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The orthodoxy of economic research and the need for an alternative by David Mahon

Economic orthodoxy restricts the potential for economic growth
that does not harm the environment, and heterodoxy is the 
only solution for our economic system.

Ecological economics is a potential alternative, it offers a way of simultaneously maintaining economic well being and environmental integrity.

The Problem:

The unhealthy dominance of Orthodox Economics

Why is economics so resistant to change?

Of all the social sciences, it is economics that has proven most resistant to change. It remains dominated by the thinking and rational of, among others, Smith, Ricardo, Marshall and Keynes. This is in spite of strong demand for increased plurality from a growing number of researchers, why then does this neoclassical hegemony persist? The answer can possibly be found in it’s use of mathematics. For many economists the addition of mathematics to economics transformed the discipline from one based entirely on broad understandings of human behaviour, to one also grounded in cold hard data.

This addition had the added effect of making economics impenetrable to emerging social concerns. As it was simply measuring economic activity, as well as occasionally prescribing economic remedies, social movements such as feminism or environmentalism have had limited place within its Framework. Another reason why it has resisted change is that neoclassical thought has been able to expand its approach into new areas, including the environment. This was achieved without having to alter its methodological approach, leading mainstream theorists to view their approach as all encompassing and above the reproach of those outside their discipline. The belief that every aspect of the world can be reduced to an economic variable, and be incorporated into the neoclassical framework is greatest reason why heterodox economics has struggled to gain recognition. In the eyes of economists there seems to be little reason for it to exist

Do we need to move away from neoclassical thought?

It is interesting to note that much of the frustration with economic orthodoxy comes from conventional economic theorists who recognise the restrictive nature of their discipline, and of the need for an approach which encompasses not only economic theory but also the findings of other disciplines. These concerns come largely as a result of the findings by the Intergovernmental Panel on Climate Change (IPCC), which found that average temperatures are likely to rise considerably in this century. The results of this will likely be rising sea levels, increases in disease, and biodiversity loss. The report predicts that even if greenhouse levels are stabilised and maintained at current levels, temperatures will continue increase and sea levels will continue to rise, presenting the need for an immediate perspective change.

 

Despite all of this, conventional economic thought still prescribes policy recommendations based on archaic assumptions of human behaviour and commodity production. These policies have proven largely ineffective in dealing with environmental concerns, and with mainstream economics unwilling to alter its approach, the situation is unlikely to improve. Rather than viewing the natural world and the economy as intertwined, mainstream economics has tended to consider the environment as just another variable in economic analysis. Subscribing to this approach has meant that economists have been able to include the natural world into their considerations of the economy without having to alter their methods.

As Carpintero remarks, “Thus nature and ecosystems are seen as subsystems of the economy, rather than seeing the economy as embedded within the larger systems of society and the biosphere” (Carpintero 2013). This determination to view environmental issues through the lens of neoclassical thought has diminished the importance of such concerns and limited the potential for finding solutions. Compounding this is the work of William Nordhaus, whose climate change model (1992, 2001) is the most widely used as evidence against immediate action on climate change. It uses neoclassical assumptions to argue that the benefits of continued economic growth now, outweigh the the future environmental consequences.

All environmental concerns and uncertainty over the planets impending resource depletion are assuaged by the promise of new forms technological development. It is assumed that these technologies will be capable of solving environmental and resource problems for us, and places the responsibility for sustainability onto future generations. This line of thought is heavily opposed by ecologists and other life scientists who study natural systems and see that in nature, resource constraints are not generally overcome. For these scientists, and for a growing number of economists, unlimited growth is no longer seen as a boon, but as a cancer on the world.

The solution: Heterodoxy and ecological economics.

Heterodoxy as a school of thought.

Heterodoxy in economics is a term that refers to a diverse group of economic schools of thought, including: Marxist-radical, institutional-evolutionary, post Keynesian-Sraffian, feminist and ecological. The purpose of these schools is to offer an alternative to neoclassical economics and to keep a pluralist and open minded approach to economic analysis in order to gain a fuller vision of the economy and society. Frederic Lee describes these schools as:

“a community of heterodox economists who engage with and are associated with one or more of the heterodox approaches and embrace a pluralistic attitude towards them without rejecting contestability and incommensurability among theories; and finally to the development of a coherent heterodox economic theory” (Lee 2009).

 

Ecological economics is the result of a multidisciplinary demand, that environmental policy formation include a combined analysis from both the natural and social sciences. Preparing an environmental policy without considering economics is ill advised, as too is preparing economic policy without considering the natural science perspective. Ecological economics emerged as a result of the failures of Environmental economics, which sought to assess the environment from a neoclassical economic perspective. The failure of environmental economics was its insistence upon using neoclassical analysis on environmental constraints, forcing the environment into the neoclassical framework, rather than finding a new manner in which to examine both.

However the work of Environmental economists has proven quite useful as it has highlighted the markets failure to sustainably allocate natural resources and the error of studying the economy independent of the environment. It’s main objective is to identify a new manner of examining the connections between ecological and the economic systems. Economics and ecology are subsystems embedded in a larger system, it is the role of ecological economics to examine their interactions and to propose policy recommendations that are of benefit to both subsystems and therefore the system as a whole .

In what way can ecological economics change the way we look at the economy and the environment?

There are numerous ways in which a shift in economic thought can benefit society, however in the interest of brevity this paper will only be examining three of them.

These are: rethinking value monism, dispelling the notion of the rational actor, and questioning the reason for consumption.
Value monism implies that all objects of utility have some common characteristics that allows them to be compared. Since the second half of the last century, value has been derived through market exchange. Ecological economists seek to alter the way we value goods and move away from the neoclassical assumption that preferences for things such as biological diversity can be determined and made compatible with those for market goods.

In practical terms ecological economists seek to change how we value the world around us, most importantly it can move us away from putting monetary value on our environment. We can begin to look at the concept that some things are beyond value. While environmental economics seeks to put a value on the environment, ecological economics can help us to demonstrate that it is above this.

Neoclassical economics is built around the idea of a rational actor who makes decisions without concern for society or the environment. This view of humanity is as outdated as homoeconomicus and is a symptom of neoclassical economics greatest flaw; its determination to simplify complex behaviours or concepts in order to avoid altering it’s methodological framework. Ecological economics seeks to change this by viewing individuals as citizens rather than consumers. Human beings do not make decisions independent of influence and have been proven to care about society, the environment and future generations. In terms of policy, if people are willing to suffer through an austerity induced consumption decline(as they have in the great recession), evidence suggests they will be willing to accept consumption cuts for a greater cause.

Neoclassical economics tends to view increased consumption as an important indicator of economic growth. In fact increasing consumer spending was a major part of John Maynard Keynes’s economic plans, viewing consumption as anything other than an economic positive would be highly unusual in economics. However Kenneth Boulding (2012) suggests an alternative: Is economic welfare a measure of the nice things we have or of the depreciation of what we have? This is a stock and flows concept, we consume food because we need it to become well fed, if we didn’t need food in his belief is we wouldn’t eat. In this view there is nothing desirable about consumption, the less consumption we can maintain in a given state the better off we are. If we had clothes that never wore out, houses that didn’t depreciate, or if we could remain healthy without eating we would be better off. He believes we need a perception shift, it may be possible to reduce our consumption if we can view it as a means to an end

Critical analysis

While many economists, life scientists and researchers from many other disciplines are seeking a more heterodox economics; this approach is not without its critics. The most common criticism heterodoxy and by extension ecological economics faces is its lack of a coherent structure.

Many economists acknowledge that neoclassical economics is heavily flawed, from the fact that it only views the world through simplified models, or that it reduces the world around us into a variable (rather than viewing the economy as a variable within the biosphere). Despite this, economists still argue that the fact that it utilises a consistent methodological framework means neoclassical economics is still a far superior measure of the world around us.

They believe that while it may not always be able to accurately gauge the future of the economy, it will be able a lot of the time, and that the presence of coherent methodology offers stability within the discipline. Without increased heterodox research this argument will always have merit. However it is fallacious to not try to develop a heterodox framework simply because one hasn’t been developed yet. With a greater emphasis on heterodox economics within research institutions, a coherent methodology can be developed.

A second criticism of a greater emphasis on heterodoxy is that it will take more than a change in economic thought to induce corporations to change their behaviour. Many of the greatest challenges facing the planet are caused by multinational corporations, from over polluting, to worker exploitation, or even deforestation. While a change in the research focus of academics and research institutions wont necessarily alter corporate behaviour in an obvious immediate way, it will change the advice being given to policy makers. If all economic advice being given to governments was ecological in nature then corporate behaviour could more easily be altered.

Concluding remarks

 The purpose of this article has been to demonstrate the ways in which economic orthodoxy restricts the potential for a form of growth that doesn’t damage the environment and to argue for greater research in heterodox economic schools. Ecological economics was presented as a possible alternative, as it offers a way of simultaneously maintaining economic well being and environmental integrity. However it is worth noting that it is not the view of this paper that ecological economics is a readymade alternative to neoclassical economics or even perhaps that it some day will be. This papers view is that the current course of economic thought is unsustainable, and that new ways of thinking about the world and the economy need to be explored.

 

Bibliography

  1. Loudres Beneria. ‘On why economics is so resistant to change’ in Adbusters. 2012. Meme Wars: The creative Destruction of Neoclassical Economics.
  2. Boulding, Kenneth E. “The Economics of the Coming Spaceship Earth.” In Environmental Quality in a growing economy, edited by Professor Henry Ed Jarrett, First Edition. Baltimore: RFF Press, 1966.
  3. Carpintero, O. (2013) “When Heterodoxy Becomes Orthodoxy: Ecological Economics in The New Palgrave Dictionary of Economics”American Journal of Economics and Sociology, Vol.72(5), pp.1287-1314
  4. Costanza, Robert. (2010). ‘What Is Ecological Economics?’. Yale insights. N.p., 2010. Web.26 Aug. 2015.
  5. Goodwin, M. (2012). “Economix: how the economy works (and doesn’t work)”
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  8. IPCC 2001A. Climate Change 2001: The Scientific Basis – Summary for policy makers, Cambridge, Cambridge University Press.
  9. IPCC 2001B. Climate Change 2001: Impacts Adaptation and Vulnerability – Summary for policy makers, Cambridge, Cambridge University Press.

David Mahon

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