PROPOSITIONS ECONOMICS, MONEY AND SUSTAINABLE DEVELOPMENT
Contents Of The Book Economics, Money And Sustainable Development In Twelve Propositions
The following twelve statements provide an overview of the main points of Economics, Money and Sustainable Development
Mainstream economics is an attempt to turn economics into a “hard” science by capturing economic reality in mathematical equations and models. The attempt has failed for a century and a half and is doomed for further failure, as it leads to such simplifications and such a distorted image of reality that mainstream economics is of little value and is even counterproductive for understanding the economy.
The economy is no more than the overall outcome of decision making of people on economic issues. That decision-making is influenced by many factors, both economic and non-economic, and is therefore extremely complex and unpredictable. At best trends can be noted and generalizations made. But the assumption of mainstream economics that there is an economic reality beyond that of individual decision-making, a system with its own dynamics that are subject to universal and timeless laws, is no more than a belief. The corresponding attempt to turn economics into a “hard” natural science is misguided.
The assumptions and outcomes of the model on which mainstream economics has depended for over a hundred years, the model of competitive equilibrium, are used as if they were universal truths. This despite the fact that, as evidenced by the continuous failure of economic forecasts, the model does not represent reality adequately. The fact that the model is not even called into question makes mainstream economics a religion rather than a science.
The failure of mainstream economics to critically evaluate the equilibrium model has led to faulty policy recommendations which in spite of their negative effects on the economy and society have been elevated into dogma. Economic dogma led not only to the 2007 crisis but has also resulted in an imbalanced economic system characterized by growing inequality, unequal opportunities, instability and a growing chance of further financial and economic crises. Moreover and most important, the economic dogmas determining economic policy restrain society in addressing the great social and environmental problems of our age.
A new economics should develop into a real social science, based on the results of the application of social science research methodology for analyzing economic decision making and its outcomes. The continuing tinkering with and elaboration of models that do not reflect reality and have no predictive value has to be replaced by an analysis of reality using empirical methods such as observation, interviews, experiments, and historical analysis.
Equilibrium thinking has blinded today’s mainstream economics for growing imbalances in the economy, such as a growing gap between economic demand (demand backed up by capacity to pay) and the productive capacity of the economy. Productive capacity is accelerating rapidly through technological development and a growing and better educated global population, while demand is falling behind because of stagnant lower and middle income, persistent poverty, and cuts in government spending. The gap is obscured by growing indebtedness, laying the basis for the next financial and economic crisis.
Tackling the major problems of society requires a strong State able to make the needed large-scale investments both nationally and internationally. It also requires another financial system that places the control of and decision-making on money creation where they belong: with the State. Mainstream economic dogma, however, continues to propagate a monetary system that gives the right to create money to private banks to exploit for their own benefit. Together with other economic policy prescriptions such as lowering taxes, reducing government spending, and downsizing government, economic dogma leads to the opposite of what the world needs.
The unilateral focus of mainstream economics on maximizing efficiency in allocating production factors to meet demand backed up by capacity to pay, as that is assumed to lead to maximum wealth creation, leads to lack of attention for or the ignoring of social and environmental issues. A new economics should aim at providing knowledge and tools to create the greatest wellbeing for the greatest number of people in a sustainable manner, that is, in a way that ensures the basic needs and interests of current and future generations are met.
Equilibrium thinking and the idealization of markets make for a scarcity of money in the “real” economy of the production of goods and services. Money creation for direct use by the State is the only way to solve the problem of the growing gap between productive capacity and demand. More importantly, it is the only way to deploy society’s productive capacity to meet both private and public demand, in particular that related to the transition to a “green”, ecologically sustainable and socially just economy and society.
It is essential for economists to realize that their science is not science but a faith, a system of beliefs based on a distorted and unilateral worldview. A faith, moreover, that blocks the further development and progress of society. If economists are unable to rebuild their failing science, non-economists will have to push them to do so. That drive for change will have to come from a broad front of socially conscious citizens, non-economist scientists and opinion leaders.
The first step towards change is on the one hand, to put into question current economic theory and practice. Parallel to that discussion the debate must be opened up on the transition to a new monetary system, based on money creation by and for through the State, enabling society to fully develop and deploy its productive potential for addressing its economic, social and environmental problems.