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WHAT IS ECOLOGY? What Economics Should Have Been

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By Gregory A Daneke, Professor Emeritus, W.P. Carey School of Business, Arizona State University

“It is always sound business to take any obtainable net gain, at any cost and at any risk to the rest of the community.” Thorstein Veblen

Where equilibrium economics emphasizes order, determinacy, deduction, and stasis, complexity economics emphasizes contingency, indeterminacy, sense-making, and openness to change…This view, in other words, gives us a world closer to that of political economy than to Neoclassical theory, a world that is organic, evolutionary, and historically-contingent.” Brian Arthur

Unless we understand what, it is that leads to economic and financial instability, we cannot prescribe — make policy — to modify or eliminate it. Identifying a phenomenon is not enough; we need a theory that makes instability a normal result in our economy and gives us handles to control it.” Hyman Minsky

The panarchy is a representation of how a healthy socioecological system can invent and experiment, benefiting from inventions that create opportunity while it is kept safe from those that destabilize the system due to their nature or excessive exuberance.” C.S. Holling

 

Why Economics is Not an Ecological Science?

One of my early encounters with the term ECOLOGY, was a 1960s pop-culture poster with a small boy, holding his father’s hand, precariously perched atop a mountain of garbage, and the line read “daddy what is ecology”?  Most folks assume it is simply a synonym for environmentalism, when it is much more than that. In the human or cultural context, it is less about tree hugging and much more about hugging (or mostly mugging) one another. Ecology (from the Greek: οἶκος, “house” and -λογία, “study of”) is the science of relationships between living organisms and their physical environment, and how they co-evolve and adapt or maladapt overtime. Successful adaptation generally involves the cultivation of sufficient resiliency to sustain networks of creatures and their ecosystems in times of dramatic environmental change. The term was first used to characterize an emerging subfield within zoology by German scientist, Ernst Haeckel in his 1886 book, the General Morphology of Organisms. He drew heavily upon the work of famed taxonomist, Carl Linnaeus as well as the legendary Charles Darwin. Interestingly enough, given this discussion, Linnaeus had called this new approach “the economics of nature” and Darwin had referred to his as the “polity of natural systems”. While economics would have benefited greatly from returning the favor, the myopic school of thought that came to dominate economics in the modern and post-modern eras has shunned ecological thinking.

As an academic discipline economics has actually been organized to have little use for the concepts of ecology (especially: population biology, systemic science, ethology, natural history or biogeography). With the rise of Neoclassical economics, it was specifically designed to be a sterilized, frictionless, and hermitically sealed void in which to suspend economic activity. But of course, this a-societal, a-political, a-historical enterprise was an epistemological impossibility and actually constituted an ideological agenda. This agenda became more pronounced following WWII and the rise of Neoliberalism. The static methods of Neoclassicism were rejuvenated by its clarified and enhanced ideology. It was especially rearmed to ignore the evolution of humans and their institutions, as well as their interactions with natural environment. Beyond the diaspora of intuitionalists to the backwaters of academia, efforts at securing policy respectability for a tangent known as “Ecological Economics” have been more difficult than mixing oil and water (literally). I suspect that much of the antipathy for ecology (or any systems thinking for that matter) was about the fear of having their fatuous (if not fascist) core assumptions and other soiled ideological linen flying in the breeze.

Strange as it may sound, economists tend to maintain that the ECONOMY IS NOT A LIVING SYSTEM, but rather a set of formalized and unchanging principles (expressed in equations pilfered from outmoded physics texts). This methodological retardation was fortified with the rise of Neoliberal ideology. By way of this alliance, economists discovered new ways to obscure their Neoclassical incongruities, as well as further conceal their own ideological proclivities. With the aid of wealthy patrons and well-paid politicians, not to mention loads self-promotional skullduggery (e.g., fake Nobel prizes, partisan institutes & think tanks, etc.), the current cult of economics passed itself off as the purest of social sciences. Inconvenient social and ecological reality could merely be swept aside by ceteris paribus (all things being equal) and/or made outside the scope of their analysis. Eventually, this façade of scientism, combined with their service to wealth and gained them a prized seat in the halls of power. At this point they could not admit to intellect reservations or make many alterations.

Ecological reasoning (especially dynamic cultural evolution), nonetheless, has become a mainstay in most the other social sciences. Studies of ancient artifacts provided clues to how modern societies evolve or devolve for some time. However, it was not until the 18th century that these notions solidified into an awareness of human and cultural evolution alongside Darwin’s insights into the natural selection. These observations and speculations, in turn, influenced the likes of Comte and Voltaire as well as Morgan, Hobhouse and Spencer. It was Herbert Spencer, a social theorist, who actually coined the phrase “survival of the fittest” in his misinterpretation of Darwin, and his popularized apology for the excesses of the Gilded Age.  It was a botanist and paleontologist, Lester Frank Ward, who became the “Father of American Sociology” by challenging “Social Darwinism” and forging many of our modern understandings of human ecosystems.

Economists were never so open to new ideas, they thought they already had all the understanding they needed. Just as Neoclassism (a term coined by Thorstein Veblen) was beginning take hold there was a less subdued dust up of sorts with ecological thinking, and it was effectively banished from the realm. Recall that Thorstein Veblen was not just asking his colleagues Why is Economics Not an Evolutionary Science? He not only challenged the mainstream’s misguided preoccupations with equilibria, he highlighted how deeply embedded cultural imperatives (like the predatory impulse) impact economic outcomes. His opus on the “leisure class” (a popular best seller at the time) was, loosely speaking, an ecology of the Gilded Age and his corpus of work also includes ingredients of environmental economics. Thus, despite being a defrocked economist, he set the stage for an authentic ecological approach, one which could meld classic institutionalism (“evolutionary economics”) with the new tools and concepts from complex adaptive systems.

Is a Little bit of Ecology a Dangerous Thing?

MBA programs, being highly concentrated, have often struggled with providing their students with only enough economics to make them exceedingly dangerous. Before the last financial melt-down, even business undergraduates were doing damage. Juniors, minoring in financial engineering, were dropping out to run hedge funds. A little economic ecology might be a disaster as well. Partial tools and concepts of ecology from complexity theory are finding increasing applications (in finance, market studies, etc.). Yet, awareness of the overall institutional ecology remains low. Ecological elements are often so fragmented they merely provide lessons half-learned. Highly selective or misapplications can further undermine institutional capabilities, particularly in the realm of financial instabilities. They could also augment the naturalistic misrepresentations of clearly engineered segments of the economy.

Over the last few decades complexity scientists from multiple disciplines (mathematics, physics, computer science, as well as zoology and bio-ecology) have sought to inform their economist colleagues on the advantages of a clearer and broader ecological perspective, but to little avail. Complexity scholars have joined heterodox economists in describing the irrationality and inefficiency of markets (e.g., Benoit Mandelbrot, Doyne Farmer, and Andrew Lo), the galactic levels of systemic risk and ludicrous levels of leverage in banking and finance (Robert May & Andrew Haldane, John Geanakoplos, Armin Haas, and Cars Hommes), and/or the violations of the laws of physical (thermodynamic) laws (Frederick Soddy, Nicholas Georgescu-Roegen, Herman Daly, etc.) Yet, for the most part, they tend to under-emphasize the institutional forces which keep all this retrograde reasoning in place.

It has only been relatively recently that I noticed complexity scholars who study sustainability openly acknowledging how economics constrains policy options (note: https://doi.org/10.1038/s41893-019-0419-7). However, by couching their discussion in terms of behavioral economics, they have made it much easier for the mainstream to co-opt, catalogue, and then cast aside their findings altogether. I find that many social ecologists are naive about “speaking truth to power” and/or merely avoid economic analysis in the same way economists have avoided them. The rare exception is my late friend, Buzz Holling, and his various colleagues (especially Lance Gunderson) and their work on a comprehensive system called PANARCHY. While demonstrating several commonalities and transfer points they recognize that natural and social systems are very different kettles of fish (with the latter often stinking of rot). Moreover, “adaptive cycles” (much more vital than the business or even longer financial cycles) often include collapse and complete reorganization on scale rarely seen in social systems, until now perhaps.  Unfortunately, what might be called the Resiliency School of economics has received little attention by card carrying economists.

Many sustainability researchers seem to assume that their ecological findings would simply speak for themselves, and the sociology of knowledge would fill in the rest. After all, who could deny we live on a finite planet with obvious Limits to Growth? Well economists for one, and financial executives for another. Among themselves they asked, how can we extract onerous rents, usurious interest, and outrageous fees if economies (or at least debts) were not growing exponentially? Economists fashioned a cover fairy tale suggesting that for each and every dwindling resource a magical technological substitute could merely be plucked from the ether. Several economists, even those not receiving corporate funds, set aside the science and mythology entirely to engage in vicious personal attacks. Many of us only tangentially connected to the Club of Rome were branded as “traitors to the American way of life” or much worse. Only just recently was it more widely acknowledged that the collapse projections of the first study (which were not even the central point) appear to be pretty much spot on. If anything, we are well-ahead of schedule.

Tilting at Windmills?

In the wake of continuing financial crises and the accelerating climate calamity, WEA scholars are once again touting a new economics which draws upon ecological theory and methods (including complexity tools) enroute to a post-Neoliberal world. In a recent issue of the Real-World Economics Review (#96) scholars and policy practitioners provided extremely useful insights into the necessity for a more ecological version of economics. Neoliberalism itself is a rapidly evolving target, however. Its pace of adaption (especially as a smoke screen for financialization) may have stalled a bit given the protracted transition and financial antagonism of the heir apparent to hegemonic power, China. It nonetheless has more frightening incarnations in store, I suspect (e.g., “The Great Reset”). To paraphrase Mark Twain, reports of Neoliberalism’s demise are greatly exaggerated. For most of my more than a half century career it was eagerly anticipated, yet even after its latest debacle it has demonstrated mind-boggling resiliency. If Neoliberalism is indeed dead, its favorite son Neofeudalism has matters (if not Mandarins) well in hand.

This should inspire a redoubling of our efforts, and various rich insights and ingredients for an alternative economics and economy can be found in RWER-96. Jamie Morgan provides a masterful postmortem of Neoliberalism, but does not actually secure a death certificate. Plus, he   observes how ideas can survive and perhaps thrive in semi-exile even after real events have rendered them persona non-grata. Those us waiting for the rooftop helicopters to begin the policy evacuations should not be holding our breath. Morgan reminds us the Post-Neoliberal “World” (even absent the ideology) may still be a long way off. He further poses a bit of a chicken and egg problem by suggesting that its ETA is contingent upon ecologically prudent policies actually coming to fruition.

All of the authors provide similarly cogent observations, but still leave one wondering what’s really next, and how do we get from here to there. Richard Norgaard sets forth the challenges of unbridled growth and climate denial, naming our current predicament the “Econocene” (implying our economic ideas and institutions are mutually causal with environmental crises). Moreover, he seems to suggest that we might need to dump economics altogether. However, his idea that it can replaced with “reality and morality” seems a bit tepid. For one, Neoliberal’s shape much of what many people accept as reality, and secondly, they can readily forge better policy alliances with fake, yet powerful, moralities (e.g., religious fundamentalism, or what have you). Neva Goodwin does an admirable job of incorporating Veblen’s and Polanyi’s ecological observations regarding consumerism and the displacement of community-based values. Plus, William Rees offers practical solutions to the degrowth dilemma via policies for prosperity through “contraction”.

Nevertheless, only when we get to James Galbraith, do we get to the heart of the matter, — “what is economics anyway”? His answer is not completely satisfying, but at least he heads us in the right direction by pointing out that it is more a policy cartel than a scientific enterprise. He also fortifies this notion with references to classic institutionalism (e.g., George, Veblen, Commons) thermodynamics, and complexity theory, as well as reminding us of his father’s concept of “countervailing power” (e.g., anti-trust, consumer protections, strong labor unions, et cetera). I would merely add that as economics emerged as a policy platform it was imbued with specific objectives, such as to protect the power of financial elites. Ergo, it is already “real” in that it accepts the burgeoning of the 1%, and its antiquated concepts (e.g., Newtonian mechanics) are mostly an illusion at this point. Its pragmatism, however, is not as essential as its legerdemain, particularly how it gets the 99% to buy into the fairy tale of every pauper an embryonic prince. As John Steinbeck once observed, socialism never caught on in America, because the poor saw themselves as “temporally embarrassed millionaires”. It will be very interesting ecologically speaking to see how this mythology holds up in a society with significantly more chutes than ladders.

Further aid for my project is provided by Stahel and Spash & Guisan. It is noteworthy that my own efforts at “institutional ecology” have never been more than a very faint cry in the intellectual wilderness (See, https://www.jstor.org/stable/10.3998/mpub.16009), and my policy experiences were as disheartening as the saying about “avoiding seeing sausage or policy being made” suggests. Hope, however, springs eternal, and I can use all the help I can get.

Stahel points out that despite coming from the same root, only ecology has held on to its homeyness. Economics is primarily focused on what the Greeks called “chermatistics” (the art of acquisition).  He invokes Polanyi, Mauss, and contemporary anthropological views to cast a new set of fundamental elements of economics as essential social processing, including: “Self-sufficiency, Reciprocity, and Redistribution as well as Commerce and Plunder”. In essence, an ecological perspective would recognize a preponderance of plunder. As Veblen suggested predation is built into our systems and institutions are continually redesigned to enhance it (e.g., removing inheritance taxes, protecting capital gains, etc.). Our current configuration has managed to bend redistribution upward and mistakes plunder for commerce. Stahel maintains that we must substantially recalibrate these elements if we are to have a functioning economy, let alone a science of economics. But recalibration is a bitch and powerful interests can always re-rig things. Moreover, those of us who have worked within the rigged systems and battled unsuccessfully to shadow price “unpriced values” and/or construct viable multi-attribute utility functions were confronted with the “horse and rabbit stew problem” (how many rabbits do you have to add to reduce the taste of horse?). Economics can become a much bigger paddock, and yet still mostly house one trick ponies.

Spash & Guisan assert a new direction by answering Galbraith’s question that for them economics is “the study of social provisioning”.  As such, it should be governed by “critical realism” and “social-ecological” reasoning. Indeed, it should. Unfortunately, along with undermining environmental values, Neofeudalism is already well on its way to co-opting ecological notions to paper over its ideological inconsistencies. This sleight of hand actually began over 60 years ago with von Hayek’s efforts to assert some sort of impossibility theorem regarding social interventions. In this new feudal era, ecological methods could be further abused to resurrect discredited notions such as Social Darwinism, Skinnerian behaviorism, and even Eugenics.

While we have been carping about an ecological approach to economics, what leading economic historian, Phillip Mirowski, labeled “the Neoliberal thought collective” have evolved and moved on to their next pillaging opportunity. We criticize their antiquated and fallacious theories, while they are probably fully aware of their panoply of paradoxes (e.g., speculation vs.  instability). As Mirowski noted in his book, Never Let a Serious Crisis Go to Waste (How Neoliberalism Survived the Financial Meltdown), “they never look back” and they never apologize for past misrepresentations. It may have been pure folly to think of all this as some sort of intellectual faux pas. Exploiter’s exploit, and Neoliberalism serves as primo enabler.

Disparate Times and Desperate Measures?

Economics, as a policy enterprise, is already uniquely primed to exploit catastrophes, if not engineer them in the first place. Ecology, however, by including economics in the role of prime mover in its own right, might also aid in its unraveling. For example, Veblen’s broader ecological observations can tested and used to explore our own Gilded Age on steroids. We have the benefit of now knowing that evolution moves in fits and starts and is often very far from any sort of equilibrium, even “punctuated”. If we could focus on these “bifurcation points” (qualitative state changes), then we might be able to alter the processes as well as the products. Just as evolution leaves behind a good deal of flotsam and jetsam (pre-adaptions or “spandrels”), institutional malfunctions might be repurposed.  Anastasia Nesvetailova, Director of the Political Economy Program at London’s City University, draws heavily upon Veblen in her studies of money & banking. Specifically, she invokes his “theory of business sabotage” to explain increasing financialization, and applies his notions of excessive predation to explain her ideas about “overcrowding” in the ranks of “shadow banking” activities. Given positive feedback loops, many species evolve past their survival niche (via “mutually amplifying distortions”). Cutting through the crap of “too big to fail”, might be a useful starting point.

Of late, we have allowed our financial systems to evolve (make that metastasize) completely out of control. They have always been a bit dodgy, yet the mega-bifurcation point (exactly 50 years ago) when Nixon unilaterally abandoned the Bretton Woods Agreements, fundamentally changed the nature of money and accumulation. It was not just the enshrinement of fiat currencies, but the wholesale manipulation of the so-called FIRE industries (finance, insurance, real estate), not to mention stock valuations and executive compensation. Asset inflation has displaced most other forms of accumulation. – Aided and abetted by respected mainstream economists, financialization has literally blown by anything that stood in its way (especially the with quasi-governmental central bank foxes guarding the hen house and underwriting “moral hazard”). As the lack of luck would have it, this era also corresponds with the meteoric rise and merger of Neoliberalism, itself an evolutionary sidetrack (originally designed to counter global communism and dismantle the New Deal). In Holling’s terms we have achieved the pinnacle of maladaptation and “brittleness” (low resiliency). It is a double whammy of both the “rigidity trap” and the “poverty trap” where the US becomes the richest “banana republic” in human history. What the elder Galbraith labeled “The Bezzle” (institutionalized embezzlement) is now the raison d’état of the entire enterprise.  

Go Oikos or Go Home

Given the socio-political resiliency of Neoliberalism and its sheer power over academic and practitioner careers as well as the economy at large, it should come as no surprise that it can easily capture and subvert many an earnest attempt to incorporate institutional ecology into policy discussions. Even such a powerful alternative approach of complex adaptive systems can be reduced to “agent-based” modeling and graphed onto existing ideological prerogatives, as was done with game theory and behavioral economics.  Moreover, given a certain nonchalance regarding internal contradictions, the mainstream can merely defuse certain inconvenient insights with a few fake Nobels. Conflicting ideas can merely be pasted-on like so many travel stickers on an old suitcase — been there, done that, bought the t-shirt.

Consider those otherwise excellent efforts to school finance professionals in the use complexity tools and concepts (e.g., May & Haldane), and how they are mostly being utilized to improve the performance of individual financiers. They are touted as ecological studies, but agent-based is not systems based. While simulations of heterogeneous agents mashing around are essential to study complex social dynamics, it is the interactions between individuals and their institutions that should be the unit of analysis, not the individuals themselves. It is worth pointing out individualism is mostly an ideological ruse anyway; economists deal with aggregates and only speak of individuals in the context of idealized behavior or homo-economicus. Moreover, studies of nonlinear “systemic risk” in highly leveraged global banking networks demonstrate that the entire system can fail due to cascading collapses even when most individual banks are relatively solid and solvent. This type of dynamic was exposed back 1994, when a single hedge fund, LTCM (assisted by its’ own Nobel economists), nearly brought down the global economy.

The stock market, a hive of dysfunctional dynamics if there ever was one, has also been a focal point for complexity theorists, starting with the father of “fractal geometry”, Benoit Mandelbrot decades ago. However, I wonder whether current applications that tout themselves as ecological are more interested in discovering the next magic formula for foolproof investing. Once again agent-based inquiries, while opening new vistas, do not necessarily provide a panoramic perspective. In a recent study by Scholl et.al., entitled How Market Ecology Explains Market Malfunctions (https//doi/10.1073/pnas.2015574118), illustrates how the interaction of different trading strategies can recombine and periodically crash the market and the gravely damage the economy at large. While impressive, is this type of microecology ecological at all? Does it actually get us any closer to the larger web of processes and products such as “mark to magic” accounting, the corporate commitment to buybacks and stock manipulations, the incestuous rating agencies, and the enormous shift from equity to debt financing, not to mention the now nearly permanent extreme emergency measures of the Federal Reserve? Another oddity of this particular study is that, despite having the legendary Doyne Farmer as a co-author, they tend to discount his pathbreaking work on the predator prey moderating dynamic (via the famed algorithm of Lotka and Volterra).

It is worth re-emphasizing that complexity is about emergent properties and processes. It is, thereby, systemic in character (with the whole often greater than its parts).  It cannot merely be passed off as an improved picture of autonomous agents. Personal choices obviously matter, but they are often shaped and reconfigured by systemic choices, made with-or-without us. Veblen foreshadowed these types of discussions in his rejection of bio-determinism (as well as Marxism). We cannot escape our environmental limitations completely, but we can perhaps improve our resiliency by reducing rather than worshipping our cultural malfunctions and systemic maladaptions.

Policy research guided by an adaptive systems perspective could redress many an unfortunate evolutionary process. It could help us unravel the often-intractable Gordian knots of our institutionalized maladaptions. Institutional ecology could begin by recognizing that our economy is a highly unstable set of evolutionary processes and that certain elements and institutions fuel and exploit that instability, at the immediate peril of entire ecosystems. One man’s (actually several person’s) absolute ruin is another man’s arbitrage opportunity. That is, many powerful interests have institutionalized over-reliance upon an economy that acts in direct conflict with those adaptations that would make the system more resilient and dramatically reduce human suffering. This cannibalization of the economy includes, in part, the institution of the mainstream. It is not that they just cannot see it, they are it. Hence, merely classifying and patching certain flaws in stock and money markets or even the entire global banking system, will not necessarily address the deeper and darker evolutionary detours we have already taken. What were these systems originally designed to accomplish and how have they devolved to produce such immense reservoirs of “phantom wealth” and economic dislocation? We might even come to appreciate that many of the financial shenanigans we are now forced to take for granted may have actually arisen out of temporary stop-gap measures designed to cope with our diminished control of global commodities such as oil (e.g., “petrodollar agreements”). Did these clandestine financial disarrangements further forestall our energy transition? Schumpeter recognized that financialization normally rises toward the end of a growth cycle and then falls back, only this time it has not. So how did we get stuck on this piss-poor “fitness peak” of a perpetual Ponzi scheme?

Ah, there are so many ecological mysteries to solve. So, let’s get on with it, and let the devil take quasi-ecologists as well as the hindmost mainstreamers. In the final analysis, Economics and Ecology are like the twins in Dumas’ swashbuckling tale, The Man in the Iron Mask, where one became the villainess prince and the other the innocent prisoner. It is past time to switch them.

From: pp.5-9 of WEA Commentaries 11(3), October 2021
https://www.worldeconomicsassociation.org/files/2021/11/Issue11-3.pdf

Download WEA commentaries Volume 11, Issue No. 3, October 2021 ›

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