Missing from the Mainstream: The Biophysical Basis of Production and the Public Economy

Abstract

Just as mainstream economics neglects the biophysical basis of production and disregards energy as the most fundamental input, it likewise ignores the existence of the public economy. Both types of denialism threaten the ability of societies to develop energy solutions that can meet the needs of the polity. This article calls for a new theory of the public economy and it outlines elements of such a theory. Both a biophysical economics and a new public economics are needed to address the energy challenges confronting modern societies. One of the most important contributions of biophysical economics is its critique that mainstream economics disregards the biophysical basis of production (Hall et. al., 2001), and energy in particular (Hall and Klitgaard, 2012). Likewise, mainstream economics ignores the existence of the public economy. The public economy is a vital system of production and delivery that produces scores of products: goods, services, benefits and innovations. Yet, standard economics lacks a theory of this non-market system. To miss or minimize basic empirical verities – both the biophysical basis of production and the existence of the public non-market production economy – is not only astonishing denialism. 1 Such obstinate myopia within economics may foreclose the development of solutions, such as alternative sources of high-EROI 2 energy reliably produced and affordably supplied on a planetary scale. 1. Denial of the public non-market system, and the consequences Public non-market production makes up a quarter to a half or more of all economic activity among advanced democratic nation-states. Yet the public economy’s ability to function on behalf of the populace as a whole is seriously imperiled in many western democracies, and particularly jeopardized in the United States. The surging influence of mainstream economics has been a prime factor in the degradation of the public domain over the last several decades – a phenomenon that James Galbraith (2008) has called “the collapse of the public governing capacity.” Market advocates, exploiting neoclassical economic theory, have foisted market axioms and precepts onto government, intent on transforming public goods production in imitation of an idealized and idolized market model. The ravaging of government in the interests of ideology and private profit has proceeded largely unhampered because we have no adequate theory to explain the nature and dynamics of the non-market public economy, no intellectual infrastructure to explain how its purposes and processes differ crucially from those of the market, and no effective explanatory model that shows why such differences matter substantially for democratic governance and the well-being of the populace. 1 “Denialism: refusing to accept an empirically verifiable reality” 2 “Energy Return On Investment” real-world economics review, issue no. 81 subscribe for free 28 Government produces its outputs in a non-market environment. Its resource inputs are supplied collectively: from the authority of the people (their votes for elected representatives) and from their aggregate financing (taxes). The mission and the result of government’s distributed decision-making, collective-financing system of production is that goods, services, benefits, and protection are supplied for the wellbeing of the society as a whole, and can be accessed regardless of personal wealth because they are provided free or below cost at the point of usage. Economic theory today lacks any cogent theory of this non-market system. Public choice theory, to which many contemporary economists default for a “public economics,” draws its lifeblood from market-centric ideology. The public choice school holds that the axioms and assertions of market-model economics apply to the public economy. Simply put, there are two fundamental problems with this school: 1) it fails to recognize that the public economy is non-market; and 2) many of the basic assumptions and assertions of market economics have been challenged and disproven by pluralist economists regarding their applicability to the market (e.g., see Fullbrook, 2007), nevermind the non-market. A myopic market-centric view of the public economy prevails in textbooks, in university classrooms, in the documents and debates shaping public policy and in the current practice of public administration. As it stands now, students in university economics courses learn about the superiority of markets from a professoriate that transmits the reigning market-centric economics, that speaks regularly of government as little more than an impediment to “efficient markets,” and that understands public goods as a problem of “market failure.” In the United States, about 40% of college students take at least one economics course (Goodwin, 2014); after graduation, more than half of economics majors go to work in government (Kalambokidis, 2014). My argument is that mainstream, market-centric economics has been broadly and dangerously transformative within government and public institutions. Market-centric economics is the smog that pervades the atmosphere of public policy and public administration, a smog that has at once caused and obscured many of the failures of what some say is a “broken government” (Schuck, 2014; Howard, 2014; T. Smith, 2014; Fahrenthold, 2014; Luntz, 2014). “Economic abstraction has been coupled with power to impose that abstraction throughout [the nation]. The result has been a political economy that generates the conditions for its own failure...” 3 The consequences of the contrived and contorted imposition of market-model economics on the public domain range from the unfortunate to the disastrous. Agencies originally created to meet a public need are being warped into entities whose purpose is to generate revenue and deliver private profits at public expense. National parks are selling naming rights to corporations who will rebrand Yellowstone and Yosemite in their corporate images (Rein, 2016; Olorunnipa, 2016). The “policing-for-profit” model in criminal justice results in officers stopping motorists for minor infractions in order to make fee-and-fine quotas (U. S. Dept. of Justice, 2015; anon, Harvard Law Review 2015; Zapotosky, 2016). Public education – today being relabeled “government education” by those on the right – is being taken over by Wall Street, which has targeted “the education industry” as a new profit center through the spread of private “charter schools” funded by taxpayers, but shown in multiple studies to arrive at widely inferior results (Persson, 2015; Losen et al., 2016). Through “public-private3 Bowman et.al., 2014. The authors write principally about the UK, but their argument brilliantly captures the American reality too. real-world economics review, issue no. 81 subscribe for free 29 partnerships,” multinational corporations build toll roads that go bankrupt, leaving taxpayers holding the bag. Private collection companies, contracted by government agencies, are being granted the sovereign power of the state to garnish wages of students, the poor, and other citizens in order to collect overdue debt AND fees and fines imposed by the companies themselves (Choudhury, 2014; Edsall, 2014; Shapiro, 2014; Stillman, 2014). Privatizers are very close to turning the venerable Veterans Health Administration into an ATM for the private healthcare industry, despite studies that have consistently shown that the VHA provides health care superior to private care systems (Farmer et al., 2016; MITRE, 2015; Gordon, 2015; 2016; Mundy, 2016; Kime, 2016). The result is a subversion and erosion of the capabilities of the public system of production, such that it can no longer deliver its intended results. A mission-model economic system, in which meeting public needs was the guiding purpose, is being distorted into a faux market-model system, in which revenue-raising becomes the goal. While this transformation debilitates government overall, there is specific relevance to the growing energy challenges related to the biophysical constraints on economic activity and production. The historic role of government in leading and supporting basic scientific innovation is being hobbled. Regarding solutions to energy challenges in particular, we are confronted with what seem to be hopelessly complex problems that require: a long-term view; basic research financed by investments not tied to quarterly profits; breakthrough innovation; and development of society-wide solutions. These are the attributes not of the market, but rather, of the public non-market. Indeed, the public non-market is the unrecognized innovator in our nation. Government has been the source – through its investments and leadership – of scores of breakthroughs that people often assume came from the private sector. Government’s role in innovation has been documented by Mariana Mazzucato and Fred Block, among others, who have exploded the myth that all innovation is market-driven. A sampling includes: Debunking the Narrative of Silicon Valley's Innovation Myth Forbes | Bruce Upbin “The real innovation engine in the global economy is not the entrepreneurial class blazing capitalist trails through the thicket of government red tape and taxation. No. The real engine of innovation is government.” Economist Mariana Mazzucato’s “case study for myth-debunking is the iPhone, that icon of American corporate innovation. Each of its core technologies–capacitive sensors, solid-state memory, the click wheel, GPS, internet, cellular communications, Siri, microchips, touchscreen—came from research efforts and funding support of the U.S. government and military. Did the public see an iPhone dividend? Not really.” The High Return on Investment for Publicly Funded Research Center for American Progress | Sean Pool and Jennifer Erickson In order for the U.S. to maintain its role as an innovation-driven economy, “government must provide three key public-g