Public Economics – TOWARDS LIFE-KNOWLEDGE

In mainstream economics scripting, government is either bumbler or villain. Cast as market fixer, intervenor, enforcer or redistributor, the state cannot but act inefficiently or, worse, illegitimately. Public goods and collective action are called “problems,” the commons a “tragedy.” Even today’s so-called “public economics,” as represented by the “public choice” school, is decidedly anti-public. It was not always thus. More than a century ago, economists theorized the state as a framework of collective agency for public purpose and understood government as a producer meeting collective needs. A cogent concept of “the public economy” guided this nascent field of public economics, long since lost to historic upheavals and repression by proponents of market-centric rational choice theory.

This paper rejects today’s orthodoxy and its artful, but artificial, construct that subverts the ability of the public economic system to produce on behalf of the polity. I call instead for the embrace of a new public economics that returns to lost roots while breaking new ground by taking into account the biophysical imperatives of production. The model offered here takes a systems perspective (as did Quesnay and early 18th- century Physiocrats); recognizes a public economy with distinctive purpose and drivers (as did the “German Public Economics” theorist Gerhard Colm in the 1920’s); and focuses on government as a producer (as did Paul Studenski in the 1930s-50s). Finally, it draws on two centuries of physics and on 21st century systems ecology in recognizing biophysical imperatives inherent to production. Developing and promoting a cogent theory of the public economy system is vital to the effective operation and, ultimately, the survival of the governmental systems by which democratic nation-states function today. The simplistic type-casting of government, the “market-failure” rationalization for state action, the invalid imposition of market axioms and assumptions on the public domain, the disregard of public purpose must all be rejected. It is time for a Reformation of public economics.

Liberating contemporary economic analysis from the straitjacket of mainstream neoclassical theory is the animating theme of the essays assembled in this special number of the Real-World Economics Review (RWER). The authors of the works assembled here are all committed to the idea that what is regarded by traditional economic theory as a set of exogenous forces framed and deployed from outside the market mechanisms that are the focus of the discipline – namely, the public sector – is in fact an integral agent that directly affects the very issues and phenomena neoclassical theory claims to explain. Indeed, it is the very failure of traditional economic thinking to account for the “public economy” in any systematic and meaningful fashion that prevents it from explaining how societies actually produce goods and services and, in compensation, constructs inapt and futile framings, such as “market failures,” to explain why governments exist.

In contradistinction to prevailing doctrine, the following articles strive to reconstruct a public economics by embedding the public sector intrinsically within economic models. Rather than separate the “public sector” from economics, understanding collective action as something distinct from the economy, a public economics views the entire economic system – the “macroeconomy” as a whole – as comprised of multiple economic systems: of markets, of public activities, and of domestic interactions. Read More