Thursday, August 29, 2013

Thinking outside the box

Brad deLong excerpted Paul Krugman's post The real trouble with economics, where PK makes the point (yet again, it seems) that many economists fail to discard their theories when empirical reality invalidates them.

One of the commenters at Brad's place observed:
It's pretty obvious that the optimum economy, the one that does the best job of the greatest good for the greatest number, is pretty much flat; there aren't any poor people and there aren't any rich people and there are a bunch of things that would make a profit (for awhile) that you're not permitted to do because it would break the system as a whole.
The political consequences of saying so in any kind of operational way are pretty severe. (Look at what happened to Occupy, which wasn't saying anything more than "How can this be fair?")
The reason the technocratic approach can't get to that optimal economy rests on a long history of blood and iron; the assumption of capitalism isn't natural, it's got as much crushing of dissent behind it as any other imperial movement. (There's probably a bunch of history PhDs lurking in the transition of political parties from ecclesiastical factions to financial ones.)
I contend that an economics discipline that looked at the problem from the perspective of "how did we get stuffed into this particular corner of the space of possible economies" along with "how do our institutions copy themselves into the future?" (that analog of sex; money is a fairly good analogy for eating, food, energy available to a biological system) would have much tougher problems and give much better answers than the one we now have, which mostly explains why those now successful must remain so.
What caught my attention was the image of being "stuffed into this particular corner of the space of possible economies."
I would only combine that with an inclusion of the physical environment (didn't see that coming, did ya).

The standard approach to environmental economics can be summed up as, "How much environmental improvement can we afford?" or, "What is the optimal mix of environmental quality and 'normal' stuff (like GDP)?" You take as given the economy as it is, and then ask how much you should tweak it around the edges.

My big problem with this approach is my hunch that it doesn't allow you to explore a space where we don't party our way to perdition.

I think we should be turning our perspective around. Instead of saying, "Here's the economy; how much environment can we afford?" our frame of inquiry should be, "Here's how far we can use the environment without causing problems our descendants will curse us for; within those constraints, what sort of economy can we have that will provide a satisfying life for us all?"

I think part of the answer ends us up pretty close to where deLong's commenter started, with a relatively flat economy.

Economics should be the squirrel on the left.

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