The 19th-century creators of neoclassical economics—the theory that now serves as the basis for coordinating activities in the global market system—are credited with transforming their field into a scientific discipline. But what is not widely known is that these now legendary economists—William Stanley Jevons, Léon Walras, Maria Edgeworth and Vilfredo Pareto—developed their theories by adapting equations from 19th-century physics that eventually became obsolete. Unfortunately, it is clear that neoclassical economics has also become outdated. The theory is based on unscientific assumptions that are hindering the implementation of viable economic solutions for global warming and other menacing environmental problems.

The physical theory that the creators of neoclassical economics used as a template was conceived in response to the inability of Newtonian physics to account for the phenomena of heat, light and electricity. In 1847 German physicist Hermann von Helmholtz formulated the conservation of energy principle and postulated the existence of a field of conserved energy that fills all space and unifies these phenomena. Later in the century James Maxwell, Ludwig Boltzmann and other physicists devised better explanations for electromagnetism and thermodynamics, but in the meantime, the economists had borrowed and altered Helmholtz’s equations.

The strategy the economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline.

Strangely enough, the origins of neoclassical economics in mid-19th century physics were forgotten. Subsequent generations of mainstream economists accepted the claim that this theory is scientific. These curious developments explain why the mathematical theories used by mainstream economists are predicated on the following unscientific assumptions:

• The market system is a closed circular flow between production and consumption, with no inlets or outlets.
• Natural resources exist in a domain that is separate and distinct from a closed market system, and the economic value of these resources can be determined only by the dynamics that operate within this system.
• The costs of damage to the external natural environment by economic activities must be treated as costs that lie outside the closed market system or as costs that cannot be included in the pricing mechanisms that operate within the system.
• The external resources of nature are largely inexhaustible, and those that are not can be replaced by other resources or by technologies that minimize the use of the exhaustible resources or that rely on other resources.
• There are no biophysical limits to the growth of market systems.

If the environmental crisis did not exist, the fact that neoclassical economic theory provides a coherent basis for managing economic activities in market systems could be viewed as sufficient justification for its widespread applications. But because the crisis does exist, this theory can no longer be regarded as useful even in pragmatic or utilitarian terms because it fails to meet what must now be viewed as a fundamental requirement of any economic theory—the extent to which this theory allows economic activities to be coordinated in environmentally responsible ways on a worldwide scale. Because neoclassical economics does not even acknowledge the costs of environmental problems and the limits to economic growth, it constitutes one of the greatest barriers to combating climate change and other threats to the planet. It is imperative that economists devise new theories that will take all the realities of our global system into account.

This article was originally published with the title The Economist Has No Clothes.

77 Comments

1. 1. pixeleye 06:32 PM 3/23/08

   Is it a new set of economic theories that are needed or a new value system?

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2. 2. RickRussellTX 02:11 PM 3/25/08

   I suggest that the author look up the work of Robert Lucas, who won the Nobel prize for his work debunking macroeconomics. He makes exactly this claim -- that classical economics is based on untestable ideas -- and establishes the criterion that macroeconomic concepts must stem from a testable microeconomic model based on the actual psychology and observable actions of consumers, firms, industries and policymakers. See http://en.wikipedia.org/wiki/Robert_Lucas,_Jr. , for example.

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3. 3. cjm821 02:39 PM 3/25/08

   Lol.
   
   Neoclassical economics?
   
   The "Neoclassical" fad in economics which boomed in the Reagan era shares little resemblance to the historical neoclassical movement. They are technically Monetarists.
   
   There are very few true neoclassical economists around today, furthermore, you are making a very basic mistake by refusing to distinguish between normative and positive economics.
   
   Also, where are your sources? I don't think you know anything about economics at all.
   
   People, take this article with a grain of thought. Read on your own if you are interested in economics, and make sure you keep up with CURRENT developments in the field.

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4. 4. AaronW 03:35 PM 3/25/08

   So the author is suggesting that a free market be discarded in response to environmental concerns...and this is supposed to be scientific?

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5. 5. acucksey 05:10 PM 3/25/08

   As a rural development economist with 6yrs of formal and 10 yrs of informal training on the subject of economics (as well as many other related and non-related fields of study) I can safely say that:
   
   YES, modern economic theory is STILL based on the neoclassical model both in PRACTISE and in ACADEMIA.
   
   The author of this article is NOT incorrect in his assertion that modern economic PRACTISE is damaging our environment.
   
   A new economic model DOES indeed need to be adopted. One that I find particularly useful in my daily life and consumer choices is the energy-economy model. This model (reference not found) would measure everything in the (rough or average) joules of energy it takes to produce.
   
   We can calculate how many joules the sun puts into the crops, how much energy we put into the manufacturing of a product, how much effort we exert in a craft; and with this knowledge we can calculate it's true value both economically (to humans) and environmentally (making the environment no longer an externality of production).

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6. 6. Percival 06:12 PM 3/25/08

   This should not be surprising; "traditional" slash and burn agriculture, the direct ancestor of the free market, comes to mind as empirical evidence that formal economics bears little relation to reality. Environmentalism meets economics here; one's toxic waste is another's prized process feedstock- what we must stop doing is using the environment in general as our common, unregulated storehouse for such materials both because we live in it and because it's more expensive to retrieve them than to sequester them safely.

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7. 7. RickRussellTX 06:38 PM 3/25/08

   I've always favored a strict interpretation of property rights -- if someone adds material to the soil, air or water, then those additives belong to them. They take full responsibility for their safe disposal.
   
   If I dumped trash on your property, I'd be responsible (legally and financially) for cleaning it up, because the trash is my property until properly disposed of.

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8. 8. Stefen 06:54 PM 3/25/08

   I've never been comfortable with the economic notion that all decisions in the market are based upon maximizing personal profit. That concern for others, the environment or a cause can be explained away because they provide a psychological profit. Now that rampant human population growth is up against resource depletion and environmental degradation, the value of the natural world cannot continue to be ignored.
   
   --
   Edited by Stefen at 03/25/2008 12:01 PM

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9. 9. DearEdward 07:33 PM 3/25/08

   If this topic is of interest to you, I suggest that you read
   
   Market Economies and Natural Laws
   by C-Rene Dominique
   
   Book Description
   The forefathers of neoclassical or conventional economics, beginning with Walras, wanted to build a psycho-mathematical science similar to celestial mechanics. However, during the first half of the last century, they succumbed to the charm of axiomatization: Hence, economics remains a stillborn science. Its theory is plagued with incongruities, generating misleading notions and policies that are detrimental to human welfare and environmental equilibrium. Its "truths" have significantly low half-lives, and its confused pronouncements have become an open ground in which "false consciousness" rumble unchallenged. This state of affairs calls for a fundamental revision. After reviewing the evolution of economics from Antiquity to the present and pointing to its inadequacies, Dominique proposes an alternative formulation which not only sheds light on the enduring features of market economics but also makes economics consistent with physics, the mother of all sciences. This is a challenging revision for scholars, students, and others involved with economic theory.

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10. 10. leomoore 08:01 PM 3/25/08

    Unless I missed something, the author is not suggesting that we abandon a market economy. It appears clear that the challenge is to the notion that market economic theory is the unifying theory of economics precisely because the market isn't a truly closed system. It leaks.
    
    When I was going through the American education system many years ago, we were taught that a market economy was essentially perfect. The problem is it utterly fails to take full account of human psychology, physical limitations such as arable land and usable water, rapid human population growth, and many other variables. All economic theory I've read fails to provide a unified theory to explain and understand the whole system of the planet and the human role in it. It basically becomes a matter of faith much like religion without supporting facts.

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11. 11. mcbee3 08:26 PM 3/25/08

    The author is suggesting that most economists isolate variables and uses this to explain the current financial downturn and lack of conservation. I'm not sure what economic models he is reviewing but the article has a sophomoric view on modern economic theory.
    Of course not all variables are included in models but an unlimited supply of natural resources is not a common assumption. If economics was not driving decisions on the supply of natural resources, then why is crude oil above 100 dollars a barrel?

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12. 12. John F. Raffensperger 11:17 PM 3/25/08

    The reason the environmental factors are not priced is because pricing them is difficult. Discrete physical items are easily traded and priced, because their exchange has no externality.
    
    But ground water, water pollution, air pollution, and similar environmental factors have significant externalities. They are not easily traded or correctly priced, because their exchange with correct pricing would require coordination with all the affected parties.
    
    With existing market systems, the transaction costs associated with such trades are huge. It seems impossible to negotiate with everyone in an entire catchment! Hence, existing market systems ignore the externalities, pretending they don't exist, or managing them via government regulation. Besides, until the past 100 years or so, the real cost of these externalities has been close to zero, so it was appropriate to ignore them.
    
    Smart markets based on operations research do have the ability to provide the necessary coordinating mechanism, and to correctly price environmental factors. See, for example, the research on smart markets for water by Vernon Smith and James Murphy. These smart markets will reduce the transaction costs to near zero. I am doing related research in ground water, nitrate runoff, impervious cover, and sediment.
    
    While these smart markets promise solutions to long-standing problems of humanity, the issues have long been understood. I have to concur with the opinion that the author apparently lacks an education in economics.

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13. 13. John_Toradze 01:00 AM 3/26/08

    Soros made his billions by using concepts that became formalized later as Chaos Theory. He drew from Karl Popper to decide that it just isn't true that markets move to a point of balance. That is just false, and most ecologists understand now the same thing. Populations rise and fall in fractal cycles, and so do markets. There is no such thing as equilibrium. It does not exist.
    
    George Soros has more sense in his fingernails than 99.9% of all economists on the planet put together. That celebrated talker, Jeffrey Sachs has less sense in his whole body than Soros has in the lint in his pockets. Read Soros - it's lousy literature, but quite readable and sensible intelligence at work there that has proven itself by "working in the lab."
    
    Your economist is usually a guy who has done little or nothing "in the lab" just a person writing for journals of other people like him. Small wonder environment or anything else isn't dealt with. Economics isn't even remotely a science, because those who practice it don't have to get out and do what they talk about.
    
    My own observation over 50 years is that economies do well when investment is put into things that will yield a positive return in basic material wealth. Unfortunately, decision makers on investment are for the most part ignorant lemmings who care not about whether the world or society will benefit but whether people can be conned into buying. I think this explains bubbles and crashes very well. The crashes correct the idiocy out of the system to a large degree until those who learned that lesson die off. Then naivete takes over and it has to happen again.
    
    My observations square with "Extraordinary Popular Delusions and the Madness of Crowds" which should be required for anyone claiming to have any idea what business or macroeconomic theory is about.
    
    This is very similar to war. When those who know what war really is die off, (as in the present day in America) stupid leaders arise who tell the people that war is glorious or easy as pie. Shock and awe will take them down! (But military history shows the reverse is usually true unless it is extreme. See the blitz of London or battle of Stalingrad or China's response to Nanking.) Naive people buy this notion and follow. A minority voice caution, having studied history, knowing that the dogs of war unleashed do what they will.
    
    So it is with economists, politicians and people running central banks. They throw out ideas, having little or no basis for them, (or having substantial evidence against them) drop rates, or some such, and get them established as "true facts". Do X, Y or Z and the world will be fixed. Well, maybe not. Fundamentally, it's the decisions that get made to put resources into things that will return real value that matter. What is real value? Food. Nice shelter. Access to fun things, energy to accomplish things. Communities cooperating.
    
    Take this last thing - how much economics talks about the fundamentals of a society that allow it to function and people to trust each other? Look, I've spent long years in harsh parts of the world, and the primary thing is that those places where people can't trust each other - they just don't prosper. They are violent, and practice absurdist economics of stone-age zero-sum games. Zimbabwe is a current case in point. Culture is the backbone of economics. But who talks about that? Instead fools project blather they call "economic theory" where everything is monetized as if money wasn't a product of culture, trust, knowledge and applied engineering.
    
    Read Bucky Fuller. He's also lousy literature, like Soros, but he hits it on the head. Economists are mostly idiots without a clue.
    
    --
    Edited by John_Toradze at 03/25/2008 6:17 PM

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14. 14. TheGeneral 05:27 PM 3/26/08

    Another example of someone who thinks economists tell people how to behave - we only describe behavior. We are not in the business of telling folks to destroy the environment. We only observe that people do destroy the environment and then we try to come up with stories/theories as to why they do. Then, if you are an environmental economist interested in policy - you try to not only explain the behavior, but think of ways to change the behavior using economic incentives.

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15. 15. Patrick 027 10:16 PM 3/26/08

    It's possible to see the economy and ecosystem not only as interacting but as parts of each other. The economy is an ecosystem, which is part of a larger ecosystem. The ecosystem has economic aspects. Hence the use of economics terms (costs, benifits) in the study of evolution.
    
    Not only that, but governments are parts of economies. A government, or a government policy or law, has costs and benifits. The decision to analyze the costs and benifits has costs and benifits. The decision to write this was an economic decision (one cost is in use of time).

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16. 16. Wilkinson33 02:55 AM 3/27/08

    Nadeau should learn more about what he critizes becaus his words reveal a great deal of ignorance of economics and environmental economics. Further, he reveals that he is disingeneous (if not dishonest) by selectively using quotes that misrepresent the authors (and economics).
    
    Uninformed opinions are more than annoying to informed people. They are dangerous when other uninformed people get their information from the uninformed rather than the informed.

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17. 17. ejohns 04:02 PM 3/28/08

    Free-market economists have priced oil at just above its production costs -- so for half a century, we could stick a straw in the sand and foolishly imagine that free power was bubbling out.  For awhile, a barrel's price of input effort would net a hundred barrels of profit out. We transported oil halfway around the world in billion-dollar vessels, refined it in gleaming multi-billion dollar engineering facilities, distributed it all over America in special transports, and sold it for less than water, which is not only renewable, it falls from the sky.
    
    A system that allows you to put 1 barrel in to get 100 barrels out is equivalent to a magic box that lets you put $1 in to get $100 out.   But energy isn't free and there are no magic boxes and the religion of free markets was always a dead end.
    
    The price of a non-renewable resource should actually be higher than the price of it's renewable alternative.

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18. 18. felkor 05:11 PM 3/28/08

    I applaud Nadeau for his courage in writing this article. He is introducing an unbelievably important dialogue that strikes at the core of the future sustainability of human economic systems, and the global environment. He is challenging the Holy orthodoxy of the Church of Economics, but in a crucial and specific way that strikes at the core of global economic/environmental interactions. Economists responses that they are not responsible for policy ignore the crucial point that their theory has been embraced world-wide by policy-makers as fundamental doctrine, and thus the state of the theory will strongly influence global policy.

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19. 19. kerkvlij 10:53 PM 3/28/08

    I could not disagree more. Two basic disagreements: Environmental effects are outside the system. Since Pareto in 1910, economists have recognized the possibility of environmental (and other) externalities and have been actively figuring out ways to measure them, incorporate them into the so-called closed system (e.g. pollution taxes and sulfur dioxide markets). Second, economists may or may not have adapted models from physics (I dont know) but they physics models, while obsolete from the point of view of quantum physics, string theory, and relativity, are far from obsolete. They (these obsolete physics models, according to the author) are used effectively every day to solve basic and complicated engineering problems. Bottom line, according to Einstein: All models are wrong; some are useful.

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20. 20. hueoblue 11:16 PM 3/28/08

    This article is disingenuous. Economists certainly have made attempts at modeling the effect of resources renewable and non-renewable. Perhaps the simplest, most accessible, and probably least satisfactory would be augmentations of the Swann-Solow model of economic growth that included resources as factors in production. Nordhaus (the same economist who has made a name for himself studying climate change and criticizing the work of Stern) explicitly attempted to estimate the effect that human reliance on natural resources has on economic growth using this model.
    There have been several microeconomic models constructed to model the need to exploit resources for economic growth and balancing that with our desire to provide a liveable world for future generations.
    Economists are very aware of the limitations and difficulties that the models present. In fact, they spend their entire lives arguing about how to overcome these short-comings and to hopefully provide more helpful policy advice as result of these efforts.
    These issues are extremely complex, and it is not in the least bit helpful for articles like this one to be obfuscating the debate with what is clearly misinformation, deliberate or not.

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21. 21. mitteldorf 12:22 PM 3/29/08

    The other science with false roots based on classical physics is population genetics, or neo-Darwinism. It is an impressive body of mathematics based on the faulty premise that natural selection maximizes individual reproductive success.

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22. 22. Barney Warf 04:04 PM 3/30/08

    Neoclassical economists live in a fantasy world devoid of history, space, or class relations. The doctrine is little more than a justification for inequality masquerading as science. The sooner we abandon their mathematical obfuscations and turn to a political economy sensitive to power, struggle, history, and class, the better off we'll all be.

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23. 23. Patrick 027 11:12 PM 3/30/08

    Re 22 - I'm not sure I understand you criticisim of the neodarwinian understanding of evolution. Selective pressures exist (not all are designated as 'natural' - there is sexual selection, for example), so that there is a statistical tendency for some groupings of individuals to pass on their genes more than others, and some of that is dependent on the genes themselves. Non-genetic factors can also be inherited - parents in some cases teach their children, certain other things ... and anyway, the end result will not generally be ever-increasing reproductive fitness, because of competition from other individuals and species and the carrying capacity of the ecosystem (which can change but is not infinite) etc - (higher fertility rates can actually reduce the long term success of the genes involved, if the number of offspring who can eventually reproduce does not actually increase as a result. But for some species, having very high numbers of offspring is a successful strategy - this may work when the parent's resource investment per offspring is low). Evolution is confined at any one time by the available genetic variation and environment (otherwise I suppose we would see a lot more superpredators taking over the world and all its resources?). I could go on if I had more spare time...

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24. 24. ecoglobe 01:07 PM 3/31/08

    Too many words! Too difficult!
    We don't need new theories by economists! Their new theories exist already: They want to put a price on everything: "contingent valuation" it's called. Robert Nadeau is falling in exactly the same trap as the economists: the cost and price paradigm.
    But how can you put a price on the singing of a bird, or on the value of an digestive bacteria?
    No. Econimists must be put at work doing something useful, planting potatoes, for instance, or harrowing the soil.
    Normal people know that the earth is finite, and its resources. Normal people understand that one cannot grow forever. Normal people know that lost resources cannot be replenished by technology. Normal people understand that you cannot have "immaterial growth".
    - Helmut Lubbers - ecoglobe org

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25. 25. ecoglobe 01:38 PM 3/31/08

    The is nothing complicated about these issues. It's only as complicated as you wish to make it, so that you can stay in your ivory towers of pseudo-science. The earth and its resources are finite. Economists generally believe in all kinds of growth, even immaterial. They do live in a fancy world of theory. Their thories, still being used in this real world, are instrumental in accelerating the course of humanity towards its demise in the last global wars for the last drops of drinking water and the last crumbs of food. Population growth, climate change and the end of fossil fuels will aggravate and accelerate our course to armageddon. - Helmut Lubbers - ecoglobe org

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26. 26. PeterPiper 02:27 PM 3/31/08

    Ok. Too simple. Ecological sustainability of economic activity hasn't traditionally been assigned as economic variable(s).
    
    Should it be (so assigned)? Nope. Ecological sustainability requires far better and deeper understanding than just economic.
    
    How can we get better handles on sustainability? How do we ensure that our economic activities don't plague the earth to death? Well.. not economically. Not by any economic costing and benefiting.
    
    If the question becomes how our economic activities integrate ecologically, then our measuring must rely on balancing with nature. Not in terms of cost/benefit to us -- but in terms of natural integrity.
    
    How to balance with nature? How to measure natural integrity? What does it even mean to be "natural"?
    
    Just to start: there's no waste in nature. Thus, we need to turn our minds to the nature of waste. Not to how increasingly costly disposing waste out of sight and mind becomes. Not when costs begin approaching extinction..

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27. 27. twessels2008 09:55 PM 3/31/08

    Thank you Mr. Nadeau for stating the obvious...economics is braindead. Economics is also nothing more than politics in disguise. The rich employ economists to get what they want, which is unlimited economic growth and more money.
    
    Economists are nothing more than university trained liars who have helped to bring us to the brink of our extinction as a species. It is way past time to stop listening to economists and start lining them up against the wall.
    
    Enlightenment thinking, liberal democracy and neo-classical economics has run its course. Our republic is nearing its end as peak oil, overpopulation, species extinction and ecological scarcity comes crashing down around our ears. Make one promise for the future...next time no economists.
    
    --
    Edited by twessels2008 at 03/31/2008 3:35 PM

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28. 28. Patrick 027 12:30 AM 4/2/08

    Let's not be too quick to abandon the concept of free market economics. There is a basic aspect of it that works. (government regulation/involvement also has value - either way, let's not throw the baby out with the bathwater)
    
    Supply and Demand - People have varying levels of demand for varying levels of kinds of goods and services, reflected in how much cost they are willing to bear to obtain these things - this *should* reflect the benifit they expect to get out of the transaction. The physics/ecology is such that supply is not infinite for everything. Supply for one item may be dependent on supply for another ('production possiblities curve'; some resources have multiple possible uses; some resources have multiple possible sources (other resources'). The profit motive *should* tend to drive investment to where the demand is and to do so with some efficiency (a tax on CO2 emissions should encourage investment in new and better cleaner energy and energy efficiency technology - so it's amusing that some people (James Inhofe comes to mind) would say that people like me would stifle innovation), so that with the finite resources available, the greatest overall value is realized, with the greatest efficiency (actually greater efficiency reduces costs per benifits and so contributes to the realization of value). VALUE CAN GROW just be rearranging the resources (which can go down to the scale of atoms or subatomic particles, and may involve arrangements in time, etc...)
    
    Now the caveats:
    
    If people's values are also moral values, then demand takes on a moral aspect and a free market could actually act to maximize moral value. Of course, people don't always do the right thing...
    
    People (at least as fully four dimensional beings, not just as snapshots in time who may compete with their future selves) don't always act in their best overall interests; they may be shortsighted, concerned too much with immediated concerns; they may be misinformed or just lacking in information resources, use bad judgement, etc. Of course, this will apply to people in governments as well, although one hopes that problems may be minimized by careful selection of people for positions of power, and checks and balances, etc...
    
    Discussion over that
    Externalities - some costs (and benifits?)are hidden - the agents making choices are allowed to ignore some of what they ought to be responsible for. Pollution, "Tragedy of the Commons". Also, eyesores, external factors affecting property value... [Some would advocate privatization as the solution - that might be good for some things but the idea of ownership of nature seems like a worse cost/benifit relationship that may be greater than simply having public regulations regarding public goods. (ie anthropogenic things can and are quite beautiful but nature is important and an aspect of the value of nature (aesthetic and scientific value) is that it just happens - nobody is controlling it - well, being as powerful as we are, we inevitable will control it in some ways, either by deciding to continue emitting greenhouse gasses ever more, or curtailing it (the realm of 'Act of God' has shrunk**) - either way - but it's not like we're training all the birds to sing on cue.). There is value in having a wilderness. If the profit motive were to drive ecological conservation and preservation efforts, would you have to pay to watch a flock of geese go by? How would that work? As with the concept of 'Fair use' in copyright matters, there are certain ways we do things that we are used to and value as a society...]
    
    [PS it is possible in principle to infer the monetary value of such intractable things as listenning to a bird singing, for example, how well paid would a job have to be for you to decide to skip that song for the job? But of course there are caveats in a simple analysis - the cost of getting to the job, the expectation that you may be able to hear the bird again another time, etc... Note that this does not automatically transfer (via multiplying by bird songs heard by humans per bird's lifetime) to the value of the bird because of all the other things the bird does. There are nonlinearities - if you only heard a bird twice in your life you would likely value each time all the more. A person might value just the comforting thought that the birds are out there singing even if he/she is not sensually experiencing it. But it does illustrate conceptually that listenning to a bird singing does have an economic value - although, there may be a psychological value (varying from person to person) to not thinking of it that way (which ironically also in principle must have an economic equivalent even if it is nearly impossible to calculate).
    
    Everybody is not present all at once - future people will presumably come into being someday and they won't get first choices (although they may benifit from our experience and advancements).
    
    Negotiating power - ideally in a free market, people are not supposed to make decisions with guns to their head. But with the economic ecosystem, everybody has pressures and sometimes those come from other actors in the economy. If some of those actors are very large and organized, they may actually be able to control the economy (perhaps in a way NONLINEARLY proportional to the value they provide - power, ability to obtain or organize resources (including access to knowledge, and control of others' access to resources - ie the effects of private ownership of 'Big media') - positive feedbacks?). Unchecked, 'Big business' can become 'Big Brother'. (Bigger government can be the check, but you do have to watch out for Big Business and Big Government teaming up with each other. Other options are consumer protection groups and labor unions, etc.)
    
    Negative sum games (arms races) - they exist - for example, in some places, people will have more children to provide security in old age. But if everyone does that... (YES, people are great, by why can't we space ourselves out in time a bit. We don't have to come all at once.) Social security is one way to mitigate that phenomena, although affluence in general may do some of the same, as well as education (including for girls/women).
    
    Local maxima - as with evolution (with selective pressures), free market economies tend to climb the slope they are on, leading to the nearest hill but not necessarily a high hill (PS hills may change position in time, although you can redefine the landscape you are looking at by changing your timescale..., etc.). Longer range Organization/planning may help. For example, large scale efforts by big business or big government (ironic?). Urban planning, zoning laws...
    
    The undetermined and the perpetual feedbacks reverberating for all time (sorry for getting a bit flowery there) - a small actor making small decisions can assume that their is a basic state which is unaffected by his/her actions, and so can use that basic state in calculating costs and benifits (the same 'linearization' approach can be used to obtain some basic understanding of various weather phenomena - including baroclinic instability - and is educationally useful, but is insufficient by itself for getting the whole picture - for example, the life cycles of baroclinic eddies (linearization leads to the 'conclusion' that mid-latitude cyclones grow exponentially forever - of course it is not the conclusion reached by the person who understands the limitations of linearization). But the basic state is altered by larger choices. And in time, there are things that may or may not just happen, depending - or potentially, they may be chosen. This may be the same as the local verses global maximum issue (economic evolution just forever following the nearest peak or leapfrogging toward the highest mountain (and hopefully not falling into a deadly ravine in between) [My favorite familiar example is planning for meals. Pizza and French Toast are both very good (for my taste) but I would not put them in the same meal. If I had every meal like it was my last I might give myself a very limited selection of my favorite foods, whereas I would enjoy an even greater variety of foods I like if I know I will have many more meals in the future, and this could increase the overall enjoyment. (I've also got economics lessons base on balancing taste and nutrition, and the art of getting the most enjoyment per unit dessert)). The future people, for example, are not really determined in number or identity. In fact, people who exist now, even adults, are still undergoing personal growth. (We may invest in ourselves in ways depending on the demands for our supplies (including our supply of labor or management skill) and even on the demand for our supply OF demand (choosing to aquire a taste for something - PS does advertising change us into servants for the economy rather than the other way around? And does it matter?).
    
    A monetary economy requires a good deal of trust, more so than a bartering system, especially when long term deals are made (one of the wonders of our economy is that I can provide a good or service today and then 'cash it in' at some date in the future for food or a vacation, or the resources to write a love letter (see, EVERYTHING is part of it, unless you're thinking of a different 'it' than I am). This won't happen if I don't trust that the future will hold things of value for reasonable prices). Trust in the system is fostered by a history of good performance, among other things.
    
    Protection of basic rights - life, liberty, property. This protection cannot be absolute, but how limited does it have to be? Regulation of pollution can be seen as an extension of laws against murder and theft.
    
    The 'Economics' of changing the system:
    There are costs and benifits to regulation itself, and privatization (how often should you have to stop to pay a toll - although that might have a technological solution - 'with time, the landscape shifts' - also, the psychological cost of paying to hear birds (yes, admission to the zoo, but just outside in general?)). Some externalities may be too small to justify the paperwork or legislation. Government involvement can be an invitation to corruption (special interest lobbyists - 'Big Corn', 'Big Coal' 'Big Oil' etc, the military industrial complex, the bridge to nowhere) and inefficiency (red tape, beaurocracy, and the production of externalities that encourage people to take risks that they otherwise might not, such as building homes on small low-lying islands on the gulf coast). The partial loss of freedom. (But how free were we to begin with - there has always been physics.) Some benifits are in some cases worth these costs, and then, these costs can be mitigated by having an enlightenned and impassioned electorate and a free press (which also has a cost, of course - people 'have lives', and it doesn't do much good if the press is so 'free' that it is all owned by some corporation that is also in bed with the government, etc...)...
    
    The concept of nature - well, we are natural (we weren't put here by magic - well some people would say we were, but even then, wouldn't that have been a natural occurence, if it were able to happen), so really everything we do is natural. War is natural, as is peace. Communism is natural, as was the collapse of the Soviet Union. etc. But there is also something 'natural' about viewing nature as that which we do not make happen. So there are gray areas and that's okay. A person could try to argue that if preserving nature is the goal, well, first of all, realize that change can be a natural process, so preservation doesn't have to mean stasis. Should we preserve the next ice age (perhaps starting, if we let it, in 20,000, 30,000? or 50,000 years (I don't know which is most favored by the best up-to-date understanding)), for example (or 'allow it to happen' - that would certainly have scientific value)? Should we preserve our own species' natural trajectory to warm the climate and melt Greenland, etc? Is that even our natural trajectory? - It may be part of our natural trajectory to significantly mitigate anthropogenic global warming. Certainly government seems to be a natural phenomena for our species (at least under certain conditions - obviously some conditions favor the development of small tribes, others favor the develoment of national and international organizations).
    
    It's interesting to compare evolution by natural selection with free market capitalism, and there are similarities that are useful to note. But evolution is not 'for' any one species in particular (and note the natural evolution of predator/prey relationships and parasite/host. etc.). Our economies are supposed to be for us - a tool we use. And our economy doesn't have to evolve from scratch, in part because we ourselves are already the product of billions of years of evoltion (the time frame is irrelevent, though - what matters is we are (in our better moments) inteligent beings with concepts of morality and priority and the ability to imagine and plan and foresee as well as remember and understand. Of course we are also greedy and shortsighted and ignorant and often irrationally fearful. There's no need to get puritanical about it.

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29. 29. narfgue 05:33 PM 4/2/08

    This article is right on target (c.f. Mirowski) ! No progress crisis is possible until contemporary economics is dumped for one which incorporates natural resources -- especially energy -- and a scientific Homo sapiens.

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30. 30. harrypollard 07:03 PM 4/2/08

    The Classicals had three Factors of Production - Land, Labor, and Capital.
    
    The neo-Classicals mixed together Land - a Factor that is there before Man with Capital that would not be here without Man.
    
    So, an untouched field is in the same box as a lathe, a car factory, a cruise ship.
    
    Further, they mixed land - the price of which is not controlled by the market price mechanism with capital which is under the control of the market price mechanism.
    
    Hence, the "housing bubble" which is really a land bubble.
    
    The cost of building a house has not much changed - may even have dropped a smidgen - so why the soaring "housing" prices?
    
    The incompetency of the Economics profession rests solidly on their failure properly to define their basic concepts.
    
    Harry Pollard

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31. 31. max123 12:50 AM 4/3/08

    Policy inventions by economists such as cap and trade, environmental taxes, and tradable quota to name a few, have been enormously successful. Nadeau doesn't know what he is talking about.

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32. 32. RoboDixon 06:18 AM 4/3/08

    Rodolfo Gonzalez, Ph.D., Economics Professor responds as follows:
    
    "To argue that neoclassical economics is blind to environmental impacts is simply silly. Moreover, Nadeau's
    article simply repeats arguments that are more than 30 years old: see for example the Club of Rome report on the limits of growth, and the reply by Robert Solow and other neoclassicals. In my view, Nadeau could profit
    from a course on the history of economic thought. This judgement, however, might be influenced by the fact that I frequently teach this subject."

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33. 33. SteveF 01:25 PM 4/3/08

    A more important error in using classical economics is that it is based on the existence of "unlimited market choices." When was the last time that exisited in the US?

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34. 34. narfgue 05:02 PM 4/3/08

    I just established a Yahoo Group to discuss the issues raised by Professor Nadeau's splendid piece! http://tech.groups.yahoo.com/group/econEnvironment
    
    Let's discuss it!

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35. 35. Bender 05:10 PM 4/3/08

    I wasnt sure, and found it hard to believe, so I did a text search: In an article purportedly discussing economic analysis and environmental policy neither externality nor
    externalities ever appeared! I dont know which is more depressing, that someone could be stupid and ignorant enough to produce this tripe or that the Scientific American has sunk so low as to publish it.
    
    When the Germans took over Sci Am I stopped my subscription, politically correct, European leftism trumps science every time in this sad revenant of a once great magazine.

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36. 36. jabailo 06:00 PM 4/5/08

    Sounds like you want to replace classical economics with an equally bogus "Greenerized" system that gives you license to tax people and create lots of "sustainable" energy programs (sustainable being defined as requiring billions of dollars to keep it going).

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37. 37. AndrewMcG 10:09 PM 4/5/08

    "Simplicity economics (Thermodynamic) and complexity economics (evolution) are the two ends to traditional economic thought. Simplicity and complexity 'practical' sciences follow classic thermodynamics as in seamless continuum flow. Neoclassic 'speculative' economics is accountancy in invented units to represent, independant of physical laws, order(s) in energy-matter. For classic economics (political science) see Adam Smith. All existance in the universe is governed by the Premier Law (2nd) and that applies to all order as well as heat. The motivation for economic flow is the 'Law of Maximum Entropy Production' known as the 'invisible hand' in classic economics.
    What is there difficult to understand and agree on? Earth is trying to evict its invader 'man' in the least time. Re sustainability practical science is for understanding, speculative science is for measuring; there is no conflict. Schumpeter 'Preanalytical Vision' Einstein 'analysis requires above all "intuition".

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38. 38. Tom Wayburn 07:18 PM 4/6/08

    I have placed these observations on a clear and convincing arithmetical basis principally in three papers and a number of hyperlinked ancillary papers. See http://dematerialism.net/demise .htm, which is a summary of http://dematerialism.net/
    CwC.html, and http://dematerialism.net/Mark-II-Economy.html, which is a simulation of a simplified economy that demonstrates the important principles involved in the SA author's observations.
    
    Tom Wayburn, Houston, Texas

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39. 39. GeorgeMobus 02:55 PM 4/7/08

    The urge to make a field of study scientific (by whatever means) is understandable even if the chosen framework has turned out to be lacking.
    
    As it happens, there is a way to reconcile ecology, economics, and physics and it isn't actually that hard to grasp, though the details are not that easy to master.
    
    The solution to many problems in reconciling these fields is to adopt an energy standard for monetary value. Much like the gold standard was used to stabilize the currencies of old, an energy standard (and here I mean the physicist's 'free' energy or the energy available to do work) would fix the value of monies to the true currency of the economy - energy. Everything we do in the economy is work of one form or another. Free energy is the only currency that is universal and measurable. Adopting such a standard would make many more aspects of economic decisions transparent. Energy costs are true costs, including externalities.
    
    For more see:
    http://questioneverything.typepad.com/

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40. 40. sandwichman 09:34 PM 4/7/08

    In the 1940s, the RJ Reynolds tobacco company conducted an ad campaign featuring the slogan, "More Doctors Smoke Camels than any other Cigarette." I would like to suggest a thought exercise that focuses on the peculiarities and strategems of that slogan. We could call this game "more economists smoke free markets than any other paradigm."
    
    What can be learned from playing such a game? First, the importance of distinguishing between number, fact, truth, authority, image, assumption and innuendo. Second, the difficulty of criticizing a discourse that glides heedlessly from one kind of claim to another. Finally, I would like to offer the observation that it is precisely the agility of the economics profession in evading such a decisive critique -- rather than any specific error -- that marks it as "unscientific".
    
    In the Camels ad campaign, it was claimed that a nationwide survey of 113,597 doctors asked, "what cigarette do you smoke, Doctor?" The number is audacious -- as if it would not be enough to say "more than 100,000 doctors." Ah, if measurement be the food of science, count on that unrounded total to be a fact indeed. According to Jackler and Proctor at Stanford School of Medicine, though, RJ Reynolds's surveyors handed out cartons of Camels at AMA conventions and then asked recipients what brand of cigarettes they smoked. Based on such a deliberate sample bias, the resulting number doesn't constitute a credible "fact".
    
    But that's beside the point. What if more doctors did indeed smoke Camels? So what? The ad isn't just reporting a phony fact. It is trading on the popular image of the medical doctor as a scientific, but at the same time, sympathetic authority figure to produce the innuendo that if HE smokes Camels (in the iconography of the ads, doctors are almost exclusively male) then it must be [b]GOOD FOR YOU[/b].
    
    The corresponding swindle relating to economics takes place outside of economic theory proper. When economists use theoretical abstractions, such as a perfectly competitive market, in constructing their models, they are not necessarily claiming any such thing exists (or ever could exist) in the real world. Apologists for economic privilege, however, like to pretend that establishing free markets in the real world is simply a matter of "government getting out of the way." Left unsaid is that such magic inevitably requires that government first construct the very "way" that it is then supposed to somehow get out of. The only thing in common between the economists' abstraction and the political propagandists' holy grail is the name "free market". Economic theory doesn't necessarily confuse the two. But all too often economists themselves and the economics profession as a whole honour those who do conflate glib apologetics with economic theory and ostracize those who are zealous in their criticizism of such obfuscation.
    
    It's as if doctors and the medical profession were to smile benignly on the Camel ads, damnable innuendo and all... which, in effect, they did. They did? Yes. According to Jackler and Proctor, the Camel ads appeared regularly in medical journals such as the Journal of the American Medical Association. R.J. Reynolds conducted its bogus surveys from booths at AMA conventions. Presumably, the medical profession didn't strenuosly object to the Camel ad campaign because the ads presented a flattering image of doctors as scientists and humanitarians. In the end it was medical researchers and doctors who established the undeniable link between smoking and cancer. The Stanford Medical School hosts a fascinating and enlightening exhibit, [url http://lane.stanford.edu/tobacco/index.html]"Not a cough in a carload: images from the tobacco industry campaign to hide the hazards of smoking."[/url]
    
    Meanwhile, the economics profession still sanctions images and innuendo about economics that are not only at odds with "the facts" but are patently false, misleading and toxic. When a critic points out some glaring discrepancy of method or assumption, it is always possible to find a counter example. Not all economists, for that matter, "smoke free markets". But enough of them do to send up a toxic cloud of confusion and complacency.

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41. 41. michael pettengill 06:31 PM 4/8/08

    I was quite happy to see the article this morning in the SciAm I picked up last night. It expresses my tentative conclusion of the past several months of thinking and research.
    
    While I have long tried to rationalize the classical economic dogma with the real world, it wasn't until I read the first page of Eco-Economy by Lester Brown that I had that epiphany that leads one to the broad criticism of the SciAm essay.
    
    Lester Brown's essay was published in a separate form in 2001 along with the book, and can be read here, as well as other places: http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=2234
    
    Lester Brown uses this analogy, and argument, in sound bites:
    
    "Just as Copernicus formulated a new worldview, we too must find a new worldview — based on environmental observations and analyses."
    
    "Recognizing that the earth was not the center of the solar system set the stage for many advances. So, too, will recognizing that the economy is not the center of our world."
    
    "Economists see the environment as a subset of the economy. Ecologists, on the other hand, see the economy as a subset of the environment."
    
    Lester Brown didn't make a direct attack on economic dogma, as Nadaeu has in this article; I believe that that direct assault is long over due and that economic theory and thought has been in a state of arrested development for at least a half century if not a century as part of the global war on those dirty red commies who were threatening to destroy the world.
    
    Instead we have human activity rationalized as virtue threatening the very ecology on which human kind depends.

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42. 42. michael pettengill 06:43 PM 4/8/08

    > Policy inventions by economists such as cap and
    > trade, environmental taxes, and tradable quota to
    > name a few, have been enormously successful. Nadeau
    > doesn't know what he is talking about.
    
    If that is true, why do conservative economists ridicule cap and trade as being totally ineffective?
    
    What I see in the public debate are conservative economists, those guys who put PhD after their names, argue that cap and trade doesn't work, and the solution is is the market based carbon taxes in opposition to a cap and trade quota regime.
    
    Then, in response to carbon tax proposals, the argument is that the carbon tax price would need to be too high to have the required effect, so the solution is a cap and trade quota system.
    
    Perhaps my impression is wrong, but I require some real world data showing how cap and trade has actually had a measurable impact on CO2 emissions, as opposed to creating some means of transferring wealth for positive effect or merely for green-washing.

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43. 43. michael pettengill 07:07 PM 4/8/08

    > This article is disingenuous. Economists certainly
    > have made attempts at modeling the effect of
    > resources renewable and non-renewable. Perhaps the
    > simplest, most accessible, and probably least
    > satisfactory would be augmentations of the
    > Swann-Solow model of economic growth that included
    > resources as factors in production. Nordhaus (the
    > same economist who has made a name for himself
    > studying climate change and criticizing the work of
    > Stern) explicitly attempted to estimate the effect
    > that human reliance on natural resources has on
    > economic growth using this model.
    > There have been several microeconomic models
    > constructed to model the need to exploit resources
    > for economic growth and balancing that with our
    > desire to provide a liveable world for future
    > generations.
    > Economists are very aware of the limitations and
    > difficulties that the models present. In fact, they
    > spend their entire lives arguing about how to
    > overcome these short-comings and to hopefully provide
    > more helpful policy advice as result of these
    > efforts.
    > These issues are extremely complex, and it is not in
    > the least bit helpful for articles like this one to
    > be obfuscating the debate with what is clearly
    > misinformation, deliberate or not.
    
    Certainly the world is complex, but I don't see any economists explaining the complexity of the world in economic terms and then proposing general principles for dealing the obvious problems with polices based on their widely accepted economic principles and theories.
    
    In fact, the economists for the most part either invoke economic dogma as reasons for not acting, or they make policy statements that are not rooted in economic dogma which are then attacked by the economists who oppose the policies.
    
    Solow first addressed the theory around resource depletion in the 60s as I recall, as he reflected on Harold Hoteling, who had briefly addressed the issue in the 30s as I recall. Given the vital nature of undestanding resource depletion is to society if society is to sustain itself, one would expect that at least an elementary treatment would be included in the classic ECON 101 course. But in fact, the opposite approach is taken, where government action related to the economic is almost universally condemned.
    
    Everyone who is seeking to deal with resource depletion, whether it is the end of cheap oil or the end of clean air, they spawn new disciplines. This is like the field of astronomy still holding to the earth as the center of all, with many new systems being proposes: solar centric astronomy, galactic centric astronomy, inflationtronomy, milkyswiralaronomy, moonlanding astronomy, while the mainstream astronomers would be coming up with more complex explanations for the strange motions of objects in the sky, like gods or alien beings powering space ships and planets by unknown means.

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44. 44. mikecarlisle 12:57 AM 4/9/08

    Did I miss any mention of Post Autistic Economics? There is no need to start from scratch. These guys have been on this for a decade or so. pae.com

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45. 45. ChrisAuld 04:56 PM 4/11/08

    This is simply a shockingly ignorant article. Every single criticism Nadeau makes demonstrably wrong. His basic premise seems to be that economists do not understand scarcity, which is somewhat like lambasting physicists for failing to comprehend that objects sometimes move. He would do well to open a high school level economics textbook (instead of paraphrasing arguments from Mirowski which Nadeau neither understands nor cites) and learn what economists mean by "externalities." He could then turn to the entire field of environmental and resource economics and the mountain of work that has been done on exhaustible resources and the costs of environmental damage.
    
    This article is somewhat analagous to an Creationist economist learning enough biology to write semi-coherent ignorant rants about the failings of the Neo-Darwinian synthesis. I doubt, however, that SciAm would publish that.

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46. 46. MattXIV 05:52 PM 4/11/08

    This article is nothing short of astoundingly ignorant, to the degree that it calls into question the editoral standards of SciAm for publishing it.
    
    The first, and most obvious of the claims that I take issue with is that "The theory is based on unscientific assumptions that are hindering the implementation of viable economic solutions for global warming and other menacing environmental problems". Contrary to this, effective solutions to environmental problems are almost always grounded in neoclassical models of externalities and demand elasticity. GHG emissions from the use of fossil fuels are a textbook example of externalities and the most viable mechanisms for reducing emissions - carbon taxes and cap and trade permits - are direct outgrowths of the idea of Piglovian taxes. Ignorance of these ideas is the problem, not the solution.

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47. 47. eddanberg 09:22 PM 4/11/08

    Why would SciAm publish an article by an English Professor and permit him to mislead readers about his qualifications? Maybe "Robert Nadeau teaches environmental science and public policy at George Mason University" as an adjunct but GMU's web site says he is in the department of English. This probably explains why his article is well written, but totally out of touch with reality.

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48. 48. Patrick 027 02:01 AM 4/12/08

    For people critical of this article (and other interested parties): There was a longer more in depth version here: http://www.sciam.com/article.cfm?id=brother-can-you-spare-me-a-planet
    
    I think comments for both versions should have been routed to the same place - it would be more efficient.
    
    (I'm not claiming the longer version addresses every criticism of the shorter version, but maybe a few.)
    
    I remember from a high school AP-level economics class - taught by a teacher who was a republican, I think
    ...(and who supported the idea of cap-and-trade - which I had heard my environmentalist biology-ecology teacher didn't like (I'd like to know what solution he prefered but I never got around to asking)) ...
    - and we learned about externalities, and John Maynard Keynes, and even the argument that welfare actually could make up for it's cost (at least partially) in tax revenue via the boost in consumer spending it causes. There was also an idea regarding... well I don't remember a lot of it - I think the two most important ideas I took away were production possibilities curves and supply and demand curves.
    
    I think the disagreement between this author and current mainstream economics MIGHT be whether it is enough to append and amend basic free market economics with externalities, etc, (like a small relativistic correction to Newtonian mechanics at modest speeds and masses) or if there is a much larger world of ecological and social, etc, economics, and in the context of which, the 'economy' (in the sense of flow of money) must be seen to be seen fully ... Maybe... That's one possible interpretation... Well Now I'm not sure... Out of time...

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49. 49. Mark HC 08:00 AM 4/14/08

    It is possible that a bunch of Business as usual apologists have stumbled into this discussion to reveal just how the emperors ugly nakedness as been concealed for so long. After reading all the comments I found that those criticising Robert Nadeau resorted to ad hominem attacks or agued he was wrong because an idea of externalities exists. This argument proves only that economist for too long have set aside problems and called them external to their paradigm. How has calling stuff externalities stopped global warming? Prevented the sixth mass extinction? Prepared us for energy decent? Increased ecosystem services to match growing demand?
    
    Theyve plainly failed on such accounts, and the economic philosophy needs renewal. Congratulations Robert Nadeau for promoting further discussion on this.

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50. 50. Lelandvk 11:51 PM 4/14/08

    I'm actually surprised that anyone actually piped up on this.
    
    This is a veritable truism, so obvious that nobody should even assume that the economists at large are unaware of it. OF COURSE the models don't handle environmental concerns, degradation of resources, and Greenhouse emissions. The economic models have a hard enough time modeling pure economics.
    
    I view economic theory as a science that lacks the data required to actually be treated scientifically. In addition, there exists so much of a psychological element in economics that it is, in fact, absurd to assume that the models are a treatment in anything but the broadest strokes.

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51. 51. LuluJia 08:29 PM 4/15/08

    Thought I'd share... Deirdre McCloskey, a Chicago-school economist wrote a fantastically amusing and well argued critique of economics, especially that of the Samuelsonian kind. A truly entertaining read, it's available free for download at the following link... you'll have to scroll down a bit.
    
    It's titled The Secret Sins of Economics:
    
    http://www.prickly-paradigm.com/catalog.html#2

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52. 52. dblwyo 11:59 AM 4/16/08

    Sadly the author is guilty of his own accused sin. Resource and environmental economics has been extending the basic models of the "core" for decades and various NGOs (IMF, World Bank) have done some wonderful work in extending national income accounts. Some of which you can see on their web sites. As for classical utility theory that was a simplifying assumption that has been evolved with recent work, ala Neuronomics, but early economists, e.g. Alfred Marshall were not only well aware of it but compared economics more to biology.The author has committed the sine of creating a weakman example. Another main thread is the growth and re-generation of institutional economics which looks beyond the market to the foundations of socio-political infrastructure and power in the work of North, Olson and others. Which offers exactly the framework he's looking for to address these broader problems. If one is familiar with this work one can map Diamond's great books, particularly Collapse, to them.

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53. 53. John_Toradze 08:46 PM 4/23/08

    > I view economic theory as a science that lacks the data required to actually be treated scientifically. In addition, there exists so much of a psychological element in economics that it is, in fact, absurd to assume that the models are a treatment in anything but the broadest strokes.
    
    Neither economics nor psychology nor sociology are sciences because there is no way to remove the experimenter from the experiment. The best economics can do is to try to be somewhat objective and do things that are for the greatest good. But since theories themselves are part of the system, and chaos theory applies, it can be difficult sometimes to know if something is positive because of a theory applied or because of something else.

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54. 54. John_Toradze 08:54 PM 4/23/08

    > This is simply a shockingly ignorant article. Every single criticism Nadeau makes demonstrably wrong. - ChrisAuld.
    
    Perhaps, Chris, if you quoted each critical statement of Nadeau's you take issue with, followed by one line of your interpretation, then put your rebuttal, with precision rather than broad stroke, we could have a conversation. As it stands, I cannot determine if you are correct or incorrect. The Sciam "15 things Ben Stein..." type articles do that very well. I would like to be able to tell if I agree with you or not.

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55. 55. Patrick 027 03:01 AM 4/25/08

    I had been planning to add more comments connected to one of mine here; but the ideas got a little long. So just for now, and summing up from before:
    
    1. the value of having some public property and fair use concepts
    
    2. Externalities (see also 1,3), The market as an information processor, meaning of price signals
    
    3. Longer range (time and space) Planning and arranging, predicting, (risk, uncertainty), what is optimal?
    
    4. The market as a learning algorithm (in market economics) - how hard do lessons need to be, what needs to be learned by whom, what is most productive
    
    5. Inequality and other variation - nonlinearities (negotiating power), if tending toward positive feedback, suggest some welfare is possible without perverse incentive; beyond that, perhaps in some cases the production possibilities curve of 'helping those in need' vs the degree of lack of 'creating more need' may be convex, thus allowing an optimal compromise, exact position depending on ...

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56. 56. Rick_from_Salmon_Arm 11:57 AM 4/25/08

    With apologies to Disraeli, there are liars, damned liars, and economists.

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57. 57. schmoonzer1 06:15 PM 4/27/08

    As as Econ grad I assure the whole field is a guessing game & not science. Those defending it as one obviously have an incentive to do so.

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58. 58. Patrick 027 02:04 AM 4/29/08

    A final thought(s) (unless this is still active in another month or so):
    
    A. Inequality of two types: within the same government policies, between people living under different public policies (applicable to free trade agreements)...
    
    B. Market economics has great capacity to tend to optimize (imperfectly, of course) the realization of potential value by rearranging resources/items. While there isn't a clear overall 'fitness' landscape for a whole ecosystem (unless perhaps defined as resilience to disruptions of various magnitudes, or resistance to further ecological succession), the 'desirability landscape' of the whole economy has the potential to be defined, and as with biological evolution, the optimization may be local (climbing the nearest hill) although in the case of the economy, one can pick any time scale, and it may be that the economy climbs the highest hill it can climb (crossing a valley to a higher hill without dying out may require some investment - if the resources to do so exist, then it could be said that on the longer time scale, that was the hill the economy (or individual within it) was on) - nonetheless, public policy can be of value in longer range planning, I think (but imperfectly so, of course). (PS in contrast, biological evolution has a more obvious timescale to work with - the generation - although one might speak in terms of a sort of 'multigeneral fitness' of some gene or set of genes as their reproductive success over n generations rather than just one. Sterile offspring do exist sometimes, etc...)) (Obviously 'fitness' in economics doesn't refer to biological reproduction, or at least not only that.)
    
    C. While free markets may tend to have relatively 'fair' results compared to some other systems, the idea that it is fair is obviously untrue. That doesn't mean we should abandon it though (ammend, regulate, put constraints on, yes, but not abandon), because what would be accomplished? But it is worth remembering that we do not actually control are own destinies, but merely influence them (I'm not saying we have free will, just that we generally do have some will - it is not free because it is ours, and we have identities) - the success of one depends on the demand of another or the investment of another or luck, etc - in a free market, we can still suffer or benifit from the decisions of others (that includes 'irrational' behavior and irrational mistakes - or are they mistakes - it depends on whether a person can be considered the same person from one moment to the next, even though s/he may change a little...).

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59. 59. Patrick 027 10:10 PM 4/29/08

    A clarification:
    
    As noted, in a system such as the economy, for the whole or for any particular unit of it (an industry/firm/participator), the 'fitness landscape', -
    
    which might be better described as a profit landscape (note, not all profit actually comes in the form of money - a person might profit by choosing a lower paying job if there is some other compensating benifit (better hours, time with family, location... some of these of course also involve, in part, money (location -> travel expenses)...), profit = benifit - cost = net benifit.
    
    - okay, the profit landscape - can look different looking at different time frames - a short time frame might reveal a higher hill across a valley; at some initial cost (crossing the valley), one could reach a higher hill. If one has or can make arrangements to obtain the resources for the up front investment, and the investment in time pays for itself and more (by reaching the higher hill - if it is high enough), then that implies that the profit landscape defined for a different, longer term outlook, would actually have placed the particular actor involved on the slope of a hill, and the investment decision simply corresponds to climbing up that hill.
    
    Now, in so far as public policy goes (particularly with regards to planning) - if viewed as external to the economy, public policy reshapes the profit landscape. If it is good policy (at least with regards to economics, though 'economics' can be extended to include social/moral/legal concerns (moral profit)), then it will, depending on the timescale being used, make higher hills higher and/or more accessible, or raise the hill the economy or actors within it currently are climbing (or resting, giving them opportunity to climb higher than otherwise). On the other hand, one can view public policy as an economic decision itself, in which case it may be viewed as decisions to make investments (or 'investments') of the sort described in the preceding paragraph.
    
    Okay, I'm done here for at least a few weeks.

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60. 60. drbiker 04:08 AM 5/1/08

    Shame on the editors. Nadeau is an English prof with no knowledge of either science or economics except the desire to express his ignorance. It is obvious that he neither understands Newtonian mechanics (the source of neoclassical econ nor basic economics). He does express his ignorance with clarity & conviction, however.

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61. 61. kbennett - Surrey 10:01 PM 5/3/08

    Money talks. Money makes the world go around. No it doesnt. Finally, a challenge to the sacred world of economics. (The Economist has no Clothes  Robert Nadeau) Economics is a human invention and has no relevance to the natural world. In fact it expands and grows at the expense of the natural world. Economic growth and the universal GDP measurement method does not take into account environmental destruction  they feed from it.
    
    Perhaps this will change with new economic studies and theories that attempt to take into account the value of natural capital in the economic equation. A change to the GPI - Genuine Progress Indicator  would be a good start because there is no doubt that humans are destroying this planet in the name of economic growth as we currently practice it.
    
    I trust that the economic theorists will ultimately devise a system that will incorporate true cost accounting for our goods and services that recognizes the impacts to the planet. When we do this, I think it will improve the living conditions for all humanity and begin to mitigate our environmental impacts. This is a mutual problem that requires all disciplines to work together towards solutions because after all, we are in this together.

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62. 62. kxrcooper 10:49 PM 5/5/08

    The equation for predicting the price of stock options -- the Black-Scholes model -- is derived from a thermodymanics equation, for heat transfer (as I vaguely recall, it's been ten years). What is interesting is that the equation is rather accurate in the short term but over a longer term becomes rather inaccurate.

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63. 63. FBlasques 04:26 PM 5/19/08

    It is shameful for Scientific American to have published this article!! This is really to bad to be true...

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64. 64. ksgarvin 06:34 PM 5/19/08

    What? Don't you know that the communist countries are the cleanest in the world? ]:)

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65. 65. FBlasques 07:09 PM 5/19/08

    This is equivalent to publishing a creationist's opinion in the creationism-evolution controversy. Publishing this article is against everything Scientific American should stand for. Since obviously, there are no economists among the editors, I suggest that you stop publishing economics articles immediately!! You are doing a big mistake!

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66. 66. gunnar.kaestle in reply to pixeleye 02:11 PM 8/22/08

    | Is it a new set of economic theories that are needed or a new value system?
    
    Good question, I'd like to revive the old labour theory of value with some extra features such as also giving the cited resources (renewable and exhaustible) an intrinsic value.

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67. 67. reggie4now 04:21 AM 10/13/08

    Making a Strongest Foundation for Economics
    Fundamentals of economics indeed are too weak or shaky and must be revamped to make them scientifically rigorous. One guy by the name of Mata has been questioning You win, I win, everyone wins, and who then is the loser? for the past 30 years but no one could crack it, though he finally cracked it. This question is obvious as IN = OUT or Debit = Credits which is the fundamentals based on the Axiom (Law) of Causality  a source for every outcome or a cause for every effect (Brenner, 1993).
    No one could answer Matas basic fundamental question; as such he said the economics have unconsciously departed from the inevitable axiom. Mata now restores it back; simply he means there must be at least an inevitable loser or the provider of wealth for any gaining, winning, win-win, all win.
    Who and what is the loser or provider of wealth? Once we unveil this, we will solve some of the nastiest and perennial problems of economics.
    
    Proof Process: In Search of the Wealth Provider
    To make it simple, we take any example of wealth, say food. We then ask: Since life began on earth till now why food is never exhausted? The most qualified person to answer this question will be the biologist. He would say all food constituents (materials) are recycling, thus food is never exhausted. The recycled wastes are re-organised into new food via photosynthesis by the (solar) energy.
    Mata would then say since food is wealth, but its constituents are recycling and not new, therefore what we gain in food is only the new energy that is used to re-organised waste (old materials) into food. As such, food wealth is not the (old) materials but the energy. The provider of wealth or the loser is therefore the provider of energy. Eureka! The provider of energy can be non-mankind and non-earth, for example the Sun which is gigantic and almost perpetual. As such, prosperity on earth is always possible as all mankind could win in wealth (continuously keeping mankind alive) since Nature has provided at least one gigantic, almost perpetual, non-mankind and non-earth provider of wealth.
    Solving Nasty Problems
    1) In 1998 during the Asian financial crisis, Indonesia had repeated their shameful, brutal acts by chasing away the rich Indonesians Chinese and innocents but this time in a massive and repressive manner, all in the misplaced notion that the local Indonesians are made poor by the rich. The government had not learnt its earlier lesson. When these (locally born) Chinese were deportedlocal Indonesians did not see themselves and their country turned richer; instead, they saw their entire country turned bankrupt almost instantly. So Indonesians killed the wrong persons. They actually killed the rich that feed the poor or killed the goose that lays the golden eggs. Analysts said it was the racial, religious and cultural divide that caused this inhuman and evil act. But this is not true, as it did happen (75 years ago) in China and Russia where their citizens were of the same race, religion and culture. Both countries and their people turned much poorer when the rich were killed through closure or nationalization. Abject poverty forced many to commit suicide, to escape their indescribable existence. Using new fundamentals installed by Mata, the rich could actually get wealth from non-mankind (crude oil from the historical Sun like Shell company) and non-earth (farm produces from the Sun like wheat farmers) and then feed the poor. The fullest comprehension and widest dissemination of Matas theory is therefore most critical and ever important now as till today we could not prevent another possible massacre of the rich who are in fact harnessing wealth for mankind.
    2) Present economic theory on win-win has no or fake axiom to fall back. Matas restoration of the Axiom of Causality could explain win-win, all win, and prosperity phenomena readily by insisting for the inevitable non-mankind provider of wealth. With a deep understanding of Matas theory, poor-rich disparity, poverty, environmental problems could all be solved, as there is a presence of a non-earth provider of wealth.
    
    Suggestion
    For the benefit of the world, I suggest a forum or an interview with Mata to tap his great mind.
    
    Reference
    Brenner, W. H. 1993. Logic and Philosophy: An Integrated Introduction. Notre Dame, Indiana: University of Notre Dame Press.
    

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68. 68. reggie4now 04:23 AM 10/13/08

    Making a Strongest Foundation for Economics
    Fundamentals of economics indeed are too weak or shaky and must be revamped to make them scientifically rigorous. One guy by the name of Mata has been questioning “You win, I win, everyone wins, and who then is the loser?” for the past 30 years but no one could crack it, though he finally cracked it. This question is obvious as “IN = OUT” or “Debit = Credits” which is the fundamentals based on the Axiom (Law) of Causality – a source for every outcome or a cause for every effect (Brenner, 1993).
    No one could answer Mata’s basic fundamental question; as such he said the economics have unconsciously departed from the inevitable axiom. Mata now restores it back; simply he means there must be at least an inevitable loser or the provider of wealth for any gaining, winning, win-win, all win.
    Who and what is the loser or provider of wealth? Once we unveil this, we will solve some of the nastiest and perennial problems of economics.
    
    Proof Process: In Search of the Wealth Provider
    To make it simple, we take any example of wealth, say food. We then ask: Since life began on earth till now why food is never exhausted? The most qualified person to answer this question will be the biologist. He would say all food constituents (materials) are recycling, thus food is never exhausted. The recycled wastes are re-organised into new food via photosynthesis by the (solar) energy.
    Mata would then say since food is wealth, but its constituents are recycling and not new, therefore what we gain in food is only the new energy that is used to re-organised waste (old materials) into food. As such, food wealth is not the (old) materials but the energy. The provider of wealth or the loser is therefore the provider of energy. Eureka! The provider of energy can be non-mankind and non-earth, for example the Sun which is gigantic and almost perpetual. As such, prosperity on earth is always possible as all mankind could win in wealth (continuously keeping mankind alive) since Nature has provided at least one gigantic, almost perpetual, non-mankind and non-earth provider of wealth.
    Solving Nasty Problems
    1) In 1998 during the Asian financial crisis, Indonesia had repeated their shameful, brutal acts by chasing away the rich Indonesians Chinese and innocents but this time in a massive and repressive manner, all in the misplaced notion that the local Indonesians are made poor by the rich. The government had not learnt its earlier lesson. When these (locally born) Chinese were deported，local Indonesians did not see themselves and their country turned richer; instead, they saw their entire country turned bankrupt almost instantly. So Indonesians “killed” the wrong persons. They actually “killed” the rich that feed the poor or killed the goose that lays the golden eggs. Analysts said it was the racial, religious and cultural divide that caused this inhuman and evil act. But this is not true, as it did happen (75 years ago) in China and Russia where their citizens were of the same race, religion and culture. Both countries and their people turned much poorer when the rich were “killed” through closure or nationalization. Abject poverty forced many to commit suicide, to escape their indescribable existence. Using new fundamentals installed by Mata, the rich could actually get wealth from non-mankind (crude oil from the historical Sun like Shell company) and non-earth (farm produces from the Sun like wheat farmers) and then feed the poor. The fullest comprehension and widest dissemination of Mata’s theory is therefore most critical and ever important now as till today we could not prevent another possible “massacre” of the rich who are in fact harnessing wealth for mankind.
    2) Present economic theory on win-win has no or “fake” axiom to fall back. Mata’s restoration of the Axiom of Causality could explain win-win, all win, and prosperity phenomena readily by insisting for the inevitable non-mankind provider of wealth. With a deep understanding of Mata’s theory, poor-rich disparity, poverty, environmental problems could all be solved, as there is a presence of a non-earth provider of wealth.
    
    Suggestion
    For the benefit of the world, I suggest a forum or an interview with Mata to tap his great mind.
    
    Reference
    Brenner, W. H. 1993. Logic and Philosophy: An Integrated Introduction. Notre Dame, Indiana: University of Notre Dame Press.
    

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69. 69. eco-steve 06:46 PM 11/14/08

    The very word 'Economics' implies the need for economy : savings! . Yet modern society is driven by debt. Hence the financial crunch...

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70. 70. jimmyadams 07:19 AM 12/30/08

    This is the new idea of economist theory.In those attention of every country is her economy.http://www.quranreading.com/ useful website.But American war will destroy the economy of all world.Thanks to raise new and important point

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71. 71. Chris Maddigan 02:59 AM 2/3/09

    This article is clearly written by someone absolutely no understanding or even knowledge of economics. Modern "Neoclassical Theory" or whatever you wish to call it has all the tools necessary to analyse issues such as environmental damage and resource depletion. Indeed it provides the only rational framework for analysing and developing policies to address such issues.
    
    The authors discussion of the foundation of classical economics is ludicrous. He mistakes borrowing mathematical tools from one field to basing your theory on that field. What he is saying is equivalent to saying that any field that uses calculus must be thrown out because Newton used calculus and he has been supplanted by Einstein.
    
    Just about every statement the author makes about economic theory is incorrect. Did he read a introductory textbook on economics for 10 years olds.
    
    If this article is an example of the quality of work done by a professor of environmental science and public policy at George Mason University one wonders why anyone would hire a graduate from there.
    
    
    
    

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72. 72. old farmer 01:14 AM 4/23/09

    when all the old professors of economics are dead and all thier students holding high positions in govt and finance are at least out to pasture,economics will change. might even catch up!!!

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73. 73. old farmer 01:17 AM 4/23/09

    when all the old economists are dead and thier students who hold important positions are out to pasture,economics will change.let us hope we live long enough....

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74. 74. elenora123 07:09 AM 6/30/09

    I was particularly impressed with how people shared their experiences so openly without plugging their own agenda – a true example of an effective knowledge society.
    Elenora
    <a href="http://www.legalx.net/directory/category/estate-planning-and-administration-attorneys">Estate Planning</a>

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75. 75. Sam Johnson 06:53 PM 3/8/10

    It's not just that current economic theory ignores environmental problems. The axiom "supply will always match demand" (with the implicit assumption that this will happen instantly) or, equivalently, "the market will determine the correct price" are the reason that economics as a discipline is a total failure both at making predictions and at fixing anything. (For comparison, think how well other spin-offs of science such as medicine or engineering manage.) This axiom is equivalent to assuming that physical systems are in equilibrium. So, just as we need nonequilibrium physics for most real phenomena, a nonequilibrium economics must be developed if we want to properly take into account things like speculation bubbles, bank runs, cascades of credit defaults, etc. -- and perhaps eventually be able to actually use economic theory for something.

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76. 76. robughblah 10:58 PM 6/21/10

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77. 77. Bob Jacobson in reply to cjm821 11:21 PM 7/17/10

    LOL yourself.
    
    If you believe that it matters one wit what one economist or another calls him- or herself, you are fairly deluded. The entire "economics" enterprise is a scam invented to provide "scientific" justifications for various inhumane policies. That some economists have returned to the political economics of the 19th Century that made so much more sense means nothing in light of the armies of highly-paid shamans posing as scientists who continue to uphold the same old line in the service of their wealthy and powerful patrons. Bending the knee before the dollar, they are hardly in a position to advise anyone let alone global policymakers on what's best for the planet and for the creatures and flora that inhabit it, including us. Show me a mainstream economist who has anything to contribute on the topic and I'll give you a cigar.
    
    That's my brand of economics.
    
    PS My Ph.D. is in planning. I know about economists all too well. They're the people who like to spoil solutions in the name of ... I was going to say theory, but I think I'll change that to ... self-advantage and power politics (which, ironically, they also revile).

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