A New Economic Paradigm

November 18, 2011 | Business Policy, Sustainability + Energy

Last week I attended a fascinating lecture entitled “A New Economic Paradigm – Moving Beyond a Broken Paradigm” by an economist named Joshua Farley from the Gund Institute for Ecological Economics at the University of Vermont. In his talk he challenged two of classical economics’ fundamental metaphors and talked about how our reliance on these metaphors has far reaching implications for policy, social justice and environmental health. As Dr. Farley said:

"Conventional economists have horribly misdiagnosed the problem as inadequate levels of consumption and too little money available to invest. In reality, we face a crisis of excess consumption dangerously destabilizing the global ecosystem, and too much money in the hands of the few, dangerously destabilizing our economic system."

Reconsidering Two Metaphors

The first of these metaphors is the environment as a source for resources and services supporting economic activity. The second of these metaphors is man as a purely rational actor in his/her economic decision-making.

Well of course these metaphors are valid, in part. However, a moment’s reflection on our own experience suggests that they are woefully inadequate characterizations of both the environment and the human.

The Environment as an Economic Resource

With regard to the first of these classical economic metaphors, He presented the graphic below.

Economy - Environment

In the image to the left, the ellipse of the environment imposes limits on the box of the economy, but imagine what happens when the small box in the image to the right grows to the limits of the ellipse. While the environment certainly does provide resources for economic activity and it certainly does provide waste disposal and energy transfer services, it is far more than that. It is the ground and source, context and bound for our economic activity, not to mention our very existence. We cannot ignore nor can we transgress its capacities, its rates and its limits without catastrophic consequences. When we ignore this “inconvenient truth” we make the fatal mistake that unlimited consumption, commonly viewed as the driver of growth, is feasible and then we wreak havoc on our home, as we are most certainly doing.

Humans as Rational Actors

The second metaphor of the rational actor is also accurate, but again only in part. We know ourselves as much, much more than computers of benefits and costs and we also know ourselves as imperfectly in control of our rational faculties. No purely rational actor would weep in a symphony, much less at a clever commercial, or laugh at stupid pet videos, or share her scarce resources with a wealthy traveler. So where does this impoverished metaphor of the rational actor lead us astray? It neglects the importance of happiness and the role of social justice. It permits of trickle-down economics. It equates the great wealth of one with the moderate wealth of many and it discounts to zero the value of beauty in our personal calculation of well being.

Making the Shift

Changing the story, the metaphors, is the very definition of a paradigm shift. And as Donella Meadows pointed out over 30 years ago, shifting the paradigm is the only sure course to fundamental change. Our current economic paradigm is leading us to cataclysm. We need a richer, more nuanced and comprehensive paradigm to support our quest for a sustainable future. Placing our home and our finances in their proper relationship and placing our true selves in the center of the story is the first step toward that shift.