Sunday, February 20, 2005
The Irrationality of Homo Economicus
This is hardly a new topic, as traditional Economics has occasionally been blasted for making too many simplifying assumptions, and creating too many abstractions that therefore do not adequately explain reality. However, the current facts are as follows: Global Warming is on the rise, we are fast running out of fossil fuels, Climate Change is happening more rapidly than ever before, and if the work of William Easterly is to be believed, then attempts to eradicate poverty over the last 50 years or so have not met with much success.
So that poses the question - what went wrong with the traditional macro-economic fundamentals, that virtually every democratic government and multilateral organization have based their policies upon, and which every university worth its salt has been espousing for decades? Why are we now in this disastrous position of blindly heading towards a precipice?
Several people have attempted to answer this question - Paul Hawken in his book 'Natural Capitalism' and William McDonough and Michael Braungart in their book 'Cradle to Cradle' start from the Industrial revolution, and argue that with resources seemingly looming in plenty, there was no need to filter in environmental impacts, resource depletion and other issues into traditional policies of production and economics. To be sure, Malthus with his views on resource scarcity, and other discussions on externalities such as pollution have indeed brought such topics into the economic mainstream, but still remain marginalized by more conventional views.
In this interview, Herman Daly, an economist of a different ilk, presents a wonderful critique of traditional economics, and how Homo Economicus, the traditional rational, individualistic view of an economic actor, has suffered from not taking into account the environment, and society. These issues lead directly to why the world is facing the problems mentioned above. This wonderful piece (that I highly recommend) is a great insight into the gaps that contemporary knowledge and thinking need to fill, to move towards sustained and sustainable development in the future.
Watch this space for a discussion of 'Steady-State Economics' as a sustainable alternative to conventional 'Infinite growth' models of development.
So that poses the question - what went wrong with the traditional macro-economic fundamentals, that virtually every democratic government and multilateral organization have based their policies upon, and which every university worth its salt has been espousing for decades? Why are we now in this disastrous position of blindly heading towards a precipice?
Several people have attempted to answer this question - Paul Hawken in his book 'Natural Capitalism' and William McDonough and Michael Braungart in their book 'Cradle to Cradle' start from the Industrial revolution, and argue that with resources seemingly looming in plenty, there was no need to filter in environmental impacts, resource depletion and other issues into traditional policies of production and economics. To be sure, Malthus with his views on resource scarcity, and other discussions on externalities such as pollution have indeed brought such topics into the economic mainstream, but still remain marginalized by more conventional views.
In this interview, Herman Daly, an economist of a different ilk, presents a wonderful critique of traditional economics, and how Homo Economicus, the traditional rational, individualistic view of an economic actor, has suffered from not taking into account the environment, and society. These issues lead directly to why the world is facing the problems mentioned above. This wonderful piece (that I highly recommend) is a great insight into the gaps that contemporary knowledge and thinking need to fill, to move towards sustained and sustainable development in the future.
Watch this space for a discussion of 'Steady-State Economics' as a sustainable alternative to conventional 'Infinite growth' models of development.
