“…there is no explanation of human choice applicable to all periods and all societies.” – Nevin, 1989
“One swallow does not make a summer,
neither does one fine day;
similarly one day or brief time of happiness does not make a person entirely happy.”
―Aristotle, The Nichomachean Ethics
4 Principles, 1 Objective:
Practical economics to build a flourishing world
Both individually and with book co-author, Elizabeth Neill, Andrew S. Nevin’s goal is to explore the most fundamental issues in economics and societies in order to re-conceptualize old approaches and better express the relationship between economic theory and economic reality. The practical objective is to suggest steps and policies to create better and more resilient economies, stronger societies and, most critically, better lives for individuals.
The starting point is that we can do a much better job of managing the economy. Current economic structures and policies – often based on prevailing neoclassical orthodoxy from academic Economics – lead to an extraordinary waste of human potential, needless suffering (particularly unemployment and under-employment), and a tremendous gap between how the economy does perform and how it could perform. We are in a period – particularly after the Great Financial Crisis – in which we have accepted an unconscionably poor level of economic performance. We can do much, much better.
Our own framework for discussing how to integrate what Canada does socio-economically with what we value in a society and an economy includes four guiding Principles of Economic Reality. Understanding the truth of these Principles can give us the insight – and courage – to build an economy that is much closer to delivering what we all know an economy should be delivering: a society that Flourishes.
The Principles, categorized under the specific areas of economic thinking with which they align, are as follows:
- Above all, we aim to be practical. The 1st Principle of Economic Reality states that Economics is an empirical discipline. There are currently close to 200 nations in the global financial and economic system. Every one of these nations is exploring options for economic management, tax regimes, education systems, health systems, infrastructure development, and environmental and ecosystem management. We can find dozens of examples of how nations in diverse circumstances tackle these issues, giving a rich empirical view of what works and what doesn’t, but our own policies must be carefully constructed around many confounding factors and while bearing in mind the long lag between the implementation of a policy and seeing both its intended and its unintended consequences. This Principle informs management of the economy and public policy.
- The economy is a highly dynamic system in which every part depends on other parts. A system does not behave like its constituent parts, as is dramatically illustrated by recent attempts by Europe and the US to use budget reductions to address recession. While a household or company might use austerity to solve its economic challenges, this solution cannot scale up to the global economy, for reasons obvious to all but the proponents of universal austerity. Systems Thinking helps us to understand the need to work through the complex dynamic impact of economic policies and for policy makers to pay attention to more than market shares and industry concentration if they are to make sure an economy retains dynamism. The 2nd Principle of Economic Reality states that The economy is a human construct and we can set the rules. Put simply, our task is to build an economic ecosystem that delivers the result we want – Flourishing. And to do this requires that we understand deeply how a system works.
- The 3rd Principle of Economic Reality states that The [economic] rules we set – how we construct the economy – depends on what we are trying to accomplish. Unless we are explicit about what we want the economy to do for us as individuals and as a society, we can’t make it better. In Flourishing for Canada – their work in progress – Nevin and Neill recognize Flourishing as the appropriate economic and social metric and address the relationship between Flourishing and more traditional economic metrics such as GDP and unemployment; they also explore its relationship with other important elements of a successful economy such as income distribution, education levels, and population health. But their chief focus is the less well-understood project of creating the optimal environment for individual development: autonomy and self-mastery (with autonomous desire-setting), the ability to learn, resilience, and the ability to form connections. These capacities are at the core of Flourishing. This 3rd Principle centres the debate on discussions about what the economy is trying to accomplish: a defined purpose linked to the need for the economy to serve society and its people makes better economic management possible. Social and Individual objectives must be taken into account.
- The 4th Principle of Economic Reality says that We need to take into account Realities about people and about the world to develop the best economic rules. The economy is constructed for people. So unless we understand thoroughly how people actually Flourish, and what conditions are required so they can Flourish, we will never design the economic policies that achieve our objective.
Some of the Realities most closely linked to the project of equipping individuals with needed capacities are the following:
a. Development and growth are at the core of the human experience and with growth come changes in both what we value and what we want, as a reflection of those values.
b. We live in a world of tremendous uncertainty, and rapid increases in longevity are increasing this uncertainty exponentially as decisions made at 20 or 30 years of age will have ramifications 20, 30, 50, perhaps 80 years later.
c. We make decisions with incomplete information and with limited rationality, and our options are bounded not only by external circumstances, but also by each individual’s ability to conceive of their opportunity set.
d. Some of our most important decisions – education, career, marriage – are made only once, or a few times, but affect our lives both more broadly and with greater finality than most other decisions, thus having an incalculable impact. This Reality has never really been absorbed by mainstream Economics but has profound consequences for how we should structure our economy. Specifically, to create a society that Flourishes in light of this Reality requires that the economic system reduces the risk of such decisions, creates options and flexibility for people, permits failures and redemption, and does not lock individuals into paths over which they have no control. It would not permit, for example, the current US system in which unsustainable student debt cannot be discharged in bankruptcy, essentially creating a situation in which the individual loses the ability to reset.1)Interestingly, this bubble in student debt in the US (which had reached 1.2 Trillion in 2013) also illustrates the impact of Systems Thinking. While for the individual university and loan provider, the explosion in availability and use of student debt is a boon, at a systemic level this debt overhang is having a strong negative effect on household formation, house purchasing, and durable goods consumption as young adults are delayed entering full adult lives by the need to repay the student debt. See Chris Denhart. “How The $1.2 Trillion College Debt Crisis Is Crippling Students, Parents And The Economy,” Forbes Special Features, July 7, 2013. Accessed on November 18, 2013. Forbes Article
Of course, the obvious question arising from the 4th Principle of Economic Reality is: what should we be trying to accomplish?
Neill and Nevin’s starting point is that the purpose of the economic system is to create an environment in which individual Flourishing is maximized.
Footnotes [ + ]
|1.||↑||Interestingly, this bubble in student debt in the US (which had reached 1.2 Trillion in 2013) also illustrates the impact of Systems Thinking. While for the individual university and loan provider, the explosion in availability and use of student debt is a boon, at a systemic level this debt overhang is having a strong negative effect on household formation, house purchasing, and durable goods consumption as young adults are delayed entering full adult lives by the need to repay the student debt. See Chris Denhart. “How The $1.2 Trillion College Debt Crisis Is Crippling Students, Parents And The Economy,” Forbes Special Features, July 7, 2013. Accessed on November 18, 2013. Forbes Article|