h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

No being an economist I do sometimes fail to see how certain things are not included in the mainstream economic factors. I think that there is a certain limit to how holistic one can be in economics and I would rather like to know what this limit is and weather or not is feasible to try and achieve it?

Like what sort of 'certain things'?

Well the environment for a start, workers conditions, and I can't think of any more but I will come back to you on that one with a more comprehensive list...

Hey darakat.

I'm studying economics at the moment, and I think I know what you mean, so here goes. When there is a market,(ie a buyer and seller), and pollution is not included in the market price, it's called an externality.
What I've been taught is that a price must be put on the pollution so that someone pays for it. The textbook view is that property rights should be given to someone for, eg the sea or a river. Then they can charge for the damage the pollution causes. This doesn't (and isn't meant to) stop pollution entirely, but that's the theory. Personally, I'd just slap a large tax on it.
The big question for me is, how to cost the environment?

Is what you are saying that there should be some sort of "international scoreboard" taking into account lots of things, such as economic factors, environmental degredation, child poverty, AIDS, water quality, literacy etc?

I think there is - the CIA world factbook, or the World Almanac for example. The Economist also does reports on this regularly also.

The question is more "for what purpose?" - the stock market, for instance, is used by investors to gauge the health of companies. It's primarily economic, but economics can touch on all sorts of factors, including environment and working conditions. If there has been a huge storm, or a 4-year drought in a certain area that can have a massive influence on economic factors.

I think you need to be a little clearer about what the purpose of this might be.

As far as I can make out, the main thing is to include in a market (so economists can take charge). Otherwise, it's impossible to put a value on it. Of course it's very difficult to put a price on it when, say, some idiot in the Whitehouse denies global warming. I think that would change the sums rather.
This is the rationale behind emissions trading, to form a market. I don't really trust the concept though, not when you think about who'd be in it.

Incidentally, in the textbook there's an article which says that governments in poor countries like Indonesia or the Philipines should bribe parents to send their kids to school. The first thing i thought of was, 'Just get f***in' Nike to pay a fair wage!'

Please remember I just read the thing, I didn't write it.

'sok - it was a simulpost anyway - I was replying to darakat!

Well from what little knowledge I know about economics those factors are not really included in final summation, the company if publicly listed generally can't do what it likes however a privately listed company gets no stock market loss if it say employees children in third world countries to make bombs. And I don't really have to say how wrong that sounds. However even publicly listed companies can get away with quite a number of things such as damages to the environment and even the exploitation of people as long as they seem to deliver profits, the company james hardy knew damm well that its aspesdos products were bad but it gained a substantial profit off of them. The company Gunns in tasmania has destroyed aces of forrest and wildlife in the search for a few extra bucks. The major problem there is greed, and the need to deliver profits back to stockholders to keep them happy and allow for the companies continued existence. Even if the environmental damage can be factored in and payed for that doesn't always ensure its actually fixable or indeed the price is right. However a more holistic view of what happens I think should be occurring. Just recently the Higher education system here was deregulates, but how can you put a price on education on knowledge? Sure knowledge management says that without proper factors in force you loose as much as $5700 per employee per day, but thats not the cost of knowledge in this case, is it? The other thing to consider is water, water here is becoming more and more scarce and many "blue" greens suggest a market economy solution however this means that water becomes a commodity to be bourt and sold and what happens if the price goes beyond that of the common mans ability to pay for it? There are a lot of things that seem to effect the economy and yes I don't pretend to understand it but quite a lot of what goes on seems to me to be no better then voodoo, hence the term "Voodoo economist".

I agree. Something that we haven't covered yet is natural monopolies, which means for some industries it makes more sense to only have 1 firm. That would basically mean a utility provider. Sometimes values get in the way and you have to say 'This must be run for the good of the public!' for social reasons. I don't know where economics comes into that but that's what I hope to find out.

I think what you're looking for darakat is called "True Cost Economics." There is actually quite a groundswell in the world of economics in support of a change.

I think if you go here: http://www.adbusters.org/metas/eco/truecosteconomics/neoclassical.html and follow some of the links and then google "true cost economics" you'll find lots of information.

I forgot to mention the GPI, the "Genuine Progress Indicator". You might also be interested in the information available through the Pembina Institute: http://www.pembina.org/

Nice links anhaga

Another area that modern economics doesn't account for is unpaid work (which is actually a huge part of the real economy). Marilyn Waring has done some very progressive work on this (which has impacted in NZ, and Canada I think). eg unpaid work and childrearing are now included in the NZ census.

Here are more ideas on what's missing from mainstream economics:

>>
The usual measure of our country’s economic success is growth in Gross Domestic Product (GDP). However GDP is of limited use in measuring progress towards a sustainable, just society. It counts only those economic activities where money changes hands.

The value of many real human wealth producing activities, such as household care and child rearing and skills learning, is not measured at all. The massive contribution ecosystems make to our health and our economy by cleaning our air and water, regulating our climate and recycling waste into nutrients, is ignored.

GDP does not discriminate between activities that add to our wellbeing (such as producing useful goods and services) and those that detract from it (such as crime, pollution, war and accidents), the costs of which all increase GDP.

GDP counts as success the destruction of a natural resource (such as a forest or a fishery) for a short-term increase in income, and does not measure the economic value of gradually restoring such a resource. For example, improvements in fuel efficiency or public health, which both reduce spending, are counted as negative for GDP purposes.
>>
http://www.greens.org.nz/searchdocs/policy5091.html#GDP

You can see their policy there for how to do it differently too (including environmental taxes).


Another issue that doesn't seem to get discussed much is how much wealth now is generated via financial transactions rather than by producing actual goods or providing services. I've heard figures as high as 90% of wealth is now generated in this way, which seems incredibly bizarre (I have no idea if that figure is any where near accurate).

Unfortunately when an MP here suggested taxing financial transactions (in NZ all goods and services, except for financial transactions, are taxed 12.5%) the business community developped apoplexy


darakat, the Australian situation is going to be very interesting to watch. I think Oz is in deep sh*t unless it sorts it's environmental issues (the water one in particular). The upside of this is that possibly Australians will be forced sooner than other Western nations to address the environmental problems, and Australia could become world leaders in this (it was Australians that developpped modern concepts of permaculture). You'd have to get rid of that PM though

ps. darakat, can you use paragraphing in your posts, as I find long blocks of text difficult to read. Ta.

"Another area that modern economics doesn't account for is unpaid work (which is actually a huge part of the real economy)."

A long long time ago Gloria Steinem made the very sensible suggestion that a great deal of this could be accounted for very quickly if every "housewife" went to work for the man across the street. Each household's income would remain the same (the women wouldn't have to actually cross the street: they could continue to do the same work in the same place as before, but they would officially be working for the man across the street) but suddenly there would be a huge increase in the amount paid to workers and in the overall numbers in the workforce.

Interestingly (or not) there is also an opinion that the economy benefits from 'geeks.' People who work to a professional standard at a hobby. Obvious examples are people running web-sites, and gardeners, but also people who maintain databases that become the accepted 'source' for information.

All economy is voodoo.

(Failed entrepreneur.)

Blow me down - found a link - http://news.bbc.co.uk/1/hi/magazine/4052281.stm

Hey. I've found a link to the product of a bunch of those geeks: http://www.bbc.co.uk/dna/h2g2/classic/

All great stuff, however the question remains how far can we go? Its obvious we can't measure everything it will just take to long, and by the time its done its irrelevant (it also raises the problem that once its measured people might start to think it needs to be taxed).

I have great fears for Australia if it doesn't get rid of little Johnny soon, and we just voted him in for another season (not my fault). We don't have a credible other party leader thats the major problem, even I voted for a third party (by preferences my vote went to labour anyway but I felt better for it). However this isn't a debate we need to have here.

Holistic would have to include the entire world, otherwise we would not really have justification to call it holistic. Is there any idea to get all current economic data and place it in one big world progress index? (though progress as we all know is overrated).

Quite a number of problems I see with economics as I see it today is that it doesn't really included the people element, its all numbers and manipulation of said numbers. The banks for example take a large number of profits buy storing all transfers in a interest account for a few seconds and taking the profit from it. Over billions of transactions of even small amounts this is a massive amount of profit, but in actual fact its not real money in any way shape or form. Interest is a rather nice concept but it seems to me to put a constant level of inflation on the economy, thus meaning there is always more money this second then when you started this paragraph. How is that possible? There must be a physical limit to the amount of money, you can't just keep on getting more.

The other problem about current economics is the problems of a crash. We know for a fact that a crash happens because of no other reason other than an complete panic. The market could quite easily keep rising or stable out, but because someone panics and everyone else plays monkey see monkey do the market crashes, putting the economy in recession (yet another hazy part of economics). The market price is only based of "real" facts not actual facts however how "real" can we be? not everything can be a commodity and as we have already discussed not everything can have a value price on it. So this is the problem of a completely holistic economy however we are currently seeing through third world dept (is this a prat of the problem of current companies seeing the third world as competition? survival of the established?) corporate greed, environmental damage, billion dollar handshakes, etc the problems that a this current economy has.

Well, essentially as long as we have capitalism we are going to have an economics that supports that.

I'm not sure that the measuring thing is so important. Like was said earlier, the environmental accounting is not an absolute, it's about some kind of attempt to include toxicity as a debt, and hopefully reducing pollution. One of the shortcomings is that those will lots of money will be able to pollute the most, so I think other things will need to happen too.

Personally I think things like green taxes and carbon tax/credit are stepping stones to something we can't envisage yet.

Another major shortcoming of modern economics is that it has this idea that there is such a thing as perpetual growth. Nothing can keep growing like that forever, and I find it incredibly hard to understand how the financial people can't see that we live in a finite world.

I'm greatly in favour of personal change, and I think there are *many* things we can all do to undermine capitalist economic systems eg investing ethically, banking with local rather than multinational banks, shopping ethically, bartering, recycling, etc etc.

>>All great stuff, however the question remains how far can we go?<<

I'm not sure what you are meaning darakat. Isn't it the lack of collective will that limits us currently? When things get bad enough for people to feel uncomfortable personally then they will seriously consider the alternatives. I'm not sure that the issue is that we don't have alternative economics. This issue is that too many people still want capitalism.

>> Well, essentially as long as we have capitalism we are going to have an economics that supports that.

Economics is a descriptive social science, economic policy is the tool of it's application to markets and industrial interactions. So by definition prevailing economic theory will support the capitalist systems.
On the whole the capitalist system is more efficient than its alternatives, however due to certain missing markets (like the pollution example discussed above) and informational asymmetries the freedom of our "free" world fails some groups some of the time. Here of course is the role for political administrations and economic policy makers. Human judgement on human issues tends to be preferable to cold science, or even social science.

The real issue is that of information flow. Sweatshop workers in Indonesia suffer intolerable conditions, not only because of their corrupt governments, but also because they rightly believe that should they revolt and stand up to the contracted suppliers of Western firms then these contractors will relocate. This of course has already happened.
But it is in the passing on of information between countries and years, and in the human condition that these groups fail to obtain a sustainable wage. Again the solution lies with the policy makers, the government's trade and industy departments, not of the western world but of the developing world where these workers are suffering. You can't blame corporations, tempting as it is, for these issues. Firms are monsters of our own creation.

>>This issue is that too many people still want capitalism.
The problem lies not with the capitalist system but with the naive individuals who dance happily to the tune of the corporate Pied Piper. Why you may ask? Because people are weak to the advances of consumption.
Material gain is the carrot that maintains social order and suppresses aggression.
Beware, you can never "undermine the capitalist system" because "you" create it, and so it will follow you where ever you turn. Hence what you can do it redirect it for "your" own means. (you=we/us/whoever)

>> How holistic can economics be?
Theory and the ability of models to describe the economy and the interaction of agents within it are necessarily selective in their focus. This is the case with all disciplines that portend to be scientific, they reduce the issue to be considered to a more simplistic level in search of the core processes and then look for correlations in the wider world.

In this sense economics can never be holistic, but as concerns grow over issues such as environmental damage and pseudo-forced labour, policy can be adapted to incorporate the burgeoning studies of academics in these areas.

Science is only ever the body of accepted thought and conjecture which has stood up to the tests we have put it through, no knowledge implies finality.

>>Another major shortcoming of modern economics is that it has this idea that there is such a thing as perpetual growth.
Again economics, in its descriptive role, can only draw on past experiences:
"The advancement of the arts, from year to year, taxes our credulity, and seems to presage the arrival of the peroid when human improvement must end." US Commissioner of Patents ....guess the year?

Resources maybe finite, but resourcefulness need not be. The way societies and economies "grow" at the present time was clearly beyond the conception of even the well informed back in 1843 (see quote).
Information and knowledge are the new drivers and it is not at all clear that they should suffer limitation in the same manner as more tangible items.

Right, time for a cup of I think.

To return to the original question: How holistic can economics be?

I think the answer we are getting towards is, somewhat but not very.

If a classical economic analysis of a situation doesn't lead to the outcomes we want (environmental or whatever), you could argue the analysis could be improved, OR you could argue that economic considerations are not the only source of 'value' and you want to pursue the less economic course for its difficult-to-measure benefits.

Then this is not necessarily a fault in economics. It merely illustrates that a sober analysis of the measurables is not a replacement for good judgement.

Corporations may have a duty to make a profit at all costs, but that doesn't apply to individuals and governments. Building a dual carriageway through the local park may increase trade, but we still don't want it. What's wrong with saying that?