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“Economics and Economists Engulfed By Crises: What Do We Tell the Students?” by Kamran Mofid and Steve Szeghi

Reproduced from: http://www.gcgi.info/index.php/archive/91-economics-and-economists-engulfed-by-crises-what-do-we-tell-the-students


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Economics and Economists Engulfed By Crises:

What Do We Tell the Students?

Prof. Kamran Mofid PhD (ECON)

Founder, Globalisation for the Common Good Initiative (GCGI)

Steve Szeghi PhD (ECON)

Professor of Economics, Wilmington College, Wilmington, Ohio

Co-Author Right Relationship: Building A Whole Earth Economy      

“Education should consist of a series of enchantments, each raising the individual to a higher level of awareness, understanding, and kinship with all living things”. Author Unknown

“It is the supreme art of the teacher to awaken joy in creative expression and knowledge”. Albert Einstein

“What is the essence of life? To serve others and to do good”. Aristotle

“Education is the leading of human souls to what is best, and making what is best out of them”.  John Ruskin

The recent global crisis has lead to questions about whether the kind of economics that is taught in universities was responsible for the crisis itself, or indeed for its widespread failure to predict the timing and magnitude of the events that unfolded in 2008. There are many reasons for such failure. However, whatever the reasons might be, we strongly believe that now is the time for us all to begin to debate this issue and to discover what is it that we should now teach our students.

While the global financial crisis is most surely a significant peril, it is not the most significant problem that human beings or this planet face. There are two larger crises of which it is a part and which grow in immensity and difficulty to solve by the day, and which were in turn caused by many of the same philosophies, misguided ethics, flawed economics and politics that helped to spawn the financial meltdown. These two larger crises, of which we speak, are the crisis of growing inequality, economic insecurity and social injustice and the crisis of the environment which imperils an abundant diversity of life on earth as well as human survival.

It is our hope that with this paper we may begin an open dialogue with all concerned – colleagues, students and others, so that together we can prescribe a working solution.

It is clear that some serious reflection is in order. Not to stand back and question what has happened and why, would be to compound failure with failure: failure of vision with failure of responsibility. If nothing else these current crises of finance, social injustice and environmental devastation present us with a unique opportunity to address the shortcomings of our profession with total honesty and humility while returning the “dismal science” to its true position: a subject of beauty, wisdom and virtue.

Nowhere can the urgency of this task be better seen than in the eloquent words of the Real-World Economics Review.

“It is accepted fact that the economics profession through its teachings, pronouncements and policy recommendations facilitated the GFC (Global Financial Collapse).  We also know that danger signs became visible long before the event and that some economists (those with their eyes on the real-world) gave public warnings which if acted upon would have averted the human disaster.

With other learned professions entrusted with public confidence, such as medicine and engineering, it is inconceivable that their professional bodies would not at the very least censure members who had successfully persuaded governments and public opinion to ignore elementary safety measures, so causing epidemics and widespread building collapses.

To date, however, the world’s major economics associations have declined to censure the major facilitators of these grave crises or even to publicly identify them. This silence, this indifference to the engendering of human suffering, constitutes grave moral failure. It also gives license to those economists who continue to indulge in axiom-happy behaviour. Nor has the economics establishment offered recognition to those economists who were not taken in by fads and fashion and whose competence, if listened to, would have prevented these crises. These two silences reveal a continuing moral crisis within the economics profession”(See Real-World Economics Review Blog, January 11, 2010) 

On the other hand, of course we find it somewhat encouraging that the most recent Nobel Prize in Economics went not to Eugene Fama for his theory of the always efficient and rational market but rather to two behavioral economists who question the rationality postulate. Coupled with the reception of the Nobel Prize by Paul Krugman last year and Joseph Stiglitz a few years earlier, both advocates of re-regulation of the financial system at the national and global level, there is reason to think that our field as a whole may truly be ready for something new.

The recent financial crisis provides overwhelming evidence that financial markets are lacking in both efficiency and rationality. Even if financial markets are characterized by something as rational as the price of an asset being related to the present value of its future income earnings; that can hardly be all that determines asset prices. Financial markets have always been griped by heavy doses of irrationality, as well as outright cons and Ponzi schemes. The potential of financial products and markets to create systemic risk and to fall prey to con and Ponzi schemes due to moral hazard, adverse selection, and asymmetrical information, was generally well understood and is why they were heavily regulated, to great success from the 1930’s until the time of Thatcher and Reagan.  

Since the 1980’s, financial markets were increasingly deregulated throughout the world until the current crisis. Following Thatcher and Reagan; Clinton, Bush, Blair, and Brown all continued the deregulatory trend of the Anglo-American financial system. There were many who warned of what was to come, including Robert Kuttner (See Kuttner, Robert, The Squandering of America, 2007) and even earlier, such a wise but lonely economist as Hyman Minsky. (See Minsky, Hyman, Stabilizing An Unstable Economy, reprinted 2008, McGraw Hill) Yet it was the always efficient market hypothesis of Eugene Fama and others that came out on top in the policy debates of the last three decades in the corridors of power throughout most of the world.  

Certainly the failure of the global financial system, as well as the crises of the environment and inequality and economic insecurity can not be solely blamed on standard economic theory. Surely there has been a failure of politics, ethics, spirituality and human culture as well. But standard economic theory is not without blame.

James Buchanan (See Buchanan, James and Tullock, Gordon, The Calculus of Consent: Logical Foundations of Constitutional Democracy, 1962) and other Public Choice theorists introduced the concept of government failure to the basic vocabulary of Economics in the 1970’s and 80’s. Ever since, policy makers at the national and global levels have been reluctant to aggressively tackle the many cases of market failure which standard economics previously and currently admits, and for which previous theory prescribed government action. Somehow always missing from the list of examples of government failure for the public choice theorists, is the most egregious failure of all and that is the failure to correct for market failures for fear of making a mistake.  

At the core of the social attitudes which are engendering the crises of the environment and increasing inequality are both market fundamentalism and standard economics. While standard economics in and of itself is distinct from the rigid ideology of market fundamentalism, too often the profession as a whole has failed to draw the sharp distinctions between standard theory and the claims of market fundamentalists. The silence of much of the economics profession in the face of the political ascendancy of this ‘market knows all’ ideology has enabled and assisted it.

Market Fundamentalism is the assertion or ideological dogma that markets and private property with little or no role for government, civil society, tradition, and community are capable of solving all human wants, needs, and problems. Standard economic theory of course posits a role for government in correcting for externalities, insuring the provision of public goods, and addressing other forms of market failure such as imperfect competition in order for markets to be efficient. In order for markets to be just, standard economics recognizes a role for government in shaping the income distribution. While much of the economics profession has been eerily quiet in the face of the political ascendancy of market fundamentalism, some economists have in fact resorted to becoming cheerleaders and boosters for it.  

As social scientists who study resource allocation there should be no bias in favor of market as opposed to command or tradition in the allocation of resources, just as there should be no bias in favor of private as opposed to communal or state ownership of the means of production. But frequently the enthusiasm of some economists for market allocation and private ownership in any and all circumstances is too obvious, bordering on ideology or religion rather than science and amounts to a flirtation with market fundamentalism if not a full blown affair.

It is certainly tempting in the face of so called gridlock or broken government, or partisan stalemate, to perhaps wish that markets were capable of solving all of our problems. Collective decision making is a messy business as are relationships generally. Our politics are so divided though, precisely because of the fairly strong view on the part of some, or so it would seem, that markets are capable of solving all problems.  

As both Robert Kuttner and Paul Krugman (See Krugman, Paul, The Conscience of a Liberal, 2007) suggest, the rough consensus on the proper role for government in a system of managed capitalism which existed in the United States in the 1950’s and 60’s, and even 70’s has broken down. In the context of the present day, the ardent wish for markets to solve all problems is to side with market fundamentalists in the political debate. But, wishing doesn’t make it so. Markets can not solve the biggest problems faced by human society. They can not on their own, although they can play a role, in solving the crisis of inequality and the crisis of the environment, nor can they solve the financial crisis.  

Markets are simply not capable of solving all problems with little or no role for government, civil society, or tradition. Economic theory shows that markets do in fact fail to be efficient. One failure is of course externalities, another is the case of public goods, both of which have implications in the study of the environment. Markets also need perfect competition to be efficient. In addition, markets give disproportionate influence to the wants of the rich, and theory has never claimed that even when ‘efficient’ that markets are just or ethical. Many Public Choice theorists, in the tradition of James Buchanan, by suggesting that government is capable of little good in the correction of market failure have become allies, conscious or otherwise, of market fundamentalism.     

Leaving it to the market alone, is leaving it to the few, to the rich, to have inordinate say so and disproportionate influence on what is produced and how. Leaving it all, to private property is to fence off the bulk of humanity from the means of life. It means walling off retreats of splendor to wander in, gain solace from and find spiritual sustenance in. Leaving it to the market in the absence of regulation or in the absence of perfect information about the quality of what is being sold (Food, Drugs, Financial Products) is leaving it to a bunch of crooks, where Ponzi schemes proliferate. As Arthur Okun once suggested, “The market needs a place but needs to be kept in its place.” The unfettered market is killing the planet upon which our survival depends, even as it also kills relationships between people.  

Karl Marx long ago wrote that ‘capitalism has torn asunder all familiar relations …” It has also torn asunder the traditions that governed the use of the commons and the ties which bound people to one another in community. But Marx was wrong in one respect, these traditions were not torn asunder, not at the time he wrote, certainly not completely, not by capitalism. The best of these traditions survived long after he wrote the Communist Manifesto. But what survived capitalism for centuries may not survive market fundamentalism and a modern economic system where human beings are no longer citizens, only consumers. Where, once we had public spaces called town squares, now we have private spaces within shopping malls, places that have the look and feel of town squares but are not. The town squares of old were places where citizens and members of the community gathered for the common life. The town square replicas inside shopping malls are places where consumers linger for a few moments before venturing forth for the next purchase, even as they are calmed by the shadows of what once was.

Apart from the failure to speak strongly against market fundamentalism, and the enthusiasm of some economists for it, standard theory itself shares some of the blame for other attitudes which have assisted if not engendered the crises of the environment and inequality. Standard theory tends to be obsessed with economic growth, typically GDP growth, viewing it as an automatic remedy for everything from population growth, to inequality, to environmental problems. In addition standard theory has tended to neglect Ecology and the environment, although these are included sometimes for their rather narrow ‘economic’ benefits and costs. More rarely are the aesthetic human use values of the environment considered, and almost always nature, the earth, and other species are viewed in homocentric terms and not in terms of intrinsic value.

The failure to correct for market failure, accompanied by a deregulatory and privatization frenzy engendered by market fundamentalism directly contributed to the global financial crisis as well as continuing failure to adequately address the crises of Inequality/Economic Insecurity and of the Environment.

Now is the time to acknowledge the failures of standard theory and the narrowness of market fundamentalism. The times demand a revolution in economic thought, as well as new ways of teaching economics. In many respects this means a return to the soil in which economics was initially born, moral philosophy amid issues and questions of broad significance involving the fullness of human existence.

To begin this process, we suggest the following:

1-Begin a Journey to Wisdom

We should acknowledge that economics and business should be all about human well-being in society and that this cannot be separated from moral, ethical and spiritual considerations. The idea of an economics which is value-free is totally false. Nothing in life is morally neutral. In the end, economics cannot be separated from a vision of what it is to be a human being in society. In order to arrive at such understanding, our first recommendation is for us to begin a journey to wisdom, by embodying the core values of the Golden Rule (Ethic of Reciprocity): “Do unto others as you would have them to do to you”. This in turn will prompt us on a journey of discovery, giving life to what many consider to be the most consistent moral teaching throughout history. It should be noted that the Golden Rule can be found in many religions, ethical systems, spiritual traditions, indigenous cultures and secular philosophies.

Another necessary step in this journey of self-discovery, which is complimentary to the Golden Rule, is to discover, promote and live for the Common Good.

For our purpose and intentions we can define the Common Good as “widely beneficial outcomes that are never preordained but instead arrived at through mindful leadership and active following”.  These outcomes involve a “regime of mutual gain; a system of policies, programs, laws, rules, and norms that yield widespread benefits at reasonable costs and taps people’s deepest interest in their own well-being and that of others”.

In short, the principle of the common good reminds us that we are all really responsible for each other – we are our brothers’ and sisters’ keepers – and must work for social conditions which ensure that every person and every group in society is able to meet their needs and realize their potential. It follows that every group in society must take into account the rights and aspirations of other groups, and the well being of the whole human family.

2- Now is the Time for a Revolution in Economic Thought

Here we are in total agreement with Hayek when he wrote:

“An economist who is only an economist cannot be a good economist”. Therefore, the focus of economics should be on the benefit and bounty that the economy produces, on how to let this bounty increase, and how to share the benefits justly among the people for the common good, removing the obstacles that hinder this process. Above all else the purpose of the economy is to provide basic human needs as well as the means of establishing, maintaining, and nurturing human relationships while dealing justly with future generations (Sustainability) and ethically with all life on earth (Ecological Balance).

Moreover, economic investigation should be accompanied by research into subjects such as anthropology, philosophy, politics, ecology, environmental ethics, and theology, to give insight into our own human mystery, as no economic theory or no economist can say who we are, where have we come from or where we are going to. All human beings and all species must be respected as part of the web of life and not relegated to narrow short term economic interests, commodification, or exploitation, as has been the case for the past few centuries.

Much of humanity thinks itself elevated above the rest of nature via one major difference: the possession of a critical mind. Many think it is through this gift that humans are honoured with a unique ability to influence the direction of our life and the world in which we live. Yet, there is much recent scientific evidence, just as there is much in indigenous spiritual tradition to suggest that humans are not unique in this capacity. Regardless, it is time to put our critical ability to good use and resolve to do our utmost in life for the good of humanity and the entire web of life. In order to be for the common good, we must admit that, there is more to life than economics, more than the so-called rational and efficient market: the market knows it all mentality, which has brought us all such a bitter harvest. We must realise that we should do our utmost by uniting faith and knowledge, love and reason, heart and mind, the human community and the community of nature.

We must undertake the task of building a bridge between East and West. We must encourage a dialogue of civilisations, cultures and faiths. We must encourage a multi-disciplinary approach to problem solving. Above all, our paths must be to unite love and intellect. This, in our view, can be a great path of dialogue between East and West, and between “the modern” and the indigenous or aboriginal. Pursuing such a dialogue will lead to a more relevant and true economic model, in harmony with the deepest human values.  

In the West we have mastered the sophisticated art of increasingly complex and complicated and highly mathematical economic models. Our technological achievements of the last few decades and centuries are truly unbelievable to say the least. However, many critics, including us, believe that in the process, as it appears, we have lost the art of living and loving, along with any sense of what it means to be happy and content, and more. Here, is where the time-honoured Eastern philosophy, mysticism and spirituality may offer a solution to our western market-driven thinking. In the wise words of a Muslim philosopher and poet, Muhammad Iqbal:

In the West, Intellect is the source of life,

In the East, Love is the basis of life.

Through Love, Intellect grows acquainted

with Reality,

And Intellect gives stability to the work of

Love,

Arise and lay the foundations of a new world,

By wedding Intellect to Love

In addition, the so called modern world (both East and West) has much to learn from the spiritual and cultural values of the worlds many indigenous peoples, both past and present. There exists much wisdom among the indigenous, containing lessons in sharing and equality and justice which can help draw ‘modern’ people into engagement with the deeper realities of their own dominant religions. Also, people who live close to the earth, who possess an earth-based spirituality typically view themselves as part of nature, part of the earth, part of a community of species as well as being part of the human community.  

Among the indigenous not only do human beings derive tremendous benefits (physical, psychological, and spiritual) from nature, but all the elements of nature, (people, animals, plants, forest, rocks and streams) are regarded as living beings to be respected, reverenced, and to be in relationship with. These are the types of insights the world needs today in order to construct an environmental ethic which will allow us to enable an abundant flourishing of biodiversity on earth not only because we benefit from such diversity but also because it is right and moral.  We take to heart the words of a Laguna poet and author, Leslie Marmon Silko in StoryTeller.

“The earth is your mother,

she holds you.

The sky is your father,

he protects you.

Sleep,

sleep.

Rainbow is your sister,

she loves you.

The winds are your brothers,

They sing to you.

Sleep,

sleep.

We are together always

We are together always

There never was a time

when this

was not so.”

In a nut-shell, we believe that we should change our narrow economic obsessive and human centric language, terminology and values, to more inclusive ones. For us, our crises are not economic or monetary only, so to say. If they were, now that we have collectively poured in over 20 trillions of Dollars, Pounds, euros and more, into our economies, then, we should have had Heaven on Earth by now. We have not, because ours is a crisis of spirituality, of ethics, morality and love. Somehow we have lost our moral, spiritual and loving compass. Therefore, if any economic model, theory or prescription we may offer is going to be a good and useful one, then, it has to address these crises, thus, making the economics good and viable, as a subject under our control and not the other way round.

To achieve this, we suggest that students should be strongly encouraged to reflect upon the following as they begin their formal studies at the university. This will demonstrate how the economy can be made to serve the interests of society, and not the other way around, as it is today.

* Living happily is “the desire of us all, but our mind is blinded to a clear vision of just what it is that makes life happy”. The root of happiness is ethical behaviour, and thus the ancient idea of moral education and cultivation, is essential to ideal of joyfulness.

*In modern economics we have reduced humanity to a collection of individual, independent, utility maximizing creatures. And not without consequence, in our society success is too often defined by accumulation of material and financial wealth over a lifetime. We are ensconced in this free market ideology without questioning its morality and ethical foundations. So watermarked is this spirit of economics and capitalism upon our lives that even though our hearts cry for a more meaningful and genuine existence, we are sucked back into the squirrel cage of capitalism, running faster and faster to “keep up with the Jones’s,” lamenting as we inwardly yearn for a simpler, more meaningful, and more genuine life.

* Economics, from the time of Plato right through to Adam Smith and John Stuart Mill, was as deeply concerned with issues of social justice, ethics and morality as it was with intrinsic economic analysis and questions of price theory. Most economics students today learn that Adam Smith was the ‘father of modern economics’ but not that he was also a moral philosopher. In 1759, sixteen years before his famous Wealth of Nations, Smith published The Theory of Moral Sentiments, which explored the self-interested nature of man and his ability nevertheless to make moral decisions based on factors other than selfishness, such as empathy and the desire for approval from others.

In The Wealth of Nations, Smith laid the early groundwork for economic analysis, but he embedded it in a broader discussion of social justice and the role of government. Students today know only of his analogy of the ‘invisible hand’ and his advocacy of free markets. They ignore his insight that the pursuit of wealth should not take precedence over social and moral obligations, and his belief that a ‘Divine Being’ gives us ‘the greatest quantity of happiness’. They are taught that the free market as a ‘way of life’ appealed to Adam Smith but not that he distrusted the morality of the market as a morality for society at large. He neither envisioned nor prescribed a capitalist society, but rather a ‘capitalist economy within society, a society held together by communities of non-capitalist and non-market morality’. As it has been noted, morality for Smith included neighbourly love, an obligation to practice justice, a norm of financial support for the government ‘in proportion to [one’s] revenue’, and a tendency in human nature to derive pleasure from the good fortune and happiness of other people.

*‘Economic rationality’ in the shape of neo-liberal globalisation is socially and politically suicidal. Justice and democracy are sacrificed on the altar of a mythical market as forces outside society rather than creations of it. However, free markets do not exist in a vacuum. They require a set of impartiality in government, honesty, justice, and public spiritedness in business. The best safeguard against fraud, theft, and injustice in markets are the cardinal virtues of justice, temperance, fortitude, and prudence, and the theological virtues of faith, hope, and charity.

*Every apparently economic choice is, in reality, a social choice. We can choose a society of basic rights – education, health, housing, child support and a dignified pension for example – or greed, pandemic inequality, ecological vandalism, civic chaos and social despair. Modern neo-liberal economics ignores the first and promotes the second path as the way to achieve economic efficiency and growth.

*The moral crises of global economic injustice today are integrally spiritual: they signal something terribly amiss in the relationship between human beings and the mystery of creation, the nature and the environment.

*It is the belief in collective responsibility and collective endeavour that allows individual freedom to flourish. This can only be realised when we commit ourselves to the common good and begin to serve it.

*There are four justifications for the common good which are not commonly discussed in economics:

  1. Human beings need human contact, or sociability. The quality of that interaction is important, quite apart from any material benefits it may bring.
  2. Human beings are formed in the community – their education and training in virtue (their preferences) are elements of the common good.
  3. A healthy love for the common good is a necessary component of a fully developed personality.
  4. The Common Good includes Nature. Human Beings need nature, biodiversity, and ecological balance not only for physical survival but also psychological and spiritual health.

*The marketplace is not just an economic sphere, ‘it is a region of the human spirit’. Profound economic questions are metaphysical and even spiritual in essence; in contrast to what is assumed today. Economics can and should be concerned with the realm of the heart and spirit. Although self-interest is an important source of human motivation, driving the decisions we make in the marketplace every day, those decisions nevertheless have a moral, ethical and spiritual content, because each decision we make affects not only ourselves but others as well. We must combine the need for economic efficiency with the need for social justice and environmental sustainability and ecology.

*The greatest achievement of modern globalisation will eventually be seen as the opening of the possibility to build a humane and spiritually enriched globalised world through the universalising and globalising of compassion. But for ‘others’ to become ‘us’, for the world to become intimate with itself, we have to get to know each other better than we do now. Prejudices have to disappear: we have to see that cultural, religious and ethnic differences reflect an ultimate creative principle. For this to happen, the great cultures and religions need to enter into genuine dialogue with each other.

3 – Now is the Time for a Revolution in the Teaching of Economics

Much of what students need to learn in Economics courses is actually readily found in standard economic theory. The typical course and textbook tends not to emphasize them however. These concepts include externalities, public goods, imperfect competition, and the absence of information. All of these result in the failure of the market to work well. Theory makes it abundantly clear that, externalities such as pollution and waste result in market failure. Yet, the typical student comes away from their economics course with the notion that markets usually work quite well. Markets though in fact do not actually work so well, as externalities are not only widespread but are quite significant in the production and consumption of most goods and services. Governments usually do not sufficiently tax or otherwise restrict negative externalities and do not sufficiently subsidize or otherwise enlarge positive externalities.

Public Goods, goods which are non-rivalrous in consumption and non-exclusive are not according to standard theory able to be supplied sufficiently by the market. Public Goods not only include national defense, fire and police protection, but also biodiversity, fighting global warming, clean air, community, and social justice. Public Goods can not be somehow converted into private goods. According to standard theory government must either work to provide public goods or take other steps to insure their provision. The typical Economics student is not sufficiently grounded in this failure of the market.

In the case of imperfect competition, not only monopoly and monopsony but also any market structure where the number of sellers or buyers is less than a large number, standard theory says that the market fails, that a sort of contrived shortage will result. This of course means higher prices and a lower quantity of the good for consumers. In theoretical economics a large number means a number so large that any individual seller or buyer is powerless to affect the market price. If a market were actually perfectly competitive selling firms would have absolutely no need of a marketing department. Imperfect Competition also invites collusion and even more contrived shortage. Imperfect Competition and not Perfect Competition is the usual condition of markets, yet that is not what most students take with them after the Final from their Economics course.  

Finally even if human beings were as rational as Standard Economics assumes, markets would fail to be welfare enhancing if consumers really do not know the full range of benefits and costs of the products they are consuming. The full range of costs and benefits would include all manner of health and safety criterion, effects upon human relationships, and even state of mind and spirit. Of course human beings don’t know the full range of benefits and costs in the products they buy or in the jobs and labor they partake in. Hence we have another case of markets failing, not just once in a while but in fact almost continuously, yet students typically do not grasp these limitations of the market.

In spite of the ready admission in standard economics that GDP is not a measure of Welfare, not even economic welfare, there is nonetheless a theoretical and policy obsession with GDP and its growth. Mention is of course frequently made of Tobin and Nordhaus and their Measure of Economic Welfare or even Bhutan’s Gross National Happiness but the focus of Macro Economics as well as Growth Theory is inordinately upon GDP and not developing improved alternative measures.

A sustainable and prosperous global economy needs to be for the common good, in which a fair society and the environment accompany profits. The failure of markets, institutions and morality during the current financial crisis has shown that the emergence of global capitalism had brought a new set of risks demanding an ethical, moral and spiritual framework.

Bankers have accused the politicians, politicians have accused the bankers and many have accused the business schools, while the ordinary citizens see the failings of all.

Thus, it is vitally important to teach that humanity flourishes only in a culture of respect for the individual, but that the common good has priority over individual interests. They should teach not only the business models and theories, but also draw on universal principles of respect for life, justice and solidarity, honesty and tolerance, and mutual esteem and partnership.

In short, it is now clear that, capitalism for the 21st century needs a fundamentally renewed morality to underpin it. To achieve this we must ask ourselves again what progress really is. Is it the accumulation of wealth, or is it a broader, more integrated understanding of well-being and quality of life? Surveys consistently show that economic progress has not been accompanied by the expected increase in happiness, and that the price paid by many has been in the quality of human relationships as well as the human connection to the environment. On average, people do not think of themselves as happier or better off, than what their parents were, even though their material standard of living is, in so many societies, unquestionably higher.

There has, in particular, been a marked decline in people’s perception of whom they can trust. The collapse in perceived trustworthiness is most marked in relation to the banking sector, but applies to the business world, more broadly, as trust has declined generally within family life and social relationships. As such, it is not surprising that, in the public mind that the system is not working as it should.

The seeds of the next crisis may already be sown and will surely grow to maturity, if we do not learn from the past and the current crises, and if we do not attempt to address the core issues. Given the enormity of the collapse, the usual excuses coupled with a whitewash for the basic structure of the global financial/economic system will not suffice. The House of Neo-liberalism, Washington Consensus and Market Fundamentalism has collapsed. The emperor has no clothes and the public is becoming quite fond of pointing it out.

What is the main role and function of a “good” business education? Is it to equip students with marketable skills, and to help their countries compete in a global, information-based workplace only? Has this narrow focus perhaps overwhelmed other historically important purposes of education, and thus, short-changed us all?

If there is a shared national purpose for education, should it be oriented only toward enhancing the narrow vision of a country’s economic success? Should education be answerable only to a narrowly defined economic bottom line, or do we need to discover a more comprehensive, inclusive bottom line, given the catastrophic crises that we are witnessing all around us? Are the interests of the individuals and selective groups overwhelming the common good that the education system is meant to support?

The current financial crises has given us a golden opportunity to ask ourselves some fundamental questions on the role of economic and business education and our possible contributions to these crises. Soul-searching and self-criticism should not be seen as a source of weakness, but as a source of strength, humility and the search for wisdom. What part have the business schools and business academics played in the implosion of the world’s banking system? Lest we forget, hedge funds, private equity, investment banking, venture capital, subprime mortgages, pyramids and more, were the overwhelming preferred job destinations of MBA’s.

In order to ensure that our economic and business education, produce graduates and the MBAs capable of rising to the challenges the world faces today, we propose an ongoing comprehensive examination and study of the major attempts to integrate economics with ethics and spirituality, along with an exploration of the theoretical underpinnings of these activities. Our central focus should be on solutions to the global economic crisis, broadly defined and understood. In considering the need for bold economic initiatives, we must keep in mind the deeper questions that rarely find their way into political debate or public discourse; questions that are deeply ethical and spiritual.  We need to honestly examine a new set of questions which could begin with the following to pave the way for dialogue:

*What is the source of true happiness and well-being? *What is the good life? *What is the purpose of economic life? *What does it mean to be a human being living on a spaceship with finite resources? *How can the global financial system become more responsive and just? *What paths can be recommended to shift the current destructive global political-economic order from one of unrestrained economic growth, profit maximisation and cost minimisation, targets and bonuses to one that embraces material wealth creation, yet also preserves and enhances social and ecological well-being and increases human happiness and contentment? *How should we deal with individual and institutionalized greed?What are the requirements of a virtuous economy? *What role should universities play in building an integrity-based model of business education?

*What should be the role of the youth? *How might the training of young executives be directed with the intention of supplying insights into the nature of globalisation from its economic, technological and spiritual perspectives, to build supporting relationships among the participants that will lead toward action for the common good within their chosen careers? *Indeed, is ethical, profitable, efficient and sustainable capitalism possible?

These questions and more need to be reflected upon, debated and ultimately answered and put into policy formation, guiding us to a more humane globalisation, enabling us all to live a more fulfilling life. 

4- Now is the Time for a new definition of the “Bottom Line” and other specifics in a New Way to Teach Economics

We should acknowledge that the new bottom line must not be all about economic and monetary targets, profit maximisation and cost minimisation, but it should involve spiritual, social and environmental consideration. When practiced under these values, then, the business is real, viable, sustainable, efficient and profitable.

Therefore, the New Bottom Line that we should tell the students now could read as follow:

“Corporations, government policies, our educational, legal and health care practices, every institution, law, social policy and even our private behaviour should be judged ‘rational’, ‘efficient’, or ‘productive’ not only to the extent that they maximize money and power (The Old Bottom Line) but ALSO to the extent that they maximize love and caring, kindness and generosity, ethical and ecological behaviour, and contribute to our capacity to respond with awe, wonder and radical amazement at the grandeur and mystery of the universe and all being.”

In contradistinction to the narrow profit only “old” bottom line approach of recent decades for individuals, firms, nations, and the globe, which has so pervaded public policy, social attitudes, and even economics, it was not always so. In the early 1970’s even a conservative American president, Richard Nixon, favored a guaranteed annual income and the creation of the Environmental Protection Agency, while Milton Friedman found no fault with environmental laws consistently applied and supported a guaranteed annual income for all.  

Before either of them, such an ardent champion of free markets as Frederick Hayek wrote in favor of government social insurance, provision of basic needs for all, and the consistency of environmental, health and safety laws with basic free market principles.  

“ … Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision.  Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance – where, in short, we deal with genuinely insurable risks – the case for the state’s helping to organize a comprehensive system of social insurance is very strong.” (See Hayek, The Road to Serfdom, 1944, p120)

In all, it is abundantly clear that, there is more to life than the accumulation of wealth for individuals. There is so much that makes us happy and gives meaning beyond wealth, and that would include concern for others and their wellbeing. There is more that truly matters to society than GDP; community, relationships, health, and the environment matter far more. Finally there is more that should concern business than a narrow view of the bottom line. Not so long ago business firms saw themselves as grounded in particular local communities as participants and members. We call for a new bottom line for individuals, for firms, nations, and the globe, a broader view of what truly matters, fully recognizing that it means reversing a trend of narrowness and hard hearted social policies, which has lasted far too long, these last thirty years.  

The old narrow bottom line coupled with Neo-Liberalism, Market Fundamentalism, and the Washington Consensus creating a climate at the global and national level which fostered derision of the common good, discouraged social safety nets, merit goods, and public ownership of public infrastructure. This narrowly obsessive view of the bottom line was taken from firm, to nation, to the globe. It engendered a policy agenda that has stood in the way of real improvements in the lives of the poor, and in being able to restructure the global economic system, in order to provide basic needs to all of the world’s people.   

This hard hearted ideology has had far too much influence in recent decades. Born and bred from the seeds of ideas in academic circles, and nurtured by the inadequacies of Economic/Business education, it has infected policy for far too long. The seeds of its perceived inadequacy and demise must also be born and bred in academic circles. We must find a new way to teach Economics and Business in order to be part of the process of global transformation and social healing which simply must occur if we are to avert disaster.

Moreover, we should all answer the call of Albert Einstein, when he challenged us by reminding that,

“A human being is a part of a whole, called by us ‘universe’, a part limited in time and space. He experiences himself, his thoughts and feelings as something separated from the rest… a kind of optical delusion of his consciousness. This delusion is a kind of prison for us, restricting us to our personal desires and to affection for a few persons nearest to us. Our task must be to free ourselves from this prison by widening our circle of compassion to embrace all living creatures and the whole of nature in its beauty.”  

Economic/Business education should be built upon the following key pillars in our view. These are pillars it rarely contains today.

*It should be built on the belief that leadership is based upon a deep understanding of the self and of the core values that drive one’s actions. Thus effective leadership requires the development of a compelling personal vision that engages others by offering meaning, dignity, and purpose. The ultimate aim of leadership is the building of more humane relationships, organizations, and societies. Effective leaders need to develop the critical imagination required to embrace individual, organizational, and global change from a stance of hope and courage. 

*The education path must attempt to provide a learning community in which students can develop the personal qualities of self-knowledge, self-acceptance, a restless curiosity, a desire for truth, a mature concern for others, respect for human individuality, and a thirst for justice.  The Programme of study must promote academic excellence and facilitates the strengthening of conceptual, scholarly, and professional competencies for use in leadership roles that serve others. The defining of the common good, in the context of personal, organisational, and global leadership, should be an important goal of this education and training.

*It should address the need for collaborative forms of leadership in a shared-power world. There is an increasing need for interdependent and interrelated solutions to the complex ecological, political, cultural, health, and economic problems facing the people of our planet. These solutions must honor the voices of all global citizens and stakeholders from individuals to small groups to global organizations. These solutions will involve various mixtures of government (global, national, and local), private enterprise, NGO’s, as well as labor and environmental organizations.  

In all, in a world of rising uncertainty — no matter where we live — the key question before all of us is this: How can the debate on global issues become more inclusive and better informed? How can people develop a better understanding of what connects — and divides — nations, societies and cultures in today’s world?

5- – Now is the Time for New Economic Text books

We should acknowledge that economics textbooks, built upon Samuelson’s ideology as depicted in his much criticised, Foundations, or Friedman’s ideology as depicted in his well known Free To Choose, or Buchanan’s Public Choice Theory cannot any longer be the bedrock of economic wisdom that they for so long have disgracefully pretended to be. Economics is historically a pluralism of many multi-dimensional conversations. Today’s textbooks are not sufficiently pluralistic. Economics should not be all about pandering to incompressible mathematical jargon and calculus, as well as unrealistic assumptions, including rationality, and market ideology. Economics once was, and is still at its best, far more than these.

As it has been observed, in the mid 1990s about 1.4 million students took principles classes in the United States. All 20 best selling introductory macroeconomics textbooks in the U.S. are basically neoclassical texts. It is unlikely that even 1% of the students use a non-neoclassical principles text. The study of economics – if it is going to be a useful tool of analysis and understanding – doe not begin and end with distillation of Paul Samuelson and Milton Friedman/James Buchanan and only all points in-between. To pretend it does, is to ignore the full range of human instincts, needs, desires, and dreams. It is also quite neglectful of history and anthropology.

Yet, this is the narrow space which mainstream textbooks inhabit. The criticism of Paul Samuelson is well deserved, particularly his obsession with economic growth. He tied full employment to continued economic growth rather than an economy that prioritized basic human needs and guaranteed meaningful employment to all. While Samuelson was preoccupied with Economic Growth, viewing it as the solution to all manner of human problems, (Ben Friedman recently even claimed that economic growth caused increased moral behaviour, See Friedman, Ben, The Moral Consequences of Economic Growth, 2005), Milton Friedman/James Buchanan in their almost unrestrained advocacy of free markets shorn of regulation and law, provided much of the intellectual fodder for and helped to enable market fundamentalism.

Mainstream economics textbooks have many weaknesses, it is very hard indeed to know where to stop in listing them. But for the sake of context here are a few examples. So, in no particular order these weaknesses include:

1) The pretence that people are rational and disciplined.

2) The pretence that more things make us happy.

3) The pretence that markets are mostly perfectly competitive.

4) The pretence that the economy can be studied in isolation from other subjects and disciplines.

5) The pretence that history does not matter.

6) The pretence that what matters most is to master mathematics and calculus.

7) The pretence that there exists in nature resources that are free for the taking or are unlimited.

8) The pretence that human welfare is unrelated to the welfare of the planet and other species.

We have arrived at this sorry state of affairs, because, there is a prevailing trend among a number of prominent economists – many these with best selling textbooks, who have become millionaires – which hold that they have a virtual monopoly on understanding economics. Indeed, believing that every field of human endeavour is explainable in economic terms, they have developed a new sub-discipline that interprets all human motivations and relations, including family life, cultural/civilisational dialogue and more in terms of mere cost-benefit analysis. This new hyper-economic school of thought in effect has become a new “fundamentalist” religion, drunk in its own false importance and pomposity, pretending to believe that all that matters in life functions by market forces and can best be understood as a consumer commodity. In contrast to the rich and diverse moral philosophy that has spun the centuries, how narrow minded and without soul or meaning has economics become! 

Summary and Conclusion

As trained Economists who love our field and who have taught it for many years, while aware of its shortcomings, we are deeply troubled by the multiple crises that are engulfing the economy as well as Economics and our profession. Yet it is an exciting time for our field, as opportunities for change give us a chance at emerging significant transitions and breakthroughs. We rejoice in the opportunity that our field has now to reground itself in moral philosophy amid the deeper broader questions of human existence, meaning, and happiness, while mindful that humanity is a member of a larger community of multiple species and elements, necessary for our survival and health.

We have described in this paper how the current financial and economic crisis of the last few years is not the sole or even the most important crisis faced by humanity and this planet. The crisis of social injustice, inequality, loss of community and thereby dire economic insecurity for hundreds and hundreds of millions of people shows no sign of ending soon. At the same time the environmental crisis, consisting of climate change, habitat loss, pollution, and waste, grows exponentially, even as human institutions and structures prove themselves both incapable of dealing effectively with the crisis while at the same time standing in the way of needed progress. Many of the same misguided ethics, philosophies, and politics which gave rise to the financial crisis, also gave rise to the crisis of inequality as well as the environmental crisis.

While distinct from Market Fundamentalism, too often Economics and the Economics Profession has been eerily quite in the face of its ascendancy, even as some Economists have enabled this ideology. Standard theory, due to a lack of emphasis upon market failure as well as the limitations of standard theory is also not without blame.  

We have asserted in this paper that the purpose of an Economy is threefold. An Economy must provide for basic needs for all of the worlds peoples. It must help to establish, maintain, and nurture human relationships and community. Finally it must be sustainable while allowing for a flourishing of abundant biological diversity on this planet.

In order to accomplish this, we, as a global human society must set our sights upon the Common Good and this involves four basic realizations:

1) Human Beings need contact with other human beings.  We need relationships as we are social beings. It is in our relationships that we find genuine happiness and meaning.  

2) Human Beings need community, apart and distinct from our individual relationships with other human beings. There is a connection to the whole, a belonging to the community which is key to happiness and meaning. Such is manifest in socialization and education among many other aspects of community.  

3) A love for the Common Good is essential for the psychological and spiritual health of the individual.  

4) Nature, the web of life, and the integrity of the earth are also part of the Common Good, and neither the human community nor the individual person can be healthy without this aspect of the Common Good.

In order for Economics to be not only part of the transition and change which is so desperately needed, but to play a leading constructive role, of which it is capable we call Economics and Economists to significant change, amid the need for dialogue on specific solutions. We must begin a journey of wisdom. There is a certain beauty in the rigor and splendor of the typical highly mathematical standard model in economics. If we found no beauty in such models, it would have been impossible to have become an Economist.  

Yet, there is a need to go well beyond the standard models and the typical assumptions. We must reach more deeply and more broadly for wisdom. We claim that now is the time for a revolution in Economic thinking. There is not only much that can be learned from Western religions and philosophy such as Christianity, but also from Eastern Mysticism and Spirituality, including Islam, Hinduism, and Buddhism, and others. In addition there is great wisdom in the cultural and spiritual values of indigenous peoples, past and present.  

Economics must find ways to incorporate all of these lessons in equality, social justice, ecological balance, and respect for the earth, community and relationship into its standard approach. And that incorporation will be the revolution in economic thinking for which we call. We proclaim and demonstrate that now also is the time for a revolution in the teaching of economics. It can not wait. We need to teach students a new bottom line. We have described many specifics on what needs to be taught. Finally we call for new economics textbooks, while citing the deficiencies of those most popular.  

This is an exciting time for our field, for our profession, for our passion. Yet, it is also a troubling time. As we have said, Economics is not without blame for the crises which are engulfing the planet, the economy, and our profession. Economics must change. What we teach students must change. It must change if it is to play a constructive role in solving the multiple and multi-dimensional crises that so engulf our world, our species, the fabric of human community, relationship, and the web of life. We are running out of time. If our field does not change, if the revolution in thinking we have called for does not happen, if we do not revisit the rich and fertile soil in which our field was born, that being moral philosophy amid the broader questions of human existence, meaning, and ecology, then not only will we have retreated from the chance to play a constructive role in solving these crises, we will inherit well deserved scorn and contempt. The opportunity is upon us. Let us seize it.  Carpe Diem!

Suggested Readings

In order to rescue our subject from the arrogant “fundamentalists”, who have brought us a very bitter harvest, and to move the field beyond the confines and limitations of standard theory, we suggest the following books, amongst others, that must be offered to students as part of their main reading list, not in their optional modules alone, but in their core courses as well:

Anielski, Mark (2007) The Economics of Happiness- Building Genuine Wealth, Gabriola Island: New Society Publishers

Blank, Rebecca M (2004) Is the Market Moral? Washington, DC: Brookings Institution Press

Bloom, Alan (1987) The Closing of the American Mind: How Higher Education has Failed Democracy and Impoverished the Soul’s of Today’s Students, New York: Penguin

Brown, Garver, Helmuth, Howell, and Szeghi (2008) Right Relationship: Building a Whole Earth Economy, San Francisco: Berrett-Koehler Publications Inc.

Bunting, Madeline (2005) Willing Slaves: How the overwork culture is ruining our lives, London: Harper

Dallmayer, Fred (2007) In search of the Good Life-A Pedagogy for Troubled Times, Lexington: The University Press of Kentucky

Daly, Herman (1996) Beyond Growth, Washington DC: Beacon Press

Elgin, Duane (1981) Voluntary Simplicity-towards a way of life that is outwardly simple, inwardly rich, New York: William Morrow   

Frankham, Myron, (2004) World Democratic Federalism: Peace and Justice Indivisible, London: Palgrove-Mcmillan

Fullbrooke, Edward (ed) (2004) A Guide to What’s Wrong with Economics, London: Anthem Press

Gaffney, Mason and Fred Harrison (1994) The Corruption of Economics, London: Shepheard-Walwyn

Galbraith, John Kenneth (1958) The Affluent Society, New York: New American Library

____________________  (1971) Economics Peace & Laughter, New York: New American Library

Gold, Lorna (2004) The Sharing Economy: solidarity Networks Transforming Globalisation, Aldershot: Ashgate

Grayling, AC (1998) Moral Values, London: Weidenfield and Nicolson

___________ (2003) What is Good? London: Weidenfield and Nicolson

Haidt, Jonathan (2007) The Happiness Hypothesis-finding modern truth in ancient wisdom, New York: Basic Books

Henderson, Hazel (1999) Beyond Globalization: Shaping a Sustainable Global Economy, Bloomfield: Kumarion Press

Jackson, Tim (2009) Prosperity Without Growth-Economics for a Finite Planet, London and New York: Earthscan

Keen, Steve (2001) Debunking Economics: The Naked Emperor of the Social Sciences, Annandale: Pluto Press

Keynes, John Maynard (1930) Economic Possibilities for our Grandchildren, Essays in persuasion, New York: W.W.Norton&Co

Kuttner, Robert (2007) The Squandering of America: How the Failure of Our Politics Imperils Our Prosperity, New York: Alfred Knopf

Krugman, Paul (2007) The Conscience of a Liberal, New York: W. W. Norton

Layard, Richard (2005) Happiness, London: Penguin

Lutz, Mark A (1999) Economics for the Common Good: Two Centuries of Social Economic Thought in the Humanistic Tradition, London and New York: Routledge

Meadows, Donella H, Dennis L. Meadows, Jorgen Randers and William W. Behrens III (1972) The Limits to Growth- A Report for the Club of Rome’s project on the Predicament of Mankind, New York: The New American Library

Mill, John Stuart (1848) (reprinted 2004) Principles of Political Economy, Great Minds Series, New York: Prometheus Books

Milward, Peter (2006) What is a University? London: Shepheard-Walwyn

Mofid, Kamran (2002) Globalisation for the Common Good, London: Shepheard-Walwyn

Mofid, Kamran and Marcus Braybrooke (2005) Promoting the Common Good-Bringing Economics and Theology Together Again, London: Shepheard-Walwyn

Nelson, Melissa K. (2008) Original Instructions: Indigenous Teachings for a Sustainable Future, Rochester, VT: Bear

Ormerod, Paul (1994) The Death of Economics, London: Faber &Faber

___________ (1998) Butterfly Economics, London: Faber& Faber

Porritt, Jonathon (2005) Capitalism-as if the world matters, London: Earhscan

Schumacher, E.F (1973) Small is Beautiful: Economics as if People Mattered, London: Bland &Briggs

______________ (1997) A Guide for the Perplexed, London: Jonathan Cape

Sen, Amartya (1998) On Ethics and Economics, Oxford: Basil Blackwell

Smith, Adam (1776) (reprinted 1937) An Inquiry into the Nature and Causes of the Wealth of Nations, New York: Modern Library

Stiglitz, Joseph (2006) Making Globalization Work, New York: W. W. Norton

Szeghi, Steve (2006) Lessons in Development and Service on the Dine (Navajo) Nation, Journal of Economics and Politics, volumes 17 & 18

Tawney, R.H (1921) The Acquisitive Society, London: G. Bell& Sons

__________ (1926) Religion and the Rise of Capitalism, London: John Murray

__________ (1931) Equality, London: Allen & Unwin

Wilkinson, Richard and Kate Pickett (2009) The Spirit Level-why more equal societies almost always do better, London: Penguin

About the Authors

*Kamran Mofid is Adjunct Professor at Dalhousie School of Business, Dalhousie University, Canada, Founder of the Globalisation for the Common Good Initiative (Oxford, 2002) and Co-founder/Editor, Journal of Globalisation for the Common Good, and member of the International Coordinating Committee (ICC) of the World Public Forum, Dialogue of Civilisations. In 1986 he was awarded his doctorate in economics from the University of Birmingham, UK. In 2001 he received a Certificate in Education in Pastoral Studies at Plater College, Oxford. From 1980 to 2000 he was Economic Tutor, Lecturer and Senior Lecturer at Universities of Windsor (Canada), Birmingham, Bristol, Wolverhampton, and Coventry (UK). Mofid’s work is highly interdisciplinary, drawing on Economics, Politics, International Relations, Theology, Culture, Ecology, Ethics and Spirituality. Mofid’s writings have appeared in leading scholarly journals, popular magazines and newspapers. His books include Development Planning in Iran: From Monarchy to Islamic Republic, The Economic Consequences of the Gulf war, Globalisation for the Common Good, Business Ethics, Corporate Social Responsibility and Globalisation for the Common Good, Promoting the Common Good (with Rev. Marcus Braybrooke, 2005), and A non-Violent Path to Conflict Resolution and Peace Building (Co-authored). www.gcgi.info  

* Steve Szeghi, Professor of Economics, at Wilmington College, Ohio, is co-author of Right Relationship: Building a Whole Earth Economy. At Wilmington since 1987 he served as Department Chair in Economics and Business, from 1998-2005. Szeghi writes on Social Justice, and Ecology, in relation to the Economy and Economic Theory, highlighting the socio-political economies of indigenous peoples as an alternative system. Mindful of the values and economies of indigenous peoples, Szeghi has grown to question many of the assumptions of standard economic theory. While incorporating these themes into existing courses he developed a popular student study trip class called, Wilderness, Resources, and Indigenous Peoples of the Southwest. In his youth, Szeghi worked with Cesar Chavez and the United Farm Workers. Today he supports and consults for Labor Unions, and Environmental Groups. He has worked with American Indian Tribal organizations in support of social change/development favored by indigenous communities.

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