The answer is, conventional economic theory and practice are only about this economy, not economics in general … and this economy is a bad economy.
Economics is to do with what happens when humans produce, distribute, exchange, consume and develop things. There are many ways these activities can be carried out and thus many wildly different economic systems. In some nothing is ever sold. In some the primary purpose of producing food is not to eat it but to give it to one’s in-laws to satisfy tribal obligations. In others readily available food is not processed even if people are starving, because that’s taboo. In the economy of Bhutan the supreme goal of the economy is not to maximize the GDP, it is to maximize national happiness.
The trouble is that conventional economists carry on as if they are telling us how economics works when they are only telling us how this grotesquesly unjust, fatally flawed, self-destructing and un-reformable economy works. Exaggeration? Let’s see.
There is no aspect of this economy more centrally important than its commitment to growth. Nothing matters more than constantly increasing the GDP, without any limit in sight. But what conventional economists flatly refuse to recognize, or to even think about, is that this economy has gone through the limits to growth and is therefore accelerating the planet towards its imminent self-destruction. The amount of producing and consuming going on is now far beyond levels that can be sustained or spread to all people.
If any economist is ever confronted with this we get the tech-fix “decoupling” claim; better technology and recycling etc., will enable growth to continue while the resource and ecological impacts are brought down to sustainable levels. The trouble with this claim is that a mountain of literature accumulated over decades shows it to be wrong. If you doubt this have a look at the Parrique et al., (2019) review, referencing over 300 papers and 3000 authors.
You are not going to defuse any of the range of alarming global problems now tightening the noose unless you get rid of the growth economy. It is fuelling resource depletion, environmental destruction, the deprivation of four billion people, resource wars, and the decay of social cohesion in the richest countries. There is now a Degrowth movement trying to get this understood. The task is to work out how to cut rich world per capita resource consumption rates to around 10% of their present levels. Another exaggeration? Then take a look at the arithmetic at TSW: The Limits to Growth.
The second major conviction built into the foundations of conventional economic theory and practice is that the market is sacred. What is produced, who gets it and what is developed must be determined as much as possible by market forces. People must be free to buy, sell and invest in whatever will maximize their monetary advantage.
What is glaringly obvious but never acknowledged is that the market never makes the right decisions. It always allocates scarce goods to richer people rather than poorer people, simply because they can pay more. Those who cannot bid as much go without, regardless of need. Thus several hundred million tonnes of grain are fed to animas in rich countries every year while around eight hundred million people are chronically hungry.
Similarly this sacred principle determines that Third World “development” results in vast amounts of the wealth of poor countries constantly flowing out to benefit consumers and corporations in rich countries. “Development” is primarily development of what people with capital choose to invest in. The market principle determines that foreign investment never flows into the production of the things that are most needed in poor countries. It flows into those ventures most likely to make greater profits than it would if invested in anything else anywhere else in the world.
Thus we come to another major and morally disgusting principle embedded in this economic system; the trickle down con. Those four billion poor are told that it is good that the system delivers great wealth to the wealthy because in the process wealth trickles down to them. Attention is not drawn to the fact that very very little ever does, after seventy years of this approach to development those four billion have to live on under $7.50 a day, at current rates it would take a hundred years or more for them to get to present rich world levels, in general as Hickle points out (16th Oct. blog) the mechanism is mostly lifting people out of poverty only in China (which has taken the export capacity many other countries had, increasing poverty in them), there are nothing like enough resources for all to rise to rich world “living standards”, and in any case the “…be satisfied with crumbs from the rich man’s table” doctrine is morally outrageous.
In some economies you can’t get an income, let alone get very rich, without working. This isn’t one of them. Huge incomes go to people with money invested, who never have to do any work at all, while they eat food produced by people who do have to work, often in rotten jobs, while large numbers of people cannot get any work.
Thus this is also one of those unacceptable economies in which unemployment occurs. You only find that in morally primitive and callous societies. It is easily totally eliminated, just by making sure all have a share of the work that needs doing. In this economy labour is treated as if it is a commodity, something like a stack of timber you can leave to rot if no one with capital can use it to make money. Great costs result, especially psychological costs, but our economic theory enables them to be ignored; it only counts monetary costs and benefits. This is delightful if you are a factory owner because you don’t have to worry about any of the non-monetary costs of what you do. Anyway economic theory defines these as “externalities” so they are not really part of the economy.
We are seeing dramatic acceleration in one of the most significant aspects of this economic system, its inevitable creation of inequality. Twenty people or less now own half the world’s wealth, while the real take-home income of the average worker in the word’s richest nation has hardly changed in forty years. And the robots are coming. In my opinion Marx got several things wrong, but one he got right was that capitalism will in time generate increasing “immiseration”. People all around the world are now increasingly discontented with how the system is failing to provide for them.
Another thing which in my opinion he got right was that capitalism has contradictions built into its foundations, and these will eventually cause its self-destruction. Consider the contradictions between growth and environment, the interests of capital owners and those of the rest, and above all between profit and need. We allow what is produced and who gets it and what is developed to be determined not by what we need but by what will maximize the wealth of the few who own capital.
More serious than the material effects of the market is the damage to the social bond. Polanyi stressed “the great transition” from a society in which commerce was a minor element within society regulated by strict moral codes, for example ruling out interest payments and taking advantage of another’s misfortune. We now have “a marketing society” in which the primary concern is the self-interested quest to maximize wealth, and it’s OK to make a killing at a fire sale. That motivation increasingly drives out social/collective values.
Conventional economic theory is a key component of capitalist ideology; it gets us to think as the capitalist class wants us to, to accept a system which delivers most wealth to a few and dumps millions into unemployment, to think there must be minimal interference with the free market, to accept that “development” is best determined by what corporations want to invest in.
These many serious faults show that such a system cannot be reformed. Its fundamental principles are causing the problems now likely to terminate us. Some of us have no doubt there is a far better way and we could easily get to it …if enough of us wanted to. The dominance of conventional economics makes that very unlikely.
Ted Trainer is a retired lecturer from the School of Social Work, UNSW. He has written many books on sustainability.