Speakers at a conference I attended last week at the Lisbon School of Economics and Management talked repeatedly about the need for new economic theories. Economics is the queen of the social sciences, they said proudly, but she is badly in need of a rethink. Inequalities are growing, poverty remains widespread and, according to distinguished Brazilian professor Joanilio Teixeira, environmental sustainability is simply a ‘blind spot’ in economic thinking.
Unfortunately, Professor Teixeira is wrong.
Environmental sustainability is not a blind spot. It is a gaping hole at the heart of economics. It is as if physicists ignored the fact that the earth goes round the sun. If sustainability is not at the centre of economic thinking, the subject is not fit for purpose.
For centuries, much of the world was dominated by religion. God and The Church had all the answers. Today, it is economists who tell us what it best and right. They tell us that science and research should provide a financial payback. They say that education should lead to a job. They are the ones who explain that the market should be lightly regulated, and that government influence should be minimised. It is the economists who have persuaded us that economic growth is something to worship.
For many decades before the European Enlightenment it had become clear that religion did not have all the answers. And it is the same with economics today. Rather than providing humanity with meaning, purpose and direction, our economic system is failing the majority, ravaging the planet and widening divisions. Just as before, the discipline’s high-priests are completely out of touch. Their world is dominated by obscure mathematical justifications for policies that have little relation to people or the planet. Environmental destruction is ignored. Scarce resources are endless. Nature is an externality.
The era of modern economics is thankfully waning and it is time for us all to look ahead, to discover something better.
Just as the end of the religious era led to a flowering of new ideas, so can the end of this one. In the last Enlightenment, biology, science, physics and many new forms of philosophy and art flourished, and so did humanity.
We need the same change today – so that intellectual democracy can once again bloom. We need a new way to run the world, one that includes not just the market and economic development, but elements of history, sociology, biology, the environment, human well-being, philosophy and a host of other subjects too.
The Club of Rome invites your input on how to achieve the transition, to help us discover a balanced system of human development.
Picture with thanks to Bea Serendipity
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If we continue to emit ever-greater quantities of CO2 and other greenhouse gases into the atmosphere, then average global temperatures will rise by 2°C over the next three decades compared to pre-industrial times. Most scientists agree that anything higher is dangerous, though many argue that even this is too much. As the battles to reach an agreement in Paris begin, and with so much at stake, it is perhaps curious that few people really understand what a 2°C rise in average temperatures will mean. When our climate changes so much from day to day, an increase of this seemingly small magnitude appears almost trivial. But it is not.
Rather than thinking about how much nicer it will be to have summers that are 2°C warmer, we should think about the planet more like we think about our bodies. Like the planet, our bodies are finely tuned biological mechanisms which need to maintain a careful temperature balance. Our body temperatures only vary from 37°C by around half a degree in an average day. One degree higher is classed as a fever. A couple of degrees puts us at risk.
The average temperature of the planet today is around 15°C, one degree more than it was in 1750. A further 1°C rise may not sound much but it actually takes us back 10 million years in global climactic history. A 3°C jump takes us back 40 million years, to a time when there was no ice on earth. Few of us will survive that sort of change.
Over the next three decades, if we do not stop polluting the atmosphere at an ever increasing rate, ecosystems will move 60 miles towards the poles, and a 100 yards up hillsides. As many large-scale, terrestrial and marine ecosystems will be unable to adapt, hundreds of species of mammals and birds will die. Due to the rise in CO2 absorption by the seas many shell-forming animals in the oceans will also disappear.
The hot spots, where rising temperatures will be most obvious, are Alaska, Canada, Siberia, the Arctic Ocean, and the Antarctic rim. Populated areas will feel the heat too though, notably the central United States, eastern Europe, northern Africa, central Asia, western Australia and the tropical forests around the Amazon river. As the rainforests dry out they will start to decay and this will release more CO2, accelerating the process.
In some places the rise in temperatures will be good news – crop yields will improve in high-latitude regions like Scandinavia, Siberia and Canada. In most areas though the changes will not be welcome. Many parts of the world will become too dry, dusty and hot to grow crops or to live. The availability and quality of water is likely to become a problem too, especially in developing countries.
Economically, the increasingly unpredictable weather will slowly reduce our rate of consumption, though this will only encourage conventional economists to demand more growth – and so make the problem worse. Consumption will slow because money will need to be found to build flood defences and protect people from droughts, fires and rising sea levels. These costs will not be met by the private sector, so governments will be forced to raise taxes and so reduce consumer spending. This fading economic performance may not be obvious from national statistics however, because the investments needed to protect and repair the infrastructure will be included in national GDP statistics. In reality though the traditional economy we have today will progressively shrink as we substitute the purchase of cars and computers for concrete (the production of which will also increase the temperature).
The warming of the world may also change our values. It may make many people nervous and uncertain, less trustful of politicians and more fearful about the future. With rising food prices because of unpredictable harvests and higher taxes, it may make most people poorer.
It is in our nature perhaps to want short-term fixes to our problems and most people will find it hard to accept there are none. So there is a risk that people will get angry too. This will not help much, as even if we stopped pumping CO2 into the atmosphere tomorrow, the effect of what we have already emitted will last for years to come and the chain reaction we have started will continue. No matter what we now do, the climate experienced by our grandchildren will be like nothing we have experienced before.
The good news is that we can still avoid the worst, at least technically. We can shift to a non-carbon world and we can avoid the 2°C limit, though time is very short and the steps required are difficult to implement. This is because the solutions, though not very expensive in global GDP terms, require a huge changes in a short time and in several systems. For instance, we will need to free ourselves from fossil fuels, stop deforesting and bring about major reforms in our agricultural production.
So our future depends on our politicians making the right choices, to do something because it is necessary not because it is easy. And it is up to us to replace them if they fail.
So, it’s out. The 2016 World Happiness Report, commissioned by the UN. And what does it say? Well, much the same as last year. The happiest places in the world are Denmark, Switzerland, Iceland, Norway and Finland, with Canada not far behind.
Why are these places so happy? That’s not too hard to answer. They are all economically advanced.
So, we can conclude, economic development leads to greater happiness, no?
Well, not entirely.
We can certainly say that economic development leads to greater happiness, but only up to a point, because there are countries that are much richer than those in the top 10, and less happy.
Denmark, the happiest country of all, is far from the richest. It ranks 21st in terms of GDP per head (in PPP terms). While Norway and Switzerland are very rich (6th and 8th), Iceland is only 22nd richest, Canada is 20th and Finland 25th.
So it is important for a country to be rich if it wants to be happy, but it is not necessary to be the richest. Being in the top 15% of rich countries in the world is enough.
And happiness certainly seems to have nothing to do with the pace of economic growth. Most of the happiest countries in the world are miserable laggards when it comes to their rates of economic progress. Denmark ranks 158th in the world and Switzerland is even worse, at 174th.
So the rate of economic growth is not important to happiness.
Well, there is the gap between rich and poor. Almost all the countries in the top 10 have very low levels of inequality by world standards. They almost all have strong welfare systems and good healthcare. They have low levels of unemployment and high education levels. And they tend to have higher taxes.
Critically, they almost all have very short working hours. There is a very close correlation between the number of hours people work each year and the level of happiness. Happy people work less – and tend to live longer.
Which all adds up to something quite interesting.
In a world where so many rich countries are pursuing economic policies that are focussed on austerity, or reducing the size of government, or lowering taxes and boosting economic growth, is there a need for change? For the last 30 years working hours have risen in many countries, education has become more expensive and healthcare harder to access. Is is time for some political leaders to pause a little for reflection?
The policies being pursued in many parts of the world, and notably large parts of the rich world, are the exact opposite of what is needed to make people happy.
Rather than pursuing growth, lowering taxes and shrinking government, politicians should reduce inequality, increase taxes and boost welfare.
That’s what makes people happy.
This is an extract. The full article is available as a PDF below
Economic insight and analysis in the English-speaking media is woeful
One of the unexpected benefits of the global financial crisis is that economics has become much more widely discussed. This is good—modern economic ideas lie behind many of our social and environmental challenges.
To be useful though, any public debate needs to be well-informed. People should understand what economics is for and what it can achieve. Unfortunately, much of the insight offered in the popular English-speaking media and specialist economic press is dreadful.
Readers are encouraged to think that economics is a well-grounded subject, governed by a set of simple, almost self-evident, rules. Growth is the goal. Costs should be minimised and returns maximised. The consumer is “king”. State intervention is bad. Competition is good. The “invisible hand” is in charge.
There is little debate about the role economics played in the financial crisis. If economic growth depends on ever-rising use of resources, it cannot continue indefinitely when these resources are scarce. Cost minimisation has allowed us to ignore the effects of environmental degradation and the fact that our grandchildren will pay more in real terms for raw materials than us. Free trade means that developing countries have been tricked into selling their raw materials on the cheap. The growth of the last 20 years has actually increased income inequality globally when modern-day economists had promised it would do the opposite.
The poor level of discussion about the sources of the west’s economic misery has helped politicians pretend that there is a quick fix to the problems, even five years into the crisis when there is little to suggest that their policies are achieving very much at all.
This means that the citizens of many countries in the western world are not just ill-informed. They are also badly ill-prepared for what is to come.