After a few days of struggling to find inspiration for my next commentary piece, I found myself hopping around chapter 2 of Environment: The Science Behind The Stories. This was a course textbook from the Environmental Science class taught during my senior year of high school by a teacher named Paul Frisch. After a few minutes of searching, I found what I had been looking for: the neoclassical economic assumptions. One of Mr. Frisch’s very first and most important lessons.
The neoclassical economic assumptions are, as Mr. Frisch enlightened me, a guide to the state of our environment today and how it got there.
Most importantly, they can be seen as a grave warning.
The textbook explained that economic philosophy has historically been split between two opposing viewpoints. Some thought that acting in self-interest harms the greater good, while others believed it could be beneficial if regulated by the rule of law.
This ideological divide has been central to economic discourse, and the latter viewpoint has become a pillar of neoclassical economics.
Neoclassical economic theory developed by combining quantitative analysis with human psychology to more accurately map economic trends for the purpose of maximizing profit. Our modern capitalist system is a product of neoclassical thought.
But what neoclassical economics fails to account for is the costs that accompany economic ambition. Our textbook revealed that the environmental and social dangers of our economy stem from the four assumptions on which neoclassical economics rests:
Resources are infinite or substitutable.
Long-term effects should be discounted.
Costs and benefits of a company’s actions have no external impact.
Growth is always good.
Each of these assumptions is flawed. Resources are not infinite, and substitutability is never guaranteed. Long-term effects cannot be ignored, because of their potential to disrupt the lives of generations to come. The costs of a company’s actions have a clear impact outside of that company, often with negative environmental and socioeconomic implications. And while economic growth is a worthy goal, it cannot go unchecked and unregulated, as most growth does. Otherwise, damage will ensue that current business leaders will not have to bear responsibility for.
The biggest part of the problem is its intangibility. These four assumptions aren’t inscribed on any corporate masthead or manifesto. Nor do executives announce them in company-wide emails as a way to spur unquestioning motivation.
These four assumptions are merely common oversights that all of us are at times responsible for committing. It is perfectly normal and acceptable to act in accordance with these assumptions because they allow for easier individual success and the overcoming of competition.
Our economy creates a climate where sustainable and equitable practices must be ignored unless they result in immediate short-term gain. Why make (or buy) more environmentally-friendly products if they cost more? Why stop your business from growing if it is doing well? Why worry about how your success might negatively impact others? Capitalism does not account for these concerns. Even worse, those who do are forced to fall behind their competitors.
So why is this discussion relevant given all that is going on right now?
It is relevant because above all, COVID-19 is an environmental issue. It may also be the first modern and global example of what happens when our neoclassical assumptions begin to fail us.
The world has been witnessing an unprecedented spike in wildlife trade. As this multi-billion dollar industry breaches new ecosystems and habitats for the collection of resources, we expose ourselves to new viruses like COVID-19 that originate in the species we extract from.
The poorly regulated human-animal interactions of wildlife trade directly bring about many of the deadly viruses we have encountered in recent decades. In a 2008 study, researchers discovered that at least 60% of emergent diseases between 1960 and 2004 came from non-human animals. COVID-19 was unprecedented, but it was not a surprise.
The scientific world has continually warned us of the viral dangers of both legal and illegal wildlife harvesting. Yet our neoclassical assumptions have driven businesses to ignore this long-term threat to advance their short-term gains.
With nearly 40 million Americans unemployed, our economy is undergoing the most intense transformation, perhaps in all of its history. The neoclassical-based economy we had before all of this led us to where we are now. As we build a new world, we must stop letting the dangerous assumptions take control.
Greater awareness of the dangers of the neoclassical assumptions is vital to implementing the major institutional change required for securing a sustainable and livable future for all. Debilitating viruses are just the tip of the iceberg in our unchecked quest to rake in profits and build up industry. The world was simply not ready for COVID-19, and if capitalism does not transform, we will not be ready for the next environmental crisis and its fallout.