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Welcome to the views of the 8%
WE are often too busy to stop and question why our economy seems to work for so few of us. Finding the time or the headspace is hard. So it is no surprise that it seems almost insurmountable to get to the even more important question: What can we do about it?
If you look for solutions, you will find the same answers in mainstream publications like The Economist, FT or Bloomberg. These publications are staffed by economists who have a neoclassical economics education. They represent the orthodoxy in economics. They see the world and the economy in a very particular way.
They see individuals maximising their utility who act totally selfishly. Individuals also have perfect knowledge of every possible outcome, which extends into the future. We are all viewed as the rational economic being Homo economicus.
This picture of individuals all acting in the same way leads to a certain understanding of how the economy works. It also naturally leads to certain perceived solutions or policy suggestions. This orthodoxy proudly presented austerity as the only way to recover from the 2008 global financial crisis. That narrative continues. In April, we heard from one of those orthodox economists, the Bank of England Chief Economist Huw Pill. He said that people in the UK had to “accept that they’re worse off”. We disagree.
There is another view of the economy represented by Heterodox economists. One of the world’s leading Heterodox economists, Australian firebrand Steve Keen, reckons around 92% of economists in positions of power in politics, companies, universities and the media are from the orthodox school. Welcome to the views from the 8%.
If you have a different view of individuals, firms and the economy, we believe you arrive at different policy suggestions. That journey starts with understanding that the economy is not like a machine.
Orthodox economists think you can pull a policy lever here, and a desired outcome pops out the other end. They love this idea because it is much easier to replicate using their favourite tool, mathematics. Their economy is a simple system with some very complicated, mostly impenetrable, mathematics. To understand their type of economics, you have to really understand mathematics. It is a successful insulation policy.
A Heterodox economist believes the economy is a complex, dynamic living system that reacts unpredictably. Individuals and firms are heavily influenced by the actions of others; and as English Economist Paul Ormerod outlined in his fascinating 1998 book Butterfly Economics, this is one of the system's defining features. The orthodox framework has no room for peer pressure, power dynamics or social proofing. What one person does has no effect (except raising or lowering the price the next person pays). The 8% represents the economics of the real world.
The economy is a subsystem of the planetary ecosystem
The economy relies on energy and natural resources to function. Without those, there is no economy; there is no life. Understanding that the economy is a subsystem of the ecosystem also means there must be a maximum size for an economy. Orthodox economists see the economy as a stand-alone independent closed system able to magic up resources and make waste disappear. That can grow forever.
Seeing the economy as a complex subsystem of the ecosystem is as obvious as it is profound. Looking at how the world works in the real world, rather than through the lens of mathematics, opens up a new perspective on the economy. And this has never been more essential. Almost half a century ago, the American Ecological Economist Richard Norgaard considered how development might be maintained without driving a fatal wedge between society and the environment. “the assumptions of the neoclassical model are inappropriate for these questions,” he wrote.
We need to answer even more questions than Norgaard considered in the 1980s.
- How do we end the rampant inequality that is breaking our social fabric?
- How do we restrain corporate power?
- How do we achieve full employment?
- How do we end poverty?
- What can we do with the knowledge that governments that issue their own currency are not financially constrained? Or that natural resources are finite and financial resources are infinite
This is the economics of the real world.
Over the coming weeks, we will be giving you the view of the 8%. Scotonomics provides nourishment for independent minds, and we are delighted to be working with The National to serve up some more food for thought. 
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