Conclusion: Future Economics and a Future Economy?

Chapter 16 from my forthcoming book Rebuilding Economics from the Top Down

No Room for Pluralism

A frequent refrain amongst non-mainstream economists has been that economics education should be "pluralist": it should introduce students to many schools of economic thought, and not just Neoclassical economics. This is portrayed by its advocates as a noble objective—to cite the website "Promoting Economic Pluralism":127F

The term pluralism is generally used to contrast with so called 'mainstream' economics teaching which generally only focusses on one school of economic thought called neo-classical economics. This has a number of key assumptions that are central to its approach such as economic agents seeking to maximise their individual happiness and markets tending towards equilibrium and generally leading to efficient outcomes. Pluralism in contrast recognises and teaches a range of different approaches to understanding the economy and its interaction with the wider social and environmental systems in an interactive, reflective and engaging manner.

This is Chapter 16 from my forthcoming book Rebuilding Economics from the Top Down, which will be published by the Budapest Centre for Long-Term Sustainability and the Pallas Athéné Domus Meriti Foundation. I am serialising the book chapters here. A watermarked PDF of the manuscript is available to supporters.

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However, pluralism is really a concession to the fact that Neoclassical economics dominates the academic teaching of economics, is hostile to any other approach, holds the purse-strings for research funding, and acts as a gatekeeper against alternative paradigms at all but the most lowly-ranked of universities. The only way for non-Neoclassical teaching and research to survive at Universities is therefore to plead for pluralism, which translates as asking Neoclassical departments to not persecute their non-Neoclassical staff, and to tolerate some courses being not strictly Neoclassical in nature.

This should not be happening, because Neoclassical economics should already belong to the history of economic thought, as a failed paradigm every bit as wrong about the economy as Ptolemaic Astronomy was about the universe. If economics responded to paradigmatic anomalies as physical sciences do, then Neoclassical economics would have died by the early 1970s, and a new paradigm would have replaced it.

Instead, because the generational change dynamic of a physical science does not apply to social sciences, economics avoided a scientific revolution, despite the numerous anomalies it had accumulated by then. A partial list of the anomalies that had mounted up against it by the early 1970s include:

• The Perron-Frobenius Theorem, developed in the early 1900s as an exercise in pure mathematics,128F which coincidentally proved that Walras's tatonnement process cannot reach equilibrium (Jorgenson 1963, 1961, 1960; McManus 1963; Blatt 1983, pp. 131-137);

• The Great Depression, which a self-equilibrating system would not have experienced (Fisher 1933);

• The empirical fact that real world firms have constant or decreasing marginal cost curves, thus invalidating the concept of the supply curve (Andrews 1949);

• The Cambridge Controversies, which showed that the marginal productivity theory of income distribution could not be correct (Sraffa 1960; Samuelson 1966; Garegnani 1970; Harcourt 1972); and

• The so-called "Sonnenschein Mantel Debreu Theorem", first discovered by Gorman in 1953 and Samuelson in 1956, which proves that a downward-sloping market demand curve cannot be derived from individuals with downward-sloping individual demand curves (Gorman 1953; Samuelson 1956; Sonnenschein 1972).

I could go on, but those will suffice. These and myriad other anomalies should have led to a scientific crisis and ultimately, a scientific revolution.

But not only did Neoclassical economics not experience a crisis, it became even more extreme in its devotion to its original foundations, in sheer ignorance that these foundations had been proven to be unsound.

The fact that Paul Samuelson himself conceded defeat in the Cambridge Controversies129F was forgotten, and every one of those intellectual failures listed above led not to the soul-searching that occurs in a physical science, but to a canonical dogma. The Perron-Frobenius theorem showed Walras' equilibrium is mathematically unstable? Then let's just assume stability (McManus 1963; Jorgenson 1963, 1961, 1960)! Equilibrium, having failed logically, was converted from the necessary but temporary salve that Jevons, Marshall and Clark perceived it to be, prior to the development economic dynamics, into a defining aspect both of what economists think is a science (Lazear 2000),130F and of its normative perceptions of capitalism.

I am not saying that Neoclassical economists did this as a conscious strategy—the majority of them are unaware that these anomalies even exist.131F This defence of the paradigm when an anomaly is identified is also standard behaviour by scientists who are supporters of a paradigm when it is first rend asunder by a fundamental anomaly.

For example, by developing the telescope, Galileo gave birth to the paradigm of a Sun-centric solar system which we now name after Copernicus, because the telescope provided conclusive proof that the Ptolemaic Earth-centric paradigm was false. It revealed craters on the Moon, which showed, not only that "Heavenly Bodies" weren't perfect spheres, but also that there also must have been collisions between celestial objects in the past. It showed that a core principle of Ptolemy's model, that everything orbited the Earth, was false, because there were clearly Moons orbiting Jupiter.

And how did Galileo's contemporaries react? We all know of his treatment by the Catholic Church, but more telling was the refusal of Ptolemaic astronomers to use the telescope in the first place:

"My dear Kepler," wrote Galileo to his friend, the German astronomer, "what would you say of the learned here, who, replete with the pertinacity of the asp, have steadfastly refused to cast a glance through the telescope? Shall we laugh, or shall we cry?" (Maccagni 1964, p. 24. Emphasis added)

A similar behaviour pervades Neoclassical economics. I footnoted earlier that Alan Blinder's book Asking About Prices (Blinder 1998)—which found inter alia that the vast majority of America's GDP is produced under conditions of constant or falling marginal coat—has had only one review on Amazon after a quarter century of existence, while Mas-Colell's Microeconomic Theory (Mas-Colell et al. 1996), a core Neoclassical text for PhD programs, has almost 150—see Figure 71.

Figure 71: Read about reality or unreal theory? For Neoclassicals, theory wins hands down!

To further illustrate that Neoclassicals don't read what they don't want to know, that one review was written by me.

A more prominent example is the Neoclassical treatment of the Central Bank papers "Money creation in the modern economy" (McLeay, Radia, and Thomas 2014) and "The role of banks, non- banks and the central bank in the money creation process" (Deutsche Bundesbank 2017) that categorically rejected both the "Money Multiplier" and "Loanable Funds" models of money creation. Not only did Neoclassical economists trivialise these papers (Faure and Gersbach 2022) as I explained in Chapter 10, they also completely ignored them when they awarded the 2022 "Nobel" Prize to Bernanke, by not even citing them in the so-called "Scientific Background" paper for the Prize (Committee for the Prize in Economic Sciences in Memory of Alfred Nobel 2022).

A school of thought that will not even admit that anomalies exist is one that has clearly failed. But Neoclassical economics staggers on because, unlike a true science, there is no process of generational change that can bury a failed paradigm along with the corpses of its adherents.

Consequently, academic economists who have taken these anomalies seriously and have abandoned the Neoclassical school, still find themselves dominated by Neoclassical economists, both at individual universities and in the profession as a whole. Their situation is akin to Galileo, who was forced to recant the concept that the Earth moves to avoid execution by the Inquisition. Economists calling for Pluralism are, consciously or otherwise, muttering "And yet it moves" under their breath, while being forced to pretend otherwise to avoid being driven out of Universities altogether.

Pluralism is thus a survival tactic by non-mainstream economists, rather than a call to "let a thousand flowers bloom". In reality, there is no place in a scientific economics for as flawed a paradigm as Neoclassical economics, but economics cannot be relied upon to reform itself and reject this failed paradigm via a scientific revolution.

The only way forward that I can see is for real scientists to realise how unscientific the Neoclassical paradigm is, and to develop an alternative themselves, building on the foundations laid predominantly by economists from the realism-oriented Post-Keynesian tradition.

There are some scientists who are already aware of this need, such as Ole Peters (Peters 2019; Peters and Adamou 2022; Peters and Gell-Mann 2016), who has started to develop what he calls Ergodicity Economics, as I noted in Chapter 12.133F Many more will be motivated to develop an alternative when they realise, as a few have already, that the appallingly bad work by Neoclassical climate change economists is a major reason why humanity has done so little to address global warming:

Professor Nick Cowern: It has only today percolated into my ignorant consciousness that the reason governments are doing next to nothing on climate is bad economics. Siloed economics that knows nothing about climate impacts on human civilisation. Economics papers reviewed only by fellow economists.

This book is a call for the new paradigm of economics that can take the place of Neoclassicism: a paradigm which credits the Physiocrats as the true originators of economic thought, which recognises the crucial role of energy in production, which acknowledges the dependence of the human economy on the natural environment and the feedbacks upon it, that embraces complexity and evolution in place of equilibrium, that treats capitalism as a monetary system of production, that recognises the symbiotic State and Private nature of capitalism, and which neither eulogises nor disparages either component. In stark contrast to Neoclassical economics, the ultimate foundation of this paradigm will be realism.

Will Civilisation Survive Neoclassical Economics?

I wish I could end this book merely with the call for a new economics. But, given the success that Neoclassical economists have had in trivializing the dangers of global warming, I have to speculate about a far less desirable outcome—a "new economy" created by the damage that global warming will do to our civilisation.

The damage will not be uniform across the globe of course. Some countries will be far more affected than others, simply because of their location on the globe, and their geography. Northern latitude countries will experience far larger changes in temperature, and far more erratic and violent precipitation, which could destabilise their food systems long before new topsoil can form to enable farming in once-frozen soils.

Tropical latitude countries will have much smaller temperature increases, but these may still push them towards levels at which human survival—and indeed mammalian survival—is impossible (Vecellio et al. 2022). Some regions may be driven into desert conditions—such as Europe, which, if the AMOC collapses, will also suffer civilisation-impairing falls in average temperatures—while globally, rainfall will increase dramatically, and in dramatic fashion.

Under stresses like these, I cannot see the globalised economy we have constructed surviving. Countries that can produce enough food for their own populations will cease exporting. Countries with sufficient energy may reserve their resources for their own use. Shipping will become more expensive and dangerous, as storms and vastly altered climatic conditions disrupt transportation. Countries that outsourced their manufacturing to take advantage of lower wages elsewhere on the planet will rue their shortsightedness, as they find themselves unable to manufacture the goods they once imported, and lacking the engineering skills needed to construct replacement factories.

The private finance system is also highly likely to break down. Financial assets are already highly overvalued, thanks to the dynamics of credit creation for asset purchases, as explained in Chapter 10. In addition, the extent to which the finance markets have been conned by economists over the economic impact of global warming—as exemplified by Stuart Kirk's belief that, even with 3°C of warming, GWP will be 5-10 times what it is today—means that a "Minsky Climate Moment" is inevitable: a collapse of asset prices will occur when the gap between reality and the fantasies peddled by economists becomes too evident to ignore (Keen 2023, p. 63).

When that collapse occurs, the credit money system will collapse, and fiat money system will be critical to the survival of national economies. WWII showed—though Neoclassical economics succeeded in obscuring the lesson—that fiat money creation financed the War effort on all sides of the conflict, enabling both the rapid conversion of industry from peacetime products to armaments, and feeding the armies that used them.

As the then Chairman of the New York Federal Reserve Beardsley Ruml observed in 1946 in "Taxes for Revenue Are Obsolete" (Ruml 1946), government spending, and not government borrowing, financed the War effort, and the same will apply in the "War on Climate Change" that will be necessary if we are to have any hope of maintaining our industrial civilisation. War Bonds were sold, not to finance the War, but to reduce civilian consumption to both control inflation, and to enable most of each country's productive resources to be devoted to Wartime manufacturing: silk was reserved for parachutes rather than for stockings. An even greater redirection of production must occur if we are to successfully combat climate change.

A market-dominated system of distribution is also likely to be superseded—or at least supplemented—by rationing of essential products like food and energy. A society that lets prices and perversely distributed wealth and incomes determine who survives, will be a society that does not itself survive. Initiatives like a Universal Basic Income, or an equivalent scheme that guarantees minimum provisions of food, energy, and shelter, will be essential.

Geoengineering is also inevitable: we have been doing it by negligence in any case for the last 250 years. We will need to do it deliberately, to buy time as we transit away from fossil fuel energy sources, and reduce our total consumption of energy at the same time. Programs like MEER—"Mirrors for Earth's Energy Rebalancing" (

https://www.meer.org/

) will be essential.

Unfortunately, far more disruptive methods are likely to be undertaken instead. The failure of international agreements to curb global warming has until now led to inaction. But, if truly calamitous events occur—such as the "Wet Bulb Catastrophe" that opens Kim-Stanley Robinson's The Ministry for the Future (Robinson 2020)—then rogue geoengineering will be the new product of failed international agreements. Countries with the capability will do what they believe is necessary to ensure the survival of their own citizens—irrespective of what it might mean for citizens of other countries.

Equally, rogue fossil fuel usage will be likely: a country that sees millions of its citizens die because of insufficient air conditioning, or the failure of the electricity grid, is likely to ramp up rather than reduce fossil fuel usage—if it can secure supplies.

In such a world, societies that are divided and fractious—such as the USA and the UK—are unlikely to survive if they remain so. Only societies with a strong sense of national identity and cohesion are likely to accept the strictures needed to ensure that the burdens imposed by climate change are shared relatively fairly.

Ironically, policies that enable some countries to survive climate breakdown will look like those that conspiracy theorists believe are being planned by "the elites" of today's world. But planning is the last thing that got us to this state. Instead, a shared set of delusions, largely crafted by Neoclassical economics, has led us into this predicament. As has happened many times before to individual civilisations, the current global elite will be undone by believing the self-serving fantasies peddled to them by their priesthood. The only differences this time are that the priesthood is a secular one, and that the crisis is not limited to a single Empire, and it affects, not merely the whole of humanity, but the totality of life-forms with which we cohabit the Earth.

If there is to be a human civilisation after the disruption that global warming will cause to our existing civilisation, then it has to be one that puts the maintenance of the conditions for life, and not the accumulation of wealth, as the primary goal of humanity. This will require a profound shift in human philosophy from the utilitarian and human-obsessed mindset out of which Neoclassical economics grew, and which it has ingrained, to our existential peril, into the fabric of our civilisation.