Economyths: Ten Ways That Economics Gets it Wrong

reduce a system to its fundamental components, discover the physical laws that rule them, express as mathematical equations, and solve.

And for that matter: why do we need central banks? If the economy is efficient and self-stabilising, and markets are all-knowing, what is the point in having a Federal Reserve tweaking interest rates? Wouldn’t it be better to just let banks set their own interest rates according to the ‘law of supply and demand’?

Today’s economy can give us great deals largely because it punishes us in other ways.

The psychologist Oliver James has described ‘affluenza’ as ‘placing a high value on money, possessions, appearances (physical and social) and fame’.27 The condition, which is prevalent in rich countries, places people at increased risk of mental disorders including anxiety, depression, and drug abuse. It is worsened by social inequality, which highlights differences in status, and is exploited by advertisers who drum up envy to drive sales. It is the shadow side of the American Dream.

World GDP has grown enormously in recent decades, so if we were to insist that happiness and GDP are related, people must have been pretty damned miserable a hundred years ago, or a thousand years ago. But that doesn’t seem to have been the case.

This argument can be summarised as the theory that the price is right. Markets can cost everything, including future risk. But if markets cannot correctly price a CDO2 mortgage contract, with its billion-page documentation, then they certainly can’t price something like the CO2 bond we hold with our billions of descendants.

when you draw the box for the economy, you have to put it in a larger box called the environment. The human economy is a subset of the world system. Our inputs, in terms of natural resources, and outputs, including pollution, are like the metabolism of a kind of super-organism. We can analyse it using the same kinds of tools as we use to analyse other living systems, such as a cell, or a beehive, or a complete ecosystem.

How to balance these different factors and combine them in a single indicator is obviously a difficult and ambiguous task, and the result is more like a report card, with a number of separate sections and a total overall grade, than a hard economic metric. The great appeal of the GDP is that it makes no such attempt – any transaction is the same as any other

One of the few bright spots from the credit crunch was that it helped reduce global carbon emissions by around 2.6 per cent in 2009, which was the largest annual fall in 40 years, according to the International Energy Agency

Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.