A New Eco-Economic Paradigm

“We have it in our power to begin the world over again,” Thomas Paine wrote in 1776. Unfortunately, we also have it in our power to kill the planet. Which one will we choose?

Our choice depends on our economy: one that’s ecologically sustainable or one that gives profit-obsessed corporations overwhelming decision-making power.

As John Feffer wrote recently:

The global economy remains market-centered, even though the evidence has been mounting that these markets are failing us and the planet. Tweaking this model isn’t good enough. We need a new Copernicus who will provide a new theory that fits our unfolding reality, a new environment-centered economics that can maximize not profit but the well-being of living things.

Copernicus, the sixteenth-century astronomer who first proposed a framework for understanding that the planets revolve around the sun, was the main subject of the philosopher Thomas Kuhn’s groundbreaking book, The Structure of Scientific Revolutions, that introduced his concept of a paradigm. A paradigm is a set of interconnected ideas that have a logical cohesion. There may also be many “anomalies, as Kuhn called observed facts at odds with the paradigm, which can be covered up by “tweaking.” Even if some of the threads of the paradigm are discarded, the whole maintains its capacity to explain and make sense of a part of reality. Kuhn argued that scientists don’t abandon their old paradigm, as creaky and riddled with problems as it may be, until they are confident that a new paradigm does a better job of explaining their domain of study.

Any economic paradigm will inevitably include a political agenda within its framework. In the case of neoclassical economics, that agenda is hiding in plain sight: the theories (of microeconomics at least) argue that the less the government intervenes in the economy, the better (Keynes expounded an exception to this rule). In addition, it generally seeks to justify the current distribution of wealth and income. In other words, neoclassical economics is the intellectual core of modern-day conservatism, both conventional and neoliberal. When progressives try to offer solutions based on this paradigm, they get sucked back into the conservative mindset.

Neoclassical economics has influenced the way many of our systems maximize short-term profits, not long-term efficiency. The public health system has been continuously starved of funds and has been denied the extra capacity that a resilient system would possess, resulting in a botched response to the current coronavirus pandemic. As government in general is cut back, poverty increases, violence escalates in poor neighborhoods, and the only sectors of the state that are given free rein are the military and police, who often are called in to make up for inadequate social services. The industrial base has been slipping away for decades, not because it was unprofitable, but because it was more profitable to outsource. The effect has been, first, to impoverish communities of color, whose workers are first to be fired, and then eventually to destroy the economies of white working-class communities as deindustrialization spread, leading to a neofascist reaction and the election of Donald Trump. Maximizing profits has meant maximizing greenhouse gas emissions, which are more profitable than sustainable options, while huge swaths of irreplaceable forests are torn down to make cheaper hamburgers.

Without a new economic paradigm, the Left can only resort to tweaking a collapsing system, making the descent as comfortable as possible. Each broken system is analyzed separately, with little or no capacity to gain from interlocking solutions. The big questions of economic growth and the health of the economy are left to those who counsel patience while the market allegedly does its magic.

A New Center

Just as pre-modern astronomers mistakenly thought that the universe revolves around the Earth, neoclassical economics argues that the economy revolves around markets and exchange. In fact, the economy revolves around the production of wealth—by governments, ecosystems, and manufacturing. The market can only exchange that which has been produced. Had a perfect market system been set up in ancient Rome, it would not have led to a modern economy. Only technological advances in manufacturing and the construction of modern infrastructure by governments has made the construction of a modern economy possible. We have been blindly extracting the riches of nature, but now we have the science to understand how to redesign the global civilization in concert with nature so that our human ecosystems will not collapse as other civilizations have in the past.

The first civilizations used public works—infrastructure—as a way to create an agriculture-based economy, which created the surplus to keep the whole system going. But they often undermined the ecological foundation of their economy, causing collapse. They used very inhumane production methods, including slavery, to create this surplus, which increased the fragility of their economies.

When governments are democratically elected, a paradigm centered on production can put people at the center of an economic system, replacing profits as the highest economic priority. Such governments can reconstruct the economy so that everyone can enjoy “life, liberty, and the pursuit of happiness.” Technology has created such powerful forces that the public will be able to choose well-designed sets of plans to reconstruct the economy by building new infrastructure systems that work withnature instead of against it. This in turn means that engineers and scientists should have more to say about economic policy than neoclassical economists. Such plans must be both comprehensive andcomprehensible to the public, because the pushback against the construction of a sustainable society will be so intense that only an enthusiastic public will be able to win with such an agenda at the ballot box.

Economies can be viewed as a kind of ecosystem. By doing so, we can see how to integrate human ecosystems into natural ones. But in order to do so, we need to change the concept of a system that we use to view the economy in order to create an alternative paradigm.

The Neoclassical Mechanical World

Neoclassical economics developed in the late nineteenth century when the field called statistical mechanics was explaining the behavior of systems containing a very large number of elements, like the molecules of water in a system of pipes or the molecules of various gases in a container.  Writers like Alfred Marshall and Leon Walras used the mathematical models of statistical mechanics to add to the work of classical economists, mainly David Ricardo, to form a synthesis called neoclassical economics. However, this model assumes that all the elements, in this case firms, are basically the same and have very little power over the market. That means that there is no difference between a manufacturing firm and a tourist firm as far as the model is concerned. Also, it’s almost impossible to figure out why there is a growth in economic output, since everything is supposed to stay the same. In fact, technology is assumed to be stable, as the economy is modelled as a sequence of short-term events.

To make matters worse, one of the main ideas retained from Ricardo is the idea of diminishing returns. As one factor of production increases, say land, the returns from that factor diminish.  John Bates Clark and others at the turn of the century used this idea to argue that everyone receives income according to how much they add to the economy, explicitly countering Marx, who wanted to construct a society to do just that. But since you can’t explain how something increases if your only tool explains how things decrease, you can’t explain economic growth.  When Robert Solow elaborated the modern theory of economic growth in the 1950s, he could only account for about 12 percent of growth—and even that is suspect if you don’t believe that everyone receives that which they put into the economy.

The theory of economic growth is the Achilles heel of neoclassical economics. There have been virtuoso attempts to explain growth statistically, but these attempts do not use theoretical mechanisms. Still, economists are happy to argue that free trade, privatization, deregulation, or lower taxes will lead to greater long-term economic growth, even though there is virtually no theoretical justification for their statements. Economic growth is the most spectacular process that occurs in modern economies, so not having a coherent theory is like arguing that physics is a science even if it can’t explain the movement of the planets, which Copernicus was able to do hundreds of years ago.

The economic growth we have been experiencing since the 1970s, however, has had two deleterious effects: it has mostly gone to the top 1%, and it is leading to ecological catastrophe.  If we take a different approach to how systems work in economies, however, we can see how to attain economic growth that will benefit the 99% and will allow us to live gently on the planet.

The Metaphor of Ecosystem

At the same time that neoclassical economists were plumbing the depths of statistical mechanics, the Darwinian revolution was transforming biology. The field of ecology, following soon after, developed the concept of an ecosystem composed of a set of functions called niches. Each ecosystem is composed of equivalent niches occupied by different kinds of organisms, but those organisms generally fulfill similar functions when they are in the same niche. For instance, in some ecosystems bears eat the big plant eaters, while in others cougars do.

These sets of niches can be further organized into trophic levels. Plants such as grass and trees form the primary producer level, herbivores like dear eat these plants to form the primary consumer level, carnivores like bears then eat the herbivores to form the secondary consumer level, and then recyclers like worms and fungi break down the dead matter from all these levels to form the detritivore level.

The detritivore level makes it possible for ecosystems to thrive for long periods of time by closing the circle of production of the ecosystem. Otherwise, production could overwhelm the ecosystem and choke it, the way algae can choke a pond if they get out of control—or the way humans are upending the climate by pumping it full of greenhouse gases.

The inability of ecosystems 300 million years ago to do this recycling for the newly evolved trees ironically led to the creation of the coal that is now part of the cause of global warming. But humans are also destroying ecosystems by extracting resources to use as input to their production system, or to create sprawl or industrial agriculture.  If we are to live on this planet, the input for our production system, as for natural systems, should come from either renewable sources like the sun, or from the output that is recycled, as soil is made up of the composting of trees and other organic matter. Economies will need to add this recycling level to create a circular economy.

The economy is an ecosystem because, like a natural ecosystem, it also has a set of trophic levels and is made up of functional niches necessary for the long-term survival of the system. At the outermost level, the economy produces goods and services that people consume: the consumer level. On the next level down, firms produce the industrial machinery used to produce consumer goods: the production machinery level. At the center of our human ecosystem sit certain classes of industrial machinery that skilled workers use to either make more of these kinds of machinery or more of the production machinery to make goods and services. This reproduction machinery has a very special place in the economy.

At the reproduction machinery level, machine tools are used to make the metal pieces of all machinery, including new machine tools and production machinery. Steel-making equipment is used to make steel, which is then used by machine tools to make more steel-making equipment, or to make more machine tools, or to make a huge range of steel products. The same applies to electricity-generating equipment, which are needed to shift from coal-run steam turbines to wind turbines, for instance. Then there is the semiconductor-making equipment that is used to run most machinery digitally. Although reproduction takes place in a natural ecosystem at all levels, in a human ecosystem most economic growth takes place at the reproduction machinery level.

When there are technological improvements in this reproduction machinery, the effects reverberate out to the rest of the economy, and whole new eras are born. The invention of steel and electricity turbines created the second Industrial Revolution, and improvements in machine tools enabled the creation of Henry Ford’s assembly line with interchangeable parts and the era of mass production. The development of semiconductors led to computers, the Internet, and the mobile device. These niches together form positive feedback loops of innovation, within the levels and between them, that also power economic growth.

Globalization vs. State-Led Economies

Just as an ecosystem is composed of niches that all reside in the same geographic area, so these virtuous circles of technological innovation and reproduction perform best when they are closer together, on a continental or subcontinental level. That is why there is an American economy and a European economy and an African economy. It is devastating for an industrial economy’s manufacturing and machinery industries to be ripped apart and sent overseas, as with the United States, and it has been tragic that Africa and other poor regions have suffered from the lack of an industrial base. Economies that have a full suite of industries—Germany, Japan, now China—have growing middle classes. China has become the most powerful country in the world, while the United States loses more and more industrial machinery and manufacturing industries.

And yet Ricardo’s concept of comparative advantage, which supports the entire edifice of trade theory, is based on the idea that each country should specialize on one industry – which led him to the self-serving conclusion that his home country, England, should specialize in manufacturing while ‘backward’ countries like the new United States and Poland should specialize in growing grain. Fortunately for the United States, Alexander Hamilton had anticipated this argument by advocating for the national development of manufacturing, an idea which the pre-Republican Whigs used to formulate the American School of economic thought, involving infrastructure building, tariffs, and industrial subsidies. When the Republicans came to power with Lincoln, they encouraged the construction of rail and canals and set up a university system, while in Europe, the writings of Friedrich List, who was influenced by Hamilton, helped propel Germany to become the continent’s leading industrial power.

Many other economic thinkers have noted the importance of the government in constructing infrastructure and encouraging manufacturing. After World War II, Seymour Melman argued that worker control of an enterprise was more efficient than managerial control and showed how the military-industrial complex crippled industrial competence. Jane Jacobs focused on production in her books about cities and their importance to national economies. Alice Amsden explained the central role of the state in South Korea’s rise to industrial prominence, as Robert Wade did more generally for east Asia. Erik Reinert has tried to put together an “other canon” that concentrates more on increasing returns, as opposed to Ricardo’s decreasing returns, explaining how countries actually develop. However, none of these thinkers synthesized a new paradigm, a set of interlinking ideas, that could be used as an alternative policy guide to the neoliberal/conservative economic consensus.

To show the usefulness of an economic paradigm, we need to demonstrate how it would work in practice. We need to explain how we can rebuild a manufacturing ecosystem while making the economy more equal and saving the planet at the same time. I’ve been developing a Green New Deal plan and budget for several years, beginning with my book in 2010 and in various articles. Here I will explain how the federal government, expanding the economy by 20 percent, could implement this paradigm.

A State-Led Green New Deal

Let’s start with the Interstate Highway System, probably the largest public works project in human history, as a model for a new public-works system. An Interstate Renewable Electricity System could strategically place wind and solar farms around the country, mostly in the Great Plains, so that there would always be enough wind blowing and enough sun shining somewhere to fill all our energy needs. Note that the market cannot do this because it cannot plan and create such a large system.

With this sustainable source of power, an Interstate High-Speed Rail System could replace most air travel and, carrying freight, long-distance trucking as well. For manufacturing, the switch to renewable electricity would mean a fair amount of swapping out old machinery for new machinery (which is going on constantly in a healthy industrial system anyway). The new machinery could also be designed to remove all air and water pollution in their processes and ensure worker health and safety. Most critically, to create a circular economy, the machinery’s products could be recycled or reused, thus avoiding the need for most mining, which causes much of our ecosystem destruction.

Progressives currently lean on regulation—mandating that companies reach a particular goal at a particular time—to achieve such a transition. However, considering the resistance this would entail, the agencies captured by the regulated, and the amount of financial capital this would require, it would be much more straightforward if the federal government simply paid for all this new equipment. The resultant products would be cheap, because the equipment would be free, leading to a higher standard of living for the 99% and erasing our trade deficit because domestic goods would be cheaper than imports. The government could trade this investment in the firm for some percent of ownership, which it could then hand over to employees. The government could also perhaps receive income from its investment.

The same model could be used to convert agriculture, which accounts for about one-seventh of greenhouse gases, pollutes the water, and destroys the soil that is the basis of all plant life. In addition, the crowded and unhealthy way livestock are raised greatly increases the risk of a new pandemic. So, the government could buy all the equipment needed to convert to healthy, organic, artificial-fertilizer-free and affordable produce, and switch to sustainable livestock-regenerative agriculture, including buying land for farmers around cities and towns. A new Civil Conservation Corps, similar to the one in the New Deal, could restore ecosystems around the country.

Government planning and ownership could also overcome several problems at once by constructing tens of thousands of large, comfortable apartment buildings to create dozens of walkable neighborhoods in town and city centers. Housing could finally be affordable again for most families, thus increasing the standard of living. The practicality of public transit would increase, since you need a certain level of density for such transit to work, and that would mean most transportation would be electric. People could use bikes and walk more, increasing health outcomes. The civil engineers at StrongTowns.org argue that suburbia is economically unsustainable because of the expense of spread-out infrastructure, so densifying those areas would make the economy as a whole more efficient.

For those who would still want cars, the government could provide large subsidies to buy electric cars, and the Interstate Renewable Electricity System could extend down to the house, allowing people to lease solar panels and electric charging stations so that they could benefit from the lower operating costs of electric cars.

This model could be extended to the entire planet if the rich countries provided the poorer countries with green industrial machinery in a global Green New Deal, so that poorer regions could construct their own sustainable production systems. In return, poorer countries would protect their ecosystems and retreat from them whenever possible. For example, much of the trade in wildlife meat that has caused recent diseases such as Covid-19 have been the result of people who were formerly able to survive from farming being forced to trade wildlife instead.

All of this rebuilding would require a large-scale retraining and updating of the skills of tens of millions of Americans, so that the educational system would have to be reconfigured to upgrade the general skill level of the populace. This is what the original public college and school systems did, but we need to extend this model so that there is lifelong learning, starting at birth, with more technical schools available, all for free. Anchoring this system could be an Interstate High-Speed Internet System that would provide better, faster service, either for free or at reasonable prices, with a certain amount of storage and processing on the web for schools, individuals, and government.

These interlocking changes would ensure that many positive outcomes emerge from the system. The health of the population could improve to such an extent that a Medicare for All or National Health Service system would be much more affordable, since the food would be healthier, pollution would be reduced, and people would walk and bike more. The causes of global warming would largely disappear. Ecosystem destruction would stop as we stop deforestation and mining. The financial system could be overhauled to emphasize public banking, as Ellen Brown has argued, and to allow the federal government to create the investment money to build these systems, as Stephanie Kelton and other MMT advocates have explained.

But the most politically attractive aspect of this plan would be its generation of enough long-term, high-skill, well-paid jobs that all unemployment and even all underemployment and undesired part-time work would be eliminated. The category of “working poor” would cease to exist because there would be no more poverty. A Federal Jobs Guarantee could be put in place in order to ensure that nobody would have to worry about finding a job, and a basic income could be established for those who could not work. The demand for labor would be so great that the balance of power between employers and workers would shift decisively towards workers.

Economic growth would not destroy the planet, the way it is doing now, because the inputs and outputs would be clean and circular, like a natural ecosystem. Growth would not come from expanding suburbs, building huge McMansions, ever bigger SUVs, and ever cheaper burgers, which is where perhaps most of the ecological destruction that comes from economic growth is concentrated. The production system would constantly increase in productivity as engineers and skilled workers constantly tweak the machinery and sometimes invent whole new categories of machinery, without using more resources. Growth would be mainly caused by improvements in quality not increases in the quantity of resources or land being exploited.

Growth could be equitably distributed because national planning could guarantee that every part of the country gained employment equally. According to my calculations, each congressional district could have ten new 1,000-person factories, and 200 new 250-unit apartment buildings.  The workers for these could be mandated to be hired from their community, thus ensuring that communities of color would gain the benefits of reconstruction. As part of the national plan, workers in fossil-fuel industries could be guaranteed new, equivalent jobs in other industries. The same could be done for workers in military industries, thus providing the political space to use the military budget for civilian goods. Everyone would get a good education and could look forward to advancing their career, if they so chose. The surplus from all this economic activity could be put into other social welfare goals, such as doubling Social Security and providing high-quality elder care. The benefits must be made clear to 99 percent of the public.

The economy is an ecosystem, but it is one that is heading for collapse. By reorienting the economy to revolve around the government-led, manufacturing-centered, and sustainable creation of wealth, we can reconstruct the broken systems that are causing so much misery and distress, and guarantee that the civilization will be viable over the long term. But to achieve this, a vast majority of the public will have to understand the benefits of this new economy, and work to elect governments that will create the new world that Thomas Paine envisioned. This has to be a truly democratic scientific, economic, and political revolution.

This essay first appeared in FPIF.

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