Whats Wrong With Economics And How Can It Be Fixed

What's Wrong with Economics and how can it be Fixed by Dharma Deva Traditionally economics is the study of how scarce resources are or should be allocated. In particular, it has involved themes such as choices, trade-offs, markets, prices, information, needs, behaviour, satisfaction, business, government, growth and poverty, and more recently the environment and sustainability. Conventional economics focuses mostly on the following themes: . Choices and opportunity costs . Power of the market . Making decisions at the margin . Distribution of income and wealth . Private choices vs public choices . Risk and uncertainty This demonstrates that most economists today only understand something of the principles of general economy and something of commercial economy. The inequitable distribution of wealth and resources seen in the world today must demonstrate that even these parts are still in an undeveloped state. The study of people's economy and psycho-economy are totally unknown to modern economists, and as such find no place in the present mode of economic thinking. A brief outline of what conventional economists focus on is given below. The potential scope of what could be considered under these heading is also discussed, should economists seek to broaden their worldview. Immediately one can see that the scope of what is presently considered in economics is very limited, although it certainly is fundamental to economics. However, the application of a narrow outlook has had diabolical impacts on many cultures and people of the world. To remedy this shortcoming economics needs to find a set of foundation principles that are universal in character and allow economics to be applied for the happiness and all-round welfare of all of society's members. . Choices and opportunity costs In conventional economics, choices and trade-offs are thrust to the centre of analysis. Associated with all choices are trade-offs. It is true that trade-offs involve considering and choosing between alternatives in producing goods and services, in marketing, in investment and savings, in economic management and in the consumption of goods and services. However, it is not the case that people have a real option to consider between alternatives. Where there is no economic democracy, the potential opportunities (or opportunity cost of what is forgone by a

limited choice) cannot bear fruition and cannot be known or ascertained. Generally, in economics, the opportunity cost of any option is the amount of other goods and services which could have been obtained instead of any particular good or service. Practically, it is the benefits foregone from an alternative. Capitalism, being materialistically oriented, prevents and creates hindrances for people understanding subtle aspects of life. As capitalism focuses only on material increases in living as determined by how much individuals can accumulate (given that capitalism is concerned with private property and private enterprise), society will miss out on, or forego, maximum utilization of metaphysical and spiritual potentialities or these will take on a degraded meaning for further material accumulation and exploitation. In this regard there will also be loss of physical potentialities. Many choices are being made unavailable to the people as a result. . Power of the market A market is supposed to help coordinate decisions and act to allocate goods and services amongst buyers. Efficient markets are supposed to convey information and send signals to producers, traders and consumers. Today, markets pervade every person's life on this planet. Historically, many markets were established through colonial exploitation in which exploiters first captured a new market area and then gained control of all the raw materials available in that area through monopoly rights. They then exported raw materials and produced finished goods out of the raw materials in their own factories at home within their own region, only to sell the finished goods back to the people in the occupied market. Accordingly, this exploitation results in getting double opportunities to misappropriate wealth - the exploiters deceive the local population while procuring their raw materials at cheap rates, and then they sell their finished products in the same markets at exorbitant prices. The affects of such colonialism has never been properly or fully addressed for indigenous cultures around the world and in those countries where attempts at recompense, rectification or reconciliation have been made, it has largely resulted in thrusting the indigenous cultures into the capitalist market place in which limited social and cultural choices are available. By capturing the local market, colonial exploiters succeeded in totally destroying the local industrial system. This legacy persists today and as a consequence many local economies have not been able to develop wholistically or self-sufficiently. The only development open to them is to export their raw materials and, in any case, this is all controlled, managed and owned by multinational corporations who, in essence, adopt the same approach as the colonial exploiters. Often, these raw materials will be exported to other countries in which indigenous cultures have also suffered and as a result of which there are cheap and easily exploited labour forces. Essentially, today the players in market places are powerful corporations. Such markets lack proper equipoise and equilibrium with the social and cultural needs of the people, let alone people's needs in many areas of the world for basic minimum necessities (eg, food, clothing, medical treatment, housing and education). To obtain

equipoise and equilibrium at the physical level requires that markets be incorporated as part of local or block level or regional planning in a decentralized economic democracy. Demand and supply are important factors in the functioning of markets. Proper planning requires that the physical demand of the day and physical demands of the foreseeable future are to be assessed and organised. As well, the physical supply of the day and the physical supply of the foreseeable future are to be organised and ensured. The demand function relates to people's purchasing power (or consumer income), price level and prices of other goods, family circumstances and natural conditions such as weather conditions. The supply function or factors which determine level of supply relates to price of goods, cost of labour, prices of other services and intermediate products required for production of goods, the number of firms engaged in producing a product, and levels of capital equipment or technology. Where outside controllers such as multinational corporations are in charge of making assessments of demand and supply in a local economy, the local economy will always becomes uncertain in such circumstances. Many factors intrinsic to, or human aspects of, that economy will be ignored. Further, the foreseeable future of the local economy and community remains doubtful of consideration and, as stated above, it is both the immediate and foreseeable future demand and supply which must be assessed, organised or ensured. The best judge of that is the local community provided it does not have resources, knowledge or decision-making denied to it. Equity for future generations of that community will not then fail and the society will be able to build its culture, rather than be at the whims of economic decision makers in far away corporate offices. Capitalism, does not allow for the local community to make the required assessments of demand, to organise the demand and supply or to ensure the supply of goods and services to the local community. Democracy is lost in such circumstances. To grant economic democracy, supply has to be through local/regional consumer cooperatives and other cooperative structures for commodities or factors of production. It is essential that money be circulated within the local markets and that local capital is not extracted at the whims of global financiers who have no regard to local needs but only to profiteering for themselves or wealthy clients. For the demand function to operate properly in the local economy people's income will have an upward trend for the local people and not be stifled by income going to outside multinational corporations to lift their global profits. Purchasing power is only capable of continuously increase for all people under a system of economic democracy involving local decision-making, local planning and local cooperative structures and ownership through which to carry out commercial activity. No economic system in the world has been able to continuously increase the purchasing power of the people, because economic power is concentrated in the hands of a few. . Making decisions at the margin Economics often is concerned with making decisions at the margin. This involves considering incremental change and assessing strategies accordingly - that is, reformist change. In macroeconomic management,

generally, the questions for policy makers are when and how to tinker with various policies and instruments at the margin. Capitalism has not allowed for fundamental revolutions to occur in economic thinking and in economic management. Generally, decisions are based on incremental change or marginal analysis. The reformist approach is to go slowly but in reality it is intended to allow the process of exploitation to continue. The welfare of the society is not what counts. What matters to these reformists is that they only want to perpetuate the capitalist system and to temporarily satisfy people's frustrations by bringing about incremental patchwork improvements. While marginal analysis remains relevant to both micro and macro economics, there should first be a fundamental rethink about what economics is about. The economy and its principles should first be founded on a solid base. Essentially, this means that the minimum requirements of an age should be guaranteed to all through adequate purchasing capacity. One way that marginal analysis then becomes important is in determining how that purchasing capacity can be ever increasing and then how surplus wealth should be distributed amongst meritorious persons according to the degree of their merit as assessed by their social contributions, and their needs so as to allow them to further contribute to society. Identical distribution to each person can never be achieved. However, guaranteeing the minimum necessities to all can be achieved. From there, increasing the minimum standard of living of people must be and is an indication of the vitality of society. Increasing wealth disparity for the many and accumulation and hoarding by a few indicates the dysfunction of society and the mental disease of the accumulators. . Distribution of income and wealth The social and economic objective should be to put an end to hoarding excess wealth. This cannot be accomplished through reformist means. Rather, society requires a mechanism by which local economies and people, or the collective body, has a say in wealth accumulations and approvals of distribution of wealth and income. This can only come about through a cooperative decentralized economy. Economic activity and control is currently centralized in the hands of powerful multinationals and their controllers (which are certainly not the ordinary shareholders). The wealth of individuals affects their choices in all areas of life. Inequity (the opposite of equity) strips people of control, decision-making and input into their community. A dynamic economy should operate so as to lead people from a base or crude everyday existence to one which is subtle, expansive and elevating. Then will the aspirations of people be satisfied. For that to occur there must be: psycho-spiritual education and understanding (otherwise society will be balkanised or divided and antagonistic); rule by moralists (ethical leadership based on universal outlook); a balanced socio-economic structure (integration of economic, social and cultural aspirations through decentralized economic democracy); and ever-increasing purchasing power (so as to guarantee minimum requirements of life and ensure equity in wealth distribution)..

The truth of the matter today, is that the world can be divided into two groups: the `haves' and the `have nots'. To say that 80 percent of the people of the world have only 20 percent of the resources is a reasonable approximation to reality. Indeed it is probably the case that closer to 10 percent of the world owns 90 percent of the resources and earns 90 percent of the income. If you are in the group of `haves' you tend not to worry about the other 90 percent. This situation actually results in underproduction and unemployment, eg, 80 percent of production may only be for 20 percent of the people so that the capacity to satisfy the needs of the other 80 percent of people remains idle as does labour, human capital and other inputs. It is the crude attributes or propensities of humans that leaves people destitute. Accordingly, it is vital that in an omni-dynamic social philosophy and socio-economic movement there be utilization of psycho-spiritual potentialities and understanding supported by an integral moral outlook and ethical leadership. However, economics as it is known today has not dealt with social, moral and ethical questions. Economics today lacks the concept of people's economy and psycho-economy which would deal with social, moral and ethical issues. The sub-discipline of people's economy which is directly concerned (amongst other things) with the guaranteed provision of minimum requirements like food, clothes, housing, medical care, education, transportation, energy supply and water needs to be developed by economists as does the sub-discipline of psycho-economy which deals with tendencies of mind which affect economic activity and behaviour such as greed, insecurity, tastes, compassion and subtle values, as well as consciousness raising. Once the level of consciousness and awareness, in not only the socio-economic and ethical affairs of society, is raised but also spiritual awareness is increased this will have a profound effect on foreseeable future production and demand and supply of types of goods and services. Simply guaranteeing freedom in the socio-economic sphere does not necessarily mean that there will be liberty in the psycho-economic sphere. The intellectual ability of the people and awakening of conscience has to be attained through the liberation of their intellect which is fundamentally a psycho-spiritual pursuit moving from the crude to the subtle and elevating aspects of life. If the hunger of the human mind does not seek mental and spiritual elevation it becomes engaged in accumulating more wealth than what it requires in the mundane world, thereby depriving others of their share of wealth. Those who exploit human beings to serve their own self-interests do not want socio-economic freedom to be granted to people, let alone psycho-economic freedom. Not only do they exploit people in the social and economic spheres but also in the psycho-economic sphere so that people are totally unaware of it, and members of society are unable to develop their constructive efforts to raise their consciousness. Manipulation of the mass media such as the radio, television and newspapers is a typical example. For there to be full utilization of every resource in this universe, economics must develop universal principles and practices to enable maximum utilization and rational distribution of all mundane,

supramundane and spiritual potentialities of the universe and maximum utilization of physical, metaphysical and spiritual potentialities of the unit/individual and collective bodies of human society. . Private choices vs public choices An integral economic outlook leads to the understanding that the wealth of the universe is the common property or patrimony of all, though no two things can ever be absolutely equal. The question then turns to the appropriate usufructuary rights to be granted to members of society or to be approved by the collective decision making bodies of society. A theme that runs through conventional economics is that there is a distinction between private choices and public choices or the private sector and the public sector. Much of this is an artificial divide. If you are deciding how best to spend your weekly income, then that is a private choice. If the government is deciding how best to raise taxes and to support the management of national parks, then that is a public choice. However, we know that individual businesses and private operators may do things which spill over and hurt the public at large. When colonisers of last century and early this century hunted wildlife to extinction, they were making private choices which affected all the people or the public of the area or country, and the opportunity of placing value on seeing rare wildlife in its natural habitat or retaining wildlife, even if only for its existential value was lost, and this affected the public interest. For this reason governments had to intervene. This is just one example, but there are many instances where it is necessary to have some government intervention so that externalities (eg external social costs or diseconomies that damage other people or the environment and which are not paid for or remedied by those carrying on the activity) do not arise or are properly dealt with. Much of what goes on now in terms of policy and law to solve this tends to be reactive. No proper system has been put in place to inherently thwart private choices taking precedence over public or collective good. Rather society is demarcated into the private sector and public sector and in some instances the two are at odds with each other, or business and capitalist interests feels it has to contend with, or out manoeuvre, public regulators. Furthermore, even the private sector is demarcated into the owners of capital or enterprise and the workers (whether manual or intellectual) who have little say in their workplace roles (particularly when it comes to economic, social and cultural matters). A new paradigm in terms of industry and business structures is called for. What is needed is a three-tiered economic structure which is integrated and involves small scale privately owned businesses, medium to significant scale cooperative enterprises and large scale key industries managed by the immediate or local government. In such a structure key industries remain in public control and small scale businesses are allowed to exist for efficiency gains, while everything else is carried out through cooperative enterprises in which workers feel part of their working environment with a shareholding interest. Such an economic structure should be based on the principles of self-reliance, maximum utilization, rational distribution,

decentralization, and progressive increases in the standard of living of all people. Key industries comprise vital resources which every member of the public has right of access to and utilization of. These must never be put in the hands of capitalists. However, if the time comes or parts can be operated on a cooperative basis, the cooperatization of such industries or aspects of them may be possible. The management of key industries is the direct responsibility of the local or most immediately relevant government and appointees are basically stewards or trustees of society's resources. Key industries should run on a no-profit and no-loss basis (after taking into account costs such as research and development, depreciation, repair, maintenance and any other costs which may be amortised or involve replacement expenditure or provision for contingencies such as disasters). The supply of water is a good example as is the national electrical grid and main cables for telephone networks. If the key industry enterprise does make a profit this can always be given back as a rebate or discount to consumers. Through proper accounting and insurance arrangement (eg for disasters) it would be unlikely that the key industry should have to radically raise prices in case of unforeseen events. The type of electricity outages and shortfalls as seen in California recently should not arise in a publicly managed enterprise as everyone has a public interest in the enterprise, so that there is greatly accountability and vigilance. It is only when capitalists treat these enterprises as their own for profit's sake, and create artificial shortages, that decisions against that public interest are likely to arise. In this sort of structure, the cooperative enterprises are also better serviced. The dichotomy of worker vs owner, which is an unnecessary inefficiency in business structuring is removed through the cooperative model. The owner-worker polarity is divisive and imposes significant costs on the community and consumers. If an objective of economic activity is to create effective and efficient production, distribution chains and markets, then any divisive or fissiparous tendencies should be removed as these only add to costs at the end of the day. Costs will be reduced, and effectiveness and efficiency will increase, through the spirit of coordinated cooperation, for only that can ensure the healthy, integrated progress of humanity. The cooperative system is essential to establish such unity. Commodities which are essential collective requirements, such as food (the most important commodity), clothing, housing, education and medical care, should be cooperatively produced. In this regard, a sharp distinction must be drawn between cooperatives and communes. Communes involve centralized control of the economy and without a sense of worker ownership. Cooperatives, on the other hand, will be enterprises with worker ownership and bonuses. A variety of participative forms can be envisaged, depending on the nature of the cooperative, eg consumer cooperatives may function differently to producer's cooperatives or banking cooperatives or superannuation and pension funds. Whatever, the participative form may take the sense of involvement and economic rights currently snatched away in the capitalist system must take predominance. Generally, this will be through allocation of shares in the cooperative.

Some commercial activities are too small to be run as a cooperative. In such a case, small private business holdings are the preferred means of production of goods and services. Of course, if businesses expand involving more than the closest relatives or associates, for the sake of ensuring the curbing of capitalist tendencies cooperatization is to be followed. Under this three-tiered structure, the notion of private ownership assumes no real predominance or importance. Today, private ownership is generally a myth as many small businesses are struggling and in debt and the say in other economic enterprises is non-existent, even with shareholdings. Often shareholdings are merely to allow for input of funds to be controlled by others who have no association with the immediate community, region or country and so place the livelihood of the community at risk. The three-tiered structure instead allows people to resume cooperative ownership which also gives them a sense of personal ownership as they can prosper from dividend distributions and/or returns from their labour. The cooperative can also assume responsibility for their well-being at times of illness or retirement by proper integration with other cooperatives specialising in these functions. The key industries will also allow access by cooperatives to relevant resources at appropriate prices rather than over-inflated prices which is an immoral practice for something that is basically a public resource or infrastructure. Many antagonistic dichotomies or divisions can be removed by this three-tiered structure, in particular that of private vs public and owners vs workers, as well as the elimination of the haves and have-nots. . Risk and uncertainty Risk and uncertainty will always be an element in life, both individual and social and some element of risk arises from any choices, markets, and the economy. Ordinarily risk is seen as a hazard or a chance of a loss. Unscrupulous people will also place society's well being at risk through selfish activity. Economics catering for the welfare of all reduces the risk of insecurity considerably. Lack of security in society leads to the disintegration of society itself. Economics bears a responsibility for minimizing or eliminating the risk of social disintegration. If security in society is to be maintained there must be no economic injustice. Economic injustice is usually the result of lack of appreciation of the dignity of labour. This is solved through the implementation of a cooperative system. Occupational distinctions in society also lead to economic injustice where one occupation is used to set itself against others, eg management dictated by corporate ideologues inconsiderate of the financial situations of its workers. Again the cooperative system can remedy this by allowing for election of managers by those having shares in the cooperative. It will solve the principal-agent problem which involves how management can be motivated to act for the benefit of the cooperative or firm (and therefore cooperative members) rather than for

management's own interests. Economic injustices also come about because of the hording instincts of human beings. People want property only for themselves and confine their mental proclivities and horizons in such a way that it is detrimental to their spiritual elevation. The cooperative system ensures appropriate sharing and equitable wealth distribution. In all countries where democracy is in vogue people have been deceived into believing that capitalism is an efficient and effective allocator of resources, while in reality the right of economic and social equality has been snatched away. Consequently, there is gross economic disparity between the rich and the poor, irrational distribution of wealth, immense inequality in the purchasing power of the people, unemployment, chronic food shortages, poverty and insecurity in society. A progressive approach to economics will seek to minimize the risk of social disintegration, instead of merely looking at risk taking in terms of profit outcomes or the pursuit of accumulation of wealth. Through a proper focus, an understanding of the consequences of social risk must be gained by economists. Naturally, ongoing adjustments are necessary in any economy and society and in use of resources at all levels, and the method of utilization will vary as per changes in circumstances. What is important is that these be progressive in nature. By progressive is meant that universal principles can adjust and establish parallelism in accordance with the changes in time, space and person. This is to be judged by whether changes and adjustments achieve a positive psychic flow in the collective psychology. For example, has there been a progressive availability of the maximum amenities of life and minimum necessities to all to satisfy physical needs, so that the satisfied physical needs lessen the physical obstacles which inhibit human progress and so that human beings can experience all-round development, especially in the intellectual stratum, as well as the spiritual. Conventional economics may attempt to answer questions such as how changing transport and communications technologies alter the optimal location of homes, work and optimal routes for commuters in a neighbourhood (where optimal is considered as providing the best results relative to costs), but does not have the tools to consider all round social welfare. This is because of a lack of a sound foundation or intuitive principles and an appreciation of what is happiness. Intuitive economic principles for the good and happiness of all Corruption has by no means ceased in free markets. Instead in many instances it has become legitimised. Examples abound of large business interests receiving the corporate dole through subsidies and relocation incentives while unwilling to act by their own stamina. Or of chief executive officers receiving tens of millions of dollars in salary each year as a reward completely disproportionate to effort and at the same time the corporation, that the CEO is responsible for, seeks the lowest wages it can pay to workers in third world countries. Economists do not agree amongst themselves about the foundations of their discipline. There are those economists in the 'Chicago school of thought' who believe that the unfettered market place is the best means of resolving

important private and public choices. An opposite view is that of the 'neo-Keynesians' who believe that considerable intervention in markets by government is required to counter the power of large corporations and to provide appropriate safety nets in society because without the preservation of a base the private sector will fail to appreciate the broader needs of society and will only be profit-oriented. Most countries in the world - whether capitalist or communist - have adopted the policy of economic centralization. The economies of the capitalist countries are centralized in the hands of a few capitalists or a few capitalist institutions. The economies of the communist countries are centralized in the hands of the party. To assess the standard of living of a country, the main issue is whether or not economic exploitation has been eradicated and the common people have been guaranteed ever-increasing purchasing capacity. The fact is that in a centralized economy there is no possibility that economic exploitation can ever be eradicated or that the economic problems of the common people can ever be permanently solved. Furthermore, history reveals that in the past economies have declined because of environmental damage, eg rivers drying up or changing course, deforestation and desertification. Also, the decline in small-scale, rural or local industries has destroyed the balance of economies of many regions. In addition, a defective educational and social system can destroy economic equilibrium by giving free scope to capitalists. A developed economy should consist of four parts: people's economy, psycho-economy, commercial economy and general economy. This quadro-division of economics is a vast expansion on contemporary conceptions of economic activity. This involves planning on a devolved basis starting at the block or local level. Such an economy aims to achieve all-round development and welfare of the human society in a progressive manner. In a balanced economy there is a close relationship between the economic prosperity of people and their psychic and cultural development. Improving individual and collective life depends upon the all-round welfare of people. In capitalist economies local people do not develop a sense of self-confidence in their economic activities, and through this mental weakness the community becomes an easy victim of economic and psycho-economic exploitation by vested interests. Capitalists also degrade themselves by their materialistic orientation and mental obsession with objects that are finite and which can never provide them with an inner sense of happiness and psychic well-being The overall well-being of society is to be achieved by a decentralized economy which will bring about economic prosperity as well as ensure greater opportunities for the psycho-spiritual elevation of all members of society. In centralized economies there is no possibility for the economic liberation of the people. To make democracy successful, economic power must be vested in the hands of the local people and the minimum requirements of life must be guaranteed to all through adequate purchasing capacity. For this, fundamental socio-economic principles must be adopted that are immediately appealable to the human psyche and which satisfy the

aspirations of all people while elevating society so that the human consciousness is capable of evolving to a higher level. This does not mean that what economists currently focus on needs to be abandoned. What is does mean is that a deep intuitive understanding is required which is developed through a deeper knowledge of the human mind and spirit. The PROgressive Utilization Theory or PROUT as propounded by P R Sarkar is such a theory and part of it formulates socio-economic principles upon which policies and practices may be developed in a progressive way so that the all-round welfare of all people is attained and fortified in any age or era. The relevant socio-economic principles of PROUT that must be adhered to in this regard (and which have formed the basis of the above discussion) are as follows: . Diversity, not identity, is the law of nature. . The minimum requirements of an age should be guaranteed to all. . The surplus wealth should be distributed among meritorious people according to the degree of their merit. . Increasing the minimum standard of living of the people is the indication of the vitality of society. . No individual should be allowed to accumulate any physical wealth without the clear permission or approval of the collective body. . There should be maximum utilization and rational distribution of all mundane, supramundane and spiritual potentialities of the universe. . There should be maximum utilization of the physical, metaphysical and spiritual potentialities of unit and collective bodies of human society. . There should be a proper adjustment amongst these physical, metaphysical, mundane, supramundane and spiritual utilizations. . The method of utilization should vary in accordance with changes in time, space and person, and the utilization should be of progressive nature. Progressive thinkers and activists need to consider the practical implications of these principles. Good people of the world cannot fail to ignore them. Any step, no matter how small, towards their implementation in the short, medium or long run can surely cause no harm to any person or society, but will only elevate the human condition.