I thought you would enjoy these excerpts from an interview with Herman
Daly, in which he expounds on his heretical views on Economics, the
environment and the World Bank. It is from the IISD web site; they
publish a magazine called "Developing Ideas Digest", which put out a
four-part series on "Economics at the Crossroads" (also available at
http://iisd1.iisd.ca/).
Luis
The Developing Ideas interview with HERMAN DALY
Conventional economics is under siege. For much of the latter half of
the Twentieth Century, a group of professionals called economists has
enjoyed unparalleled influence over the course of world development.
Despite considerable successes, there have been numerous glaring failures.
Among the critics, one stands out. Herman Daly is a maverick economist on
a mission to give his discipline a heart. [...] to our writer Karl Hansen.
The interview was one of dozens conducted around the world for a 4-part
Developing Ideas series - Economics at the Crossroads - published in
newspapers around the world.
The Irrationality of Homo Economicus
DI: Is the intellectual higher ground in economics increasingly
up for grabs?
Daly: Good question. My hope is the answer's 'yes'. And in the long
run I think the answer is yes. But currently academic economics is quite
dismal. University departments of economics are just wasting everyone's time.
That's harsh but I think there are some interesting problems, that might
otherwise have been dealt with by economics, that don't go away just because
economists say, 'Well, that's not economics ... that's ... economic policy
or environment or something else.' So they keep themselves exceedingly
pure just working out the logical implications of what they have taken to
calling the 'canonical assumptions', which is a revealing phrase. There
are certain canonical assumptions which define what it all is, and then
you play games and [make] logical derivations on those assumptions. And
the world and its real problems are just sort of left to one side. And if
you try to apply any of that to the real world it's a real problem because
you've abstracted from what are the most important things.
The first thing the canonical assumptions abstract from is any notion of
community - nothing but isolated individuals, Homo economicus. Community
both in the social sense of our identities being made up of
interrelationships, and community in the ecological sense of mutual
dependence of species in the natural world. So in the core of economics,
those things are abstracted from.
When you say that, economists sometimes get mad. They say, 'Oh well, look
here at this area of environmental economics, it's been developing here.
We're talking about those problems.' Okay, they're beginning to. Problems
are being forced on them, and so they're making whatever ad hoc
adjustments are necessary to try to deal with the problem. But it's not a
satisfactory situation.
And I think it [the intellectual higher ground] is up for grabs in the sense
that it's beginning to be challenged and I think that some of the popes of
the profession are getting rather defensive. But it's still the ant versus
the elephant. They're still pretty much totally in control of all the
major journals and the major university positions, etcetera, etcetera. So
it's maybe a little wishful thinking on my part to say it's up for grabs,
but I think it will be.
DI: Who are the 'popes of the profession'?
Daly: Oh my. Well, people like Lawrence Summers and all the Nobel
laureates. Robert Solow, Milton Friedman, folks like that. All the faculty
of the major universities.
DI: I think a lot of people would say you're a pope or upcoming
pope of the profession ...
Daly: Well, that's interesting. I suppose that whatever
influence I have is much more directly on the general public and not so much
through the profession. So that the people who would look favorably on me ...
Well, I don't know ... It just remains to be seen how it plays out because
they're not the people in the positions of power.
DI: Okay, if the intellectual higher ground is up for grabs,
here's a doozy of a question - what is the answer? Is it ecological
economics? Economic anthropology...?
Daly: Well that's what John Cobb and I tried to deal with in For
the Common Good - what if economics is to move away from being a
self-centred academic discipline interested only in working out the
consequences of its own assumptions and if it's to engage itself more in the
world. And we argued that you have to shift from Homo economicus as the
isolated individual to the idea of person in community, whose identity is
largely a function of his relationships in community with others and with
the ecosystem. So that this community perspective of social and ecological
interdependence is critical - and for the future. Economists say 'Oh yeah,
well we dealt with that.' But you go and you look at the basic textbooks and
you get the standard isolated circular flow of firms to households, of
exchange value going around and around. There's no environment. The theorems
of underlying supply and demand are purely individualistic. There's no
social element in any of it. And so some people will say, 'Oh you're just
criticizing bad elementary textbooks. I mean, the profession has gone way
beyond that.' Well, wait a minute. Where do people learn their economics?
All our congressmen, whatever they know they got out of some basic
elementary textbook, and what good is it ... Should the elementary
textbook be consistent with more advanced economics? And if advanced
economics discovers something is wrong, shouldn't that be reflected in the
next edition of the textbook? So I don't accept that. I think the
textbooks really show you what are the most fundamental positions that the
public accepts so that it is quite fair to... I would say that we have to
work into economic theory not only the circular flow of exchange value
which is important but also this one-way throughput of
matter and energy - the digestive tract as well as the circulatory
system - because it's that that ties us to the environment. The sources of
low-entropy matter-energy, and the sinks for absorption of high-entropy
matter-energy. And that has to be built into the very foundation of
Economics, Chapter 1. No tacked on at the end of a chapter on Depletion
and Pollution as Externalities like 'Oh gee, we never expected this to
happen but it did so now we have to say something about it.' It's built
into the very functioning of the economic process that we have to deplete,
we have to pollute, that we have to keep those two activities within some
sort of ecological constraint and what those constraints are affects the
optimal scale or size of the total economy relative to the environment.
And that big question has been completely left out.
There's no concept of an optimal scale of a total macro-economic system
relative to the larger ecosystem. And that fundamentally we have to bring
into economics along with the standard questions of allocation and
distribution. Some people are beginning to see that, others are really
resisting it. So it's strange.
The International Society for Ecological Economics - although there are a
lot of different opinions there, I think it tends to cluster around the
vision which I just stated. There's another group in Sweden, the Beijer
Institute for Ecological Economics, which much more leans toward standard
economics. They are recognizing that there are real problems of dealing
with the environment and that maybe standard economics hasn't done enough
in that direction, but they have a great deal of faith that the same basic
paradigm will function in that direction. So that's a tension. On the one
hand, you have people who are fundamentally standard economists but they
say 'Oh here's a set of problems we do need to think about a little more.'
And then another group of people who say you really need to change your
whole way of looking at things in order to adequately deal with those
problems. So there's that tension, and it's a very difficult tension.
Because on the one hand you don't want to alienate people, you want to
talk to economists, you want to build bridges with economists, you
want to bring their talents to bear on important questions. On the other
hand, you don't want to be co-opted and swallowed up and have the basic
important issue reduced to something that's not so important and fails to
see the point and doesn't really engage the issue and sort of co-opts
things. So it's a difficult tension.
[...]
DI: Regarding World Bank leadership ... should economists
continue to dominate affairs at the Bank ...?
Daly: ... I think economists exercise too large an influence at the
World Bank. ... You might think of the Bank as kind of the functioning
church in the world out there trying to do good in the world. And the
economists at the World Bank all went to seminary and learned their
theology and they're trying to apply that theology in the world to do
good. Well I think they learned bad theology. I think the seminaries were
teaching bad theology and that takes us back to the first point about the
intellectual high ground in economics. All economists who work at the
World Bank, whether they're from Africa or California, I mean they got
their degrees from Harvard, MIT, Oxford, McGill, you know all these
top-rate universities across the world, which all teach pretty much the
same thing. And so that's their view of the world. And, give 'em credit,
they're very often wonderful people trying to do good in the
world on the basis of what they know and what they've been taught. So I
think the real problem goes back to the academic departments of economics
which are supplying the World Bank economists and which are still directly
supplying advice to the World Bank. And of course since the World Bank is
populated by the products of these places, they're eager to receive the
advice from them, and I think that's a fundamental problem.
Now, since I pick on economists so much I should say though that when you
look around, is there some other discipline that's better? ... for
development decision-making. [...]
PLEASE SEE FULL TEXT AT: http://iisd1.iisd.ca/
[Regarding this last section, it is interesting to note that Joseph
Stiglitz has recently been appointed Chief Economist at the World Bank,
which seems like a step in the right direction. Luis]