The fault lines of economics: Traditional thought needs an overhaul

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The present crisis has shown that there is something wrong with the foundations of mainstream economics. For me, the main mistake was that the stock markets forgot that they were based in real life and real things, something already proved by the food crisis at the beginning of last year. Nowadays, economists seem to have forgotten that economics is not an exact science, like physics or mathematics, but a human science.

The mathematical rules applied to market do not apply to real life, since real life presents too many variables that are difficult to represent in a curve or a diagram. Economics should rather study the sound links and interaction of economics with other sciences such as geography and biology, or modern thinking trends such as feminism and social justice. Although explaining what Green economics is may be difficult in a short article, I will try to explain how an economy governed by green principles may be better able to resist crises, such as the one we are going through.

A global crisis caused by global problems, such as scarcity of resources (water, energy, food), cannot be solved at the local level. It needs international support and relies on the responsibility of companies and authorities towards the environment.

For me, Green economics should consist of acknowledging biodiversity and social justice as the basis of economy.

A world losing biodiversity is also losing its resources against disasters (famine, climate change, etc). It gets weaker and faces more illnesses. This is already causing the loss of billions. The loss of biodiversity can cause eight times more economic damage than climate change. A paradigmatic example is the loss of bees. Bees are disappearing everywhere in the world. Some 30% of what you eat has been pollenised by bees. The loss of bees will lead to human or mechanical pollenisation, which can cost billions to feed the current population of the world.

A Green economy must pursue preservation of biodiversity. This does not mean that we should stop the fight against climate change, but we won’t be able to face climate change with the current loss of biodiversity. The loss of biodiversity is causing climate change and climate change will be much more dangerous with less biodiversity. The Democratic Republic of Congo has endured war for the past 10 years. This African country has 80% of the world’s supply of a mineral called coltan. You have probably have never heard of it, but coltan is a material used by armies due to its resistance to high temperatures and durability.

Coltan is also a basic material for the mobile phone industry. Mobiles have been popular for the last 10 years. And during this period, over five million people have died in the DRC. Millions of Europeans using mobile phones every day are not aware that every new mobile bought is contributing to war in Congo. Companies choose to ignore this in order to preserve and enhance their profits.

A Green economy must not permit conflict for the sake of profiteering businesses. Raw materials (diamonds, coltan, rubber, etc) coming from conflicts must be heavily taxed. When people want to know what Green economics is, they want a clear explanation against mainstreaming economics. They want a formula, a diagram, rules. They want numbers, they want answers to the questions: what do we do with interest rates? How do we reduce unemployment? How do we stop inflation or deflation?

But all these questions are originated in a faulty perception of what economics is.

If we look at the green social models and policies, we can already find some of the answers. A Green economy should, basically, protect the citizen from speculation (through a Green welfare system); levy polluting and socially unfair activities (through Green taxation); create a secure and durable economic environment (through investment in green technologies, R&D and knowledge sharing).

There isn’t any magical formula
Is there a green magical formula to stop the crisis? No, there is not. But there are different Green measures that can be taken to ensure that the future will shine brighter for us and for the future generations. It is true that governments must invest in infrastructure. But they must do it in the correct kinds of infrastructure: green technologies, renewable energies and insulation of homes will give more jobs and save more money than big ports, airports or roads.

A redistribution of paid activities is needed to tackle the unemployment rate. Flexibility for part-time jobs should be increased for those who want to continue studying, take care of children or simply enjoy of more leisure time. At the same time, everybody should be entitled to a basic income based on their place of residence, and not on their origin.

Pensions and subsidies should not be related to work, but be based rather on a flat rate tax. In this Green new world, polluting and social unfair activities are massively taxed and the economy is based in knowledge sharing.

What is Green Welfare?

A GREEN welfare state should redistribute work and provide free healthcare, education services and affordable lifelong learning to all. It should be based in the sharing of knowledge. Paid working time should be reduced to 30 hours a week.

This way, men and women can both stay at home enough time when they have small children or elderly parents to take care of, have enough and proper leisure time and can afford lifelong learning if they wish. Pensions should not be related to job life, because this discriminates against women who have worked less in paid employment to dedicate time to their children. This must be complemented by a universal basic income.

The Green welfare state would be based on a knowledge economy and be sustained by Green taxation. Green taxation includes a lot of concepts, which deserve a longer explanation, such as green accounting, social corporativism and cost internalization among others, but one of the basic concepts is that the polluter pays, ie the polluting activities are heavily taxed. Activities that create social inequality or conflicts are also levied. A Green economy should provide affordable clean products for everybody and not only for elites.

Finally, a Green welfare state should count on indices that provide proper information on how the economy is working. GDP, an index widely used nowadays, cannot reveal on its own whether an economy is properly working. It does not count half of the population of a country, for a start. GDP only counts ‘work’, ie the labour force of a country, but it forgets the ‘activity’, or unpaid work, done by a legion of housewives that work and create value and knowledge every day.

The value created by them is not shown in GDP; neither does it show the health of the inhabitants of a country or their happiness. A Green economy values activity instead of work, so as to count equally in all the participants in society.

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