| THE INTEGRITY PAPERS | Genre Group - Buchanan | ceptualinstitute.com |
COMER Columns
Articles published in "Economic Reform"
the Journal of the 'Committee on Monetary and Economic Reform'COMER Column #9 Vol. 13, No. 5, (May 2001).
A Systems View of "Economic Fundamentals"
When we as citizens, taxpayers, wage earners, investors and parents hear that, despite stock market turmoil, the "fundamentals are sound", we have no little stake in knowing exactly what this means. What are the criteria being used to make the assessment that economic fundamentals are "healthy"?
We know what a pronouncement of good health would mean coming from a competent physician. It would mean that evidence indicated all systems within the normal range and trending to remain so.
If we ask an engineer whether it is feasible to build a dam in a certain location we would expect that his answer would cover all the bases, that he or she would not approve a plan in which, while the dam itself is sound, the subsoil may not be.
So it is a fair question to ask: What are the criteria, in practice, on which the diagnosis of a "healthy economy" rests? Is there some incentive for those who make such statements to be self-serving? Is the usual time horizon of politics and business (perhaps 2 to 6 years, or less) important in answering this question? Can citizens expect the same standards of objectivity and probity from economists as they have come to expect from physicians, engineers, and other professionals?
Probably few people have such expectations of such reliability in economic forecasts. Many also believe that truly professional or objective standards are not possible in relation to economic studies, and what we have is the best that can be done.
Conventional criteria for a healthy economy (e.g. those applied by "value investors" as opposed to "day traders") perhaps include prospects for continuing trade and business activity, high levels of stable employment (which also provide for consumer purchasing power), growing markets, increasing wealth, social stability, favourable returns on investments, and so on. ( The reader can add to this list.)
The list of criteria can also be expanded by taking into account other factors, also well known, which bear upon long-term sustainability of an economy and society.
For example, we know that a time horizon limited by the normal cycle of political and/or business activities, perhaps to the order of two to six years, is inadequate in many ways. Major societal undertakings, investments and institutions, in accordance with their influence and importance, usually outlive any individual. And in this time frame there is ample scope for the unforeseeable events and sudden discontinuities that are sure to occur (and for which a healthy system will have some response).
Moreover, because fundamental factors may change rather slowly, long-term economic health or sustainability involves a range of considerations which, lacking urgency, too often escape the attention they deserve (e.g. carbon dioxide emissions and global warming). What is required is a conscious perspective based upon systematic analysis rather than a dependence upon the stimulus of the suddenly urgent - which is when politicians usually begin to notice.
During the past decade, when the U.S. economy has been said to be "healthy", there has been considerable evidence of pathology. The economic gap between the well-to-do and the poor has been increasing (1), and prison populations have increased. The implication seems to be that a "healthy economy" may include major stresses - people with large incomes doing well, while people with low incomes may be unable to meet basic needs for food, shelter, medical care and security. Yet such contradictions lead to conflict; injustice and inequity breed unrest and discontent - a fact that matters to economic health. Some people may drown in a pool that is, on the average, a few inches deep, and a healthy situation requires safeguards.
Moreover, while technologies have made it easy and profitable to conduct trade over long distances, this ease of trade serves to block recognition of the concept of a regional "carrying capacity" and of ecological and resource limits. As Bartlett has noted "Other people and places are used to provide an "away" from which we can get the resources we need, and to which we can later throw our trash. Technology and trade combine to interfere with our understanding of the concept of limits."(1)
From the systems perspective both growth and the problems attendant on growth are part of the same system and must be managed together if they are to be managed at all. Failing to recognise this, community business and political leaders spend much time and effort in trying to attract new industries and populations to their areas, treating as an unrelated or subordinate distraction the consequent increases in taxes, pollution, congestion, crime and other costs.
As Hardin observed (2), while the benefits of population growth and of growth in the rates of consumption of resources accrue to a few; the costs of population growth and growth in the rates of consumption of resources are borne by all of society. It is understandable that individuals who benefit from growth will continue to exert strong pressures in support of both these trends. But to continue, against the evidence, to urge such policies reflects either economic illiteracy, dangerously narrow self-interest, rampant denial mechanisms or outright dishonesty (for which the tobacco lobby provides the most obvious but not the only example).
When a condition of systemic instability is reached, things can happen with surprising speed. The world was stunned by the swiftness of the fall of the Soviet Union. Californians were apparently caught unawares by their precarious dependence on private sector initiatives for energy supplies. Although such crises may be foreseen by those who pay attention, too many political leaders do not distinguish between sound forecasts and opinionated guesswork. All too often, by the time that problems appear on the political horizon they are close to disaster.
Why should voters and shareholders support political and business leaders who are illiterate with respect to these hazards? It is past time to test claims that the system has been working well and that there are no alternatives.
The challenge of making the transition to a sustainable society is enormous, but begins with a first step. This is to recognise the centrality of population growth to so many of the world's problems. An informed public has every right to expect a solid understanding of the real problems as a prime requirement for leadership - political and economic. We can know them by their fruits: such leaders will seek ways to improve social justice and equity; take steps to ensure that growth pays for itself; and support family planning where necessary.
Without reliable information about the world and our progress there is no way we can know if managers are competent, or if trends are in the direction of good health. The Worldwatch Institute provides examples of what is needed and can be done. For governments the focus must be on regional and local development of appropriate indicators. And the most convenient data available may not be the most informative in relation to our societal goals and values. In this regard the initiative of Joe Jordan, M.P. - Bill C-268 - The "Canada Well-Being Measurement Act" which was reintroduced by Marlene Jennings (L. Notre-Dame-de-Grāce - Lachine) in the House of Commons on February 14, 2001, requires more extensive publicity, discussion and support. (3)
To reveal the nature and magnitude of the real problems can inspire hope if this knowledge directs us toward the systemic policies and concerted actions the global situation demands. Without such knowledge and plans there can be no confidence in official statements that "economic fundamentals are healthy".
References
(1) Bartlett, Albert . "Sustainability Laws"and other papers - at: http://csf.colorado.edu/authors/Bartlett.Albert/
(2) Hardin, Garrett, "The Tragedy of the Commons" (1968 )
(3) see http://www.cyberus.ca/choose.sustain/index3.html