Immetric (part II)

A sketch of the real economy, drawn from here. See also "The Story of Stuff" here.

A previous post criticized our current economic system (method of resource allocation) on several fronts. That begs the question--if this one isn't working, what should we replace it with?

Whenever we design something, there are certain steps to follow. First, we need to decide what we want the economy to do. I offer the following:

An economy should reliably provide subsistence to all.

That is, all humans should have access to enough healthful water, food, and shelter to contribute fully to society. Any resource use beyond that is a cultural or political matter and should be decided by the people not by economists. The reliability condition means that the system must be robust and flexible enough to function amid the normal disruptions of life, and it implicitly forbids any irreversible or unpredictable degradation of the planet. There is already enough food, water, and goods produced to satisfy the needs of everyone on the planet--it's just a matter of allocating it more intelligently.

Second, we need to understand the "universe" we're working with. That sets the limits on the economy. How big can it be? How much resource consumption and pollution can the biosphere tolerate? The classical view of economics as a tension between supply and demand is woefully inadequate here because it ignores limits entirely.

That was fine when the economy was far from its limits, but these days, such a view is dangerously simplistic. A better picture of the economy is shown at the top of this post. The limits are the supply of energy and raw materials, the capacity of the biosphere to absorb waste products, and the physical dimensions of the Earth. The sectors or aspects of the economy can be tweaked to improve the operation of the overall economy.

Third, we need to sit down and design the structure of the economy. We don't need to re-invent the wheel: there have been many economic systems throughout history, and we can learn from their successes or failures. I can't go much further without getting into specifics; there is a body of work already out there describing possible economic models and how to get there. Personally, I favour ecological economics, which is based on steady-state use of materials and energy rather than perpetual growth.