Economics

1   Ideological Structure

Like in much of Western culture, Economics has always had, even since very ancient times, two main ideological strands [1]:

1. Planned Complexity (a mostly static "ideal", hence the planning; usually grand and awe inspiring and associated with empire e.g. the Roman or British Empires)
2. Spontaneous Complexity (a mostly dynamic "ideal" which evolves on its own, usually fairly unimpressive on the surface until one tries to destroy the resilient structure e.g. the Barbarians just beyond the Empire, the Scottish and Irish just beyond English rule etc).

An outstanding contemporary example is the American Civil War (Wikipedia:American_Civil_War) where the industrialised North believed in large scale industrialisation (which implies centralised planning), whereas the "plucky" South believed in small scale individual self-determination and self-reliance (though only for those who "deserved" or "earned" it i.e. slaves had not earned their freedom). This ideological debate is as old as European civilisation, and despite the North "winning" the civil war one still sees the polarisation of political voting along identical lines to the civil war front line even today.

Economics of the last two hundred and fifty years is little different - the fashion has regularly swung between centralised planning or decentralised evolution (see a Short History Of Economics). For example, Communism was clearly about building an impressive monumental centrally planned structure whereas its counterfoil of free market Capitalism was clearly about building something monumental out of individual autonomous decisions. Of course, perversely the actual end result of either ideology usually has nothing to do with its mechanism e.g. the end result of autonomous free market Capitalism was the modern Wikipedia:Military_Industrial_Complex which is as impressive and awe inspiring a monument as was ever built by human beings. And an edifice which, most interestingly, was unachievable using central planning which seems counter-intuitive.

This is where the debate of the role of the market comes in - when should the market self-organise and when should a central planner dictate? It gets more interesting when one considers that a central planner may plan the rules for a market but otherwise leave the market alone to fulfil those rules (which is an empirical minefield where practice most certainly deviates from theory).

2   The Neo-Classical Definition

Most contemporary Economists would narrowly define their subject as "the optimisation of output under conditions of scarcity" which has a whole host of implicit assumptions contained within it:

1. Firstly, it assumes a mostly materially based economy whose wealth is derived from material production and because materials are costly to obtain and duplicate, one is permanently limited by scarcity of affordable resource inputs.
2. Secondly it assumes that the ideal end goal of individuals and society is to maximise their personal output. This really means activity when you think about it, and this ideology stems from the ideological environment existing around the birth of modern Capitalism (see Wikipedia:Protestant_work_ethic). It was felt that work cleansed the soul and brought us closer to God, and we have not desisted from this notion because there are plenty of empirical studies correlating busyness (business) with subjective life satisfaction [2]. Put simply, we feel better about ourselves when we have something to do, especially when we feel we have meaning and purpose to our existence.

One need not however use these assumptions when treating an economy. One must use some assumptions, but they can be whatever you like so long as they are reasonable. Of course, some assumptions make your mathematical modelling much easier (e.g. the Neo-Classical model linearises its equations throughout), whereas other assumptions are very much ones of how you think things ought to behave because there is either a lack of empirical evidence on whether they do behave that way or not, or that such empirical evidence is unobtainable (e.g. whether your knowledge of someone's state of mind is absolutely true i.e. an information asymmetry).

For example, one of the most important consequences of the Neo-Classical model's assumptions is that if each segment of society is trying to maximise its own output in a self-interested way, this ought to mean that people, groups and societies are fundamentally selfish. This became particularly believed after Nash introduced Game Theory because the game theoretic equations only balance (i.e. reach an equilibrium) when the individuals being modelled are utterly rational AND selfish. This was considered extremely important in the days of looming nuclear war because mathematically speaking only rational and selfish actors wouldn't initiate nuclear armageddon, but the consequences of this worldview upon people's feelings of self-esteem and self-worth have been catastrophic. Put another way, obesity and self-destructiveness is the consequence of modelling ourselves as rational and selfish beings, and this was the result of splitting the atom before we were psychologically ready for it.

Some say that this is God's punishment for having ever used a nuclear bomb. If so, then it is only because we felt guilty about having done so which means in truth that we did it for the wrong reasons [3].

3   Problems with the Neo-Classical Definition

Imagine to yourself a typical village market populated with farmers and customers: each farmer has their wares on display in a stall along with a price per kilogram of each. Each customer moves between the market stalls, observing the prices of each good and purchasing the cheapest first, then the second cheapest and so on until the lowest available price roughly equals the highest price that consumers are willing to pay. The market is now considered "cleared" by the Neo-Classical model: consumer and producer surpluses have been maximised, and a Pareto optimum has been reached (see Wikipedia:Pareto_Efficiency).

We in Neo-Capitalism see that same village market as something quite different: instead of consumers and producers buying and selling goods, we emphasise that before ANY transaction can take place there must be firstly an exchange of information - and not just the reading of the price tags by the consumer. In a village market, most of the actors will know one another socially and will spend much time conversing even when it has nothing to do with a potential transaction. Furthermore, for low involvement purchases in a strongly socialised context, most consumers don't actually hunt around for the lowest price - they actually will visit their friend first under the excuse of buying something so long as the price isn't exorbitantly higher.

This observation gained a few contemporary Economists their Nobel Prize and it gave birth to the Greenwald-Stiglitz Theorem (see Wikipedia:Joseph_Stiglitz) which posits that market failure is the norm rather than market efficiency. When combined with the Sappington-Stiglitz Theorem which posits that an ideal government could run an enterprise more efficiency than private ownership, one would assume the theoretical case in favour of free markets dead and buried.

However, as shown above and in the Short History Of Economics, this intellectual movement towards planned over spontaneous organisation is merely the very old Indo-European ideological pendulum swinging backwards again. What we actually need is a harmonisation framework which further integrates the two, just as the great fathers of Economics contributed (indeed, with a bit of luck, someday we may "solve" this great debate and move on to a greater and better debate).

4   A Harmonisation Framework

One can see from the village marketplace example above that market inefficiencies arise from the general problem of Information Asymmetries whereby inefficient behaviour (either through irrational cognition such as acting for reasons other than increasing one's own output in a selfish fashion, or because the lack of precise information makes rational choice impossible) distorts the tâtonnement process.

However, remember that that assumes "market efficiency" to mean "ideal" market clearing which is derived from the belief that maximising one rate of activity (i.e. output) under conditions of input scarcity is the ideal end goal of society.

And for obvious reasons, to maximise one's output is identical in every way to maximising one's consumption of inputs (after all, how else can you sell your output and therefore maximise its value?). No wonder therefore that we consume natural resources as fast as possible (for more on this, see a Short History Of Accounting).

What if we didn't have maximising output as the ideal end goal of our society? What if we kept the idea of maximising activity, but our measure of activity became something different?

What if instead we set the primary goal of our society as:

To maximise the rate of growth of biosphere potential

This is what the Freeing Growth Books set out to do: they lay out, in as much detail as they can, why this primary goal is a much superior one for society. They also show that this goal orientates all of human civilisation towards investing into the biosphere such that most of the damage that we have done over the past few centuries is fully repaired within just thirty years!

5   Our Definition of Economics

This brings us finally to how we Neo-Capitalists define Economics. Under our harmonised framework, there is some scarcity in some important things yes, but it is rarely a limiting factor because now we are growing the potential to change the world rather than the actual changing of the world, and because information can be copied very cheaply indeed, the only scarcity of any importance is the lack of quality in information (which can be very easily fixed if we have sufficient will to do so). This implies a very large, indeed wholescale shift of mindset from investing into massive transformations of that which surrounds us towards investing into the generation of potential of massive transformations. For sure, in some situations (e.g. a natural disaster) society actuates that potential into a full-scale mobilisation, but during regular life one wouldn't see much evidence when looking in from afar.

In other words, we are removing the material limits to our growth by not making use of our use of material resources except when they are needed, yet meanwhile our efficiency in the use of those material resources continues to improve unbounded. This allows our economy to grow unfettered at double digit rates of sustainable compound growth without destroying either the planet or ourselves.

I suppose that one way of putting this change of emphasis is that we are moving from a materially-based economy into a cognitively-based economy. An economy has only ever existed in the minds of humans - it is, always has been and always will be a figment of our collective imaginations (see Money Is Make Believe). However, our own insecurity with ourselves requires constant self-validation whether through acquisition of gold, empires or material goods - we need to get over ourselves, an embrace the truth of our potential.

Ultimately, Economics really is just the theory of allocation, whether optimal or not. Where and why we allocate our attentions, hopes or longings is probably the most fundamental essence of Economic behaviour.