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Modern economics is based on poor science and should not be used to guide policy-making in the face of existential threats like climate change.
That’s the conclusion of new research from UNSW Sydney sustainability scientists who say the current economic system is driving environmental damage and social inequality, and needs major reformation.
Their research was published recently in the peer-reviewed international journal Global Sustainability; it is a critical review of neoclassical economics, which drives the neoliberal ideology of free markets, deregulation, minimal government expenditure and taxes.
The research found that the reasoning behind neoclassical economics is based on incorrect assumptions and lacks empirical proof.
“Neoclassical economics is fundamentally flawed, bad science, and irrational in the common meaning of the word,” said Honorary Associate Professor Mark Diesendorf, lead author of the study.
“It is doing more harm than good by supporting politically powerful corporations that are driving environmental destruction and social inequality, and therefore must no longer be used for government socioeconomic policies.”
For the study, a research team of sustainability experts drawn from different scientific disciplines refuted 10 key premises and four claims of neoclassical economics.
Co-author and a professor of sustainability research in civil engineering, Thomas Wiedmann says neoliberal ideologies strongly supports the idea that endless growth on a finite planet is feasible and desirable.
“(However), science shows that growth in GDP is closely correlated with growth in the consumption of materials and energy,” said Prof. Wiedmann.
“This leads to major environmental impacts that are threatening our life support system, the biosphere,” he says.
TRICKLE DOWN CLAIM
Another claim the researchers refute is that wealth trickles down from the rich to the poor.
The review cites a major study that finds tax cuts for the rich in OECD countries are linked to higher income inequality and have no effect on economic growth and unemployment.
They say a better economic system can be used but it requires political will and pressure put on governments.
“Leaving it to the market alone is another way of saying ‘leaving it to the 1 per cent’, that is, the big corporations and super-rich that control the market,” said associate Prof. Diesendorf.
“It’s too late for the market to solve a major problem like climate change and the market cannot reduce the increasing gap between the rich and poor,” he says.
“If we look at Scandinavian countries, their quality-of-life measures are the highest because their governments don’t leave everything to the market,” says associate Prof. Diesendorf.
“They simply spend more to provide universal basic services to their people.
“At a fundamental level, we must reduce our physical consumption of energy, land and other natural resources, which could be done while still improving the quality of life for all.”
