Two fundamental flaws in economic thinking

The role of the economy has become one that keeps human needs and wants ever increasing in order to ensure that people will increase their consumption on continuous basis to prevent the economic system from crashing – Pic by Shehan Gunasekara

By Hema Senanayake

I know it is an intellectual risk to challenge a main axiom in economics. Challenging two of them poses a major risk. Questioning two axioms at the same time is not an arrogant choice of this writer, instead it is required as both axioms are interrelated.

Axioms do exist. A dictionary definition says that axiom is “a self-evident and necessary truth, or a proposition whose truth is so evident at first sight that no reasoning or demonstration can make it plainer; or a proposition which it is necessary to take for granted” (Webster). This means axioms provide the foundation for all analyses. 

In other words, in the underlying processes of science, there are several philosophical assumptions or axioms that we take for granted and application of method of science begins from there. Now think of the questioning the truth of two major axioms in economics and the intellectual risk it poses for the writer. It is huge, but it necessitates for the advancement of human civilisation. 

There are two main flaws in our economic thinking. With these flaws we can thrive to a certain extent economically and most developed economies have reached to that point. To make civilised advancement beyond this point it is required to question the very foundation of economic thinking, questioning axioms themselves. 

Economics begin with perhaps a self-evident and necessary truth. It says that human wants and needs are unlimited and resources to satisfy those wants and needs are limited. So, deducing from this ‘truth’ what we could do is to allocate resources efficiently to produce optimum quantity of goods and services in varying quality and distribute them among the members of society for their wellbeing while trying to increase output on continuous basis as our wants and needs are unlimited. 

Accordingly, we put an economic system just to do this, to satisfy our increasing wants and needs to an optimum level, even though the system crashes time to time. The measure of this economic achievement is GDP. 

But this is not the economic system we have today. It is completely a different one. The role of the economy has become one that keeps human needs and wants ever increasing in order to ensure that people will increase their consumption on continuous basis to prevent the economic system from crashing. Is this true? To understand this argument let us investigate the opposite of this notion. Let us assume that human wants and needs are limited and actually wishes to reduce consumption after having achieved a certain level of economic growth. 

Now I question as follows: Would the economic system be in its equilibrium if people reduce consumption based on their free choice? Or would the system be crashed if people as a society reduce consumption based on their free will? 

Think of the first question. The answer to the second question is big “YES.” The system crashes if we, as a society, reduce consumption. We do not want the economic system to crash because a good number of employments would disappear if the system crashes. The solution is to increase consumption whether people want to do it or not. Why? Assume an economic system which generates a satisfactory amount of employment for the wellbeing of the members of society. Employment provides for livelihood. But if the said amount of employment has been generated subjected to a strict condition, we have to adhere or satisfy that condition. 

If that condition is to increase the consumption on continuous basis as a society, we do not have an option or free choice to reduce consumption because if we reduce consumption (wants) the system will crash creating severe unemployment. In such an economic system, we need to manipulate human wants and needs in order to ensure that we increase consumption on continuous basis preventing the system from crashing. 

We, human beings, have created a peculiar economic system that forces us to increase our ‘wants and needs.’ Not only that. We have become blatantly ignorant by trying to justify it as a human nature. In other words, we ourselves have wilfully designed an economic trap which harms ourselves and our civilisation. 

It is true that humans and their civilisation have some wants. Some of them fall into the category of economics. Such wants may require being satisfied. We need to organise an economic system for the satisfaction of these wants. That system must provide a foundation to be free from uncivilised competition and relentless fear of losing someone’s livelihood. Such an economic arrangement is not possible if people are mandated by the system to increase their wants and needs on continuous basis.

Humans might have unlimited wants and needs but when comes to economics this axiom cannot be verified if people do not have a free choice either to increase or decrease their level of consumption while retaining their livelihood determined according to their free choice. 

If we have had such an economic arrangement or system our civilisation must have been more advanced than today because natural wants and needs of human being in understanding our own body, our environment and the universe are more prominent than the most wasteful and harmful consumption we make today under a forced machination to increase our consumption more and more while justifying it as a common nature of human being. 

The said true human nature has recently been evident from the invention of mRNA technology which was used to produce Pfizer and Moderna COVID-19 vaccinations in the United States. 

I know when one chooses to change axioms, a different system emerges. Isn’t that what we want?

I will discuss the next flaw in economic thinking in my next article.

(The writer can be reached via [email protected])