Your inefficient grandmother was onto something

This is the third post of  a series of posts highlighting parts of the paper by David Zetland Wageningen UR – Environmental Economics and Natural Resources Group; PERC – Property and Environment Research Center
Economists Owe Ecology an Apology
March 9, 2013

Part 2 from the series Economists owe ecology an apology

Part 3 below:

Your inefficient grandmother was onto something

The Folk Theorem of behavioral economics is not named after Professor Folk. It refers to the “obvious” fact that people are more cooperative when they interact over time—negotiating, trading, rewarding and punishing—instead of just once. This theorem is not, unfortunately, taught to most economics students; even worse, it is ignored in economic research that relies on simple models to “prove” how people will interact. The Prisoner’s Dilemma and Tragedy of the Commons, for example, are related in their dire predictions of how self-interested people who should cooperate will defect, leaving prisoners and the environment worse off. These models are often used to justify policies, actions or inactions that make the common man shake his head in wonder. Cooperation on climate change?  Nope. Regulation of high-seas fishing?  No. Sustainable groundwater management?  No sir. Starving the poor by sending corn into gas tanks. Sure—they’d do it to us if they could!

I could fill a book with examples of failures to coordinate and address actions and problems that have pushed us closer to brutish, nasty and short. These examples cannot be blamed on economists or their theories—humans have suffered from similar problems for ages—but we can blame economists for promoting the idea that miserable outcomes are logical or inevitable. It was Keynes, after all, who spoke of our potentially misleading power:
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. —Keynes (1936, p. 383)

Economists’ focus on single transactions over repeated relations means that we design systems and incentives that emphasize short-term advantage over long-term cooperation, whether it be with other humans, beasts or ecosystems. The irony of these misplaced theories is that humans lacking the wisdom of clever economists often have better relations with each other and their surroundings (Polanyi, 1944; Lansing, 1991). They may have fights and they may be superstitious or poor, but they usually find ways to cooperate in building robust institutions for managing their natural, social and environmental resources (Axelrod and Hamilton, 1981; Lansing, 1991; Ostrom et al., 1994; Henrich et al., 2001; Dietz et al., 2003).

But they were as not as rich as we were, right?  Didn’t that mean that their cultures and systems were inferior and simple?  Perhaps, if we compare discrete purchases, disposal and recycling of products but not if we pay attention to the streams of continuous value provided by natural processes and social relations. Should we quantify and monetize ecosystem services and social networks?  That cure may be worse than the disease.
That statement brings us to a difficult junction. A few people think that humans should do the planet a favor by turning our entire population and civilization into an elaborate compost pile (others think we’re on the way), but most people agree that we should use resources and the environment to improve our lives. The question the majority wants answered, then, is “how much can we take without harming ourselves? ” Economists—as specialists in getting the most benefit out of scarce resources—have certainly spent a lot of time trying to answer that question. But our tendency to push for efficiency using faith-based numbers and models has led us to use concepts like “maximum sustainable yield,” “optimal exploitation” and “the economics of extinction.” These phrases should make us all pause.

What if optimal exploitation turns into an unexpected extinction?  Should we allow private profits from exploiting a resource that belongs to us all?  Will people be smart enough to include a safety margin?  If the financial crisis has taught us anything, it’s that we should not bet on forbearance over greed. Economists, unfortunately, have sometimes invited greed to join us.