> [!Summary] Progressive Summary > The strength of this book lies in the fact that the author is himself a trained economist, and excoriates the field based on personal testimony. It begins with an excellent history of the discipline of economics. It explains how the progressive era started by Henry George ended in the 1920s, when the Red Scare allowed American industrialists to promote neoclassical economics in the universities they funded. Stanford was built on railway money. University of Chicago was funded by Rockerfeller oil money. Columbia was funded by Wall Street’s JP Morgan. > > Since Occupy Wall Street, more students have been demanding an alternative economics that “puts care, community and commonwealth, ahead of plunder, person and profit”. > > Jon Erickson joined the oldest engineering college in the US, Rensselaer Polytechnic Institute (RPI) and helped to build the world's first doctoral program in ecological economics. He also helped found the US Society for Ecological Economics. # Structured Notes ## Definitions Pareto efficiency criterion - outlined by Vilfredo Pareto in 1906, in the early years of the neoclassical revolution, and has now become economic dogma. It says that in a perfectly competitive economy, everyone will work, spend and consume until all "Pareto improvements" are exhausted, a point of market equilibrium where no one can be made better off without making someone else worse off. This maximizes consumption and production and creates the biggest economic pie for all. One's slice of the pie is worked out through free exchange. No one is forced to produce or consume. No value judgment are allowed comparing the most frivolous desires of the rich with the most basic needs of the poor. Great Recession - Lasted from 2008 to 2009. It was the worst economic downturn in the US since the Great Depression. Domestic product declined 4.3%, unemployment doubled to more than 10%, home prices fell roughly 30%, and at its worst point, S&P was down 57% from its highs. ## Timeline 1874 - Walras publishes Elements of Pure Economics. World was in a Great Depression, which was renamed the Long Depression when an even greater one hit in the 1930s. 1934 - Simon Kuznets warns that "the welfare of a nation can scarcely be inferred from a measurement of national income" 1968 - Herman Daly publishes article "Economics as a Life Science" March 18, 1968 - Robert Kennedy makes his famous speech questioning GDP at the University of Kansas 1971 - Nicholas Georgescu-Roegen publishes The Entropy Law and the Economic Process 1977 - Daly publishes his magnum opus, *Steady-State Economics* 1988-1994 - Herman Daly works at the World Bank 1989 - Herman Daly writes For the Common Good with theologian John Cobb. This helps define the field of ecological economics ## Chapter Summaries ### Chapter 2 - Ascension of the Queen > The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist. – John Maynard Keynes Neoclassical economics has "dominated economic teaching, research, and policy for well over 100 years." Its core was developed by French mathematical economist Léon Walras in 1874, when he published his *Elements of Pure Economics*. Joseph Schumpeter later called this the Magna Carta of Economics. He built his "general equilibrium theory" around a mathematical description of small individual, incremental decisions that would collectively bring a system into balance. This came to be known as the "marginalist revolution". > "Classical" economics based on moral philosophy was left behind in favor of an idealized system of equations that assumed away any ethical qualms to pure self-interest. The system was set up so that only the next decision mattered to each individual consumer or producer. If the next benefit was bigger than the next cost, then consume or produce more. If not, then stop. The sum of all these individual decisions would then be what's best for society. Walras was driven by physics envy, and sought to discover mathematical laws which would be "for social science what the laws of Kepler have been for astronomy." However, this led to a situation in which "no one could be made better off without making someone else worse off." Furthermore, "this marginalist revolution set a course for economics different from all other social sciences and humanities for the next century." For Walras' theory to work, he had to assume: - people were self-interested and rational - producers were competitive and plentiful - capital and labor were substitutable - change was smooth and continuous > Adam Smith's invisible hand was now in full view, sketched on graph paper with precise Cartesian coordinates. Mathematical economics focuses on efficient outcomes, and ignores: - influence of inheritance on intergenerational wealth - impact of discrimination on bolstering a privilieged race - power over labor that comes from enclosing the commons through private ownership Even though"the development of any thought system is a dance between deductive and the inductive, mathematics and deductive logic came to dominate textbooks from Alfred Marshall's Principles of Economics (1890) to Paul Samuelson's Foundations of Economic Analysis (1947) and Mankiw's Principles of Economics. > However, deductive reasoning has always had a debilitating weakness. If an assumption is untrue, the conclusion is suspect, if not dead wrong. Through inductive reasoning – observe, hypothesize, test, repeat – assumptions of the Walrasian model have been proven wrong year after year, economist after economist, and even Nobel after Nobel in recent years. > Modeling the economy as a whole based on the actions of individuals has failed even the most basic tests of predictive power. And in more recent years, economists working with the behavioral sciences have found people largely to be irrational, cooperative, and even moral, surprising no one except perhaps narrowly trained economists. Despite these flaws, neoclassical economics persists, because the wealthy elite love it as a justification for the unequal distribution of wealth. > Ever since Walras, any distribution of wealth and income in society is easily justified as an efficient outcome of a natural process of economic exchange. ### Chapter 4 - Coming of Age in the Econocene In the 1970s and 1980s, the field of ecological economics was founded on "Galbraith's afluent society, Boulding's spaceship Earth, Ehrlich's population bomb, Georgescu's entropy problem, Meadows' limits to growth, and Daly's statey-state economics." This body of work questioned "the dogma of growthism." It asked questions like "What was the purpose of growth? Who received the benefits, and who paid the costs? Does economic growth always and everywhere equate to human progress? If not growth, then what?" ### Chapter 5 - A New Story Francis Bacon wrote in *The Great Instauration*, "Man by the fall, fell at the same time from his state of innocence and from his dominion over creation. Both of these losses can in this life be in some part repaired; the former by religion and faith, the latter by arts and sciences." Carolyn Merchant argues that the central narrative of Western culture became to "reclaim the lost Eden by reinventing the entire earth as a garden." In the modern era, "Science, technology, and capitalism have provided the tools, male agency the power and impetus." > ... eradicating the desperation of poverty by vanquishing the obscenity of gluttony. Jason Hickel, posting on Twitter (May 1, 2020): "If your economy requires people to consume things they don't need or even want, and to do more of it each year than the year before, just in order to keep the whole edifice from collapsing, then you need a different economy." ### Chapter 6 - A New Economics Cornell Alfred Kahn coined the phrase "tyranny of small decisions" in a 1966 article. He described the closure of a rail service between Ithaca and New York City. Citizens might vote to keep public services open and shre the cost through taxes. However, as consumers, they might not cast enough "dollar votes" to pay for such services. Erickson: > Tyrannies of small decisions emerge from a culture of individuality reinforced by an economics of isolated choices that denies the very interdependencies that make the world possible. > The looming question is, Can we break from a tyrannical world? What would it take to abandon an obssession with "me" and nurture instead a culture of reciprocity, restoration and renewal? Erickson claims that EO Wilson described the new economics we need in his book Consilience: > To pass the consilience test for any particular field of study, one question must be answered: Does theory in your field hold up against theory in all others? The natural sciences have provided some roadmaps for consilience. In one direction, there is reductionism - reducing all physical phenomena to atoms, electrons and ever small particles. But this can't explain the dynamics of human society, nor the complexities of life on Earth. In the other direction is synthesis, for which evolutionary biology provides a foundation. > The theory of evolution – tested against an arsenal of evidence from paleontology and comparative morphology to gene sequencing and experimental evolution – is the glue that holds the sciences together. Wilson suggests that economists explore the "borderland disciplines" that straddle economics and other fields. The chapter concludes: "... we are learning that contemporary economics has no place as a master narrative for humanity." ### Chapter 7 - A New Economy > Not everything that is faced can be changed, but nothing can be changed until it is faced. > – James Baldwin In 2018, the 400 wealthiest Americans paid a lower tax rate than any other income group. (Saez and Zucman, The Triumph of Injustice, 2019) > Lock-in is a kind of dance between technology and institutions that creates feedback loops to reinforce the status quo. The more you use something, the cheaper it is to continuing using due to scale, learning, and network economies. Monopolies and regulatory capture also lock us into bad policy and poor technology. An IMF Fiscal Affairs Department study in 2019 showed that the global citizenry subsidized the fossil fuel industry in the amount of US$5.2 trillion, including direct payments to energy companies from taxpayers, health impacts from air pollution, and expenditures on climate adaptation. This was equal to 6.5 percent of global GDP given to one of the most established and profitable industries. [Coady et al. - 2019 - Global Fossil Fuel Subsidies Remain Large An Upda.pdf](zotero://select/library/items/CIGMY6SZ) US spent more on subsidizing fossil fuels than on education. Carbon Tracker estimates that we have to leave 60 to 80 percent of coal, oil and gas deposits in the ground if we are to remain under 2˚C. Anu Partanen, in *The Nordic Theory of Everything*, argues that "the overarching ambition of Nordic societies during the course of the twentieth century, and into the twenty-first, has not been to socialize the economy." Instead, the "goal has been to free the individual from all forms of dependency within the family and civil society." With universal access to healthcare, education, leisure, and childcare, human relationships are "unencumbered by ulterior motives, and needs, and thus to be entirely free, completely authentic, and driven purely by love." (https://www.scribd.com/read/315108128/The-Nordic-Theory-of-Everything-In-Search-of-a-Better-Life) > Health, wealth, and well-being are always and everywhere a product of social cooperation and community investment. Conversely, billionaires and millionaires are possible only by exploiting unpaid and underpaid work, public investment, and our commonwealth of the Earth. > Through energy cooperatives and municipally owned electric utilities, communities are knitting together resilient, renewable, locally organized energysheds that are shifting mindsets from not-in-my-backyard antagonism to yes-in-my-back-yard inclusion. - [Thomas and Erickson - 2021 - Rethinking the geography of energy transitions lo.pdf](zotero://select/library/items/ZKGFVMEW) # Rough Notes ## The narrow arrogance of economics 60% of high school class of 1982 who went to college registered for principles of micro and macroeconomics. By 2006, 46 percent of jobs landed by Princeton grads were in the financial services. Yale and Harvard placed 1/4 of their grads in finance. By 2012, the most popular BA was business, twice the number in the other social sciences and humanities combined. Business is the most popular master's degree in the US. Economists are the only social scientists to have a Nobel prize, a memorial prize offered from 1969, paid for by the central bank of Sweden. It was not part of Alfred Nobel's original will of 1895. 77 percent of economics graduate students in elite programs agree with the statement that “economics is the most scientific of the social sciences.” - [Colander - 2005 - The Making of an Economist Redux.pdf](zotero://select/library/items/TX7XNY6J) Marion Fourcade, a Berkeley sociologist, found that 40 percent of the income of economists comes from consulting activities with business and government. The gatekeepers of the field come from top-ranked universities, and vote themselves on the boards of academic journals and associations and hire each other's graduate students In a survey of "The Social and Political Views of American Professors", economics stands out as the only field where the majority (57.3 percent) disagree with the statement, "In general, interdisciplinary knowledge is better than knowledge obtained by a single discipline." More than any other field, economists mostly cite other economists. Sociology, political science and psychology have been colonized by economics through rational choice theory. > How should we model the sociology of family relations, child rearing, or marriage choice? Utility maximization. How should we judge the merits of political structures, rules, and regulations? Cost-benefit analysis. How do individuals behave when faced with choices? Rationally, weighing the next cost with the next benefit of each action. [Alasdair MacIntyre had a good analysis of this "managerial" view of human affairs in After Virtue.] > When any decision can be lumped into costs and benefits, measured by dollars and cents, there's no stopping economic logic. The Earth is K, people are L, and making more Q is the game. In 1992, University of Chicago's Gary Becker was awarded a Nobel prize "for having extended the domain of microeconomic analysis to a wide range of human behavior and interaction, including nonmarket behavior." There followed books like The Armchair Economist (1993) and Freakanomics (2005). This article even values a child's life at $500,000 by multiplying a mother's presumed wage by the time she saves when improperly fastening her children into their car seats - [Carlin. 1991. *Estimating the Implicit Value of a Young Child's Life*](zotero://select/items/1_KDGLDAXQ) > In the end, the education of the economist is complete when all ethical or scientific qualms are set aside. What's left is a carefully molded, rational, dispassionate, objective truth seeker to rationally appraise the economic costs and benefits of each new action (the past is of no consequence), to dispassionately consider the preferences of each individual as worthy and right (no judgment on necessity vs. luxury allowed), and to objectively seek the preordained truth that only markets can allocate resources efficiently (those without buying power need to only work harder). ## Differences between classical and neo-classical economics Classical economists of the 1700s and 1800s identified land, labor and capital as equally important factors of production. But neo-classical economics strips out land as a factor of production. In the 1973 Ely Lecture of the American Economic Association, Nobel laureate and MIT growth theorist Robert Solow said, "The world can, in effect, get along without natural resources, so exhaustion is just an event, not a catastrophe." By the 1970s, capital theory of growth prevailed, and even labor was stripped out. In the 80s, the importance of capital diminished under the Chicago school. French mathematician Léon Walras (1834-1910) is credited with developing the core of the neoclassical model, which has dominated economics for over 100 years. In 1874, he created a "general equilibirum theory", the first comprehensive, mathematical description of the small, incremental decisions that would bring the entire economy into balance. This is known as the "marginalist revolution". Moral philosophy is taken out of economics, and only an idealized system of equations is left. > The system was set up so that only the next decision mattered to each individual consumer or producer. If the next benefit was bigger than the next cost, then consume or produce more. If not, then stop. The sum of all these individual decisions would then be what's best for society. He wanted to find a "scientific solution" to the "Problem of Distribution of Wealth", which would discover laws similar to those of physics and astronomy. Joseph Schumpeter called Walras' Elements of Pure Economics the "Magna Carta of Economics". It was a departure from the tradition of Adam Smith, David Ricardo, Thomas Malthus, and John Stuart Mill, whose political motivations were to wrest power from church and state, but who never abandoned the moral obligations of individuals to one another. For Walras' theory to work, he had to assume: - people were self-interested and rational - producers were competitive and plentiful - capital and labor were substitutable - change was smooth and continuous > Adam Smith's invisible hand was now in full view, sketched on graph paper with precise Cartesian coordinates. Mathematical economics focuses on efficient outcomes, and ignores: - influence of inheritance on intergenerational wealth - impact of discrimination on bolstering a privilieged race - power over labor that comes from enclosing the commons through private ownership Mathematics and deductive logic came to dominate textbooks from Alfred Marshall's Principles of Economics (1890) to Paul Samuelson's Foundations of Economic Analysis (1947) and Makiw's Principles of Economics. > However, deductive reasoning has always had a debilitating weakness. If an assumption is untrue, the conclusion is suspect, if not dead wrong. Through inductive reasoning – observe, hypothesize, test, repeat – assumptions of the Walrasian model have been proven wrong year after year, economist after economist, and even Nobel after Nobel in recent years. Despite these flaws, neoclassical economics persists, because the wealthy elite love it as a justification for the unequal distribution of wealth, which is seen as the efficient outcome of a natural process of exchange. ## Alfred Marshall and Henry George Alfred Marshall came from a privileged background. He was educated in the Cambridge system, and founded the Cambridge School of Economics, which defined the field for the first half of the 20th century. Henry George was born into a middle-class family in Philadelphia in 1839. He found work as a typesetter in San Francisco at the age of 19. By 1865, he was married with four children, had failed in his ventures, and was forced to beg in the streets to feed his family. He eventually became the managing editor of the San Francisco Times, with economics as his focus. San Francisco was a boom town, with 300,000 49ers moving there in 1849 to find their fortune. The transcontinental railroad promised to bring the next boom. More than half of Scotland is owned by fewer than 500 people. ## Occupy Wall Street Top earners's share of the US national income peaked in 1928 and 2007, two years before the two biggest economic crashes the world had ever known. 17 September, 2011 - Occupy Wall Street 2 November, 2011 - students walk out of Greg Mankiw's principles of economics class, the largest class at Harvard University Mankiw wrote the best-selling textbook Principles of Economics. In 2015, its seventh edition sold for $280, with more than one million copies in circulation, and $42 million in royalties paid to Mankiw. The textbook is an argument for laissez-faire economics, a belief that free markets can efficiently allocate private resources for private gain. In 2013, Mankiw wrote a response to Occupy entitled "Defending the One Percent". He argued that the 1 percent had the talent, effort and taste to merit their "just deserts". To redistribute their earnings would violate the most sacred principle of economics - the Pareto efficiency criterion. He compared wealth redistribution to forcing healthy people to donate their kidneys to the sick. # Quotes > How do we get more people to consume? Marketing. How do we tally our efforts? Accounting. How do we pay for it all? Finance. > The education of the economist is a journey into the depths of abstraction. It starts in such innocence, with linear graphs of demand and supply curves settling into predictable market equilibrium. After Econ 101, add a little calculus to get your smart on. Same story, but now we can solve for X in what seems more and more like hard science. ![[Reference Notes/Highlights/Books/The Progress Illusion#Highlights|The Progress Illusion]]