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Farrell
Paul B. Farrell
Aug. 30, 2011
Commentary: Classical economics is fatally flawed
By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) — Yes, a New Economics. With new rules. Why? Classical economics is fatally flawed. So investors better learn the new rules that will win in the New Economy. Delay, deny, you’ll lose.
After the coming global collapse — the big wake-up call — classical economics will be exposed as a fraud sabotaging investors, destroying America.
More of the same old voodoo? Barack Obama said he would unveil proposals next week aimed at spurring job growth in part through infrastructure improvements. He also named Princeton economist Alan Krueger as head of the Council of Economic Advisers.
Yes, new rules. Why? Because everything you know about economics is wrong. Everything. The old economics is a rigged game in a Wall Street casino. The cards are stacked in favor of the banks and their co-conspirators, political lobbyists, corporate CEOs and the Super Rich. The house always wins. You always lose. Worse, America is losing.
Here’s why: All classical economic ideas derive from one central idea. Not a scientific theory, merely an unproven hypothesis. Worse, all economic conclusions are based on this illusion, a fantasy, myth, wishful thinking. Consequently, all economic conclusions are speculations.
This central hypothesis of today’s economists — from Ben Bernanke’s Fed staff, economists in the World Bank, IMF, CBO and White House economic advisers, to economists at Wall Street banks, think tank and academic economists — is the unquestioned acceptance of the dogma of “Eternal Growth.”
Get it? All economic thought evolves from one unproven and fatally flawed hypothesis: The unscientific assumption that the global economy will continue growing indefinitely … that the world’s economies will be able support global population growth indefinitely … and that all necessary commodities and essential natural resources will be available indefinitely to sustain the world’s relentless economic and demographic growth.
Unfortunately, that’s impossible. Absurd. Irrational. Unscientific. Just plain wrong. So are all the economic conclusions that follow from that hypothesis. Worse, most economists still refuse to see that their own system is not only fatally flawed, it proves the need for a New No-Growth Economics.
Here’s the manifesto for the New No-Growth Economics: Twenty rules, trends and principles emerging after Wall Street and the American economy get hit by another, bigger meltdown, totally predictable in today’s self-destructive political arena.
Warning: Even with another market meltdown, taxpayers may still get duped into bailing out the banks again. Eventually, however, they will wise up and revolt against this corrupt system.
20 new rules emerging through crashes and wake-up calls
Why shouldn’t you trust economists anymore? After the 2008 meltdown it became painfully obvious that America’s 15,000 economists were clueless (as were more than 50,000 portfolio managers and all government leaders in both parties). Not just because they’re paid mercenaries. The real problem is their brains are short-term thinkers. They really cannot see the future. So they simply project old data. They’re not future-thinkers. They missed the last crash. They’ll miss the next one.
Seriously, we know a mere handful of America’s best and brightest economic leaders, including the best and the brightest economists — less than 0.01% — predicted the 2008 meltdown that essentially bankrupted America.
But even worse, since 2008 they’ve done nothing to protect us against a new crash. Quite the opposite: The same banks and their economists are working feverishly with lobbyists, politicians and the Super Rich to kill all reforms.
So a few new meltdowns are inevitable, until our fatally flawed economics finally enters the 21st century and understands the rules of New No-Growth Economics are essential to our survival. Here’s how the 20 rules will work:
1. Population: self-destructive, basic supply/demand equation flawed
Brutal as it sounds, we’re “eating our young.” Earth’s resources can support about five billion people. We already have 7 billion. And heading for 10 billion by 2050. Demand (population growth) is rapidly outstripping supply (commodity/resources). This creates an inherent conflict that’s certain to trigger disastrous world wars, starvation, poverty, pandemics, and more. In short, using their own basic demand/supply equation, classical economics is a failure.
2. Economy’s worst-case scenario: Population explodes to 10 billion
If we do nothing: Population growth rages out-of-control. We continue using and wasting commodities and nonrenewable resources at a rate equivalent to six Earths. That conflict will trigger multiple catastrophic events, kill economics, trigger a global wake-up call
3. Next worst-case scenario: Population not reduced back to 5 billion
Earth has too many people. Like having huge debt. Disasters will soon end denial.
4. Population control is an economic necessity, the last taboo falls
Here’s the new third rail for politicians. In “The Last Taboo,” Mother Jones columnist Julia Whitty asked: “What unites the Vatican, lefties, conservatives and scientists in a conspiracy of silence? Population.” But soon, this massive “conspiracy of denial” will be shocked awake by economic, political and military catastrophes that threaten the planet and human existence.
5. Mass denial ends in aftermath of global catastrophes
What will tip the economy and markets? What will shock the collective conscience of all peoples? Get across the message that Eternal Growth is a fantasy: Global pandemics? Terrorist nuclear wars? Poverty, starvation? Or some other unpredictable Black Swan that we deny, we refuse to prepare for? We don’t know what will shock the world, finally bankrupt America and wake us up. But we do know that it’s dead ahead.
6. Revolution topples dominance of Super Rich capitalists
Capitalism has become a tool of the wealthy, the greedy, the selfish, with a widening income gap between the Super Rich and the other 99% of Americans. This is undermining America’s future and will erupt in increasing class warfare similar to the Arab Spring revolutions fueled by unemployed youth angered by their inequality.
7. Wall Street’s too-greedy-to-fail banks become public utilities
Once powerful banks are forced to balance public welfare ahead of shareholders.
8. Commodity pricing shifts from markets to government negotiators
Commodities and natural-resources pricing will be set by international agreements.
9. New regulations reign in quants and hi-risk derivatives traders
This casino gambling no longer serves the common good and will gradually disappear.
10. Fed monetary policy no longer dominated by Wall Street banks
In the future, monetary policy will balance more Main Street and global needs.
11. Behavioral economics and behavioral finance get new careers
These economists failed to help small investors, will become ad professionals.
12. Oil and carbon-based energy epiphany, invest in alternatives
After the global wake-up call, Exxon-Mobil and all coal, gas and other major carbon-based energy giants will wake up, shift strategies, invest billions in new alternatives.
13. Self-destructive no-compromise political gridlock ends
In the New No-Growth Economics, cooperation is essential to global survival.
14. GOP returns to principles of Lincoln, tea party disappears
Reason returns: In the future, no rigid minority can hijack the public good.
15. Inequality gap drops with decline of Super Rich power
After the great collapse even the Super Rich will wise up to the reality that their blind addiction to money is causing the destruction of the planet.
16. Lobbyists will no longer run Washington as a private anarchy
Washington’s biggest business will go out of business in a no-growth world.
17. American imperialism ends, so do Pentagon blank checks
Half our tax dollars go to wars: Unnecessary in the post-catastrophe economy.
18. The rise of a powerful, new democratic United Nations
After the megacrash, international cooperation will be more essential than ever.
19. End of climate-deniers, after the ticking time-bomb explodes
Yes, the self-destructive battle between classical economists and the new environmental economists, between a rigid eternal-growth dogma and an honest awareness that the planet cannot sustain the current 7 billion population, let alone 10 billion … will end.
20. Beginning of New Global Era … the New No-Growth Economy
The long-term survival of all nations and peoples on Earth depends on interaction across the globe; therefore we must cooperate and live in peace … or we will seal our own fate and get what we deserve, by self-destructing a threatened planet and a fragile civilization.
For more, read “Prosperity Without Growth,” Tim Jackson; “The Great Disruption,” Paul Gilding; “Earth: Making a Life on a Tough New Planet,” Bill McKibben.
PAUL FARRELL writes the column on behavioral economics. He’s the author of nine books on personal finance, economics and psychology, including “The Millionaire Code,” “The Winning Portfolio,” “The Lazy Person’s Guide to Investing.” Farrell was an investment banker with Morgan Stanley; executive vice president of the Financial News Network; executive vice president of Mercury Entertainment Corp; and associate editor of the Los Angeles Herald Examiner. He has a Juris Doctor and a Doctorate in Psychology.
Editor’s Note: It’s noteworthy that a quintessential man of the establishment like Farrell is now apparently driven to tell the truth about the nature of the capitalist system and the bankruptcy of its ideology. In that he joins other members of the ruling circles (Paul Craig Roberts, David Stockman, etc.) whose denunciations are all the more credible for coming from the legendary “horse’s mouth.” Nothing short of miraculous, considering his career connections (i.e., Wall Street Journal), many of which remain in place. What makes these men act this way?
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