I often use these columns to call common economic theories and methods into question. Apparently, that rubs some people the wrong way. Does this make me a weird economist? Or is it just one person’s opinion?
Let me make one thing clear once more: I am not against economic growth per se. I also don’t believe that profits, markets or competition are dirty words. I really believe that the free-market system can deliver positive outcomes and is efficient and that, like market failure, government failure is a major problem. Also, I am definitely not a communist or an eco-socialist. And yes, I too believe that it is often all too easy to criticise the economy for being the puppet ‘homo economicus'. And I believe it is very useful to use economic models, provided that you recognise (and take into account) their limitations, and to define theories mathematically so as to make it easier to test them for inconsistencies.
But all the same, I do also wonder whether the free-market system is always the best way forward. Or whether efficiency, profit and growth should always be the main conditions and the main criteria for success. Whether people really always want more and whether that makes them happier. Whether it is really a good idea to present economic science as a kind of law of nature and whether economists are perhaps being too presumptuous about the validity of their assumptions and estimates.
Correct, all that is just an opinion. But it is one that is based on the fact that reality is often much more complex than can be represented in models; that economic ‘laws' can hardly ever be proven in the real world.
Many economic theories that policymakers still rely on were developed decades ago, based on very different circumstances and often their validation leaves a lot to be desired. The ensuing policy recommendations are therefore partly unusable and partly pointless. So some updating is badly needed.
My greatest scepticism, however, is that those who practice economics as the science of handling scarcity as efficiently as possible, are avoiding the confrontation with the greatest scarcity or our time by denying laws of nature. Despite all the technological progress, substitution and whatever else you can think of, economic growth cannot continue within the limits of our ecosystem. Is that an opinion? I tend to think of it more as a law of nature.
Only when we accept that laws of nature take precedence over economic theory, can economics continue to look for new possibilities for an optimal distribution of scarcity. Via the market, government or society. Always leaving room for doubt and discussion.
This is a translation of Hans Stegeman's column in Het Financieele Dagblad, published10 January 2023.