For every action, there is an equal, but opposite reaction.
This I did not know:
The 19th-century creators of neoclassical economics—the theory that now serves as the basis for coordinating activities in the global market system—are credited with transforming their field into a scientific discipline. But what is not widely known is that these now legendary economists—William Stanley Jevons, Léon Walras, Maria Edgeworth and Vilfredo Pareto—developed their theories by adapting equations from 19th-century physics that eventually became obsolete. Unfortunately, it is clear that neoclassical economics has also become outdated. The theory is based on unscientific assumptions that are hindering the implementation of viable economic solutions for global warming and other menacing environmental problems.
Now there are actually some similarities between scientific theories and economics. Observations of both physical and economic activities can appear to be very similar in their nature. For example, I can pay $5 for lunch. That matches fairly well with Newton's third law.
But the problem is that the rules that applied to physics do not correspond very well to the rules of economics. In the article, many scientists warned that the equations used were misapplied. Unfortunately they were ignored and we have been dealing with the consequences for generations now.
Consider the errors in judgment they made:
* The market system is a closed circular flow between production and consumption, with no inlets or outlets.
* Natural resources exist in a domain that is separate and distinct from a closed market system, and the economic value of these resources can be determined only by the dynamics that operate within this system.
* The costs of damage to the external natural environment by economic activities must be treated as costs that lie outside the closed market system or as costs that cannot be included in the pricing mechanisms that operate within the system.
* The external resources of nature are largely inexhaustible, and those that are not can be replaced by other resources or by technologies that minimize the use of the exhaustible resources or that rely on other resources.
* There are no biophysical limits to the growth of market systems.
One of the biggest consequences is that we are no longer living in the 19th century. Back then, while it wasn't exactly a closed system, practically speaking, it took a lot of effort to bring in any goods or services from more than a few miles away. Your food, clothing and housing were produced within walking distance. Now your clothes are made in China, your food grown in Mexico and parts of your house may come from who knows where. That doesn't even address your game system made in Japan, your computer software written in Ireland and your oil for gas for your car extracted in the Middle East. Our economy is no longer a closed system.
It also does not deal with the limits on resources or pollution. We only have so much oil in the ground, fresh water, and there are other resources that we may run out of soon. We can only pull so much out, and the earth can only take so much back in.
The article deals only with how the economics ignores environmental issues, but there are other problems that are ignored as well. Foreign policy is almost never addressed. We simply assume that people in other countries will buy or sell according to our standards. And any sort of social justice is ignored completely.
Just as relativity and quantum science replaced Newtonian science, classical economics must also be updated to meet new times. False assumptions and equivalences have led us to the point that making money is its own goal, rather than a reasonable, sustainable distribution of resources. They must be rigorously developed and no longer ignore the externalities.