Econ 101 Needs to Change

economic crisis depression recession

I recently got into an argument with a friend. I said that pollution is a huge problem. If a factory pollutes a river, people living near the river might get sick.

He responded that, if customers are paying for whatever the factory produces, the business must be creating more happiness in the world than harm. If people living nearby don't like it, they can move.

I knew why my friend thought this way. His idea came straight out of some introductory economics class. I knew that because I took introductory economics classes. For a few years after taking them, I thought the world worked that way too — that happiness can be measured in dollars, and that any problems with free markets go away when you look at the big picture.

Since then, I've learned about things like market failures, short-term planning and the simple fact that people don't act like economic robots. I could explain why the polluting factory is a problem in terms like these. But even that wouldn't really get to the heart of the matter. For me, the real issue is that nature is more important than money, period. Money exists within and because of nature, not the other way around.

Wistman's Woods

Brian Ralphs/Flickr/CC BY 2.0

Introductory economics courses rarely mention nature. When they do, they minimize it. At the end of my first economics course, the teacher briefly mentioned something about "negative externalities." This is when businesses and customers create problems that only other people have to deal with. Pollution, climate change, habitat destruction and just about any environmental issue you can think of gets rolled into this category.

The idea itself isn't a bad one, but it creates a problematic image. It makes it seem like markets are the real center of society, and these "negative externalities" are flies in the ointment, little annoyances that pale in comparison to the greater whole.

The problem is, of course, that nature IS the greater whole. If nature suffers, then markets suffer too, along with humans, other animals, plants and just about everything on the planet. As a Treehugger commenter wrote under a recent article, "No environment = no humans = no economy."

This isn't just a philosophical disagreement; it has real consequences. People who become economists sometimes develop more complex ideas about markets. But most journalists, politicians and other folks in charge don't become economics PhDs. They take a class or two and move on to powerful positions. And many of them bring this Econ 101 attitude with them, using it to mold the world the way a privileged 18th-century philosopher or two imagined it worked. It's no wonder politicians think beating China's economy is more important than sticking to an international climate change agreement, or that creating jobs matters more than protecting Americans from cancer caused by fracking.

How people imagine the economy determines what kind of economy we have. Because no matter what people like my friend think, the economy isn't a law of nature. Humans designed it, and we're still designing it ... On this delicate green and blue rock we call home.