By Hazel Henderson and - -
ST.AUGUSTINE, May 1 2003 (IPS)

The G-8 Summit is no longer just about economics, as seen in the agenda of the recent Evian meeting, yet the economics profession still bestrides national policy, writes Hazel Henderson, author of \’\’Beyond Globalisation\’\’, \’\’Building a Win-Win World\’\’, and co-developer of the Calvert-Henderson Quality of Life Indicators. In this analysis for IPS, Henderson writes that economics is politics in disguise. Cost-benefit analysis or a carefully crafted economic impact statement can squelch any government reform or new social or environmental initiative, emphasising the costs of change to existing interests while down-playing the current costs of the status quo on other actors, the environment, or future generations. Economics was always based on patriarchal values, ignoring the work of women in child rearing, caring for the old, community volunteering as \’\’uneconomic\’\’. It did not predict the rise of socially-responsible investing, now at USD 2.3 trillion in the US alone. Nor did \’\’inflation-hawk\’\’ economists foresee the new threat of worldwide deflation. Today, the chinks in economists\’ armour are becoming more evident. As we witness the debacles in Asia, Russia, and Argentina, economist-ridden governments clearly need no longer defer to these defrocked priests.

The G-8 Summit is no longer just about economics, as seen in the agenda of the recent Evian meeting, which spans the Middle East, arms sales, and AIDS, among other matters.

Yet the economics profession still bestrides national policy, as it has since the Great Depression. The activist pump-priming theories of UK mathematician John Maynard Keynes helped create the New Deal debates in the US. During World War II economists devised the familiar Gross National Product (GNP) and Gross Domestic Product (GDP) to measure war production. These soon became the Holy Grail of politicians worldwide. Armies of economists descended on government agencies to dispense advice on growth and how to run everything from education, health, welfare, and pensions to trade and military policies. GNP/GDP figures have dominated G-8 summits.

But defrocking economists, as I have over the years, is getting easier. G-8 leaders puzzle over conflicting advice on deflation, while many other issues from AIDS to terrorism lie beyond the competence of economists. The economists’ tool kit promised universal applicability, with its models of rational human actors and elegant theorems. This tool kit undergirds the economic development prescriptions of the Washington Consensus.

As the world grew more complex and interdependent, and human activities began to threaten to exhaust nature’s resources, economists kept ahead of their critics and rivals from other disciplines –political science, sociology, psychology, anthropology, ecology, thermodynamics, systems and chaos theory– supplanting them in public policy as they took their theories and insights.

Economists’ imperialism expanded to ”capture for our profession”–as a UK-based economics society put it– the issues of global warming and climate change. After the Central Bank of Sweden successfully lobbied the Nobel Prize Committee to set up a Nobel Prize in Economics (economics is not a science) there was no stopping the ambitions of this discipline. Hyphenated societies of ecological-economists, social-economists, political-economists, health-economists, labour-economists, behavioral-economists, and evolutionary-economists tell this story of intellectual colonialism. Economists trump other disciplines in academia too. Their departments and business schools receive the lion’s share of funds, research contracts, power, and prestige.

Economics is politics in disguise. Cost-benefit analysis or a carefully crafted economic impact statement can squelch any government reform or new social or environmental initiative. Such analyses emphasise the costs of change to existing interests, while ignoring or down-playing the current costs of the status quo on other actors, the environment, or future generations. Cost-benefit analyses average out costs and benefits so as to obscure who are the winners and who the losers of a proposed policy, while confusing the general public into believing that the issue is ”technical” rather than political.

Today, the chinks in economists’ armour are becoming more evident, as has their game of preempting the work in other disciplines. Psychologists won recent Nobel prizes in economics for challenging simplistic economic models of human behaviour. Even harvard university may soon allow a new course in its economics department that challenges the orthodoxies still undergirding the policies of the IMF and the decisions of wall street and the world’s bourses.

Economists borrowing from psychologists and real world observation now admit that we humans are not always competitively maximising our own self-interest — the standard economic view of homo economicus. Many people enjoy giving as well as receiving and care about what kind of world we are leaving our children — all ”irrational” behaviour to an economist. No wonder economics is called ”dismal.” As The Economist points out, this re-thinking undermines orthodoxy in such major policy areas as free trade, taxes, school vouchers, as well as globalisation and the environment.

The deepest challenges are those I outlined in ”The Politics of the Solar Age” (1981, 1988) on economics’ inability to deal with technological change (because it views technology as given) and its ignorance of the laws of thermodynamics. In addition, today, neuroscientists are disproving the old homo economicus model by showing that human behaviour tends toward trust and cooperation. This challenges the famous equilibrium of game theorist and Nobel economics laureate John Nash, which ”predicts” that in economic transactions between strangers the optimal level of trust is zero.

Now researcher Paul Zak at Claremont University, California, has linked trust in humans to the reproduction hormone oxytocin, which induces uterine contractions, lactation and female bonding with offspring, and pro-social human behaviour.

Economics was always based on patriarchal values, ignoring the work of women in child rearing, caring for the old, community volunteering as ”uneconomic” in GNP. Economics did not predict the rise of socially-responsible investing, now at USD 2.3 trillion in the US alone. Nor did ”inflation-hawk” economists foresee the new threat of worldwide deflation. Their NAIRU (non-accelerating inflation rate of unemployment) model caused central banks to disemploy millions with higher-than-necessary interest rates.

Economists are learning some humility, admitting that they have no theories on the process of economic development either. Developing country leaders can now re-invite doctors, psychologists, and all the other banished specialists back into public policy. Brazil’s finance minister Antonio Palocci is an MD, and this fall Brazil will host an interdisciplinary conference on Implementing the New Indicators of Sustainability to redefine progress and prosperity. Inter-disciplinary experts will compare the many new ways of measuring human development, well-being, and quality of life.

As we witness the debacles in Asia, Russia, and Argentina, economist-ridden governments clearly need no longer defer to these defrocked priests. (END\COPYRIGHT IPS)

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