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Authors: Richard Heinberg
Tags: BUS072000
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credible voice in economics. Its virtual disappearance from the discussion created space for the rapid rise of the neoliberals, who for some time had been drawing energy from widespread reactions against the repression and inefficiencies of state-run economies. Margaret Thatcher and Ronald Reagan both relied heavily on advice from neoliberal thinkers like monetarist Milton Friedman (1912–2006) and followers of the Austrian School economist Friedrich von Hayek (1899–1992).
There is a saying now in Russia: Marx was wrong in everything he said about communism, but he was right in everything he wrote about capitalism. Since the 1980s, the nearly worldwide re-embrace of classical economic philosophy has predictably led to increasing inequalities of wealth within the US and other nations, and to more frequent and severe economic bubbles and crashes.
Which brings us to the global crisis that began in 2007–2008. By this time the two remaining mainstream economics camps — the Keynesians and the neoliberals — had come to assume that perpetual growth is the rational and achievable goal of national economies. The discussion was only about how to maintain it: through government intervention or a laissez-faire approach that assumes the Market always knows best.
But in 2008 economic growth ceased in many nations, and there has as yet been limited success in restarting it. Indeed, by some measures the US economy is slipping further behind, or at best treading water. This dire reality constitutes a conundrum for both economic camps. It is clearly a challenge to the neoliberals, whose deregulatory policies were largely responsible for creating the shadow banking system, the implosion of which is generally credited with stoking the current economic crisis. But it is a problem also for the Keynesians, whose stimulus packages have failed in their aim of increasing employment and general economic activity. What we have, then, is a crisis not just of the economy, but also of economic theory and philosophy.
The ideological clash between Keynesians and neoliberals (represented to a certain degree in the escalating all-out warfare between the US Democratic and Republican political parties) will no doubt continue and even intensify. But the ensuing heat of battle will yield little light if both philosophies conceal the same fundamental errors. One such error is the belief that economies can and should perpetually grow.
But that error rests on another that is deeper and subtler. The subsuming of land within the category of capital by nearly all post-classical economists had amounted to a declaration that Nature is merely a subset of the human economy — an endless pile of resources to be transformed into wealth. It also meant that natural resources could always be substituted with some other form of capital — money or technology. 11 The reality, of course, is that the human economy exists within and entirely depends upon Nature, and many natural resources have no realistic substitutes. This fundamental logical and philosophical mistake, embedded at the very core of modern mainstream economic philosophies, set society directly on a course toward the current era of climate change and resource depletion, and its persistence makes conventional economic theories — of both Keynesian and neoliberal varieties — utterly incapable of dealing with the economic and environmental survival threats to civilization in the 21st century.
For help we can look to the ecological and biophysical economists — whose ideas we will discuss in Chapter 6, and who have been thoroughly marginalized by the high priests and gatekeepers of mainstream economics — and, to a certain extent, to the likewise marginalized Austrian and Post-Keynesian schools, whose standard bearers have been particularly good at forecasting and diagnosing the purely financial aspects of the current global crisis. But that help will not come in the form that many would wish: as advice
There is a saying now in Russia: Marx was wrong in everything he said about communism, but he was right in everything he wrote about capitalism. Since the 1980s, the nearly worldwide re-embrace of classical economic philosophy has predictably led to increasing inequalities of wealth within the US and other nations, and to more frequent and severe economic bubbles and crashes.
Which brings us to the global crisis that began in 2007–2008. By this time the two remaining mainstream economics camps — the Keynesians and the neoliberals — had come to assume that perpetual growth is the rational and achievable goal of national economies. The discussion was only about how to maintain it: through government intervention or a laissez-faire approach that assumes the Market always knows best.
But in 2008 economic growth ceased in many nations, and there has as yet been limited success in restarting it. Indeed, by some measures the US economy is slipping further behind, or at best treading water. This dire reality constitutes a conundrum for both economic camps. It is clearly a challenge to the neoliberals, whose deregulatory policies were largely responsible for creating the shadow banking system, the implosion of which is generally credited with stoking the current economic crisis. But it is a problem also for the Keynesians, whose stimulus packages have failed in their aim of increasing employment and general economic activity. What we have, then, is a crisis not just of the economy, but also of economic theory and philosophy.
The ideological clash between Keynesians and neoliberals (represented to a certain degree in the escalating all-out warfare between the US Democratic and Republican political parties) will no doubt continue and even intensify. But the ensuing heat of battle will yield little light if both philosophies conceal the same fundamental errors. One such error is the belief that economies can and should perpetually grow.
But that error rests on another that is deeper and subtler. The subsuming of land within the category of capital by nearly all post-classical economists had amounted to a declaration that Nature is merely a subset of the human economy — an endless pile of resources to be transformed into wealth. It also meant that natural resources could always be substituted with some other form of capital — money or technology. 11 The reality, of course, is that the human economy exists within and entirely depends upon Nature, and many natural resources have no realistic substitutes. This fundamental logical and philosophical mistake, embedded at the very core of modern mainstream economic philosophies, set society directly on a course toward the current era of climate change and resource depletion, and its persistence makes conventional economic theories — of both Keynesian and neoliberal varieties — utterly incapable of dealing with the economic and environmental survival threats to civilization in the 21st century.
For help we can look to the ecological and biophysical economists — whose ideas we will discuss in Chapter 6, and who have been thoroughly marginalized by the high priests and gatekeepers of mainstream economics — and, to a certain extent, to the likewise marginalized Austrian and Post-Keynesian schools, whose standard bearers have been particularly good at forecasting and diagnosing the purely financial aspects of the current global crisis. But that help will not come in the form that many would wish: as advice
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