Economic theories that are more beliefs than reality are giving students a misplaced faith in the market’s ability to provide livelihoods and blinding them to the contradiction between growth and a finite biosphere.

Generations of economics students are being taught confusing, contradictory and planet-destroying ideas. Consider theories about unemployment. Students are likely to hear that ‘a perfectly competitive labour market, would have no unemployment’. At the same time they are likely to be told that ‘in order to maintain employment, we need to continually grow total (‘aggregate’) demand’, or in other words consumption. Let’s examine these beliefs in turn.

‘Sticky wages’ doesn’t mean that pay packets have jam on them, it means that it’s hard for companies to cut pay. Why is it harder? Typical causes, we are given to understand, include minimum wage legislation and trade unions that fight to maintain wage levels.

Market failure?

The idea that a so called ‘market failure’ to provide employment can be blamed at least partly on workers not accepting pay cuts, is fed to thousands of economics students in schools and universities, despite being plainly false. It is false because while an individual worker might displace another by being willing to work for less, if ALL workers worldwide accept lower pay, then they will consume less, and therefore less work in total will be needed, resulting in not more jobs but fewer. In other words it would shrink total or ‘aggregate’ demand, not grow it! This does not mean that a single business or country cannot gain work by paying their workers less and thus being able to undercut the prices that the other businesses or countries sell at. However that creates a ‘race to the bottom’ in which ultimately most if not all working people lose out as their pay and conditions are driven down to the minimum.

What then does set employment levels? Ownership of resources – land, farms, mines, factories – are in relatively few hands. The number of workers needed globally is the number required to produce what the resource owners want for their own consumption, plus additional workers to produce what the employed workers themselves consume. There’s no reason at all why that number should be equal to the total who need work, especially with growing automation. Even calling unemployment a ‘market failure’ is misleading: it’s not caused by the market malfunctioning, merely by it functioning normally.

The problem is that relying on consumption growth to maintain employment levels is a disaster for the ecosystem we live in and depend on, and is not feasible in the long run. We are using up resources, polluting the planet, obliterating wildlife and generating global heating, all at a rate that means, as the UN General Secretary told the General Assembly, “We are on the edge of an abyss”.

Fatally flawed

So in terms of delivering both livelihoods and a sustainable environment, unrestrained free-markets are fatally flawed. There is no reason at all why the economy should run at a level that provides full employment, and insomuch as new jobs are created by consumption growth, they come at the expense of destroying the environment. Yes, market economies are good at generating lots of stuff ... but they are at the same time, the drivers of environmental destruction and insecure livelihoods.

The continuous stream of new products also has negative consequences for our physical and psychological health. Just as plants and animals have evolved to explore and take advantage of every nook and cranny of our planet, businesses seek out every way that we can be tempted to buy. All human needs and desires are stimulated to the maximum and exploited to the full, regardless of the consequences.

Traditional wisdom

Traditional teachings show a long-standing awareness of human weaknesses and the wisdom of moderation in one’s wants. Of the weaknesses available to exploit, just consider the ‘seven

deadly sins’ described in Christian teachings: pride, greed, lust, envy, gluttony, wrath and sloth. It’s pretty easy to see how you could sell a product that appealed to one or more of those ‘sins’. So what about marketing things that appeal to our virtues? Four ‘cardinal virtues’ were recognised in classical antiquity and in Christian teaching: Prudence, Courage, Temperance, Justice. No doubt there are products sold that support those virtues, but you can see it might harder: ‘Temperance’ is the practice of restraint, self-control, abstention and moderation ... scarcely qualities you want in your customers, they might never buy a thing.

So both traditional wisdom and the modern health advice that often corroborates it, are swept aside by products that are major causes of poor physical health and mental anxieties, because that’s how businesses make money, and from the government’s point of view, how they believe employment should be provided.

What should be done?

There are no easy solutions, but arming ourselves with a clear understanding of how the drivers in the market economy are damaging us and the natural world, is the first step. Just as sports are competitive yet operate within strict rules, the challenge is how to retain the benefit of market competition, while ensuring that the economy provides livelihoods without perpetual consumption growth. That is likely to mean less work overall, and a rising proportion of work will have to be in service sector jobs that do not involve significant material consumption. Many of those services will by their nature need to be funded collectively, such as the provision of national parks or marine reserves.

What we cannot do is continue with the failed growth model in which the only way to provide jobs - and even then, inadequately in terms of both quantity and quality - is to wreck the ecosystems we depend on.