22, pp. 311-313]. *24*

Fourth, from the viewpoint of industrial utilization, solar energy has an immense drawback in comparison with energy of terrestrial origin. The latter is available in a concentrated form; in some cases, in a too concentrated form. As a result, it enables us to obtain almost instantaneously enormous amounts of work, most of which could not even be obtained otherwise. By great contrast, the flow of solar energy comes to us with an extremely low intensity, like a very fine rain, almost a microscopic mist. The important difference from true rain is that this radiation rain is not collected naturally into streamlets, then into creeks and rivers, and finally into lakes from where we could use it in a concentrated form, as is the case with waterfalls. Imagine the difficulty one would face if one tried to use directly the kinetic energy of some microscopic rain drops as they fall. The same difficulty presents itself in using solar energy directly (i.e., not through the chemical energy of green plants, or the kinetic energy of the wind and waterfalls). But as was emphasized a while ago, the difficulty does not amount to impossibility. *25*

Fifth, solar energy, on the other hand, has a unique and incommensurable advantage. The use of any terrestrial energy produces some noxious pollution, which, moreover, is irreducible and hence cumulative, be it in the form of thermal pollution alone. By contrast, any use of solar energy is pollution-free. For, whether this energy is used or not, its ultimate fate is the same, namely, to become the dissipated heat that maintains the thermodynamic equilibrium between the globe and outer space at a propitious temperature. *26*

The sixth asymmetry involves the elementary fact that the survival of every species on earth depends, directly or indirectly, on solar radiation (in addition to some elements of a superficial environmental layer). Man alone, because of his exosomatic addiction, depends on mineral resources as well. For the use of these resources man competes with no other species; yet his use of them usually endangers many forms of life, including his own. Some species have in fact been brought to the brink of extinction merely because of man's exosomatic needs or his craving for the extravagant. But nothing in nature compares in fierceness with man's competition for solar energy (in its primary or its by-product forms). Man has not deviated one bit from the law of the jungle; if anything, he has made it even more merciless by his sophisticated exosomatic instruments. Man has openly sought to exterminate any species that robs him of his food or feeds on him -- wolves, rabbits, weeds, insects, microbes, etc.

But this struggle of man with other species for food (in ultimate analysis, for solar energy) has some unobtrusive aspects as well. And, curiously, it is one of these aspects that has some far-reaching consequences in addition to supplying a most instructive refutation of the common belief that every technological innovation constitutes a move in the right direction as concerns the economy of resources. The case pertains to the economy of modern agricultural techniques ....

Justus von Liebig observed that "civilization is the economy of power" [32, p. 304]. At the present hour, the economy of power in all its aspects calls for a turning point. Instead of continuing to be opportunistic in the highest degree and concentrating our research toward finding more economically efficient ways of tapping mineral energies -- all in finite supply and all heavy pollutants -- we should direct all our efforts toward improving the direct uses of solar energy -- the only clean and essentially unlimited source. Already-known techniques should without delay be diffused among all people so that we all may learn from practice and develop the corresponding trade.

An economy based primarily on the flow of solar energy will also do away, though not completely, with the monopoly of the present over future generations, for even such an economy will still need to tap the terrestrial dowry, especially for materials. Technological innovations will certainly have a role in this direction. But it is high time for us to stop emphasizing exclusively -- as all platforms have apparently done so far -- the increase of supply. Demand can also play a role, an even greater and more efficient one in the ultimate analysis.

It would be foolish to propose a complete renunciation of the industrial comfort of the exosomatic evolution. Mankind will not return to the cave or, rather, to the tree. But there are a few points that may be included in a minimal bioeconomic program.

First, the production of all instruments of war, not only of war itself, should be prohibited completely. It is utterly absurd (and also hypocritical) to continue growing tobacco if, avowedly, no one intends to smoke. The nations which are so developed as to be the main producers of armaments should be able to reach a consensus over this prohibition without any difficulty if, as they claim, they also possess the wisdom to lead mankind. Discontinuing the production of all instruments of war will not only do away at least with the mass killings by ingenious weapons but will also release some tremendous productive forces for international aid without lowering the standard of living in the corresponding countries.

Second, through the use of these productive forces as well as by additional well-planned and sincerely intended measures, the underdeveloped nations must be aided to arrive as quickly as possible at a good (not luxurious) life. Both ends of the spectrum must effectively participate in the efforts required by this transformation and accept the necessity of a radical change in their polarized outlooks on life. *27*

Third, mankind should gradually lower its population to a level that could be adequately fed only by organic agriculture. *28* Naturally, the nations now experiencing a very high demographic growth will have to strive hard for the most rapid possible results in that direction.

Fourth, until either the direct use of solar energy becomes a general convenience or controlled fusion is achieved, all waste of energy -- by overheating, overcooling, overspeeding, overlighting, etc. -- should be carefully avoided, and if necessary, strictly regulated.

Fifth, we must cure ourselves of the morbid craving for extravagant gadgetry, splendidly illustrated by such a contradictory item as the golf cart, and for such mammoth splendors as two-garage cars. Once we do so, manufacturers will have to stop manufacturing such "commodities."

Sixth, we must also get rid of fashion, of "that disease of the human mind," as Abbot Fernando Galliani characterized it in his celebrated Della moneta (1750). It is indeed a disease of the mind to throw away a coat or a piece of furniture while it can still perform its specific service. To get a "new" car every year and to refashion the house every other is a bioeconomic crime. Other writers have already proposed that goods be manufactured in such a way as to be more durable [e.g., 43, p. 146]. But it is even more important that consumers should reeducate themselves to despise fashion. Manufacturers will then have to focus on durability.

Seventh, and closely related to the preceding point, is the necessity that durable goods be made still more durable by being designed so as to be repairable. (To put it in a plastic analogy, in many cases nowadays, we have to throw away a pair of shoes merely because one lace has broken.)

Eighth, in a compelling harmony with all the above thoughts we should cure ourselves of what I have been calling "the circumdrome of the shaving machine," which is to shave oneself faster so as to have more time to work on a machine that shaves faster so as to have more time to work on a machine that shaves still faster, and so on ad infinitum. This change will call for a great deal of recanting on the part of all those professions which have lured man into this empty infinite regress. We must come to realize that an important prerequisite for a good life is a substantial amount of leisure spent in an intelligent manner.

Considered on paper, in the abstract, the foregoing recommendations would on the whole seem reasonable to anyone willing to examine the logic on which they rest. But one thought has persisted in my mind ever since I became interested in the entropic nature of the economic process. Will mankind listen to any program that implies a constriction of its addiction to exosomatic comfort? Perhaps the destiny of man is to have a short but fiery, exciting, and extravagant life rather than a long, uneventful, and vegetative existence. Let other species -- the amoebas, for example -- which have no spiritual ambitions inherit an earth still bathed in plenty of sunshine.

Notes

1. A specific suggestion implying entropy bootlegging is Harry Johnson's: it envisages the possibility of reconstituting the stores of coal and oil "with enough ingenuity" [49, p. 8]. And if he means with enough energy as well, why should one wish to lose a great part of that energy through the transformation?

2. How incredibly resilient is the myth of energy breeding is evidenced by the very recent statement of Roger Revelle [70, p. 169] that "farming can be thought of as a kind of breeder reactor in which much more energy is produced than consumed." Ignorance of the main laws governing energy is widespread indeed.

3. Marxist economists also are part of this chorus. A Romanian review of [32], for example, objected that we have barely scratched the surface of the earth.

4. To recall the famous old French quatrain: "Seigneur de La Palice / fell in the battle for Pavia. / A quarter of an hour before his death / he was still alive." (My translation.) See Grand Dictionnaire Universel du XIX~ Siecle, vol. 10, p. 179.

5. Even some natural scientists, e.g., [1], have taken this position. Curiously, the historical fact that some civilizations were unable "to think up something" is brushed aside with the remark that they were "relatively isolated" [13, p. 6]. But is not mankind, too, a community completely isolated from any external cultural diffusion and one, also, which is unable to migrate?

6. Similar arguments can be found in [4, pp. 338f; 59, p. 102; 74, p. 45]. Interestingly, Kaysen [51, p. 661] and Solow [74, p. 43], while recognizing the finitude of mankind's entropic dowry, pooh-pooh the fact because it does not "lead to any very interesting conclusions." Economists, of all students, should know that the finite, not the infinite, poses extremely interesting questions. The present paper hopes to offer proof of this.

7. Even in this most cited case, substitution has not been as successful in every direction as we have generally believed. Recently, it has been discovered that aluminum electrical cables constitute fire hazards.

8. The pearl on this issue, however, is supplied by Maddox [59, p. 104]: "Just as prosperity in countries now advanced has been accompanied by an actual decrease in the consumption of bread, so it is to be expected that affluence will make societies less dependent on metals such as steel."

9. The point refers to the addition of capital (measured in money terms) and labor (measured in workers employed) as well as the computation of net output (by subtraction) from physical gross output [3, pp. 167f].

10. For these distinctions, see [27, pp. 512-519; 30, p. 4; 32, pp. 223-225].

11. See the dialogue between Preston Cloud and Roger Revelle quoted in [66, p. 416]. The same refrain runs through Maddox's complaint against those who point out mankind's limitations [59, pp. vi, 138, 280]. In relation to Maddox's chapter, "Manmade Men," see [32, pp. 348-359].

12. Joseph J. Spengler, a recognized authority in this broad domain, tells me that indeed he knows of no one who may have made the observation. For some very penetrating discussions of Malthus and of the present population pressure, see [76; 77]

13. The substance of the argument of The Limits beyond that of Mill's is borrowed from Boulding and Daly [8; 9; 20; 21].

14. In International Encyclopedia of the Social Sciences, for example, the point is mentioned only in passing.

15. Obviously, any increase in si will generally result in a decrease of L and of n. Also, the carrying capacity in any year may be increased by a greater use of terrestrial resources. These elementary points should be retained for further use ....

16. The point recalls Boulding's idea that the inflow from nature into the economic process, which he calls "throughput," is "something to be minimized rather than maximized" and that we should pass from an economy of flow to one of stock [8, pp. 9f; 9, pp. 359f]. The idea is more striking than enlightening. True, economists suffer from a flow complex [29; 55; 88]; also, they have little realized that the proper analytical description of a process must include both flows and funds [30; 32, pp. 219f, 228-234]. Entrepreneurs, as far as Boulding's idea is concerned, have at all times aimed at minimizing the flow necessary to maintain their capital funds. If the present inflow from nature is incommensurate with the safety of our species, it is only because the population is too large and part of it enjoys excessive comfort. Economic decisions will always forcibly involve both flows and stocks. Is it not true that mankind's problem is to economize S (a stock) for as large an amount of life as possible, which implies to minimize sj (a flow) for some "good life"?

17. I saw this term used for the first time in a letter from Jiri Zeman.

18. The practice of slavery, in the past, and the possible procurement, in the future, of organs for transplant are phenomena akin to the exosomatic evolution.

19. A fact greatly misunderstood: Ricardian land has economic value for the same reason as a fisherman's net. Ricardian land catches the most valuable energy, roughly in proportion to its total size [27, p. 508; 32, p. 232].

20. The figures used in this section have been calculated from the data of Daniels [22] and Hubbert [46]. Such data, especially those about reserves, vary from author to author but not to the extent that really matters. However, the assertion that "the vast oil shales which are to be found all over the world [would last] for no less than 40,000 years" [59, p. 99] is sheer fantasy.

21. In an answer to critics (American Scientist 58, no. 6, p. 610), the same authors prove, again linearly, that the agro-industrial complexes of the grand plan could easily feed such a population.

22. For a recent discussion of the social impact of industrial growth, in general, and of the social problems growing out of a large-scale use of nuclear energy, in particular, see [78], a monograph by Harold and Margaret Sprout, pioneers in this field.

23. One percent only of the deuterium in the oceans would provide 108 Q through that reaction, an amount amply sufficient for some hundred millions of years of very high industrial comfort. The reaction deuterium-tritium stands a better chance of success because it requires a lower temperature. But since it involves lithium 6, which exists in small supply, it would yield only about 200 Q in all.

24. It should be of interest to know that during World War II in Sweden, for one, automobiles were driven with the poor gas obtained by heating charcoal with kindlings in a container serving as a tank!

25. [Editors' note: Georgescu-Roegen's more recent writings are less sanguine about the prospects for direct use of solar energy. See his "Energy Analysis and Economic Valuation," Southern Economic Journal, April 1979.]

26. One necessary qualification: even the use of solar energy may disturb the climate ff the energy is released in another place than where collected. The same is true for a difference in time, but this case is unlikely to have any practical importance.

27. At the Dai Dong Conference (Stockholm, 1972), I suggested the adoption of a measure which seems to me to be applicable with much less difficulty than dealing with installations of all sorts. My suggestion, instead, was to allow people to move freely from any country to any other country whatsover. Its reception was less than lukewarm. See [2, p. 72].

28. To avoid any misinterpretation, I should add that the present fad for organic foods has nothing to do with this proposal ....

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