Friday, 4 January 2013

Fatal Fallacies of Suicide Economics

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= Keynote presentation to the US Society for Ecological Economics. June 19, 2011, Lansing, Michigan


David Korten

"Let’s not mince words. The established mainstream of the economic thought is driving human societies to collective suicide. It deserves a more evocative label than neoclassical, neoliberal, or even market fundamentalism. Let’s call it what it is: A “Suicide Economics” for a “Suicide Economy.”
Suicide economics gets it wrong on nearly every major issue because it is built on a foundation of fallacies. It ignores natural limits, confuses means and ends, uses the wrong measure of value and the wrong unit of analysis, and it relies on a single improperly defined criterion function. And this is only my personal favorites short list. Let’s go through these five fallacies one by one.
The first fallacy, the failure to address natural limits, is a foundational theme of ecological economics. No need to say more about that here.
The second fallacy, the confusion of ends and means, is reflected in the convention of treating people and nature as externalities. The practical implication is that rather than treating the well-being of people and nature as the purpose of economic activity, suicide economics treats people and nature merely as means for making money for people who have money, a grotesque reversal of ends and means. As David Batker pointedly asks in his documentary: What’s the economy for anyway? The answer should be obvious. Serving people and nature is the only legitimate purpose of an economy.
The third fallacy, the wrong measure of value. Suicide economics uses money rather than life as the basic measure of value. So gold, which we could easily live without, is considered more valuable than air, soil, and water, which we cannot live without. This leads to the destruction of air, soil, and water to extract gold from under the ground so we can refine it—all at enormous cost to people, soil, air, and water—and then lock it away back underground in great vaults. And this seems to make perfect sense to suicide economists. There is truth to the clich√© that “An economist is a person who knows the price of everything and the value of nothing.”
The fourth fallacy, the wrong unit of analysis, is expressed in the choice to build the analytical structure of suicide economics around the firm rather than the household. This leads to measuring economic performance by financial returns to pools of money aggregated as firms, rather than by contribution to increasing the health and happiness of people, households, and communities. Consequently, maximizing corporate profits becomes more important to policy makers than assuring that people have living wage jobs.
The fifth fallacy is the improperly defined single criteria function. Have any of you had the experience of piloting an airplane? If you haven’t, perhaps you can at least imagine trying to pilot an airplane with your windows blacked out, an airspeed indicator as your only instrument, and a decision rule that says do whatever increases your airspeed. You are absolutely guaranteed to fly the plane right into the ground—which is exactly what we are doing with the economy by using GDP growth as our primary indicator of success.
Successfully piloting an airplane under conditions of limited visibility requires a whole dashboard of instruments: altimeter, rate of climb and descent, air speed, a directional indicator, engine rpm, fuel gauge, oil pressure, engine temperature, etc. Making policy adjustments to guide a complex national economy is no less complicated and requires a dashboard of indicators.
Promoting these fallacies as truths, suicide economists have demonstrated their ability to misdirect society to create an economic system that converts the real living-wealth of the many to the phantom financial-wealth of the few and convince the public that it is a gain for everyone. The results conclusively demonstrate that it is a very bad idea and people are waking up to the reality that suicide economists have a limited grasp of reality, are knowingly fronting for the ruling oligarchy, or some combination of the two.
We all know that the standard measure of GDP counts a lot of bad things as goods. Joshua Farley takes it a step further by pointing out that GDP is best treated not as a measure of benefit, but rather of the aggregate economic cost of producing any given level of human well-being. That is the real bottom line.
We are measuring economic performance based not on benefits, but on costs, and no one even seems to notice. That explains why, as Herman Daly once famously observed, we are managing the world as if we were holding a going out of business sale.
Let’s go a bit deeper on the issue of the firm vs. the household as the unit of analysis. Suicide economics focuses on financial returns to the firm rather than the well-being of the household, which accounts for a lot of faulty conclusions."

2. From Separation and Domination to Integral Partnership
Living in isolation from nature we seek to dominate, overwhelm, control, and expropriate nature’s life serving generative processes to grow a number on a computer hard drive. The resulting destruction of the biosphere, the source of life and all real wealth, is an act of collective insanity.

To work in partnership with Earth’s biosphere we must first understand its structure and dynamics as an exquisitely complex planetary-scale fractal structure 3.5 billion years in the making. It self-organizes everywhere in a dynamic, constantly evolving, locally and globally adaptive process to optimize the sustainable use of nutrients, energy, and water in support of life. All resources are continuously locally repurposed and recycled with zero waste. Redundancy and diversity optimize local adaptation, resilience and creative potential. It is an incredible system, in which suicide economists take virtually no interest beyond figuring out new ways to extract its wealth for immediate financial gain.
Suicide economics has supported the creation of a global economic system that isolates people and communities from the sources of their food, energy, water, materials, and manufactured goods—and leaves them dependent on corporate controlled global supply chains that are wasteful, unstable, unaccountable, and environmentally and social destructive. This isolation is psychologically, socially, and environmentally devastating.
The underlying system structure and dynamics of the suicide economy are in most every respect opposed to those of the biosphere. Working in opposition to the biosphere, the global suicide economy is maintained only by unsustainable dependence on a non-renewable fossil fuels subsidy. That economy is already failing and its ultimate collapse is only a matter of time. As ecological economists, we are all aware that so long as the current economic system remains in place, there will be no economic recovery for the mass of humanity. The economic stresses experienced by 99% of the world’s people will only increase. We pay a terrible price for our arrogance.
The human future depends on navigating a transition to the culture and institutions of a New Economy system that works in cooperative integral partnership with the biosphere and self-organizes toward:
  • Ecological Balance between aggregate human consumption and the regenerative capacity of Earth’s biosphere.
  • Equitable Distribution of real wealth to meet the needs of all.
  • Living Democracy to secure economic and political accountability to people and community through active citizen participation.

This New Economy must be a system that aligns and integrates with the structure and dynamics of the biosphere.
It requires segmenting the borderless global economy into a planetary system of interlinked self-reliant bio-regional living economies that function as locally self-reliant subsystems of their local ecosystems, each rooted in a community of place and organized to optimize the use of local resources to optimize the lives of all who live within the community’s borders.
In the manner of the biosphere, these regional economies will meet most needs with local production using local resources in the manner of local ecosystems. They will benefit from trading their surplus with their neighbors in return for that which they cannot reasonably produce for themselves.
I can imagine that at this point some of you are thinking, “But most of these issues lie outside the established domain of ecological economics. What does it have to do with us?”
That is exactly the point. Ecological economics has made an important start on defining a new economics. But it has squandered far too much of its intellectual energy on a futile effort to gain the respect of diehard suicide economists. So rather than boldly framing the new economics we need, it has embraced many of the frameworks and conventions that an authentic ecological economics must displace.
Ecological economics must become a true living-systems economics that deals with the organization and management of the human relationship with the biosphere—the household writ large. It properly takes the health and happiness of people and nature as its defining purpose and standard of value. It begins with the household as its defining unit of analysis. It defines appropriate institutional structures. And it replaces GDP with a dashboard of living system indicators.
Instead of tweaking suicide economics at the margin with natural resource pricing studies, it must offer a true alternative and establish a strong public communications outreach presence devoted to redefining the public debate on economic policy choices.

3. Practical Agenda
The New Economy Working Group, which I co-chair with John Cavanagh of the Institute for Policy Studies in DC has been working to frame a policy agenda for advancing the transition from the institutions and dynamics of the suicide economy to the institutions and dynamics of a New Economy that self-organizes toward ecological balance, equitable distribution, and living democracy.
We have framed a seven part agenda, each part focused on a critical system pressure point. It provides a useful framework for thinking through the practical implications of taking ecological economics to the next level. Each of the seven action clusters is defined by a critical systemic source of suicide economy failure, paired with a needed system redesign intervention. The goal of this agenda is to move the locus of economic power from global financial markets to local communities and shift the values focus from making money for the rich to creating community wealth for everyone. This is a crucial step toward bringing the structure and dynamics of our human economies into alignment with those of the biosphere.
I want to briefly review each action cluster so you get a sense of the scope of the issues and needs to be addressed.

  • Problem 1: Financial Indicators. The use of financial indicators like gross domestic product (GDP) and the Dow Jones industrial average to assess the performance of the economy gives priority to making money for rich people over improving the lives of all.
Solution: A Dashboard of Living Indicators. Optimize sustainable human well-being by evaluating economic performance against an array of indicators of human- and natural-systems health. The Bhutan experiment with a happiness index is an excellent start.

  • Problem 2: A Wall Street Money and Banking System. Wall Street control of the creation and allocation of money gives control of our lives and national priorities to institutions devoted solely to maximizing private financial return through financial games that contribute nothing to the creation of anything of real value.
Solution: A Main Street Money and Banking System:Decentralize and democratize the money system so that the power to create and allocate money resides in a system of community banks, mutual savings and loans, and credit unions accountable to local people and devoted to serving local financial needs. I’ll elaborate on this in a moment.

  • Problem 3: Wealth Concentration. Wall Street interests use their political power to cut taxes for the rich and advance trade, fiscal, workplace, and social policies that suppress wages, erode worker protections and cut services and safety nets for those most in need—creating an ever more extreme concentration of wealth and social dysfunction.
Solution: Equitable Distribution. Implement fiscal, workplace, and social policies that distribute income and ownership equitably. Equitable societies are healthier, happier, more democratic, and avoid both extravagance and desperation.

  • Problem 4: Soulless Corporations with Absentee Owners. An ideology of market fundamentalism has embedded a belief in the public culture that the sole purpose and responsibility of a business enterprise is to maximize financial returns to its owners. This belief legitimates the control of productive resources by soulless corporations possessed of artificial rights bestowed by unelected judges that seek immediate profit for absentee owners and sociopathic managers and deny responsibility for negative social and environmental consequences.
Solution: Living Enterprises with Responsible Living Owners. Advance public policies that favor living enterprises with living, locally rooted responsible owners who seek a living return that includes a healthy community and a healthy natural environment. Cooperative, worker- and community-owned enterprises are positive examples. Tax away the profits of short-term capital gains to discourage the speculative public trading of corporate shares by absentee owners.

  • Problem 5: Market Monopolies and Big Money Politics. Global corporations operate beyond public accountability to monopolize economic and political power under unified management with no external accountability. They use this power to manipulate markets, extract public subsidies, and externalize social and environmental costs—all in violation of foundational principles of socially-efficient fair-market competition and one-person one-vote democracy.
Solution: Properly Regulated Markets and Real Democracy. Breakup concentrations of corporate power, bar corporations from competing with living human beings for political power, and implement rules and incentives that support cost internalization, and fair competition. Corporations are creations of government and government has a responsibility to assure that they are democratically accountable and play by proper market rules.

  • Problem 6: Fragmented, Colonized Local Economies. Fragmented local economies dependent on global corporations for jobs and basic goods and services leave people and nature captive to the financial interests of distant institutions that are interested only in extracting community wealth, not creating it.
Solution: Self-Reliant Bio-Regional Economies. Pursue local economic development programs that build diversified, self-reliant, energy efficient, democratically self-organizing regional economies comprised of locally-owned living enterprises accountable to local owners and devoted to serving local needs.

  • Problem 7: Global Rules By and For Corporations. Global rules formulated and enforced by corporate dominated institutions like the WTO facilitate and enforce the concentration of corporate power and shield it from democratic accountability.
Solution: Global Rules By and For People. Restructure global rules and institutions to limit the concentration of corporate power, support balanced trade and national ownership, and secure the economic sovereignty of people by assuring that any corporation that operates across national borders is democratically accountable to the communities in which it does (

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