The Trouble with Economics: William Nordhaus and Pope Francis

Economics is perhaps the one social science “profession” that is most entrenched in the political economy of contemporary nations. Little economic thought escapes the halls of academia without the neoliberal stamp of theoretical approval. The trouble with most of the social sciences is that it is very difficult for them to actually be scientific. In the first place, complexity is amplified exponentially by the fact that human behavior is mediated by language. Moreover, the language of human affairs is saturated with concepts and terms that have implicit political content.

Economics, like sociology, political science, and psychology, is a “discipline” that is disciplined by ideology. In particular, in its contemporary form economics is a powerful influence over national and international political policies, especially as applied to economic forces in society. Economics is in turn powerfully influenced by the most prevailing societal forces in the world today – the machinations of financial elites. Academic economics is dominated by the so-called “free market” theories for which Milton Friedman is most famous. From his intellectual throne at the University of Chicago, Friedman and his minions have dominated the economic framework of U.S. international as well as domestic policies for decades. Of course, there is little human freedom in the corporate-controlled “free markets.” Many of these policies have been at the heart of U.S. imperial strategies of foreign domination in the later twentieth century right up to today. U.S. geopolitical strategies have been driven largely by attempts to control world fossil-fuel markets.

Empire of Emissions

Anyone so naïve as to believe that U.S. foreign policy is meant to “bring democracy” to other nations must read Confessions of an Economic Hit man, by John Perkins (2004). As an “economic hit man,” it was Perkins’ job to persuade leaders of developing nations to accept huge loans to build massive infrastructure projects that did little to aid the development of those nations. Instead, they were designed and structured to bring poor countries with rich resources into submission to U.S. corporations and indebtedness to the U.S. government and the Big Banks. The deals required the money from the loans to be spent with U.S. construction companies on projects that would never generate enough income to pay off the loans. Pressure was then brought to bear on such nations to comply with U.S. political demands for resource exploitation and political subservience. Perkins’ book is a fascinating on-the-ground account of the workings of the expansive imperial structure, the larger picture that Naomi Klein characterizes as “disaster capitalism” in her book, The Shock Doctrine: The Rise of Disaster Capitalism (2007).

Despite the exposure of the massive economic and social failings of the growth-at-any-cost form of predatory extractive capitalism that is ideologically propped up by the neoliberal economic theorists, not much has changed in “modern economics.” This is also true of the specialty of “environmental economics.” The latest effort to stand firm supporting “market mechanisms” as the means to solve all problems in the world, is made by William Nordhaus. His essay in the New York Review of Books, October 8, 2015, tries to destroy the economic credibility of Pope Francis’ recent encyclical, Laudato Si’: On Care for Our Common Home (Vatican Press, 2015. Available at w2.vatican.va).

Nordhaus is Sterling Professor of Economics at Yale University and a well established environmental economist. His attack on Pope Francis’ encyclical pretends to be grounded in supposed rock-solid economic facts of “effective” market approaches to restraining carbon emissions. He entirely ignores the strong evidence that carbon trading in Europe has been a dismal failure. Rather than having a basis in scientific findings, his analysis is actually grounded only in neoliberal economic ideology. It ignores both the severity of the economic and ecological facts of our destabilizing world and the moral questions raised by Pope Francis’ argument.

At least ecological economists examine economic systems as operating within the living earth systems that sustain all life, including economists and other humans. Norhaus’ failure – and that of economics in general – is that he treats earth systems as mere economic factors to be incorporated in the economists’ models of market forces. In fact, economies are human systems operating within and now seriously disrupting the earth systems upon which they rely. This is a direct result of the propagandistic role of economics in the political culture of the U.S. and most of the other industrially overdeveloped nations.

Immoral Economics

Nordhaus wants to protect the failed economic system by tweaking its damaging impacts. However, living earth systems are being so severely destabilized by the fundamental ways that system operates, that only a massive reorganization of human economic life will be sufficient to allow those systems to re-stabilize.

Nordhaus concludes his essay by chiding the pope for not endorsing a “market-based solution” such as carbon pricing (and the disaster that is carbon trading) as “the only practical policy tool we have” to turn back the dangerous trends of climate change. Certainly, such “solutions” would constitute the limit of action if we had to accept the corporate free market ideology. But Pope Francis has other ideas. He asserts the social immorality of a system that destroys climate stability and all that depend on it while creating more plutocracy and poverty. Pope Francis calls upon the people to turn away from compulsive consumerism. He calls upon world leaders to abandon the “magical conception of the market” and to turn away from the failed economic system they have allowed to rule us and severely damage the planet.

Nordhaus will have none of it. He dismisses economists like Anthony Atkinson, Thomas Piketty, and Joseph Stiglitz, who recognize in different ways the relationship between capital gone wild and increasing inequality. By attacking the idea that climate disruption causes poverty, Nordhaus attempts to deflect attention from the fact that unrestrained predatory global capital causes both. He optimistically asserts that utilizing assumed magical qualities of market mechanisms can somehow undo the damage that unbridled global capital markets have wrought. That is the trouble with economics.

The Big Climate Blunder and Its Antidote: Risking Everything for What?

The Industrial Era has provided prosperity for many in the nations that industrialized first. In many ways it has also involved the plunder and pollution of both Body and Planet for over 200 years. After beginning to improve material existence for industrialized nations, especially through the 1950s and 1960s, the broadening participation in prosperity began to fade. The widely praised success of the industrialized nations of the North was achieved on the backs and at the expense of the non-industrialized peoples of the South.

Colonialism and later imperialism were essentially a massive transfer of materials for industrial production just as slavery was a forced transfer of human labor for agricultural production. The result was prosperity in Europe and North America and poverty nearly everywhere else. At first, environmental degradation was mostly in the South except in Northern factory towns; now it is everywhere. The culmination of the Industrial Era is climate disruption and its converging catastrophes of social disintegration, poverty, starvation, and war – unless drastic actions are taken now.

The Worst of the Best
But prosperity had its costs for the people in the industrial North. It has increasingly distorted human life by marketing more and more meaningless products while wages decline and jobs are lost. Capital is mobile; labor is not. NFTA, TPP, and other international trade agreements betray citizens and national sovereignty in favor of unfettered international capital movement. The worst of prosperity for the growing numbers who are excluded is that the poverty and pollution caused by extractive industry and international trade fall disproportionately on them. The worst of pollution is that the politics of extractive industrial technology have allowed increasingly toxic materials invade living systems everywhere.

Any real democracy would have put on controls to protect the public interest. Our false democracy serves the corporate interest in immediate profit at the expense of the public interest in health and happiness. Exposure of the smallest microorganisms and the largest ecological earth systems to the myriad of chemicals in the waste of prosperity wreaks havoc on living systems. The diverse and ubiquitous forms of industrial and consumer waste never existed over millennia as living systems evolved. So they never had a chance to develop resistance to the toxic effects of unnatural waste. Biological evolution occurs at a pace vastly slower than the speed with which the industrial revolution has polluted the planet. Today’s unprecedented rate of species extinction is accelerating with no end in sight.[1] Humanity depends on the complex web of life for its survival. But our power elites are locked into a death dance of short-term and very short-sighted self-enrichment. [2]

Larger earth systems, mainly climate and the oceans, are key determinants of the stability and survival of species in local ecologies. In addition to widespread exposure to toxins, climate disruption has also caused major damage to local ecosystems as well as larger earth systems. The damage is seen in key components of these systems, such as acidification of the oceans and increasingly erratic storm patterns. These large earth systems play major complex roles in local ecological conditions over time, and have major impact on their stability. What recently appeared to some as a hiatus in global warming, measured as average atmospheric temperatures, was actually an artifact of the oceans absorbing much more carbon dioxide and heat than had been expected. This has caused unprecedented acidification of ocean waters, massively disrupting the food chain by causing many species of crustaceans to be unable to form their shells. Coral reefs are dying; clam and other populations are plummeting. Changes in ocean temperatures are having major effects on weather patterns such as El Nino and La Nina, which in turn cause more extreme weather in various locations.

Prisoners of Greed
The extreme danger of doing nothing or doing a little about global warming is increasingly obvious to most thinking humans who have access to basic climate-change information. But one factor in policy decisions that is rarely mentioned is the relative comparison of risk and reward for different lines of climate action and for different political interests. Power elites are ‘in the game’ but play out their personal (high salaries and obscene bonuses) and corporate (stock prices) short-term interests, without reference to the public interest or the interests of humanity.

“The Prisoners Dilemma,” is an exercise used by game theorists and behavioral researchers to better understand how human decisions are made in conditions of variable risks and imperfect information. It is a simple game. Each player has two choices. If player A chooses the potentially high-reward option, s/he can win all, but only if Player B chooses the moderate reward option. If both players choose the potentially high-reward option, both lose. However, if both players choose the moderate reward option, both players win moderate rewards. Ultimately, it is about greed and aggression vs. cooperation and moderation. In such simulations, the players usually learn over several iterations of the game that the moderate-reward win-win scenario works best for all. But learning takes time.

In the real world where situations are much more complex, the risks and rewards can vary widely. But despite claims of free-market fundamentalists, cooperation often performs far better for all involved than does greed. Our economy of ever-growing extractive capital and industrial and consumer waste has in recent years performed very well for those power elites who have chosen the potential high-reward option of greed. (The rest of us seem to have chosen the moderate reward option, and we are losing.) But just as in the Prisoners Dilemma, the continuation of the plunder capital model of success is ultimately unsustainable. Because these “corporate robots” are captives of the magical thinking of the Sacred Money and Markets” ideology, they are slow learners when it comes to cooperation and protecting the commons.

Games are abstract forms; they can be repeated endlessly by simply starting over regardless of the outcome. But the real world is not a game; it has real boundaries of time and environment. When we destroy earth systems, there is no do-over. Extinctions are forever. We cannot restart destroyed ecosystems; we can only try to save them before it is entirely too late. We cannot rewind the growth economy, nor can it go on much longer. All we can do is create a new economy that does not destroy the earth systems upon which we depend for survival. The old failing growth economy will die of its own failures or we will transform it into a living economy that supports both humans and the rest of life on this planet. We must choose quickly.

Choosing Life
Ever more concentrated wealth in the hands of the power elites ultimately will destroy their dominance. It is an open question whether their downfall will come at the hands of climate catastrophe or social rebellion, or both. The timing and success of cooperation overcoming greed will determine the degree of chaos avoided. We also wonder whether the necessary Great Transformation of the economy and society can happen before climate disruption leads to increased food insecurity, poverty, mass migration, water wars, and related catastrophes.[3] We must say yes, turn away from the international corporate growth economy, and shape resilient local community economies in harmony with the living Earth. No small task.

Life, of course, is much more complicated than the “Prisoners Dilemma” game. Yet, games can help us learn more about human behavior and decision making. Other social psychological patterns are also informative, such as the “free rider syndrome.” I liken the Wall Street financial elite, the President, and the Congress to a gang of subway riders who jump over the turnstile to get free rides at everyone else’s expense – only the consequences of their ‘free ride’ are far worse. They take vastly more and cost the rest of us vastly more, both on an immensely grander scale: that of the global economy. They destroy the system in order to continue plundering it.

These elite players routinely take the high-risk option in seeking the high reward – but they have already rigged the game. They ‘socialize’ the high risk (pass off the losses to the rest of society). They ‘privatize’ the high rewards (capture for themselves the phantom wealth generated by their financial and economic manipulations). They do all this through personal and corporate control of “the game” – but they don’t seem to understand that it is not a game; it is a life and death struggle for humanity. Just a few of their methods include:

• legislating tax reductions for the rich;
• preventing climate action, which would cut into their pollution-producing profits;
• eliminating legal controls on financial speculation, cutting government programs that are in the public’s and planet’s interest;
• keeping wars of choice going for huge arms industry and banking profits;
• reducing government control over international financial transactions, trade, and money laundering; and
• forcing through Congress international trade deals – such as NAFTA and TPP – that legalize corporate sovereignty over governments, preventing health, labor, and environmental regulations that might interfere with their profits.

In the short run, that high risk is borne by everyone else and the high rewards are theirs. We have to understand, many of the most powerful are clever sociopaths; that is how they got where they are. Others are merely highly paid skilled functionaries, supporting the system that rewards them and punishes deviance from corporate “values.” They can retire to their high-security estates and revel in their clever success, though many are unable to quit their quest for ever more power. But their greed is ultimately self-destructive in spite of their denial and their political power. They may even survive a little longer in their gated compounds than some less privileged. But nobody will escape a dying planet. We may all lose everything if their gamble fails, and it will. It is only the rest of us who can make a difference, if we will.[4]

The most important question is whether we will be able to do something about the coming collapse in time to avoid it. That is why to do anything less than take extreme actions to constrain climate chaos is suicidal. That is also why our situation is so difficult. To wait for the President, the Congress, or the financial and corporate elites to take drastic actions to transform the growth-at-any-cost economy to a sustainable living economy is both futile and suicidal too. Only by massive social mobilization can the power elites be brought under control and the economy transformed to align with the requirements of living on the Earth. Perhaps Pope Francis’ encyclical and his invitation to Naomi Klein to the Vatican conference on climate change portend a major shift toward the Sacred Life and Living Earth story. Yes, there are signs everywhere that the Great Transformation has begun. But we must hasten it.
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[1] Gerardo Ceballos, Paul R. Ehrlich, Anthony D. Barnosky, Andrés García, and Todd M. Palmer, “Accelerated modern human-induced species losses: Entering the sixth mass extinction,” Science Advances. Vol. 1 no. 5 (19 June 2015). http://advances.sciencemag.org/content/1/5/e1400253.full
[2] David Korten, Change the Story, Change the Future: A Living Economy for a Living Earth (Oakland, CA: Berrett-Koehler, 2015) makes an important point: Because of the predominance of the culture of “Sacred Money and Markets” the power elites are not so much in control of the corporations (“money seeking robots”) that rule the economy. Rather, they are mere cogs in the leviathan of corporate plunder of the Earth’s living wealth. Control rests with the Story, which, as he argues, must be changed.
[3] Christian Parenti, Tropic of Chaos: Climate Change and the New Geography of Violence (New York: Nation Books, 2011) takes us on a tour of numerous locations around the world where the “catastrophic convergence of poverty, violence, and climate disruption” is already fueling migrations, wars, and starvation amidst the devolution of failed states and collapsing economies unable to sustain growing populations whose “carbon footprints” are vastly smaller than those of the industrialized nations that have caused most of anthropomorphic global warming.
[4] Naomi Klein, This Changes Everything: Capitalism vs. the Climate (New York: Simon & Schuster, 2014) chronicles both extractive capitalism’s disruption of the climate and the political failure of mainstream environmental organizations to institute effective climate action policy. Klein concludes that only a mass movement from below that transforms the social order can save the planet. David Korten (2015) offers a transformative framework for replacing the “Sacred Money and Markets” narrative that dominates the planet today, with a “Sacred Life and Living Earth” narrative capable of producing and sustaining a moral economy in the interests of humanity and the planet.