The Cultural Evolution of Economics — how can we know so much and still be structurally stupid?
This is the transcript of Joe Brewer’s presentation at the 6th International r3.0 Conference, held in Rotterdam on June 17/18, 2019, released here with permission by Joe. r3.0 also thanks Anna Pollock for preparing this transcript, we at r3.0 added headlines and additional slides. If you are interested in the video of this presentation (Joe held his presentation in conjunction with Kate Raworth in a combined keynote session), you can watch the full video here.
About five years ago, I helped launch an online magazine called Evonomics, which is about the evolution of economics and, in preparation for that launch, I read about 50 books in a six months period for all of the different contributors that we were recruiting to become authors for that magazine. As we were doing that, I was able to piece together a story that, amazingly, even a lot of people who are economists don’t know. I want to share a little bit of the cultural evolution of economics today to help us understand how it is that we can know so much and yet still be so structurally stupid.
A good place to begin this is our home, Planet Earth. We’ve been here for a 3.8 billion years, mostly as bacteria, and we’ve had economies the whole time. We have a lot of places to look to for inspiration for how to understand economic systems. And yet we have this amazing body of knowledge and economics that is so blind that it can miss something like this (see chart).
How can mainstream economics fail to see that as the human population goes up and complexity of our societies goes up, there is a corresponding reduction in the complexity of all ecosystems on Earth as measured by biodiversity loss and mass extinction? How is it that something this big, this hundred year signal, is completely invisible to economists and is not taught in economics programs? I think that’s a very interesting situation because this is simply an empirical trend that has much to do with how humans organize our societies.
Similarly, consider the Planetary Boundaries framework that tells us we are now in a place of overshoot and collapse. We have crossed four of the nine boundaries. If you cross even one of them, the possibility of a planetary civilization goes away. You go into a process of destabilising collapse of our economy which seems like something economists should care about. And yet most of the mainstream economic discipline is still failing to recognize that this is the reality that we’re living in. There’s this vast disconnect separating a massive body of Earth system science from the field of economics.
So why is that?
How is it possible that economics is so divorced from all of the other bodies of knowledge?
Similarly, if you asked a 19th century biologist even basic questions about organisms and their relationship to their environment, you would know that there are natural limits for every living thing. So why is it that our economic system is still predicated on the delusional lie that we can grow our economies forever? Something that physicists from 200 years ago would have told us was impossible. So how is it that mainstream economics can be so dumb in the context of all of the other sciences? I find this to be really interesting from a memetic point of view. How can the memes, the ideas, the concepts, the stories of economics maintain this much insularity and self-preservation, in spite of so much overwhelming evidence to the contrary. Well, I want to share with you what I call the mostly unknown history of economics because those who study the history of economics know this but unfortunately most people don’t study this history.
Economics, as a scientific endeavour, study dead matter
It begins with this really interesting observation that economics, as a scientific endeavour, got its beginning by studying dead matter. Not living matter. So, if we’re starting with dead economics how can we possibly bring it back to life?
Let me explain what I mean by that. In the late eighteen hundreds, the best science available was statistical physics or thermodynamics, the study of the state of a piece of some matter like a liquid or a gas where you can have mathematical tools to tell you things like temperature, pressure, and density all of which are bulk measures of the statistical properties for trillions and trillions of atoms or molecules.
The mathematics they had back then required them to add up the average values for these different molecules assuming that they were at equilibrium because they didn’t have any way of doing the calculations in any other way at the time. It’s also important to know the historical context — that secularism was on the rise in the late eighteen hundreds, early nineteen hundreds, especially in Western Europe. Monarchies were becoming weaker, the churches were becoming weaker, opening up to the possibility that empirical ways of thinking might have relevance or might no longer be taboo. This made it possible for various areas of philosophy to begin to codify themselves into domains of scientific inquiry.
Economics transitioned from moral philosophy to empirical observation
And one way that this happened was economics made the transition from moral philosophy to empirical observation. The writings of people like Adam Smith, while based on observations of the world, were really grounded in philosophical inquiry. Thus began the transition into using the methodologies of empirical science to ask questions about human behaviour, ethics and social organization; how to manage and form a society; and how to create policies. It was during this time that people like John Maynard Keynes, who was doing his formal studies in the 1890 is through about 1910, were able to begin to articulate a scientific or empirical perspective on economics. So, they looked at the best scientific tools available to them at the time which was statistical physics. And you can see this beautiful quote from Maynard Keynes. “It’s better to be roughly right than precisely wrong” except when you are roughly right with the wrong mathematical models. Interesting.
So, and I put the timeline here from 1850 to 1950, because with the Great Depression, the market crash of 1929 1934, and the time shortly after that, is when macro-economics was invented. During this time, the Census Bureau was created and the large scale gathering of social data was invented when we began to build a social science based on observational evidence. At the same time GDP was introduced despite the limitations expressed by its creator who said we should never use it in the ways that we use it now.
Back in the 1940s, huge data were being assembled to try to understand large scale economic patterns and create policies for them but they were using the mathematics of statistical physics from the late eighteen hundreds. The reason for this was they needed closed form equations. For those of you who don’t know calculus, this means you could actually create an equation and compute an outcome. Whereas for non-linear processes non equilibrium processes you need a computer and you run numerical simulations that are estimating rather than solving the equations. They didn’t have those computers at that time.
The form of economics that emerged then became known as neoclassical economics. They had to make assumptions about rational behaviour, perfect knowledge, and about having an equilibrium of a price signal across a market. All of these things were assumptions for the mathematics to work. Interestingly, at the same time the field of biology was unavailable. It was in hiatus. It was a total mess. Charles Darwin wrote his classic text on the Origin of Species and it came out in 1859. But between 1859 and about 1920 most biologists believed that they had disproved Darwin and that this idea of natural selection had been discredited because of a couple of key discoveries in agriculture of particular plants that are very unusual sexual behaviour. And it wasn’t until the 1920s when a few mathematicians, who were good at statistics, came to the rescue of biology and created population genetics and that eventually confirmed that biology is in fact Darwinian. So given that between about 1860 and 1930 biology was a total mess, it would have been a really bad idea to base economics on biology at that time. What’s been called the Modern Synthesis in biology, which was building up population genetics to be able to account for genetic traits as you inherit them from one generation to the next, didn’t exist until about 1930. So economics was formalising in a time when this these statistical tools were not available.
Economics for living systems?
Given that was the 1930s and it’s now some 90 years later, it begs the question — what has happened in between? Since economics couldn’t base itself on the life sciences, it continued to grow based on the equilibrium physics of dead matter. As a consequence, we don’t have any way of understanding economics for living systems which means we’re not going to look at something like biodiversity. We’re not going to get something like ecology because that’s not part of the way that people are formally trained to be economists. Also, it’s interesting to think about all of the things that we’ve learned since then. Most came about in the last half century so around the 1940s and 1950s when ecology really began to formalize itself even though it had earlier theorizing and observation that goes back maybe 100 hundred years before. But the big difference was in the 1940s and 1950s they invented digital computers, and, with digital computers, they could run numerical simulations for predatorprey relationships and other interaction dynamics for ecosystems. That enabled the science of ecology to really take off and again thanks to computers, we start to see developments like chaos theory which grew out of Meteorology in 1963 when Edward Lorenz discovered that the equation for fluid flow. If you had an uncertainty of any small amount it would grow exponentially, and the area would overwhelm your predictions and your forecasts. Complexity science, the study of non-linear disequilibrium systems, really began to mature in the early 1980s and codified itself in a robust way between the 1980s and 1990s with the development of the earth system sciences. Our understanding of the multiple dynamics of a living Earth really took shape in the 1990s and onward, as computational abilities and new mathematical tools were rapidly maturing. And somewhere in the middle of the 1970s the first observational weather satellites and the sensor networks for river systems and all these other natural systems were first built. In short, these developments that should help us inform economics are all pretty new.
But doesn’t this bring about an interesting question? As we do have all of these advances in other sciences, why is it that economics didn’t update itself?
Many people in this room will be aware of things like ecological economics, complexity economics, evolutionary economics, behavioural economics, and experimental economics etc. which are all currently framed as heterodox and in the margins while Neoclassical economics is considered mainstream. Do you notice the framing here? But isn’t it interesting during all the several decades that these other sciences have maturing, economics has protected itself. So why is that?
The Mont Pellerin Society
Starting in 1947 a group, that most of you may not have heard of, the Mont Pellerin Society, named after a small village in Switzerland where they first gathered, began an agenda that has come to achieve global consequences. The Mont Pellerin society was formed around the book The Road to Serfdom written by Friedrich Hayek. (Note; for a deeper account, the book Masters of the Universe by David Stedman Jones, is a good read). These men wanted to recover the unpopular idea that deregulated markets lead to freedom and prosperity. Hayek’s initial motivation was noble but his knowledge was limited. The ideas in the Road to Serfdom were an articulation of what he had observed growing up as a teenager in Austria while neighbours in Germany were forming the Third Reich. He watched how popular democracy in Germany and also with Mussolini in Italy could give rise to fascism and totalitarian states. So, he had a very important reason to be concerned about centralized government. He lacked the tools of ecology or complexity science to help him understand how regulation and management structure is necessary for handling complex systems. So, Hayek articulated the need to avoid too much concentration of power within government which was an important and fair point.
The birth of neoliberalism
But several very wealthy business people assembled at the time, saw it as a justification for their own ambitions — namely creating extractive policies that would exploit the weaknesses of other people to gather wealth for themselves and hoard it. Those people supported the Mont Pellerin Society and its agenda and their goal became to conflate and confuse the ideology that they called “neoliberalism” with the science of economics that was called neoclassical. One way that they did this was by paying for endowed faculty positions at universities and business schools, economics departments and finance departments so that they could place in them people who had their ideology. For example, people like Milton Friedman, who really advanced his ideas in powerful ways in the 1970s. This was how, starting in the mid 20th century, as economics was scrambling to become scientific and basing itself on some flawed assumptions that really weren’t its fault, its ability to self-correct became compromised by the growth of an ideological agenda with a lot of powerful financial interests supporting it. Beginning in 1947 and achieving their first political success in 1980 with the election of Ronald Reagan in the United States and Margaret Thatcher in the UK. So basically, the reason that economics has protected itself from being scientific is because a massive global propaganda machine has been built up.
This map below shows think tanks in the United States that are affiliated with what are described as liberal (blue) or conservative (red) ideas, and there are now about 800 think tanks in the United States alone. They have been growing a collaboration between the US and Western Europe over a 50-year period of time with the goal of buying up and consolidating media to control and influence the trajectories of higher education and to shape the policy environments for economics.
Global architecture of wealth extraction
In short, what we call mainstream economics today is actually a development agenda that I call the global architecture of wealth extraction with an apparatus for setting up deregulation policies and the capture of institutions to enable those who have wealth to influence political outcomes in order to give themselves more wealth. Which is why eight people/eight families now have half of the world’s private wealth. That’s not an accident. The market is doing its job. The economy is functioning as designed. But interestingly, all of this is happening while humanity faces a huge biospheric crisis in which the biosphere of the earth is unravelling with the potential for the extinction of our species as well. We live in dangerous times. And the interesting thing is that the sciences that we need for economics to work have been developed. They exist. When Kate speaks in a few minutes you’ll see a little bit of the power of what good economic thinking can do. Yet we have the problem that our economics has not evolved to embrace the advances and all of the other sciences. So herein lies our challenge and our opportunity.
What I want to suggest is that there is a very old model of human organization that we can return to in order to help us get economics right. And that is the model of organizing societies bio regionally. For those of you who don’t know a bio region is an area that is defined by an ecological function like a watershed, a mountain range, or a coastal estuary as it overlaps with cultural identity and modes of subsistence for human communities. As an example, where I’m living right now in Costa Rica, there is a tropical rainforest mountainous terrain where people have lived that supports climax ecosystems or food forests. The people living there have gradually modified the composition of plants in the forest so that they can just meander through them with rich knowledge of how to use those plants to be able to survive in those forests. Thus, they have a subsistence pattern appropriate to the geology and the ecology of place. It is this ability to organize societies bio-regionally is the way that humans have existed for our long history and what we need to do is return to that in an intentional way and, thereby, restore economics to its proper place as a science that can help us in these times.
I want to make two claims:
1. Humans have degraded landscapes all over the planet to the point that the Earth is now in overshoot-and-collapse
2. It is necessary to regenerate ecosystem functions at regional scales to restore planetary health and safeguard humanity’s future
The reason for regional scales is anything smaller cannot stabilize the interconnections of the local to the planetary. For us to safeguard our future we have to combine local market metrics for well-being and ecological health in the same way we do ecological or environmental conservation.
As well as creating community health and well-being, we have to connect those with planetary scale measures of how the Earth’s system functions. So we have to look at things like geochemical cycles of nitrogen, and phosphorus or the ozone layer of the planet, or the acidity of the ocean and connect those to each other. We can begin to have an economics of development that can restore the health of ecosystems. And all of this has to do with a very important area of research and cultural evolution which is the study of how ideas and practices spread. Which is what the mimetics is about. One thing that is really essential is their network structure and flow. So, if you look at the network science of social networks and the network science of ecosystems you will see that they have a lot of the same geometric properties and a lot of the same dynamic behaviours. And from this grounding in the study of flows and networks we can understand economics and an ecological way, and a complexity way, and in a social way, that enables us to learn how to manage them.
We also have powerful frameworks for understanding economics that is based on living systems.
This is the framework developed by John Fullerton at the Capital Institute where he summarized a lot of research into complexity, the study of living systems as well as the study of indigenous wisdom traditions to see how they relate to economics. Fullerton developed eight principles and just summarizing a couple of them to give you a feel. If you talk about “robust circulation” then consider a body that that has a heart and lungs and a set of arteries and veins that moment to moment deliver all the nutrients to the 37 trillion cells in my body. And these 37 trillion cells can only exist as me because there is robust circulation in my body. So, if you relate that to monetary theory or to policies of allocation and economics you can see how this very powerfully shapes what we shouldn’t do. Similarly, think about empowered participation which is really about different levels of organization working together in harmony with each other. For example, my liver needs to be able to filter my blood while my heart is pumping the blood and if each of them is not empowered to participate in the circulatory system or the respiratory system then my overall bodily health deteriorates. This way we can understand economic health by recognizing the empowered participation of all the parts as they’re nested within the larger whole. These ideas that are coming from the study of living systems powerfully shape how we can design economic policies.
Regenerative communities network
Right now we have a really interesting living experiment that’s happening. Last fall the Regenerative Communities Network launched, which is a network for peer to peer learning of bioregional collaborative projects. And what we’re discovering is that more than 70 bioregional projects, which by the way represent about 10 percent of the land area of the earth, are reaching out to us to converge. We now have places that people are trying to build regional economies based on these regenerative principles and they are beginning to coalesce and cooperate with each other. And we’re beginning to learn the patterns of similarity of what they’re struggling with and the solutions that they’re creating. And so we’re actually having this massive mobilization of humanity to become the immune system of the earth. And it’s happening in real time.
In closing: we’re now in a process of trying to regenerate the self-regulating patterns of the entire planet by building living economies as regional scale management systems that scale down to create healthy communities. And one of our challenges is how do we measure this process so that we can make progress toward our shared goals? And how do we cooperate from region to region, while at the same time bringing together the best knowledge available from all of the different fields that have emerged in the last half century to enable us to do this.