Economyths - ten ways economics gets it wrong Part 14

27 Raveaud, Gilles (2009), "Neocon Indoctrination - The Mankiw Way," Adbusters, 85.

28 Stiglitz, Joseph (2009), "Joseph Stiglitz," Adbusters, 85.

29 Wilkinson, Richard and Pickett, Kate (2009), The Spirit Level: Why Greater Equality Makes Societies Stronger (London: Bloomsbury).

30 Quoted in: Wilkinson, Richard and Pickett, Kate (2009), The Spirit Level: Why Greater Equality Makes Societies Stronger (London: Bloomsbury), p. 81.

31 De Waal, Frans (2009), "Fair play: Monkeys share our sense of injustice," New Scientist, 11 November 2009.

32 Chua, Amy (2007), World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability (New York: Doubleday).

33 Haskins, Ron and Sawhill, Isabel (2009), Creating an Opportunity Society (Washington, DC: Brookings Inst.i.tution Press), p. 72.

34 Mishel, L., Bernstein, J., and Allegreto, S. (2007), The State of Working America 2006/7. An Economic Policy Inst.i.tute Book (Ithaca, NY: Cornell University Press).

35 OECD (2009), "Doing Better for Children."

36 Antilla, Susan (2009), "AIG Bonus Gluttons Start Giving Americans Fits," Bloomberg, 18 March 2009.

37 Comlay, Elinor (2009), "Banks may see brain drain if bonus tax becomes law," Reuters, 19 March 2009.

38 Sorkin, Andrew Ross (2009), "The Case for Paying Out Bonuses at AIG," New York Times, 16 March 2009.

39 Alperovitz, Gar (2004), America Beyond Capitalism (Hoboken, NJ: Wiley).

40 Bannon, Lisa (2009), "As Riches Fade, So Does Finance's Allure," Wall Street Journal, 21 September 2009.

41 For example, economist Gilles Raveaud notes that Mankiw's text "presents economics as a unified discipline, entirely committed to the neoliberal agenda." Raveaud, Gilles (2009), "Neocon Indoctrination - The Mankiw Way," Adbusters, 85. See also the survey of textbooks in: Browne, M.N. and Quinn, J.K. (2008), "The Lamentable Absence of Power in Mainstream Economics," in John T. Harvey and Robert F. Garnett (eds), Future Directions for Heterodox Economics (University of Michigan Press), 240-61.

42 Darwin, Charles (1903), More Letters of Charles Darwin, Volume II (New York: D. Appleton and Company), p. 422.

43 Ayres, Ian (2007), Super Crunchers: How Anything Can Be Predicted (London: John Murray), pp. 130-1. See also: Ayres, Ian (1991), "Fair driving: Gender and race discrimination in retail car negotiations," Harvard Law Review, 104, 817-72.

44 Younge, Gary (2008), "Bad cheque for black America," Guardian, 7 February 2008.

45 In the UK, for example, women working full time earn on average 18 per cent less per hour than males. The difference is 25 per cent less when part-time workers are included. Steed, S., et al. (2009), "A Bit Rich: Calculating the real value to society of different professions," New Economics Foundation: http://www.neweconomics.org/publications/bit-rich. See also: Olsen, W. and Walby, S. (2004), "Modelling the Gender Pay Gap in the UK," CSSR Working Paper No. 17 (Manchester: University of Manchester).

46 Quoted in: Wilkinson, Richard and Pickett, Kate (2009), The Spirit Level: Why Greater Equality Makes Societies Stronger (London: Bloomsbury), p. 221.

Chapter 8.

1 Anonymous (2007), "Bee Colony Collapses Could Threaten US Food Supply," a.s.sociated Press, 3 May 2007.

2 Johnson, Renee (2007), "Recent Honey Bee Colony Decline: Congressional Research Service Testimony given before 110th Congress," 26 March 2007: http://www.fas.org/sgp/crs/misc/RL33938.pdf 3 Higgins, Adrian (2007), "Saving Earth From the Ground Up," Washington Post, 30 June 2007.

4 Pilkey-Jarvis, Linda and Pilkey, Orrin H. (2006), Useless Arithmetic: Why Environmental Scientists Can't Predict the Future (New York: Columbia University Press), p. 6.

5 Chantraine, Pol (1993), The Last Cod-Fish: Life and Death of the Newfoundland Way of Life (St John's, Newfoundland: Jesperson Press).

6 Jevons, William Stanley (1865), The Coal Question: An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coal-Mines (London: Macmillan).

7 Vidal, John (2008), "Downward spiral," Guardian, 5 March 2008.

8 According to Fatih Birol, chief economist of the International Energy Agency, conventional oil will plateau around 2020, "which is, of course, not good news from a global-oil-supply point of view." Monbiot, George (2008), "When will the oil run out?" Guardian, 15 December 2008.

9 Sterman, John D. (2002), "All Models are Wrong: Reflections on Becoming a Systems Scientist," System Dynamics Review, 18 (4), 501-31.

10 From Robert Solow's 1974 lecture to the American Economic a.s.sociation. See: Solow, Robert (1974), "The Economics of Resources or the Resources of Economics," American Economic Review, 64 (2), 1-14.

11 Adelman, M.A. (1993), The Economics of Petroleum Supply (Cambridge, MA: MIT Press), p. xi.

12 Raveaud, Gilles (2009), "Neocon Indoctrination - The Mankiw Way," Adbusters, 85.

13 Daly, Herman E. (1996), Beyond Growth: The Economics of Sustainable Development (Boston, MA: Beacon Press), p. 5.

14 Daly, Herman E. (1977), Steady-state Economics: The economics of biophysical equilibrium and moral growth (San Francisco: W.H. Freeman), p. 33.

15 Walt, Vivienne (2008), "The World's Growing Food-Price Crisis," TIME, 27 February 2008.

16 Wheat price source: International Monetary Fund. Oil price source: Energy Information Administration.

17 Clark, Andrew (2009), "US government faces pay challenge with one of Citigroup's biggest earners," Guardian, 16 August 2009.

18 Story, Louise (2008), "An Oracle of Oil Predicts $200-a-Barrel Crude," New York Times, 21 May 2008.

19 "Written Testimony of Jeffrey Harris, Chief Economist and John Fenton, Director of Market Surveillance Before the Subcommittee on General Farm Commodities and Risk Management, Committee on Agriculture," United States House of Representatives, 15 May 2008.

20 "Furor on Memo at World Bank," New York Times, 7 February 1992: http://www.nytimes.com/1992/02/07/business/furor-on-memo-at-world-bank.html 21 Dasgupta, Partha (2010), "Nature's role in sustaining economic development," Phil. Trans. R. Soc. B, 365, 5-11. Accounting for such effects changes the perceived growth rates of developing countries. For example, Dasgupta estimates that per capita GDP in Pakistan grew at an average rate of 2.2 per cent a year between 1970 and 2000, but total wealth, including natural capital, declined by 1.4 per cent per annum.

22 Allen, Myles, et al., "The Exit Strategy," Nature Reports Climate Change, 30 April 2009, 2. The authors estimate that a trillion tonnes of carbon leads to about two degrees of warming. As discussed later, there is huge uncertainty in such calculations, but they are still useful for generating rules of thumb about maximum emissions.

23 An example is the DICE model of the economic effects of climate change, available at: http://www.econ.yale.edu/~nordhaus/homepage/dicemodels.htm. The welfare of anyone around in 2025 is weighted at less than 2 per cent of the 1995 value.

24 Dasgupta, Partha (2010), "Nature's role in sustaining economic development," Phil. Trans. R. Soc. B, 365, 5-11.

25 Nayar, Anjali (2009), "When the ice melts," Nature, 461, 1042-6.

26 Taylor, Amy (2005), "The Alberta GPI Summary Report," Pembina Inst.i.tute: http://www.greeneconomics.ca/pub/193 27 New Economics Foundation (2009), "The Happy Planet Index 2.0": http://www.happyplanetindex.org/ 28 "Report by the Commission on the Measurement of Economic Performance and Social Progress." Available at: www.stiglitz-sen-fitoussi.fr 29 Wynn, Gerard (2009), "Carbon emissions fall by steepest in 40 years," Reuters, 21 September 2009.

30 Daly, Herman E. (1968), "On Economics as a Life Science," Journal of Political Economy, 76, 392-406.

31 Gallai, N., et al. (2009), "Economic valuation of the vulnerability of world agriculture confronted with pollinator decline," Ecological Economics, 68, 810-21.

32 "Stern Review on the Economics of Climate Change." Available at: http://www.hm-treasury.gov.uk/sternreview_index.htm 33 See: Orrell, David (2007), Apollo's Arrow: The Science of Prediction and the Future of Everything (Toronto: HarperCollins). As Spyros Makridakis and Na.s.sim Taleb note: "it must be accepted that accurate predictions are not possible and uncertainty cannot be reduced (a fact made obvious by the many and contradictory predictions concerning global warming), and whatever actions are taken to protect the environment must be justified based on other reasons than the accurate forecasting of future temperatures." Makridakis, Spyros and Taleb, Na.s.sim Nicholas (2009), "Decision making and planning under low levels of predictability," International Journal of Forecasting, 25, 716-33.

34 Hanley, Nick, Shogren, Jason E., and White, Ben (1997), Environmental Economics in Theory and Practice (New York: Oxford University Press), p. 358. Quoted in: Nadeau, Robert (2008), "Brother, Can You Spare Me a Planet? (extended version)," Scientific American, April 2008.

35 The idea that getting rich will fix our environmental problems is a business-as-usual approach that is not backed by empirical evidence. Economic growth, of the sort measured by GDP, uses resources and tends to create environmental damage. That's why we're in this mess in the first place. For an example of the pro-growth approach, see: Lomborg, Bjrn (2001), The Skeptical Environmentalist (Cambridge University Press).

36 See: Daly, Herman (2007), Ecological Economics and Sustainable Development, Selected Essays of Herman Daly (Northampton, MA: Edward Elgar), p. 114.

37 World Wildlife Fund (2008), "Living Planet Report 2008": http://a.s.sets.panda.org/downloads/living_planet_report_2008.pdf 38 Soros, George (2008), The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means (New York: PublicAffairs), p. 184.

39 See: Daly, Herman (2007), Ecological Economics and Sustainable Development, Selected Essays of Herman Daly (Northampton, MA: Edward Elgar), p. 114.

40 In my opinion, Chavez should work out a few bugs in his social model before he tries to export it - such as rampant inflation, out-of-control crime, etc. According to Foreign Policy magazine, the homicide rate in the capital Caracas soared by 67 per cent in the ten years after Chavez came to power in 1998, and is now the world's highest. "The List: Murder Capitals of the World," Foreign Policy, September 2008: http://www.foreignpolicy.com/story/cms.php?story_id=4480 41 Francis, R.C., et al. (2007), "Ten commandments for ecosystem-based fisheries scientists," Proceedings of Coastal Zone 07 (Portland, OR). See also: Pikitch, E.K., et al. (2004), "Ecosystem-Based Fishery Management," Science, 305, 346-7, and May, R.M., Levin, S.A., and Sugihara, G. (2008), "Ecology for bankers," Nature, 451, 891-3.

42 An early example along these lines is the LOWGROW model of the Canadian economy, which uses a standard macroeconomic approach to explore how the economy could function in a low-growth, low-carbon mode. Victor, P.A. (2008), Managing without Growth: slower by design, not disaster (Cheltenham: Edward Elgar).

43 The author and psychologist Iain McGilchrist describes schizophrenia as "an excessively detached, hyper-rational, reflexively self-aware, disembodied and alienated condition." Sufferers see themselves as a "pa.s.sive observer of life." Their artwork often features "an all-observing eye, detached from the scene it observes, floating in the picture." Rather like the one on the back of a US dollar bill, come to think of it. McGilchrist, Iain (2009), The Master and his Emissary: The Divided Brain and the Making of the Western World (London: Yale University Press), pp. 332-5. The design of the dollar bill features a single eye above a pyramid: http://en.wikipedia.org/wiki/File:United_States_one_dollar_bill,_reverse.jpg 44 And the unfit will perish, especially if they can't afford healthcare. The 2009 healthcare debate in the US seemed to have some elements in common with the Social Darwinism of the 19th century. As Herbert Spencer wrote: "It seems hard that widows and orphans should be left to struggle for life or death. Nevertheless, when regarded not separately, but in connection with the interests of a universal humanity, these harsh fatalities are seen to be full of the highest beneficence - the same beneficence which brings to early graves the children of diseased parents." Spencer, Herbert (1851), Social Statics (London: John Chapman).

Chapter 9.

1 Feynman, Richard (1964), The Feynman Lectures on Physics; Volume 1 (Reading, MA: Addison Wesley).

2 Jevons, William Stanley (1874), The Principles of Science: A Treatise on Logic and Scientific Method, Vol. 2 (London: Macmillan), p. 428.

3 Letter to J.L. Shadwell, 17 October 1872. Jevons, William Stanley (1886), Letters and Journal of W. Stanley Jevons (London: Macmillan).

4 Jevons, William Stanley (1879), Theory of Political Economy (2nd edn; London: Macmillan), pp. 11-12.

5 Quoted in Mirowski, Philip (1989), More Heat than Light: Economics as Social Physics, Physics as Nature's Economics (Cambridge University Press), p. 219.

6 Jevons, William Stanley (1879), Theory of Political Economy (2nd edn; London: Macmillan), p. 8.

7 Walras, Pareto and Edgeworth, Francis quoted in Mirowski, Philip (1989), More Heat than Light: Economics as Social Physics, Physics as Nature's Economics (Cambridge University Press).

8 Alfred Marshall, for example, wrote that: "Jevons was, as he frankly confessed, not a skilled mathematician. Truly mathematical as was the tone of his best work, he was not at his ease when using mathematical formulae." Marshall, Alfred and John King Whitaker (ed.), (2005), The Correspondence of Alfred Marshall, Economist: Climbing, 1868-1890 (Cambridge University Press), p. 164.

9 Beinhocker, Eric D. (2006), Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics (Boston, MA: Harvard Business School Press), p. 49.

10 Wiener, N. (1964), G.o.d and Golem, Inc. (Cambridge, MA: MIT Press), p. 89.

11 Feynman, Richard P. (2000), The Pleasure of Finding Things Out: The Best Short Works of Richard P. Feynman (New York: Basic Books), pp. 22-3.

12 As Julie Nelson notes, it is easy to intimidate outsiders with "references to subgame-perfect equilibria or heteroskedasticity." Nelson, Julie A. (2003), "Clocks, Creation, and Clarity: Insights on Ethics and Economics from a Feminist Perspective," GDAE Working Papers 03-11, Tufts University (Medford, MA).

13 Frey, Bruno S. and Stutzer, Alois (2002), Happiness and Economics: How the economy and inst.i.tutions affect human well-being (Princeton University Press).

14 Jevons, William Stanley (1886), Letters and Journal of W. Stanley Jevons (London: Macmillan).

15 Lykken, D. (1999), Happiness: What studies on twins show us about nature, nurture and the happiness set-point (New York: Golden Books).

16 Headey, Bruce (2006), "Life Goals Matter to Happiness: A Revision of Set-Point Theory," Discussion Papers of DIW Berlin, 639.

17 When a US Gallup poll asked people: "What is the smallest amount of money a family of four needs to get along in this community?" the answer simply tracked the average income. Rainwater, L. (1990), "Poverty and equivalence as social constructions," Luxembourg Income Study Working Paper, 91 (Syracuse, NY: Center for Policy Research, The Maxwell School).

18 Anonymous (2008), "Joy to the world is contagious: study," CBC News, 4 December 2008.

19 Kahneman, Daniel, et al. (2006), "Would You Be Happier If You Were Richer? A Focusing Illusion," Science, 312, 5782. Money can also be hard on relationships. Here, for example, is the story of the wife of a UK banker: "I know some people look at our lifestyle and cringe and it does sometimes embarra.s.s me. We have the obligatory double-fronted house in a communal garden in Notting Hill, with a gardener, a housekeeper/cook, a cleaner, a chauffeur, a nanny and a tutor. But it has come at a huge price. Most of the time I feel like a single mother - my husband comes home now and again, repacks his suitcase and is off to another European city. We do use Netjet for our Ibiza summer holidays but that is because he gets only one holiday a year, and even then he spends most of the time pacing up and down the beach on his BlackBerry in his Vilebrequins. He can never make our son's parents' evenings and missed our daughter playing the lead in the school play. I don't think he has ever swum with the children in our pool ... If it wasn't for the bonus, it wouldn't be worth it." Thomson, Alice (2009), "City workers: 'We're worth our bonuses' ," Times, 22 October 2009.

20 Frey, Bruno S. and Stutzer, Alois (2002), Happiness and Economics: How the economy and inst.i.tutions affect human well-being (Princeton University Press), p. 106.

21 Ariely, Dan (2009), Predictably Irrational: The Hidden Forces That Shape Our Decisions (London: HarperCollins), pp. 68, 76.

22 As Iain McGilchrist notes: "Money changes our relationships with one another in predictable ways. These also clearly reflect a transition from the values of the right hemisphere to those of the left." McGilchrist, Iain (2009), The Master and his Emissary: The Divided Brain and the Making of the Western World (London: Yale University Press), p. 279. See also: Orrell, David (2008), The Other Side of the Coin: The Emerging Vision of Economics and Our Place in the World (Toronto: Key Porter), p. 131.

23 Gneezy, Uri and Rustichini, Aldo (2000), "A Fine is a Price," Journal of Legal Studies, 29.

24 Vohs, Kathleen D., Mead, Nicole, and Goode, Miranda (2006), "The Psychological Consequences of Money," Science, 314, 1154-6.

25 The John Lennon quote at the start of the chapter is from: Hindle, Maurice (2009), "Christmas with John and Yoko," New Statesman, 21 December 2009.

26 Jeffries, Stuart (2008), "Will this man make you happy?" Guardian, 24 June 2008.

27 James, Oliver (2007), "Blind feminism has hurt our children," Times, 15 February 2007. See also: James, Oliver (2007), Affluenza: How to Be Successful and Stay Sane (London: Vermilion).

28 APA Press Release (2007), "Stress a Major Health Problem in the US, Warns APA": http://www.apa.org/releases/stressproblem.html 29 Gallo, W.T. et al. (2006), "The impact of late career job loss on myocardial infarction and stroke: a 10 year follow up using the health and retirement survey," Occupational and Environmental Medicine, 63, 683-7.

30 Reich, Robert (2008), Supercapitalism: The battle for democracy in an age of big business (London: Icon), p. 98.

31 Reich, Robert (2008), Supercapitalism: The battle for democracy in an age of big business (London: Icon), p. 161.

32 According to a report from the New Economics Foundation, childcare workers contribute almost ten times their salary in positive benefits to the rest of society, while highly-paid bankers subtract about seven times their salary. Steed, S., et al. (2009), "A Bit Rich: Calculating the real value to society of different professions," New Economics Foundation: http://www.neweconomics.org/publications/bit-rich 33 Schumpeter, Joseph A. (1942), Capitalism, Socialism and Democracy (New York: Harper & Row).

34 Putnam, R.D. (2000), Bowling Alone: The collapse and revival of American community (New York: Simon & Schuster), p. 359.

35 Elmhirst, Sophie (2009), "Hard times," New Statesman, 24 August 2009.

36 See, for example: http://www.timebanks.org/international.htm 37 Many women now earn more than their husbands - in Canada, the number is around 30 per cent - so it often makes sense for fathers to look after the kids. Anonymous (2006), "More Canadian women bringing home the back bacon: StatsCan," CBC News, http://www.cbc.ca, 23 August 2006.

38 Of course, some still try. A good example is: Bueno de Mesquita, Bruce (2009), The Predictioneer's Game: Using the Logic of Brazen Self-Interest to See and Shape the Future (New York: Random House), which manages to reduce Mother Teresa's motivations to a cold calculation of utility.