Without Externalities, Economics Is A Failure

When I was studying economics many decades ago, one word was used often to describe the ‘perfect’ financial and/or market scenario:

EXTERNALITIES

In fact, the phrase used in class was almost always “assuming no externalities”.

‘Externalities’ is a broad-sweeping term used to hide all of our indiscretions, incompetencies, environmental destruction, colonialism and more under the carpet, hoping no one will take a peek to see what a disaster we are.

Here’s an example: let’s build an energy grid. Assuming no externalities, the way to maximize profit is to …

This is a magical word that allows developers, architects, governments, businesses and even not-for-profits to look the other way while they build their dreams.

The reality check? We live in an internalized, global world where no one and no thing can be considered external to our actions.

We want toilet paper, we have to cut down trees. In the process, we destroy the habitat for many species that can’t speak for themselves.

Think of the ‘butterfly effect’ that eloquently describes fractal geometry. Given the right conditions, one flap of a wing in one place may cause a hurricane in another.

‘Externalities’ is the ONE word that will hang our generation, previous generations and many to come. It is the one short-term ‘get out of free’ card that we continue to wield with abandon, destroying our planet in the process.

IN THE LONG RUN, WE’RE ALL DEAD

This is another strike against the seemingly impenetrable walls of economic rationale. It’s selfish and illogical to transfer our costs to future generations, but we’ve been doing that in great volume over the last 200 years or so.

This quote originates from famed bloat-spend economist John Maynard Keynes. He had a collection of wonderful theories that, when applied, actually helped the world recover from the Depression. However, governments failed to adhere to the pendulum effect with his policy guidelines: cut back when the economy is growing.

He actually proposed a rather simple zero-sum game that pretty no one in the known universe paid attention to.

So yes … YOU might be dead in the long-run, but generations from now, everyone will have to deal with the consequences of your self-serving rationale that is, ultimately, a failure.

THE INVISIBLE HAND

Adam Smith wrote his famous ‘The Wealth of Nations’ using an 18th century ‘scientific’ description of how the market works.

He called this function ‘the invisible hand’, conjuring all kinds of images of magic, mysticism and alchemy.

The idea was that the markets get moved around miraculously by the repetition of millions of mouths to feed, houses built, roofs purchased, cars assembled, roads paved and so on. Our lives are a reflection of this ghostly wandering mist of economic activity.

Sadly, what should have been seen as a ‘how to’ for sleight of hand and theft (ie. take from the poor and give to the rich), this book is the cornerstone piece of a manifesto that is ultimately leading to the destruction of Planet Earth.

YOU CAN’T BUILD ON A WEAK FOUNDATION

It’s for these reasons that economics should be slotted in with alchemy and hermeticism as a pseudo-science incapable of creating a legitimate system of science-based rationale and preservation.

We’re like the flame constantly asking for more gas. When it runs out, so do we.

Therefore, capitalism – which holds economics at the base of the building blocks of its existence – is on extremely unsteady, unproven and unreliable ground.

ECONOMICS: LIVING UP TO ITS NAMESAKE

Crack open a first year Economics textbook and within the first few pages, you’ll likely encounter this definition of economics:

The word ‘economics’ comes from two Greek words, ‘eco’ meaning home and ‘nomos’ meaning accounts. It is the art of keeping a house in order. It captures the sentiment of creating, producing, distributing, selling, consuming and destroying many goods and services.

Unfortunately, we are doing a shit job of keeping our house – Planet Earth – in good order. We treat our one-in-a-trillion opportunity to preserve life on a planet like a sophomore dormitory kitchen. Everyone dumps their plates, hoping magical fairies will come and take care of things before the next meal.

If every action required us to keep our house in order, we might not be in the mess we’re in. But it hasn’t been (see the excuseds provided above) and we’re not anywhere close to being in order.

WE NEED A NEW STORY

If we’re going to save humanity; the billions of other species that share this once-in-a-trillion-year possibility known as Earth; and even Earth itself, we have to start telling a new story that will provide a more reliable, authentic and permanent commitment to preserving what we have and repairing the damage we’ve created.

I’m not quite talking about a ‘purge’ of scholarly wisdom and elimination of 200 years of capital theory and trillions in pretend market value because it fails to account for the TRUE COST of what we’re doing to our planet, but we have to think about ways to radically alter our approach to planet management if we’re going to survive.

I wish I was, but I’m not smart enough to suggest an alternative that’s functional. Communism has failed miserably, resulting in oligarchs and plutocrats running the show in countries like Russia and China. They are very real dictatorships that we dare not question because we rely on them so much for cheap labour, oil and other resources. Or they have pictures of certain ex-Presidents in compromising situations.

Some cultures, including many of North America’s Indigenous communities speak to the ‘Seven Generation’ principle, where they remind themselves that they matter less so than their children’s children and onwards until at least seven generations have felt the impact of those choices. This is what is known as good legacy planning.

Unfortunately, they and billions of others on Earth will have to revise this code of responsibility to more like ONE THOUSAND generations, given the waste we’ve created in so little time and what will continue to exist as waste long after we’re gone.

LEGACY

Legacy is where it starts.

The word origin focuses on a basic meaning: transfer of wealth. This comes as no surprise givne the mindset of our global economy.

But it’s more than that: legacy transcends the past, present and future. By creating a viable and sustainable legacy, our own spirits and our intent are transferred to future generations. It’s kind of like transferring DNA, but in the form of tangible value for future generations. It could be money, but more importantly, it could also be knowledge, experience and preservation of natural assets for our inheritors.

Again, I admit that I don’t have all of the answers, but taking from those that acknowledge the value of transferring legacy to future generations, let’s at least start with this aspect and see where it takes us.

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