The good, the bad, and the economics.

Conch shell

I like frameworks and theories and ideas that can be plotted into a grid. They offer me a chance to unpack things in a methodical way and search for the gaps in my thinking.

Frameworks are filters with which we can view the world.

I picked up a lot of these during my undergrad at a top business school, well known for churning out accountants and financial types. Our course load included plenty of math, statistics, accounting, and several flavours of management economics (yeeeew!).

In our economics classes, we learned about game theory, economies of scale, diminishing marginal costs, the difference between normal returns and profit, and the like. Useful stuff for understanding the way world markets function. I say function in the operational sense – I do not claim they function well.

We are taught these theories because they prepare people like me to keep accumulating wealth for our employers or ourselves to keep the societal status quo in balance. You know, be successful.

It’s not just employers and the government who want this either. We all want to be useful, earn a living, be able to feed ourselves and participate fully in society.

Extractive economics: tradeoffs vs. false choices

What I didn’t fully realize ’til later on is that the type of economics I studied is just a small area of the overall field. In fact, we mainly learned theories based in extractive economics. The macro side focused on the way banks work and the methods the Bank of Canada uses to manage inflation, and so on. The micro side on how best to reduce the cost of widgets, scarcity and demand, and how to operate within various market structures (and so on).

We learn not necessarily that greed is good, but that growth is.

Okay, that’s not strictly true. I had one class  – Business and Sustainability – that would plant seeds (pardon the pun) within me that would take some time to germinate. But the mainstay of my formal education was to learn economic theories to apply in extractive scenarios, which is to say: to make things efficiently to make a profit.

What I do appreciate about economic theories in general is that they help us dispell blatant wishful thinking.

i.e. Basic economics tells us that money comes from somewhere; one cannot just print money to become richer. Ergo, if a politician promises more money to a ministry or project, we are justified in asking where money will be removed from, and how the system may rebalance (or not). It also helps us understand the basic mechanisms of subsidy and taxation as rather effective monetary instruments. We learn about tradeoffs.

But while tradeoffs will always exist, false choices are the result of too narrow thinking. 

Extractive economics is a pyramid scheme

We take new materials from the ground and sell them once, so profit depends on an ongoing supply, and someone is always losing.

The world (and neighbouring planets) are of finite composition. Which means we will run out of new materials eventually. They didn’t talk about this at business school, which is why we should not be surprised that most people who operate in businesses or government today do so by making use of economic theory grounded in extraction. It’s a narrow view, but the prevailing one.

Enter the circular economy

I actually did first learn about the circular economy in that Business and Sustainability course I took way back when. I learned that most wealthy countries are so because of extraction of natural resources, and that their dependence on it creates significant risk in comparison to knowledge economies.

I learned that endless growth is actually impossible within a closed system, like our Earth.

But it’s easy to forget. Or to bury. In our modern world, success is culturally defined by having wealth. We strive and compete and earn and shut out the inequities of our arbitraged global economy. Not all of us are prepared to live off the grid.

The circular economy offers some hope that we won’t have to.

The circular economy asks:
  • how can waste from one process must become fuel for another, just as it is in the natural world?
  • how can we create quality of life without relying on a cycle of endless growth?
  • how can we debunk the idea that accumulating financial wealth is the only form of success?

Taking back our economy.

You can be progressive thinking and still find the field of economics incredibly useful, just don’t fall into the trap that our leaders do that growth is the only measure of economic strength. They may tell us that extraction of resources is the only way to create prosperity. We can disagree.

For more, I highly recommend the book The Ecology of Commerce, by Paul Hawken, which I ever so fittingly found in a secondhand bookstore.

It’s a book about economics even an environmentalist could love. And vice versa. In it, he explores why we need to move beyond extractive economics, and why a circular model that respects the laws of nature holds so much potential.

The Ecology of Commerce, by Paul Hawken
The Ecology of Commerce, by Paul Hawken

Leave a Reply

Your email address will not be published. Required fields are marked *