Economics, Nonsense and the Emperor's New Clothes

A bit of history

Economics is a social and political understanding of production, distribution and consumption of goods and the roles of prices and policies in ensuring that production and distribution are sufficient to meet consumption and to generate wealth. Before the industrial revolution, the main issues were managing the use of common land and water, and fairness in the marketplace. Thomas Aquinas (1225-1274 AD) was a philosopher but wrote some arguments about the responsibility for businesses to establish just prices. In the 17^th and 18^th Centuries, economic thought reflected the dominance of agriculture as the source of wealth, and ownership of productive land by the aristocracy. In this view of economics, the labor of workers is related to the value of things workers produce.

The American Revolution and the French Revolution coincided with new economic ideas about free markets and production. Adam Smith (1723-1790) made the well-known invisible hand argument, that the good of all would result from people working for their own benefit in a competitive market. Karl Marx (1818-1883) on the other hand argued that the ability of factory owners to control the low wages of workers leads to excessive profit for the owners, called capitalists, which they then use to gain political power to further exploit labor. Marx explained how this imbalance led to boom and bust economic cycles, each of which consolidated more wealth and power to the powerful, increased the numbers of unemployed, thus putting downward pressure on wages, and driving smaller firms out of business.

The main purpose of economics was control of the local markets. But then oil-fuelled transport allowed access to global goods and workers. The field that we recognize as political economics developed after the industrial revolution. In the 20^th Century we see much higher consumption, growing population and new ways to track transactions of things that are bought and sold. The Great Depression and the projects of rebuilding Europe and Japan were the context for the thinking of John Maynard Keynes (1883-1946). Keynes was a central figure in the Bretton Woods Conference (1944) that established new economic order by radically changing the basis of world currency exchange. Keynes’ theory is that labor and consumers are “passive” participants in the economy and that political economics should seek to focus wealth in the hands of the wealthy and businesses who will invest in growth, thus “trickling down” benefits to the masses by creating jobs. Keynes also advocated deficit spending by the federal government to maintain employment, which would avoid recession, and to stimulate economic growth. The Keynesian theory is that future growth will provide greater wealth to deal with the deficit spending. Keynes also advocated taxes on unearned income (the dividends paid to shareholders or interest on savings).

Pressure for change

Ecological and energy economics are more recent ideas, proposing that ecological health or energy demand should be used to measure economic performance with the aim of safeguarding sustainability. More recently, Elinor Ostrom (1933-2012) became the first woman to win the Nobel Prize in Economic Sciences for her analysis of the economics of governance of the commons. Ostrom proposed that the role of public choice on decisions about how to exploit resources and ecosystems was important in developing governance and management practices to avoid ecosystem collapse or resource exhaustion. 

There are dozens of theories in the history of political economics. Environmentalists, scientists and advocates for sobriety tend to disagree with the dominant Keynesian or “neoliberal” political economic theory that advocates for continued and continuous growth in production, productivity and consumption. The political economics theories usually assume that technological progress is a given.

Political economic theory deals with behavior of consumers and businesses, but I have yet to see an economic theory that includes the behavior of technologists and scientists. Thus, I present a new economics of nonsense that arises at times of crises In the Krumdieck theory, the role of unscrupulous engineers is postulated as facilitating and prolonging a collapsing economic bubble. 

The Emperor’s New Clothes 

The theoretical basis for the economic nonsense that drives the Green Energy Myths

There once was a kingdom that was blessed with fertile sea, rivers, plains, forests and mountains. Over the centuries the kingdom had grown and the emperors and the courtiers displayed the wealth of the empire with ever more grand houses and more bejewelled attire. But now in the empire, the sewers are falling in, the roads are nearly impassable, bridges are cracked, and the schools have no books or ink. 

 The emperor loves clothes so much that he has a new and more glorious outfit made for each hour of the day. The economy of the kingdom has become dominated by the design and tailoring of clothes for the king and for his courtiers who strive to emulate him. The costs for importing silks and fine materials is very high, and the kingdom has run up a large deficit. The kingdom’s warehouses are full of clothes the emperor and courtiers’ won’t wear twice. The bridges, roads, farms and schools all need rebuilt, but these projects are too expensive. There is an environmental crisis in the farms outside the city, but the emperor will not hear any complaints and only wants to plan for more splendid clothing. And the tailors who have made fortunes satisfying the ever growing demand for finery keep proposing ever more fanciful finery for funding.

One day two rogues arrive and promise the emperor clothes made of cloth so fine that people who are not fit for their office will not be able to see it. Of course the king must have these most fabulous clothes. He pays huge sums and the rogues go to work in a secret shop. The weaving takes a very long time, the rogues give many speeches and promise the glorious cloth will restore the empire to wealth again in just 10 more weeks... And the emperor gets agitated waiting. He sends his wisest and most trusted advisor to check on progress. Of course, the advisor sees there is no cloth on the loom, but he decides to report back that the cloth is indeed the most amazing he has ever seen.

When the garments are finally ready, the king makes a grand parade to display his new clothes to the people. Everyone can see that the king is naked, but it isn’t until a child calls out “he has no clothes at all!” that crowd breaks into laughter, because it is obvious. The emperor suspects the people are right, but stands even prouder, carrying on with the parade, and his courtiers hold the train of his robes higher even though there is really nothing there at all.

The rogues have run off with a fortune, and there is still no money to rebuild the infrastructure and for needed services.

Based on: H C Anderson, The Emperor’s New Clothes

Economics of Nonsense  

In the story, we see a familiar drama being played out where the political economic leadership becomes obsessed with something that is glamorous and interesting, but is not important. This focus on trappings of wealth and power leads to underinvestment in infrastructure and services, and degradation of natural resources. It is interesting in the story that the common people go along with the illusion of wealth just for the spectacle. It is also interesting that the innocent child who has no economic or power interests is able to speak the truth of the situation when the wise advisor does not have the courage to be honest. 

Using this story as an allegory for the past 50 years of ever more fanciful offerings of alternative green technologies, what would you say is the role of the engineers? You might like to think that our professional ethics would place us in the role of the truth-teller. But I submit that, since the energy and environmental crises of the 1970’s engineers, and in particular engineering researchers and celebrity entrepreneurs, have been playing the part of the rogues. Yes, the political economics might be off track, but if we technologists are participating in and profiting from that delusion of continuous growth and technological progress by providing new and ever more exciting energy solutions that aren’t really there… then we are really the swindlers in the story.