A Paradigm Shift in Economics

The Tipping Point is Fast Approaching says Robert Costanza

It’s called an investment trap: an investor keeps putting money into a losing proposition because they can’t bear the idea of losing it all. The same applies in academia. Professors can’t give up on a particular school of thought because they’ve spent decades learning and teaching it. In the larger, rational picture, one shouldn’t consider sunk costs; that’s the past. But that’s what most of us, including economists, tend to do. They determine that since they’ve invested so much time and effort into their careers they can’t risk throwing it all away. Even if you hold them down and say “Don’t you see that this really doesn’t fit?” they’ll still resist. They can see the flaws in their worldview and assumptions, but they shrug their shoulders: “You’re right, but what am I going to do? I have to keep going. I know how to teach economics, that’s what I do for a living. What do you want me to do? Start over?”
Investment traps are part of a large class of phenomena called social traps that occur when local, short-term incentives are out of whack with global, long-term goals. Once one is caught in an investment trap it is very difficult to get out. It usually takes a major outside intervention or something perceived by the players as a major event to cause them to rethink. Drug addiction is a form of investment trap, as are arms races and the persistence of academic paradigms long beyond the point when they have outlived their usefulness.
Clearly the perseverance of the mainstream economics paradigm usually referred to as ‘neoclassical economics’ is a case in point. The assumptions of neoclassical economics about human behavior (the all-knowing rational actor’s only goal is to maximize utility), about the limits of technology (that it will solve all future problems), about the near perfection of markets (most are far from perfect) and several other assumptions have been clearly and frequently shown to be so far from reality as to be laughable. Often the policies that flow from these assumptions have also been shown to be ineffective or counterproductive. But the discipline persists because it’s a huge investment trap. Tens of thousands of individuals have built their careers on this paradigm, and hundreds of major institutions exist to serve it. Western society has a lot invested in the neoclassical paradigm and its practitioners are understandably loathe to simply say “oh well,” and start over.
Escaping from an addiction or an investment trap is not a trivial or easy operation. Any smoker can attest to that. But tobacco use declined dramatically in the West once its health hazards became abundantly clear. Likewise, the evidence against the neoclassical paradigm has been building for a long time, and eventually the tipping point will come, triggered by who knows what. It will tip when those with the big investments finally realize that it is pointless to continue further and when we as a society realize that the paradigm is hurting not only the practitioners, but also the rest of us who have to inhale it second-hand. It will tip when we can counter the ‘Joe Camel’ image of mainstream economics with the facts about its ill effects on individuals and society. It can and will happen if we are persistent and continue to build the case. One can already perceive the signs of change: the burgeoning cadre of ecological economists, increasing calls for true-cost pricing, the post-autistic economics movement. Hopefully the tipping point will happen before it’s too late. Just keep pushing.

Robert Costanza is the director of the University of Vermont’s Gund Institute for Ecological Economics. He is the author or co-author of more than 350 scientific papers and 18 books, and his work has been cited in more than 2,500 scientific article.