When Mainstream Economics Is more Messianic than Dismal

In conversations about economic policy, commentators score major rhetorical points if they can portray themselves as “very serious.” They often succeed at this by acting “tough” and advocating hard sacrifices (almost always for other people). For example, Paul Krugman loves mentioning how Bowles and Simpson benefit from this strategy in the debate over budget deficits.

Underlying this bizarre rhetorical trick is the idea that mainstream economics is a dismal science. Because many economists dismally assume that “people are motivated principally by greed and that numerous constraints exist,” they effectively portray themselves as realists. And they’re able to get away with it through the classic pessimist’s argument: I would be an optimist if I could, but I’d rather be right.

While playing the pessimist card often works in economic debates, there’s a logical problem with classifying the discipline as dismal: mainstream economists are often unrealistically optimistic about the beneficial effects of individuals acting in their own self-interest (i.e. markets). When it comes to climate change, mainstream economics is more messianic than dismal.

I don’t know how many times I’ve heard that if we can get the price signals right with a carbon tax, we’ll be able to effectively deal with climate change. Let’s unpack this. The idea is that if we tax fuels that emit carbon dioxide at the right rate, we can perfectly balance the benefits of pollution with its costs and continue economic growth. While distributional issues worry leftists (who is “benefiting” from pollution and who is facing the costs today and in the future), more technical concerns should worry everyone.

At its core, a carbon tax attempts to use a market mechanism to correct for the fact that companies and consumers are not taking the social costs of pollution into account. Once they do so, GDP can go back to growing. Capitalism, saved from the crisis it created, can return to raising standards of living. But can a carbon tax and “green growth” save the system? Recent research suggests not: “decoupling [GDP and greenhouse gas emissions] as a main or single strategy to combine economic and environmental aims should be judged as taking a very large risk with our common future. To minimize this risk we need to seriously consider reducing our dependence on growth.” In short, the authors explain how continuing to prioritize economic growth will make it extremely difficult to meet international climate targets.

Furthermore, if we take any semblance of intergenerational equity as a starting point, the system needs technological progress to eventually break our unsustainable dependence on ecological services and natural resources. Otherwise, future generations will not have them. Recognizing the central role of finite natural resources in modern economic life, you have to be pretty optimistic to hope for this, let alone assume that it is inevitable. While a carbon tax would be an improvement over the status quo, it cannot internalize the root of the problem and support indefinite economic growth at the same time.

That mainstream economists’ faith in markets to solve wicked problems allows them to assume that infinite growth is not only possible but inevitable is nothing short of messianic. While mainstream economics can contribute to the conversation about climate change, its models and assumptions are silencing other essential schools of thought, which often point to contemporary damages on the front lines and intertemporal ethical issues.

So what do real solutions look like? First, we can recognize that GDP ≠ our standard of living. Living well is about much more than consumption. We can live better in general with less in total.

Second, we can attack the stories that support GDP growth. The degrowth movement and Naomi Klein’s recent book, This Changes Everything, certainly offer some examples. While I haven’t read Klein’s book yet, the Jacobin review offers choice quotes such as, “'[O]ur economic system and our planetary system are now at war… and it’s not the laws of nature that can be changed.’” Clearly, the messianic science deserves significant blame for its incessant cheerleading.

It’s long past time that we stop treating mainstream economic analysis about climate change as the only serious way to approach the problem. After all, mainstream economists break the number one rule about performing seriousness – they’re unwilling recognize the scope of the problem and advocate difficult changes. While religion is sometimes the opiate of the masses, mainstream economics is certainly the sleeping pill of the chattering classes when it comes to climate change.

Notes: I added a small addition about wicked problems.

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