Economics: from abysmal to barely acceptable

This is a scientists attempt to understand economics and attempt to reconcile economics with the light of science.

Neo-classical Economics

Neo-classical economists are mostly concerned with allocation but also give some consideration to distribution. Now, if you are not an economist you are probably already asking, "What the f_ck?".

Rightly so. Most people understand allocation to mean the process of distributing something. Heck, distribution and allocation are synonyms. Trust economists to devise such devilish jargon. One would have to suspect that they are trying to bamboozle us.

Anyway, near as I can figure, the economists define things thus:

Immediately we get some insight into the economic mind. First, economists think that we are all unsatiable gluttons. (That's why economics is called "the dismal science". I'd say not even a science.)

Second, limited resources are NOT considered to be wealth --- otherwise allocation would become subsumed by distribution. Thus, an economist thinks that the oil under the ground, or gold in the dirt, only becomes wealth after it has been extracted. Actually economists don't use the word "extracted", they think that the oil/gold is "produced" by drilling/mining!

This might upset some scientists who thought that oil was "produced" by from nuclear fusion under gravitational compression which produced the sunlight that sustained small organisms that then went through a variety of geologically-related transformations and containment over periods of the order of hundreds of millions of years.

The ease with which economists presume to "produce" oil and gold gives us some insight as to why most of them think that resources can never become limiting. After all, Julian Simon proclaimed that "people are the ultimate resource". It seems that for the neo-classical economist, facts are not so important as the "right" ideology.

Accountants will likely also be confused because they think that allocation is a system of dividing expenses and incomes among the various branches, departments, etc., of a business. Thus, an accountant allocates income whilst an economist distributes income. Confused? You bet they are!

As I said, economists are mostly concerned about allocation. They have elaborate theories about how this might be done and mutter things like "the invisible hand of the free market" and "central planning". Depending upon their ideology, they might like one or the other --- in China, both.

They also have theories about distribution. Theories with names like "trickle down economics" and "welfare". Don't forget "sweatshop", the modern-day equivalent of the "poor house" and a slight advance from that old favourite, "slavery".

I don't see any profit in further considering economic theories about allocation and distribution.

Ecological Economics

It seems that ecological economics keeps those two old chestnuts, allocation and distribution.

Ecological economists recognize that an oil well does not produce oil, rather it extracts oil. Thus the ecological economists understand that there is a cost associated with depleting reserves of oil. Ecological economists also understand that the waste produced by an economy must also be considered as a cost.

Properly accounting for resource depletion and waste disposal remains a difficulty. One of the reasons for difficulty is the issue of "scale". Ecological economics defines scale as the material size of the economy relative to the size of the ecosystem within which the economy resides. Obviously, the scale of the economy depends upon the population and per capita dissipation of resources (gluttony).

Scale matters. Obviously, a small population might live well (moderate gluttony) without consuming resources and creating waste faster than it can be recycled by the Earths ecosystem. (Neglecting the unavoidable running down of the sun, which makes the notion of sustainability a relative term, for another couple of billion years, perhaps.) On the other hand, our present 7 billion planetary inhabitants (most of them poor) are depleting resources and choking the planet with waste.

Ecological economics makes a good start by not denying important matters like: scale, natural capital and ecosystem services.

Cobbling together a theoretical framework is proving difficult for the ecological economists (they are few in number and poorly supported relative to their neo-classical cousins). Nevertheless, there is much that they have been able to contribute. A striking deduction from ecological economics is the notion that once the economy has grown to a certain scale, further growth will become uneconomic. That is to say, further growth produces more illth (cost) than it does wealth (well being).

Thus, there is an optimal scale for the economy in order to maximize total well-being. There will surely be another optimal scale for the economy that maximizes typical well-being, and yet another that optimizes average (per capita) well-being. And human population will be different in order to achieve each of the optima. We don't know what these optimal population numbers are --- except that they are certainly much smaller than present-day numbers.

History

Winston Curchill once said: "History will be kind to me for I intend to write it." Unsurprisingly, historians do build their narrative around the achievments of "big men". Such things are worth knowing, but they are only a small part of the picture. Big men are overrated. Human animals are not so different from one to the other.

Historian Arnold Toynbee discerned that the rise and decline of a civilization was related to various human characteristics coming to the fore in the following succession:

  1. Marginal lands breed a spiritually hardened people
  2. A "creative minority" provides an example that is followed by the majority of people
  3. The "creative minority" changes to a repressive "dominant minority that alienates the majority of people
  4. The majority of people become a sullen "internal proletariat"
  5. A "leader with a sword" conquers new territory and builds a "bigger state"
  6. In time, that "bigger state" also decays
  7. A religion rises from the oppressed proletariate and persists long after the empire has fallen
It's not difficult to see how various civilizations (Greek, Roman, British) might be roughly described in these terms. And it is obvious how each stage of this sequence will have different economic characteristics. The problem with this model is that it really doesn't explain why different human characteristics come to the fore in this sequence.

Most people would want to keep their civilization at stage 2. But how could that be done? Why do things go sour, then violent, then despondent?

Ecology and Evolution

Our species has been around for roughly 100,000 years. Maybe more, maybe less. It's hard to say because our ancesters were so rare, little remains. Ice ages have dominated the last million years of hominid evolution. We evolved within the constraints of a hunter gatherer economy, our small population sparsely distributed from tundra to tropics.

Ecology is the economic engine of evolution. Evolution ensures fits a species to its ecology. We are evolved to enjoy a hunter gatherer economy. Bipedal locomotion of a gracile body made for very efficient movement over the great open spaces which kept our food and everything else that our uniquely ingenious species required. More interesting, for an intelligent animal, than padding to the refrigerator. Hunter gatherers were the original affluent society. Every hunter gatherer lived in the same niche. Concepts of property, rich and poor were without meaning. So was work. People hunted and gathered, it wasn't work, it was what they were evolved to do.

The hunter gatherer economy requires that human population be sufficiently low as to match what can be harvested from the territory over which our ancestors roamed. Human population was limited by what the rest of the ecosystem naturally produced. Or, perhaps, what the rest of the ecosystem naturally produced after some human manipulations, like: burning, distributing seeds, replanting portions of harvested tubers, etc.

We can only guess at all the ways in which human population was limited. Probably in as many ways as there were variations of the hunter gatherer lifestyle. Certainly, births have to be more widely spaced for a mobile family. Infanticide and other customs matched the number of children to what could be sustained by the satisfying hunter gatherer lifestyle. Thus human demand was moderated to match production of the ecosystem.

The cause of conflict and its relationship to well-being is worth reflecting upon. In some ecological circumstances, warfare can cause high mortality. Consider the Waorani who live in the Amazon Jungle. They live by a combination of hunting, gathering, and itinerate farming. These people have minimal personal property. There is an apparently happy delegation of labour between men and women. Indeed, they don't have a concept of "work". There is a high degree of equality between members within their community. On the other hand, in order to keep their territory they must fight other communities, so they are hostile towards outsiders. 70% of males were killed in spearing raids. Fittingly, the missionaries that made "first contact" were all killed.

In a cross-cultural study, Ember and Ember (2004) find that warfare is strongly predicted by an expectation of resource scarcity. This might be construed as being consistent with the in-group harmony and between-group hostility --- typified by the Waorani --- being fairly common during human evolution. Perhaps, but it is also consistent with humans being smart enough to extrapolate from present trends to the expectation of a future problem. Regardless of the mechanism that limits the human population of hunter gathers, we can be sure that it was put into effect before population became so large as to cause the misery to the group. And, because of equality and harmony within the group, life was congenial most of the time.

The retreat of the last ice age seems to have created conditions conducive to agriculture. Growing and nurturing of crops provided a reliable food source, perhaps due to the new climatic stability, perhaps due to fertile soil deposited by the retreated ice --- probably we don't know all the reasons why. The ecologist describes this economic transformation according to its flow of energy. By investing some energy into the growing of the crop and in the protection the crop from other animals, an abundant source of energy could be obtained without the need to roam over great distances.

The activity of farming is not conducive to human physiology and the limited variety of farmed foods is not conducive to human health. We are not evolved for the farming niche. Along with farming, we invented work. But humans are nothing if not adaptable and the expanded food supply had advantages. It enabled population to grow. Expanded population and the administration of land, labour and produce ment that not everyone lived in the same niche. With farming we had invented rich and poor (and slaves), those with power and those who must do as they are told. Powerful people profited by farming --- and from that time forward the agenda was set by those with power. Communities with the largest populations were better able to dominate their neighbours and take their resources. The shift from hunter gatherer to farmer was by default, not by choice.

We should not think that agriculture put an end to hunting. Rather, hunting became the preserve of the privileged. Better that the poor starve than they trespass upon the Kings reserve, Robin Hood excepted.

After farming, the next great step in human ecology came from learning how to utilize fossil fuels. The slave labour of humans and animals was made obsolete by steam engines and then the internal combustion engine. Petro-chemical fertilzers and pesticides turned farms into factories. Relieved from toil for subsistence, human invention flourished. Many expansive new human niches were made possible.

In principle, this second revolution should have enabled all to be provided for with minimal work. A golden age for all. Instead, population rose. There were more people than there were congenial new niches. Extras, in a cast of newly-birthed billions, were forced into unsatisfactory niches --- they are the poor.

This second revolution caused such a population increase in Europe, and especially in Britain, that there was a great migratration. Europe essentially expanded throughout the world, agressively displacing indigenous people, obliterating their cultures and lifestyles. Those who were not industrialized were straightout steamrollered. The expansion of industrialization has been by default, not by choice.

From the point of view of ecology and evolution, economics goes like this:

  1. We are evolved to be hunter gatherers. Specifically, our gracile body-plan and high intelligence make us the most dangerous predator that ever walked the face of the earth. The large brain requires an extremely long period until full physiological development --- 18-22 years after birth. Our reproductive strategy is to provide exceptionally well for a small number of young.
  2. Our large brain enables us to invent new ways of living (by exploit new resources, by displacing other species, by new methods of social organization, and by invention of new technology). Thus, we are the only species --- past or present --- that can rapidly move into a new niche at will (without a long period of evolutionary adaptation).
  3. Each new way of living opens up a suite of congenial niches. It also opens up many niches that are not congenial, indeed, many niches are downright bloody awful. (For example, slaves in an agrarian society. Sex-slaves in the richer provinces of Canada.)
  4. Population expands to fill new, congenial niches.
  5. Population continues to expand, filling less congenial niches and then cramming people into awful niches.
  6. Several things can happen, depending upon context, when the people of a rich nation anticipate future scarcity:
    1. They trade to obtain access to the resources of neighbours
    2. They go to war in order to plunder the resources of weaker neighbours
    3. They may be "saved" (until further population growth) by a new innovation
  7. Ultimately, population continues to grow and most people become poor. The poor are placated by religion, pie in the sky. The rich are happy to keep growth going because it depresses the cost of labour and actually makes the rich richer as the poor become poorer.
Obviously, there can be many cycles between the different stages that are numbered above. Ultimately, a globalized civilization becomes trapped at the last stage.

Thus, we see that economies are NOT about money. Economies are about our evolved nature, our learned culture, invention and the resources at our disposal. Above all, human economies are about our reproductive strategy.

Although we have broken free from the niche into which we were evolved to occupy, we have NOT yet broken free of our Darwinian breeding strategy. Our well-being will always be compromised, until we lern to cotrol our population better than we have learned to shift our niche.