Economists without a clue

[JohnyCanuck]

by Richard Heinberg

Prepare to observe the spectacle of the two great economic paradigms of the twentieth century crashing to the ground, locked in mortal combat.

A hundred years past, markets ruled freely: fortunes were made, workers abused, bubbles blown. According to the Austrian School of economists, led by Ludwig von Mises, this was all as it should be: despite any temporary pain or inconvenience, the unfettered market always knows best how to allocate goods and organize investment and labor.

But the ensuing pain and inconvenience were just too much for the various stripes of Marxists and socialists, some of whom led a revolution in Russia to establish the first state-controlled, planned economy.

The catastrophes of the Great War and the Great Depression led to the ascendancy of John Maynard Keynes, the British economist who argued that even capitalist economies needed regulation and controls in order to avoid excessive manias and subsequent implosions.

SNIP

Now with the Collapse of 2008, economists are rushing to announce a new era of neo-Keynesianism: lack of regulation in the finance industry has led to a cataclysm of unimaginable proportions, and only massive government intervention can put us back on track. Sadly, this time the tracks have been moved, maybe dismantled altogether. The two great economic paradigms of our age simply took too much for granted. They assumed that economies run on money and labor, whereas real economies also need energy and natural resources. They assumed that because population, resource extraction, and available energy had grown throughout the 19th and 20th centuries, they would continue to grow in perpetuity; all that was necessary was to properly adjust the relations between money, market forces, and government regulation. No one (within the economics profession) stopped to think that limits to Earth's supplies of fossil fuels, topsoil, water, and other resources might impose ultimate limits on economic activity.

http://www.energybulletin.net/node/47392

[depakid]

1. Coming soon- new paradigm. Steady State Economics

A failed growth economy and a steady-state economy are not the same thing; they are the very different alternatives we face.

The Earth as a whole is approximately a steady state. Neither the surface nor the mass of the earth is growing or shrinking; the inflow of radiant energy to the Earth is equal to the outflow; and material imports from space are roughly equal to exports (both negligible).

None of this means that the earth is static—a great deal of qualitative change can happen inside a steady state, and certainly has happened on Earth. The most important change in recent times has been the enormous growth of one subsystem of the Earth, namely the economy, relative to the total system, the ecosphere.

This huge shift from an “empty” to a “full” world is truly “something new under the sun” as historian J. R. McNeil calls it in his book of that title. The closer the economy approaches the scale of the whole Earth the more it will have to conform to the physical behavior mode of the Earth. That behavior mode is a steady state—a system that permits qualitative development but not aggregate quantitative growth.

Growth is more of the same stuff; development is the same amount of better stuff (or at least different stuff).

Much more: http://www.theoildrum.com/node/3941

[JohnyCanuck]

3. Some FAQs about the economic growth model vs steady state

Why is economic growth a threat to economic sustainability, national security, and international stability?

To grow, an economy requires more natural capital, including soil, water, minerals, timber, other raw materials, and energy sources. When the economy grows too fast or gets too big, this natural capital is depleted, or "liquidated." To function smoothly, the economy also requires an environment that can absorb and recycle pollutants. When natural capital stocks are depleted, and/or the capacity of the environment to absorb pollutants is exceeded, the economy is forced to shrink.

National security, meanwhile, is a function of economic sustainability. The economic strife of a nation may result in insurrection or revolution, and eventually the nation-state may turn its agressions outward. From the Nazi doctrine of Lebensraum to the 21st century powder kegs, war invariably involves, and often revolves around, struggles for resources by nations that have exceeded their ecological capacities - or have had their capacities impacted by other states.

Can't technology alleviate the threat of economic growth?

Some economists think that, because a particular production process can become more efficient (more output per unit of natural capital), there is no limit to economic growth. These economists and “technological optimists” are disregarding the second law of thermodynamics, the entropy law, which tells us that we cannot achieve 100% efficiency in the economic production process. When the entropy law is applied across all economic sectors, or in other words when the limits to efficiency have been reached, the only remaining way to grow the economy is by using more natural capital (including energy).

Remember: to think there is no limit to growth on a finite planet is precisely, mathematically equivalent to thinking that you may have a stabilized, steady state economy on a perpetually shrinking planet. Both claims are precisely, equally ludicrous!

http://www.steadystate.org/CASSEFAQs.html#anchor_84

[my2sense]

2. K& R

[TreasonousBastard]

4. Economics is the science (sic) of satisfying wants...

and assumes the unavailability of various things at various times. At least that's the way it was explained to me in eco courses.

Where economics ultimately fails is that the population continually grows while resources don't, and substitutes aren't found fast enough. It's population growth driving economic growth because if we don't find ways to employ, and thereby feed, house, etc., the new mouths we fall behind.

Historically, that hasn't been a problem since things like the Green and Industrial Revolutions have solved the resources problem, and there is an assumption that some techinological fix will solve the next bottleneck, giving us enough goods to pass around to the teeming hoards of the wanting. It's fast becoming clear, though, that not only is such a fix becoming more and more improbable, but if one does show up it won't be a very pleasant one.

Limiting population on the planet is really the only satisfactory course of action, unless we want to live on a vastly different sort of future planet. Just how we do that is the question.