Economic fallacies abound at the UN

The recent United Nations High Level Meeting on Wellbeing and Happiness has shown how widespread certain economic fallacies are among the great and the good. Of course we knew this before, but it gives me a special chill every time some high level world leader opens his or her mouth and says something like:

The GDP-led development model that compels boundless growth on a planet with limited resources no longer makes economic sense. Within its framework, there lies no solution to the economic, ecological, social and security crises that plague the world today and threaten to consume humanity.

That was the Prime Minister of Bhutan, but lots of people feel the same way. GDP, unreliable measure that it is, tells us very little about what is actually happening in the economy. The raw aggregate tells us PQ (nominal GDP: the price level multiplied by total output) from which economists and statesticians attempt to extract Q (real output or "real GDP") which is supposed to measure how much stuff is being traded in the economy.

First of all, one of the primary fallacies of modern day environmental movements is that there are limits to the size of the economy. To understand why this is a fallacy, let's think a bit about what economic growth means in real terms. Typically it means that more stuff is being traded, or that the value of the stuff being traded increases. Less valuable resources are converted into more valuable ones using energy and human ingenuity. The limiting factors that control how much value is added are a) the amount of energy available for that process and b) how ingenious the process and product are. Energy is always finite, but there are no known limits to human ingenuity. We can always make what we're making more efficiently, and we can always find a way to make it more useful. Computers are an almost perfect example of this. They keep getting cheaper and more powerful, with no end in sight. Once we reach the limits of elemental semiconductors, we'll just move on to something even faster more efficient and just better in every way. What that is remains to be seen, but graphene, optical chips and quantum computing are all watchwords for the near-computing-future.

The same reasoning applies to all things. They can always be made more cheaply, of higher quality and greater utility. That fact means there are no currently known practical upper limits to the economy. And I very much doubt there ever will be. GDP for its own sake is stupid, but if the market is allowed to function, there are no limits to GDP, no limits to personal wealth.

We also cannot run out of natural resources. Every now and again you will hear the doom-mongers say that we only have 20 years left of silver or whatever. That's nonsense. They seem to miss the fundamental fact that after silver (for example) has been mined it doesn't actually disappear, it is made into goods. We therefore cannot "run out" of it - if we ever reach a point where all practically exploitable mines have been exhausted, we will just recycle the silver we've already mined into the most useful forms. The price system will take care of that automatically. This applies to all rare resources and yes, that includes oil, coal and the rest of the non renewable energy resources. We genuinely can "run out" of them but when we do we'll just make more any way we can from raw materials using some other form of energy. It's already been done.

We desperately need an economy that serves and nurtures the wellbeing of all sentient beings on earth and human happiness that comes from living life in harmony with the natural world, with our communities and with our inner selves. We need an economy that will serve humanity, not enslave it.

If there's one sure way of making people poor, its denying them the market. Goods sold on the market are sold because they help people's wellbeing in some way. They help serve people. Whether that is a function of producing things or just being useful to people in itself, all things are sold because people want them, and people want them because they are useful. In economic parlance, they "give ease". The reason we do not live in harmony with the natural world, whatever that means, is because a) few naturally produced resources are useful in their totally natural form and b) if we did then most people would have to die, because farming is unnatural and the level of population the earth can sustain without agriculture is extremely low. Living in harmony with nature is living in slavery, because no matter how ingenious a plan it cannot be implemented without changing nature in some way. You cannot build a house without annexing some ground that could have been used by nature for plants. All of this is to say that humans are meant to be masters of nature, the Bible even says so. This does not mean that we may destroy it, of course, but we may certainly change it so that it better serves us. That's what we have been doing ever since we began to exist, and nothing will ever stop us doing it. Mastery of nature is what provides us with wellbeing in terms of medicine, easy labour, high food production, comfortable living and work spaces, pleasing entertainment. If you want to give that up and live like a savage again feel free, but don't complain if no one else does.

The idea that the economy enslaves us is, again, a common fallacy. I stated in a previous entry on money that we are not serving Mammon but other people. The very division of labour that provides such bounty would allow someone to work only a few hours a week for all the food he needs. If that same person wanted to live off nature he would be forced to work constantly just to stay alive.

Prime Minister Thinley concluded by reminding the gathering that “business as usual cannot go on and tinkering with the existing system will not do… we need a fundamental transformation”.

A fundamental transformation. Well, yes I'd like to see free markets everywhere. That would be a great fundamental transformation. Time to get the State out of the way of commerce so that resources can be exploited more efficiently. I wonder what sort of fundamental transformation he has in mind, and whether it will be popularly demanded or simply imposed by force.