The depth and breadth of economies

Econology Part 1b: The depth and breadth of economies

[This is a revised version of an essay entitled Econoctopus: the deep and insidious tentacular nature of economies. Edited for clarity.]


When people think about the economy, they most often think in terms of jobs and income but there’s much, much more to economies than that. Almost every decision by every person in every capacity has an economic impact; humans are constantly making economic decisions. There are the obvious personal purchasing, career and education decisions; and then simple time allotment decisions also have economic impact - if only to choose an income generating activity (overtime work, money earning hobby, etc.) or not. On the business side, all decisions have economic consequences: personnel, sourcing raw materials, outsourcing labor, business expansion, waste disposal, product concentration, charitable donations, etc. And every institution, especially and including all levels of governments affect economies; consider how budgets and allocation limit research and social spending; regulation and policy affect business decision which affects jobs and income, closing the loop.

But even this perspective offers only a two dimensional view of economics. For a broader, three dimensional, view, it will be necessary to venture into the realm of externalities and how they feed back to economies. This discussion, in particular, will focus on an often disregarded aspect of the relationship between economies and the environment.

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[This is the continuation of a series of essays describing a systemic way to view economies. It should be read in order:

Econology Part 1a: It's not the economy, Stupid; it's economics]

Given that ‘an economy or economic system consists of the production, distribution or trade, and consumption of limited goods and services by different agents in a given geographical location’ the material flow of an economy can be represented as its transition from raw natural form to finished product ready for consumption before being discarded as waste:

And prior to the industrial revolution, those interested in esoteric economics had no need to extend their study beyond the red arrowed processes of this simple diagram. That’s because the environment supplied the raw materials with such abundance and dispelled waste with such efficiency that economists  assumed these services to be ubiquitous and could safely be disregarded in economic accounting. In reality, economic raw materials and environmental services along with all other planetary matter cycle under some combination of biogeochemical and geochemical forces. In total, these function as nature’s ultimate recycling ‘factories’, continuously cycle matter into different forms:

In keeping with the factory metaphor, for most of civilization, the environment was able to absorb the volume of discarded economic waste and convert it back into raw organic/inorganic materials. Implements composed of organic materials such as wood, leather and edibles were broken down by decomposers and re-entered the food chain; metallic objects corroded over time and dissipated back into the environment. When the volume of economic waste was within the capacity of the environmental factory to process, all planetary matter was in flux, transitioning through stages of formation, degradation and re-formation. So long as the environment was capable of servicing the economy by transforming its discarded products back into raw material input for economic production, the economy could run indefinitely. This gave rise to the assumption that environmental resources are limitless and therefore could be externalized and set outside of economic accounting.

But the transformation of the global economy in the two hundred and fifty years since the advent of the industrial revolution has put additional pressure on the environment. Advances in mechanization, power use and science and technology have scaled raw material extraction, manufacturing capacity and inventions of new synthetic materials to levels beyond what had ever been achieved in the past. With seemingly unlimited power to be had in the seemingly unlimited supply of fossil fuel, business leaders took advantage of every opportunity to profit from exploiting the environment to feed a material economy. One by-product of this frenetic economic activity is the reversal of the balance between human activity and environmental recycling ‘factories’.

This boom in economic activity has affected the environment in three major areas: (1) The extraction of raw material can be highly detrimental to ecosystems and wildlife habitats (see here and here). (2) Materials economy based on high volume consumption and rapid turnover produce high volumes of waste (see here and here). (3) Commercial volume production of synthetic materials (plastics are a good example) adds novel compounds to the waste stream that natural systems are not evolved to break down (see here and here). The long term negative consequence on the environment eventually adversely feeds back to the economy.

By externalizing the environment, economies are treating the environment like a neglected sewage treatment facility. Commercial extraction of resources is equivalent to the destruction of the facility or equipment. This while constantly increasing the rate of input (more and more raw sewage) placing an ever growing demand to increase capacity. Then incoming sewage gradually shifts to contain higher and higher levels of materials the facility was never designed to process and is toxic to current processing methods. The result is an enormous backlog of industrial waste polluting the environment. This is the effect advance economies have not on single economic zones but the entire planet.

The planet and its resources are finite (the mass of Earth is finite). By externalizing environmental resources and assuming they are infinite to support the production and consumption of disposable consumer goods, economies have created an imbalance between consumption and environmental resources. As this imbalance is the product of the economic activity, their resolution lies in economic policy making. This is not to say the solution is to deindustrialize modern economies but rather, a call for economists to incorporate long term environmental sustainability into their economic models.

This would be in keeping with economics as defined in my earlier post: the study of self-organizing, self-sustaining economies to facilitate the production and exchange of surplus goods and services to promote the survival and well-being of workers. After all, Pixar’s WALL-E should be a fictional depiction of future Earth, not a projection of current Earth.


Continued in Econology Part 2: The ecology of economies.

Scorched earth distractions

In today's NYT, Paul Krugman posits that the recent antics of Prime Minister Benjamin Netanyahu of Israel in front of our Congress to stall ongoing negotiations with Iran over nuclear weapons development was an effort to distract Israeli voters from their deteriorating economy. If true, this means Benjamin Netanyahu is willing to risk a potential literal scorched earth (war strategy) so he can continue his metaphorical economic scorched earth strategy.

Keep your eyes open... our government may be engaging similar tactics for similar reasons.

A cause to police violence?

The police in the U.S. kill a lot of people. It's as if they do their jobs in a constant high state of fear. I wonder if the post-Newtown relaxation of many gun regulations has heightened the sense of siege by the police and that in combination with long standing racism has amplified their targeting of African-Americans (see here and here).

It's not the economy, Stupid; it's economics

Econology Part 1a: It's not the economy, Stupid; it's economics

Why have wages been stagnant for decades? Why is income inequality so high? Why is the wealth gap so enormous? Why have all the economic gains of the last ‘recovery’ essentially all gone to the top 1%? How did eighty people end controlling half of the world’s wealth? Why is the economy not working for workers? Why is it that persons of influence fail to speak of the major failings of our economy much less fix them?

Modern economies are designed by economists/politicians/policy makers who had been trained into a particular mindset by the prevailing economic orthodoxy… the problem with the economy is not the economy, it’s economics.

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An economy is ‘the wealth and resources of a country or region, esp. in terms of the production and consumption of goods and services; a particular system or stage of an economy: a free-market economy | the less-developed economies.’ Economics is the social science which studies the formation and operations of economies. Wikipedia calls economics ‘the social science that studies economic activity to gain an understanding of the processes that govern the production, distribution and consumption of goods and services in an economy.’ Neither definition conveys the role of the economy and economics in our everyday lives…

So let’s try something else - let’s try a thought exercise: imagine back to the time of hunter-gatherers. In those days, economic activity consisted of trading or exchanging goods that were not immediately needed by the seller but needed by the buyer, extra game for a handful of berries, a spare animal hide for excess firewood. Similar exchanges in today’s economies involve many additional intermediate players (producer, supplier, distributor, seller…) and economic advances (specialization, debt, currency, employment, corporations…). But for all the complexity of modern exchanges, the function and purpose of trade remains unchanged: exchange of surplus production to promote the mutual survival and well-being of all participants.

And this establishes two critical concepts of economics. First is the functional element; if economies exist to support survival and well-being of its participants, then economics becomes the study of economies to benefit its participants. [The implications of this alone are far ranging and completely rearranges the priorities of any economy. Offensive weaponry becomes economically dubious; environmental sustainability/protection is a must - human well-being  depends on the environment; and then there is health care and pharmaceuticals...]

The second relates to scope: economics has precedence over all human achievement meaning that economically determined distribution of surplus production is what enables human achievement (art, science, culture, technology…). Surplus food freed the inventors of the wheel from hunting and gathering to make prototype wheels. Farmers who produce more than they consumed freed artists and thinkers from farm labor to make art and innovate. Social and cultural institutions (religion, state, arts, recreation, etc.) are all products of surplus production (contrary to Margaret Thatcher’s ‘There is no such thing as society: there are individual men and women, and there are families.’).

The role of economics in public policy is second to none. Economic policy arguably has a greater impact on the daily lives of every person on the planet than all the cutting edge research in all the sciences combined. This being the case, the highest and most rigorous standard of theoretic and applied economics should be used to determine policies which effects the lives of everyone within its sphere. But contrary to its classification as a ‘social science’, economics fails to provide valid ‘social’ and ‘science’ policy advice.

Economist have long disregarded the ‘social’ aspect of their field and often neglect to connect their work to the common good. On the ‘science’ side, researchers have yet to determine the First Principles of Economics. Contrast Economics to the natural sciences with their established foundational principles: Physics has the General theory of Relativity, Quantum theory, String Theory and the Theory of Everything. Chemistry has the Atomic Theory. Medicine has the Germ Theory of [infectious] Disease and biology has the Theory of Evolution. Though some economists may claim there are no guiding principles in economics, two common features of economies argue against that. That (1) economies cannot be destroyed (the collapse of nations and empires -modern examples are Somalia and the British Empire- do not eliminate commerce or trade) and (2) economies cannot be repressed (even in the most straightened of circumstances where capital and goods are in short supply; infrastructure is nonexistent and social structure best described as absent -such as refugee camps- trade commences and economies develop) suggests that geopolitically determined economic systems are not essential for functional commerce or the growth of economies. If anything, they support the idea that economies are self-organizing, self-sustaining entities directed by rules which have yet to be determined.

Considering that all surplus production (meaning all production not immediately consumed by producers for their immediate survival) falls into the realm of Economics, the two branches of economics, macro and micro are inadequate. It’s equivalent to the economy as an ecosystem and the only research tools available were narrow vision telescopes. Scientists could only see individual interactions out of context with their environment. Those who study social insects (bees, ants and termites) would report on the wonders and advantages of a communal economy (Marxian macro economists) and researchers who study predators would advocate that owners of capital should reap all surplus production (capitalist macro economists). Meanwhile, micro economists are busy dissecting and cataloguing all the parts of an insect colony or particular predator or prey species (one queen, many workers…; two wings, two feet, one heart…), thinking because the whole is an aggregate of parts, the parts explain the whole.

This type of reductionist tunnel vision economics has justified decades and sometimes centuries long national attempts to institute capitalist or communist economic systems. By the criteria of economies - self-organizing and self-sustaining entities to promote well-being of workers - both capitalism and communism are spectacular failures. The need for government intervention to recover from the Great Depression and Great Recession proves capitalism is neither self-organizing nor self-sustaining and the dearth of living wage jobs bodes ill for worker well-being. The failure of communism to provide for the well-being of workers lead to the collapse of the Eastern Bloc nations including the Soviet Union. It has lead China to adopt numerous capitalistic practices; Cuba to ration food; and resulted in North Korean famines severe enough to affect the stature of their population. In both communist and capitalist economies, the route to economic decline follow a similar pattern: concentration of the power to mold the economy. This was by designed in communist nations through their central planning committees. The process was a little more subtle and protracted in western democracies where capitalists secured their hooks on the major political parties by carefully cultivating their dependence on private campaign funds. Regardless of the means, in both economic systems, capital and power eventually fell into the control of a small select group of brokers to the detriment of everyone else.

When economies no longer meet the needs of workers and stopgap rejiggering has proven ineffective, reform is essential. The global economy is under threat from a multitude of ecological catastrophes, man made industrial accidents and all levels of human misery and unrest. To properly institute a self-organizing and self-sustaining economy capable of resolving these issues requires a far greater understanding of economic principles than is currently available. Economists need to develop an interdisciplinary holistic systems science approach with the aim of evolving stable economies which synchronize production and environmental/ecological productivity with the needs and desires of workers, in other words, circular economies.

The risk of ignoring the systemic problems of modern economies is extraordinarily high. Modern day work is not merely a metaphor for hunting-gathering, it is modern day hunting-gathering. When the economy does not provide sufficient opportunity for workers to support themselves, they risk economic disengagement leading to declining economic output, political apathy and political unrest. In the long term, current economic policies puts the planet on course to massive wildlife extinction and ecological disaster.

Econology Part 1b: The depth and breadth of economies
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I have/had a number of qualms about writing/posting this screed as I am obviously not an economist  nor do I have the background to offer a proper critique of economics (unlike some who are more qualified). But I haven’t seen the patterns and connections described here written about or discussed in the outlets I follow. And just as a doctor would not treat systemic infections by bloodletting, public policy should not institute an austerity program in the face of an economic downturn in the absence of true knowledge and understanding. We, the people of the economy, have the right to demand an economy that works for us, not an economy that barely permits us to work…

The economy is an ecosystem, not a machine

Features of economies:

(1) Workers participate in economic activity to support themselves so... economies exist to promote worker survival and well-being

(2) Economies cannot be destroyed (the collapse of nations and empires -modern examples are Somalia and the British Empire- do not eliminate commerce or trade).

(3) Economies cannot be repressed (even in the most straightened of circumstances where capital and goods are in short supply; infrastructure is nonexistent and social structure best described as absent -such as refugee camps- trade commences and economies develop). Likewise, the collapse of Wall St. financial institutions would seriously stall major economic activity but workers would still work/exchange/trade/barter goods and services to survive.

(4) Economies change over time in response to changes in technology and culture.

Economies are self-organizing, self-sustaining entities.

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Features of machines:

(1) Machines are designed (to perform a specific function).

(2) Machines need an operator (at minimum, someone flip the start switch).

(3) Machines can operate in range from full capacity to completely off.

(4) Machine operation can be restored by repairing/replacing malfunctioning part(s).

(5) Machines are static - they cannot change independent of an outside agent.

Machines are fully controlled by designers and operators.

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Features of ecosystem:

(1) Ecosystems cannot be fully destroyed. They can be decimated to the point of little economic import (desertified agricultural land) but some degree of wildlife will always be present (bacteria, fungi, insects, plants…).

(2) Ecosystems are self-organizing. After any large scale environmental disruption, ecological communities undergoes ecological succession, the progressive migration of new colonizing species to an established community of stable species of a climax community (provided climatic and other major disruptors are in check). They evolve over time through changes in species composition and number.

(3) Ecosystems are self-sustaining through self-organized food webs.

Ecosystems are self-organizing, self-sustaining living communities.

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Lessons from Great Recession (and Great Depression):

-No single legislative action has returned economy to ‘full’ operation (repairing/replacing broken ‘part’ hasn’t fixed the problem).

-Commerce did not suddenly stop and disappear.

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So which makes for a better metaphor for economies, machines or ecosystems?

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Apply to Tim Geitner at the U.S. Treasury Department

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Specific skills sought: Championship level professional and amateur ping pong players with ability to precisely hit financial institutions at selected targets with minimum force. A committee of building architects and engineers will identify the load bearing (thus strongest) elements of  financial institutions as targets for single hit stress test. Accuracy is essential as a single hit is sufficient without risking any damage in the process of stress testing.

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Apply to Republican and Democratic law makers of the U.S.A. Congress

Wanted: Stress testers for the United States Postal Service (USPS) to ensure that the pension demands of all present and future USPS employees will not be a financial liability on federal tax dollars.

Specific skills sought: Anyone with experience at point and shoot video games who can be legally employed in their state of residence. Seek ability to target any USPS facility with a hand-held or vehicle mounted ground-to-ground missile with minimal damage to adjacent structures. While any damage to any USPS  is proof of failure, there will be sufficient missiles to destroy all structures in question.

[links to image sources: here and here]

A better mousetrap... er... toothbrush

NPR did a story several months ago about a new toothbrush. And it seems they have brought it to market... at $16 a piece. So far as I understand, the innovation is in designing a grip that results in a 45 degree angle tilt of the brush while brushing teeth... just out of curiosity, wouldn't cutting the brush bristles into a 45 degree angle be cheaper and achieve a similar outcome?