Status Updates From The New Economics: A Manifesto

“At present, the state of our dynamic economics is more akin to a crawl than to a walk, to say nothing of a run. Indeed, some may think that capitalism as a social system may disappear before its dynamics are understood by economists.”

“Present models fail to interrelate adequately the flows of goods, money, information, and labor.”

“The need for a monetary foundation, the need to understand complexity, the need to be grounded in the biophysics of production using energy and matter, to be integrated with a proper understanding of ecology, and above all, the need for realism in its assumptions and methods.”

“Systems dynamics can and should be the methodological core of a new economics.”

“There is currently a huge gulf between natural scientists’ understanding of climate tipping points and economists’ representations of climate catastrophes in integrated assessment models.”

“I can only say one thing in favor of the work by Neoclassical economists on climate change: it is so bad that, once it becomes obvious how serious a threat climate change is, revulsion at how Neoclassical economists have trivialized the dangers may finally lead to the overthrow of Neoclassical economics itself.”

“As our economies grow, their use of energy grows. With continued growth, we were bound to alter the planet so much that our economy would end up destroying life on Earth - and this has nothing to do with global warming. It is instead a consequence of the Laws of Thermodynamics… at a 2.3% growth rate, we would reach boiling temperature in about 400 years. Needless to say, life on earth would have ended by then”

“It’s possible to imagine substituting many workers for one machine. But there is no substitute for energy.”

“This ignorance has persisted despite the staggeringly tight correlation that exists between global energy use and global GDP. Therefore, if you don’t explicitly -or at least implicitly - capture the role of energy in production in your economic model, your economic model is wrong, both theoretically and empirically.”

“If a foundational layer of macroeconomics is sought, it should be a link work the fundamental physics of how our civilization transforms the mineral and biological gifts the biosphere provides into the industrial products we consume, and the waste we necessarily dump back into the biosphere. This has not been done, ant largely cannot be done, by Neoclassical economics:”

“The structure of the economy largely determines how it behaves.”

“The ability to reduce everything to simple fundamental laws does not imply the ability to start from those laws and reconstruct the universe.”

“The chaotic dynamics explored… should warn us against accepting a period of relative tranquility in a capitalist economy as anything other than a lull before the storm.”

“I am often asked what I would keep of Neoclassical economics in a new paradigm. My answer is that I would keep as much of Neoclassical economics as modern astronomy kept of Ptolemaic astronomy - which is to say, nothing at all.”

“The most egregious elements of irresponsible bank lending can be addressed by limitations on what banks are allowed to lend for. These limitations should be part and parcel of being granted the privilege and power to create money that comes with a banking license… without controls, this privilege will be abused.”

“A Modern Debt Jubilee could thus help us escape the debt trap that Neoclassical economics has led us into.”

“Private debt, not govt debt, is the primary cause of economic crises. Credit, and not govt deficits, is dangerous when it is large relative to GDP. Rising private debt, not government debt, is the main indicator of an approaching crisis. Private debt, not government debt, can depress economic activity because it is too high… private debt and credit are indicators as important as unemployment and inflation.”

“With both the government and nonbank public trying to reduce indebtedness, both are instead reducing the money supply.”

“However, with a new, monetary paradigm, several things become evident: we should stop the level of private debt from getting too high, and credit-based demand should not be allowed to become too large a component of aggregate demand.”

“Crises are caused by credit turning negative, and most recessions are caused by credit declining, but not quite going negative.”