The University of Vermont's Independent Voice Since 1883

The Vermont Cynic

The University of Vermont's Independent Voice Since 1883

The Vermont Cynic

The University of Vermont's Independent Voice Since 1883

The Vermont Cynic

Moving Beyond Autistic Economics

Neoclassical economics is autistic in that it is very intelligent but obsessive within its very closed and narrow perception. But there is hope, through a movement called post-autistic economics giving light to the nonmarket transactions that have significant costs and benefits. This includes true cost pricing, ecological economics, and egalitarian domestic and foreign economic polity. Take any introductory economics course and two of the first three “facts” that you will learn have already been proven to be false. There is no such thing as a perfectly competitive market, and it is not the case that people make decisions with total rational self-interest. The theory that international trade policy is based on, that of comparative advantage, is not and has never held true. David Richardo who the theory is credited to, stated that comparative advantage could only hold true if there was no movement of capital between nations, and this is obviously not the case. Economics is a social science based on theory and not fact, yet the theories and ideas behind neo-classical economics has long been pushed as fact. The idea of post-autistic economics started in Paris, France when a group of disillusioned students and faculty members met to discuss the ways in which the “reality” that neoclassical economics perceived and reality perceived through a wider scope of ideas differed. The paradigm is changing and much of it starts here at the University of Vermont. The Gund Institute at the University of Vermont is on the forefront of ecological economic research. Two faculty members within the institute have recently been recognized by Adbusters as leaders in the field, Robert Costanza the head of the Gund Institute and Associate Professor Josh Farley. Not to be outdone the Economics Department within the College of Arts and Sciences boasts a heterodox staff of professors who love to disagree and at times agree with each other. In hiring many universities weed out those who don’t fit the autistic neoclassical mold, at the University of Vermont students find a wide variety of economic viewpoints within the classroom, from staunch neoclassical to forward thinking egalitarian. Economics chair Stephanie Seguino said of the economics profession that, “Some people may question whether there is a free market of ideas within the economics profession, but the more diversified a faculty is the more ideas are shared, debated and understood.” What is not being more understood by economists and students around the world is that economics is not a science within itself but a hybrid of many. Thermodynamics, ecology that is of itself a hybrid science, sociology, psychology are all apart of what makes up the post-autistic economic spectrum.

Ecological Economics

Neoclassical economics believes in a world where there is unlimited growth, where resources are used in a way to meet demand rather than to keep the sustainability. For many neo-classical economists the depletion of resources is not a cause for concern; Robert Solow, a Nobel laureate in economics, said, “if it is very easy to substitute other factors for natural resources, then there is in principle no `problem.’ The world can, in effect, get along without natural resources, so the exhaustion is just an event, not a catastrophe.” Catastrophe does lie in the fact that there is no easy substitute for many of the resources world economies are now dependent on. Ecological economics believes that the world’s economic system cannot exceed the scope of the world’s ecosystem. Many of the ideas within the field are influenced by thermodynamics, which is a discipline of physics that analyzes the energy process. The first law of thermodynamics is that energy can neither be created nor destroyed and the second law is that everything in the university has a natural tendency toward entropy (disorder). The pioneering ecological economist Herman Daly came up with two golden rules for ecological economics based off of the first two laws of thermodynamics. First, the extraction rate of natural resources should be at the same rate the same resources regenerate, this is known as sustainable yield. Second, waste emission rates should be at the same rate that ecosystem can assimilate the waste According to the Gund Institute’s Josh Farley there are three pillars of ecological economics 1) ecological sustainability, 2) distribution, and 3) efficient allocation, these three pillars are in order of priority. Under economics sustainability natural resources should only be extracted and used in a way that are in accordance to the first two rules of thermodynamics as explained earlier. Only after natural resources extracted and industry manufactures with sustainable and low impact means can distribution be truly effective and sustainable. Efficiency means nothing if the practices are not ecologically sustainable with egalitarian distribution.

True Cost Pricing

In the current pricing method under neoclassical economics does not take into account the environmental, social, and health costs associated with a given good or service. Under true cost pricing the price of tobacco products would incorporate the health costs associated with smoking. The price of a banana would incorporate the environmental costs of shipping the fruit a few thousand miles to your market. Local produce would be cheaper than produce grown a thousand miles away. An Iowa State University study in 2001 showed that the produce consumers bought within the state traveled an average of 1,494 miles. Organic produce would cost less than conventional produce. In 1999 an Essex University study determined that on average taxpayers in the UK spent 2.3 billion pounds a year the counter the damage to the environment and human health caused by the farming industry. This cost includes the cost of purifying water contaminated with pesticides, nitrates and other farm pathogens.

Jeffery Hollender, the CEO of the Burlington based company Seventh Generation, said, “If we had full cost accounting, so that the externalities of every product were factored in, the world would be a different place…It would be a lot easier to make the right business decisions.”

GPI over GDP

Gross Domestic Product (GDP) only measures the costs and benefits of market transactions. According to the autistic paradigm an increase in the GDP correlates to an increase in national welfare. But, GDP does not differentiate good costs and bad cost, for everything is counted as positive. To give and example an oil spill actually increases GDP because someone must be paid to clean it up. According to a report made by the Gund Institute of Ecological Economics, “From the perspective of GDP, more crime, sickness, war, pollution, fires, storms and pestilence are all potentially good things, because they all generate economic activity in the formal market.” An alternative to the GDP is the Genuine Progress Indicator (GPI); this differs from the GDP because it gives value to nonmarket transactions such as caring for a family member, as well as giving value to air and water quality among other environmental considerations. The GPI was the brainchild of Redefining Progress, a progressive think-tank based out of Oakland, California. According to the same report by the Gund Institute, “While [the GPI] is far from perfect, it is a better approximation to economic welfare than GDP, because it accounts for income distribution effects, the value of household and volunteer work, costs of mobility and pollution, and the depletion of social and natural capital.”

Egalitarian Economic Policy

Since the dawn of Reganomics in the earlier 1980’s labor and financial markets have continued to be deregulated under the economic ideology of neoliberalism. Neoliberalism an ideology that falls under the umbrella of neoclassical thought in that the goal of neoliberalism is to create free trade and free markets. Over the past 20 years labor unions have grown significantly weaker, during this time companies went to great lengths to deny employees this right. Financial markets have been deregulated allowing a hyper-speculative atmosphere that was a big factor in the growth and explosion of the tech bubble of the late 1990’s. One egalitarian policy method would be through labor regulation, creating a livable wage where families would not have parents working full-time yet still finding themselves below the poverty line. Also by defending a right that has been largely ignored with neoliberal policy, the right to organize labor unions. Another egalitarian approach would be through financial regulation. Throughout the neoliberal era there has been great financial deregulation, this according to the Keynes leads to destabilization through speculative forces. Regulation should be consistent in all financial markets so that corporations are not able to find their way around regulation. Also, that financial transactions should be taxed this is known as the Tobin tax, .5 percent rate for stocks, this would generate an estimated $100 billion per year in revenue, this will also decrease market speculation and would promote the holding of assets for a greater time. Another suggestion is creating an asset based reserve requirement that would decrease risky investment and would be a powerful tool to stop the formation of market bubbles. Labor and financial regulation would actually strengthen the US worker’s position in regards to foreign exports.

Conclusion

The post-autistic economic movement is still in its youth, with most academics and professionals who adhere to the neoclassical dogma being resistant to acknowledging the flaws of their thought. The universities, such as Harvard, Yale, and MIT, who in many ways tend to dominate the economic thought behind the most powerful economic policy makers have dug their heels into the ground. There are very few graduate programs around the country that offer a heterodox economic curriculum that incorporate many of the post-autistic economic ideas. The bureaucracy within academia causes it to be slow to change, especially when departments are established with those who make the decisions being “autistic.” In many cases at universities around the country professors who do not fully adhere to neoclassical theory find it hard to come up for tenure. In Paris at such universities as the Sorbonne and Ecole Normale Superieure students have taken action, by collecting hundreds of signatures, demanding that there be a reform in the curriculum within the economics departments. The student’s demands were mostly met by the administration at the universities.

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Moving Beyond Autistic Economics