The New Economics; a Bigger Picture

This book is an economic manifesto. Its central argument is that conventional economics is in crisis because it is blind to the ecological, social and spiritual effects that mainstream economic policies create as they mistake GDP growth for wealth. The book radiates scepticism about the extent to which money, ownership and high rates of consumption are associated with wealth. However, other economic myths such as limitless growth, market perfection and rational choice are also debunked by the evidence presented, which proves that alternative ways to development are possible.

Conventional economists assume that we, humans, are rational and behave in a way that maximizes our individual self-interest. While this “rational person” assumption yields the basis for neoclassical economics, it leads to unrealistic economic analysis and bad policy making. By contrast, the new economics considers that people do care about other people’s behaviour and well-being and about the impact of their individual decisions on society and the environment. Other relevant inputs for new economists are culture, habits, self expectations, moral judgements, the productive roles of unpaid work, and social and political participation. But these factors still need to be equated to real economic value. Evidently, the crisis of conventional economics is epistemological, as it lacks scope to recognize that there is life beyond its models.

The new economics implies that our assumptions about wealth and poverty must be turned upside down. First, we need to change the way societies accept the definition of wealth. For instance, small, traditionally deprived countries such as Vanuatu (a Pacific island), and Latin American countries such as Colombia can feature in the top of the world list of human happiness. This is possible only if wealth measurement considers factors such as the distribution of food and basics, strong and rich local culture, solidarity and high levels of social participation. This is a striking finding, as these “leading” countries not only expose the reductionism of the traditional ways of measuring poverty but they also prove that something is deeply wrong with the conventional wisdom about poverty reduction, understood as mere policy-increased levels of consumption at a global level.

One of the deepest cultural changes in westernized societies is consumerism, and the related idea that high consumption rates equate to development. But consumerism, which relies on increasing access to cheap products, generates impoverishment of the workforce in global sweatshop countries, externalization of the (often) enormous environmental costs related to transport, sales and marketing, and proliferation of unregulated bank credits that make money more expendable. Yet consumerism has at least two further effects. First, insofar as repairing goods becomes comparatively more expensive than producing new ones, there is an exacerbation of a culture of disposal that generates striking local and global environmental impacts. The second is an erosion of political participation in local places, while a “Wall-Mart effect” contaminates neighbourhoods, turning social actors into eternally unsatisfied consumers and debtors. Nonetheless, on the other hand, economies such as Cuba, in spite of its well-known limitations, suggest that a repair-and-re-use culture is possible, and this can sustain a self-sufficient and greener national economy.

In fact, a crucial way to new economics is to ameliorate consumerism. A second way is to stop housing mortgage-related speculation, as this fragments towns, villages and neighbourhoods and devalues their social riches. Another measure is to encourage capital investment in local level businesses, thus avoiding their departure towards offshore trusts or hedge funds, as a way of feeding local economies in the long run. Also, local economies must be strengthened through the proliferation of different local currencies, while a g