Wednesday, March 05, 2014

When You Run Out of Stuff

One of the most recurring themes on this blog over the past six years has been the prospect of running out of stuff.  As the first truly global civilization, mankind is running out of stuff.   Not everything, mind you.  We're running out of stuff that we need but we're building up dangerously big surpluses of stuff that we don't need, that could just kill us.

For example, around the world nations are running out of fresh water.  We have a huge and rapidly worsening fresh water crisis on our hands.  Maude Barlow gave an updated overview of the problem just last week.  With the exception of just a handful of countries, the world is running out of biomass, the renewable natural resources that not only underpin our economies but provide us with the clean, safe environment we need in order to live.  Anthropogenic global warming, man-made climate change is multiplying the magnitude of these crises and sapping our strength to implement solutions.

In many posts over the years it has been argued that we have to jettison our neo-classical growth-based economic model because it no longer works for us but rather works against us and traps us in a vicious circle of inequality and decline.  I know that Justin Trudeau and Tom Mulcair, like Stephen Harper, are constantly praising growth but they are  just blowing smoke up your ass.

Which brings us to Chris Hedges and Avner Offer, an economic historian and Chichele Professor Emeritus of Economic History.

Neoclassical economics, [Offer] says, is a “just-world theory,” one that posits that not only do good people get what they deserve but those who suffer deserve to suffer. He says this model is “a warrant for inflicting pain.” If we continue down a path of mounting scarcities, along with economic stagnation or decline, this neoclassical model is ominous. It could be used to justify repression in an effort to sustain a vision that does not correspond to the real world.

Offer, who has studied the rationing systems set up in countries that took part in World War I, suggests we examine how past societies coped successfully with scarcity. In an age of scarcity it would be imperative to set up new, more egalitarian models of distribution, he says. Clinging to the old neoclassical model could, he argues, erode and perhaps destroy social cohesion and require the state to engage in greater forms of coercion.

“The basic conventions of public discourse are those of the  Enlightenment, in which the use of reason [enabled] us to achieve human objectives,” Offer said as we sat amid piles of books in his cluttered office. “Reason should be tempered by reality, by the facts. So underlining this is a notion of science that confronts reality and is revised by reference to reality. This is the model for how we talk. It is the model for the things we assume. But the reality that has emerged around us has not come out of this process. So our basic conventions only serve to justify existing relationships, structures and hierarchies. Plausible arguments are made for principles that are incompatible with each other.”

The corruption of neo-classical economics.

Offer argued that “a silent revolution” took place in economics in the 1970s. “Economists,” he said of the 1970s, “discovered opportunism — a polite term for cheating. Before that, economics had been a just-world defense of the status quo. But when the status quo became the welfare state, suddenly economics became all about cheating. Game theory was about cheating. Public-choice theory was about cheating. Asymmetric information was about cheating. The invisible-hand doctrine tells us there is only one outcome, and that outcome is the best. But once you enter a world of cheating there is no longer one outcome. It is what economists call multiple equilibria, which means there is not a deterministic outcome. The outcome depends on how successful the cheating is. And one of the consequences of this is that economists are not in a strong position to tell society what to do.”

The problem, he said, is that the old norms of economics continue to inform our policy norms, as if the cheating norm had never been introduced.

 “Let’s take the doctrine of optimal taxation,” he said. “If you assume a world of perfect competition, where every person gets their marginal products, then you can deduce a tax distribution where high progressive taxation is inefficient. This doctrine has been one of the drivers to reduce progressive taxation. But looking at the historical record this has not been accompanied by any great surge in productivity; rather, it has produced a great surge in inequality. So once again, there is a gap between what the model tells us should happen and what actually happens. In this case the model works, but only in the model, only if all the assumptions are satisfied. Reality is more complicated.”

On the Need for Social Cohesion in a Post-Growth Society

Our current economic model, he said, will be of little use to us in an age of ecological deterioration and growing scarcities. Energy shortages, global warming, population increases and increasing scarcity of water and food create an urgent need for new models of distribution. Our two options, he said, will be “hanging together or falling apart.” Offer argues that we cannot be certain that growth will continue. If standards of living stagnate or decline, he said, we must consider other models for the economy. Given the wealth and resources of industrialized nations, he said, a drop in living standards to what they were one or two generations ago would still permit a good quality of life.

Offer has studied closely the economies of World War I. Amid this catastrophe, he notes, civilian economies adapted. He holds up these war economies, with their heavy rationing, as a possible model for collective action in a contracting economy.

“What you had was a very sudden transition to a serious scarcity economy that was underpinned by the necessity for sharing,” he said. “Ordinary people were required to sacrifice their lives. They needed some guarantee for those they left at home. These war economies were relatively egalitarian. These economics were based on the safety net principle. If continued growth in the medium run is not feasible, and that is a contingency we need to think about, then these rationing societies provide quite a successful model. On the Allied side, people did not starve, society held together.”

However, if we cling to our current economic model — which Offer labels “every man for himself” — then, he said, “it will require serious repression.”

There is not a free market solution to a peaceful decline,” he said.

The state of current political economy in the West is similar to the state of communism in the Soviet Union around 1970,” he went on. “It is studied widely in the university. Everyone knows the formula. Everyone mouths it in discourse. But no one believes it.” The gap between the model and reality is now vast. Those in power seek “to bring reality into alignment with the model, and that usually involves coercion.”

We have a choice.  Either we continue with our neoclassical economic model that now serves mainly to vest wealth and political power in increasingly fewer hands and consign our grandkids to a future of coercion and repression or we create a movement to lead our country out of this trap.  That can begin by using government to undo the creature of its own making - inequality - and making our government's priority the restoration of the most robust, broad-based middle class possible.  It is only through the rehabilitation and expansion of that now shrunken middle class that we can hope to achieve the degree of social cohesion and collective will to transition Canada to an economic model we need and future generations will need for the 21st century as we progress into a post-growth era.  We either control our fate or our fate will be decided by others for us.


Owen Gray said...

We have long ago been captured by an economic theory, Mound -- the theory that markets are perfect.

That idea is manifestly false. It's the equivalent of saying human beings are perfect.

We have been fools.

The Mound of Sound said...

True enough, Owen, but that doesn't discharge our responsibility to future generations to demand change and lobby for action. Yes there will be some dislocation in countries that move quickly but they stand to be the most secure and healthy in the not too distant future.