Economic policy for sustainable prosperity

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Marianna Mazucatto, Kate Raworth and Stephanie Kelton are three important voices in managing global economics (Image by Dan Jensen)

Our current attitudes towards economic growth must be challenged if we are to make a sustainable future for ourselves, writes Ella Persse.

WE ARE ALL affected by the conduct of economic policy in a wide variety of ways, whether we realise this or not. Policy decisions reflect both the dominant economic theories of the day and the political environment within which those decisions are made. Misleading theories and a malfunctioning political system can lead to decisions being made which don't adequately address the challenges faced in a modern economy. Modern economies in the 21st century have been defined by Mariana Mazzucato as ‘becoming increasingly defined by the need to respond to major social, environmental and economic challenges’.

Neoclassical economics has got us to where we are now — a state of environmental crisis and increasing inequality from which it may not be suited to plan an escape. Long-term ecological and social sustainability has to be combined with a just transition for those affected by the changes we will need to make if we are to meet the challenges ahead. The role of the economist should be to minimise inequality and maximise sustainability. This will require both the governments and the private sector to make decisions which are consistent with these outcomes — a partnership for genuine prosperity

Nassim Nicholas Taleb’sBlack Swan Theory” suggests that there is always potential for something to go radically wrong, which is then inappropriately rationalised by economists retrospectively. The theory was developed after the global financial crisis when no one from within the dominant neoclassical school understood why or how the crisis had happened.

The same thing may happen, if we are not careful, with an ecological crisis. We need to move away from what has been the dominant approach to economics if we are to meet our challenges. Useful economics should be to predict and understand how the economy works, embedded within society which itself sits within and is dependent on our natural environment, to avoid further “black swans”. This means the neoclassical obsession with growth for the sake of growth is no longer appropriate. There are a lot of sacred cows in economics and politics which we must challenge. Some economists and some politicians have been doing that very thing.

One of the policies that has been suggested by U.S. Parliamentarian Alexandria Ocasio-Cortez is the pursuit of a Green New Deal. This is based on modern monetary theory, which has been strongly advocated by Bernie Sanders's economic advisor, Stephanie Kelton. Kelton says economies should be balanced, not budgets. Such a balance requires ecological sustainability, equitable full employment, reduced inequality and improved public services. It will require radical innovations in technology and in the role of the Government in the economy. It requires a different approach to thinking about economic policy and a different way of doing economics.

There is a disconnect between the environmental movement and the realities of politics which needs to be closed. This is the most radical innovation of all and economists like Kelton and politicians like Sanders are the key. Swedish environmental activist Greta Thunberg recently sailed from Europe to New York in order to avoid the emissions caused by aeroplane travel.

While this is an environmentally sustainable action and a very protestant approach to the modern world, it is clearly not an economically viable replacement to air travel for global travellers to undertake. Improvement in energy systems, agricultural practices and production processes more generally through Government-led innovation policy and regulations is a less disruptive way to address emissions as opposed to other measures such as consumers eradicating meat and air travel from their consumption habits.

Even more recently, the U.N. Climate Summit was held in New York and despite being in the city during the time of the event, Australia’s Prime Minister Scott Morrison decided not to attend. Realistically and much to the next generation’s deep distress, the limitations of politics are all too clear and deeply embedded. It is all very well and good to write criticisms of politics, but for the changes that we need to see, if we are to avoid catastrophic climate change and protect our environment while building a future of shared prosperity, it is the voters and the private sector who hold the other invisible hand over the next generation of policies.

There cannot be a black-and-white solution to anything in a world that is very complex and ever-evolving, so policy must be approached with a dynamic and agile mindset. There are many new concepts emerging from the field of economics with a much stronger female influence that are stimulating new ways to manage the global economy, particularly in the fields of innovation policy and entrepreneurship from Marianna Mazucatto, finite resources and responsible and optimal consumption from Kate Raworth, along with modern monetary theory from Stephanie Kelton. Historically, such names would have been disregarded, but in our current global state, they are potentially three of the most crucial intellectuals of the 21st century.

Ella Persse is currently an undergraduate student at the University of Adelaide undertaking a Bachelor of Economics.

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