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October 21st, 2013

Economics is contradictory and will never be able to properly consider the environment

11 comments | 1 shares

Estimated reading time: 5 minutes

Blog Admin

October 21st, 2013

Economics is contradictory and will never be able to properly consider the environment

11 comments | 1 shares

Estimated reading time: 5 minutes

Jon MulbergJon Mulberg argues that there is a lack of reflection on and within economics. Such an examination would reveal the political status of economics, and it would lose the scientific justification for its policies. 

Orthodox economics is unable to properly take cognizance of the environment because it attempts to consider choices, whereas what is required is a system of allocation. Current economic policies — including environmental policies — are based around “The Market”, but there is no such thing as “The Market” or “The free market”. Markets are simply exchange mechanisms which are governed by laws and rules. The real question is what mechanisms are best for our purposes, and which roles would be best fitted to them. Markets are never “free”, they are artificial. Much environmental pollution, and much of the uncertainty surrounding employment, is a result of international trade. However, if “free” markets do not exist, free trade – the justification for much economic policy – does not exist either. The justification for much contemporary policy is therefore false.

Since markets are governed by laws, they are actually part of an expressly political process – a political economy. However the justification for economics is that it is scientific. Economists deny that economics is a political endeavour, and that it could be reorganised along different lines. They claim that economics is about “what is” rather than “what ought to be”. Jürgen Habermas referred to this as the “scientization of politics” — debates and decisions which should be in political forums are instead carried out by unaccountable policy “scientists”. However the notion of a scientific economics looks shaky at present. The current crisis was not predicted, and none of the usual strictures have held. Markets did not clear, but instead entire economies have gone bankrupt, and corporations are falling like dominos.

Nonetheless, no re-examination of economics is taking place, in spite of a thorough refutation of its major canons. The scientific status of economics remains unchallenged in policy circles. This is itself worthy of investigation. The philosopher Michel Foucault claimed that science – especially economic science – was always political, and part of a power structure. This is because power is obtained through ideas – he called this a “discourse”. The discourse determines which questions can be asked and what is allowed as evidence. If alternative questions even come to mind, or if the orthodox treatment of evidence is challenged, these are rejected as “unscientific”. Academic disciplines maintain discipline.

This explains the lack of reflection on and within economics. Such an examination would reveal the political status of economics, and it would lose the scientific justification for its policies. Foucault believed economics was a vital part of the political order, justifying power and inequality. To investigate power through ideas, he said we should focus on resistance to those ideas, and we should look at the periphery, not at the centre. So the ideas of the Occupy movement, or the Green movement, would show up the power of the current discourse.

We should also look to the past to understand the present. If we examine the history of economics, we find hidden ruptures. These show up contradictions within the discipline.

Mulberg tbl 1

In my previous book I suggested the history of economics was driven by a political conundrum. If economics is scientific, as it maintained, then the economy could be centrally planned – a sort of “market socialism”. Such models were debated in the 1920s and 1930s, and the logic is sound. The only way to defend both science and laissez-faire is to adopt weak and useless theories. Consequently many economists dropped the notion of being “scientific”, and proposed an expressly political economics. Most importantly this included the person who gave economics its current “choice” definition – Lionel Robbins. However his definition explicitly contradicts that of the person who gave economics most of the theory used today – Alfred Marshall. The differences are summarised in Table 1.

Lionel Robbins
Lionel Robbins

Modern economics is therefore contradictory. It tries to use an objective scientific method with a subjective, political definition of the discipline, which is nonsensical. The whole point of the Robbins definition is that economic values and costs are not observable or measurable. Choices and options are known only to the chooser. They cannot be measured or predicted.

Robbins is also clear that his economics is inapplicable if no alternatives are available. Economics is about choice, not scarcity. But scarcity is in fact what we are faced with now. We have the problems of “peak oil” – oil supplies running out – as are minerals, clean air, clean water and food, as well as the limits of waste carbon being reached. This means that both the main environmental policy procedures, which are anyway contradictory and inadequate, are inoperative.

Nearly all environmental policy has been based around taxation or “cap – and – trade” schemes. But environment is never really taken seriously. The policy frameworks and issues with them are summarised in Table 2. Cap – and – trade schemes (such as carbon trading) assume that there is still a surplus to trade, which there would not be if the real environmental shortages were acknowledged. Similarly if green taxation were serious, the levels would be so massive as to make the economy ungovernable.

Mulberg tbl 2

Economics assumes everything has a substitute. In reality, greater and greater risks are being taken to ensure markets remain viable, risks which have long outstripped institutional control.

Resources that cannot be substituted, and which have a physical scarcity, also have a social scarcity, and cannot be supplied to everyone. This means both environmental resources and the economic “goods” made with them require a system of allocation, of which markets would only form one component. The focus of a green political economics would therefore be on economic security rather than a higher GNP.

Ironically, one of the consequences of Robbins definition is precisely that it precludes any idea of efficiency. GNP does not measure wealth. We constantly hear calls for “growth”, but it is never clear what exactly it is that is supposed to be growing. It is like confusing a compass and a speedometer.

Since markets are artificial, progressives need not be afraid of employing them in the allocative mix. The issue to consider is which laws will be effective in setting up and regulating markets. However, this clearly implies markets (including financial markets) being smaller than the government. Furthermore, a constant refrain within the Green movement is to “think globally and act locally” – governance would be both up (more international) and down (more local).

Note:  This article gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting. 

About the Author

Jon Mulberg is an Associate Lecturer at the Open University in the East of England. This blog is drawn from his paper ‘The Poverty of Environmental Economics’

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