The Right Way to Flourish

Today, David Brooks, writing about the financial mess in the New York Times, says that our behavior may not follow the old rules about rationality.

My sense is that this financial crisis is going to amount to a coming-out party for behavioral economists and others who are bringing sophisticated psychology to the realm of public policy. At least these folks have plausible explanations for why so many people could have been so gigantically wrong about the risks they were taking. . .

If you start thinking about our faulty perceptions, the first thing you realize is that markets are not perfectly efficient, people are not always good guardians of their own self-interest and there might be limited circumstances when government could usefully slant the decision-making architecture (see “Nudge” by Thaler and Cass Sunstein for proposals). But the second thing you realize is that government officials are probably going to be even worse perceivers of reality than private business types. Their information feedback mechanism is more limited, and, being deeply politicized, they’re even more likely to filter inconvenient facts.

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The financial meltdown shows few signs of stopping right now. It is certainly a wake-up call to warn us of danger to our financial health. Because we depend on our money resources for almost our entire well-being these days, it has triggered a very painful and often depressing feeling. But like so many crises, it is an opportunity as well as a calamity.

The opportunity is not to focus on the outcome, although it is very hard not to read the tea leaves that we call the Dow. Somehow we take the Dow as the measure of our financial health. And thereby we fool ourselves into thinking that the free financial market is nothing more than a money machine, with emphasis on the word, machine. Driven by computers programmed to locate tiny chinks in the rational model of a market, and by the tool of risking other people’s money to multiply your own meager capital manyfold, it seemed like a foolproof system for those owning the computer’s while holding other people’s money.

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In the most recent edition of GreenBuzz, Joel Makower, the editor, takes universities to task for failing to match commitments to green the campus with equivalent moves to green the curriculum. I believe that it is much more than a lack of commitment at work here. I do not think that academics have a clear enough idea of what sustainability is all about to develop courses and syllabi on the subject.

Greening the campus is easy compared to the job of thinking through what should go into courses that incorporate aspects of sustainability. We can read of many efforts that point to LEED certified buildings, recycling programs, carbon use reduction, and more.

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For complexity mavens, the current financial mess is a bonanza. If we set aside the painful crunch that is affecting so many, we might see that complexity is moving up in importance and acceptance. Complexity is a world view that argues that systems like the environment or the financial system are not describable or understandable by reductionist scientific methods. Sustainability is very closely related to such systems and their capability to provide health, security, beauty or, flourishing (the term I use in my book), far into the future under all sorts of changing conditions. The suddenness and huge scope of recent events has raised many question about the ability of conventional analysis to inform our key societal decisions.

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While most of our attention has been focused on the financial turmoil and losses mounting in the trillions of dollars, the World Conservation Congress was meeting to discuss another, perhaps, more serious loss of capital–natural capital. In an interview with BBC, Pavan Suhkdev recounted the conclusion of a study of the annual attrition of global ecological resources. He said that losses of natural capital, just in deforestation, amount to about 7% of global GDP.

It’s not only greater but it’s also continuous, it’s been happening every year, year after year. . . So whereas Wall Street by various calculations has to date lost, within the financial sector, $1-$1.5 trillion, the reality is that at today’s rate we are losing natural capital at least between $2-$5 trillion every year.

The report was the first phase of a longer study, The Economics of Ecosystems and Biodiversity, sponsored by the German Government. The sponsors of the study hope that the results will have the same impact as the Stern Report on Climate Change, which many see as the turning point in getting that issue onto the agendas of global leaders.
A few posts ago, I referred to Herman Daly’s claim that the economy cannot grow beyond the limits set by the natural resources system from which the basic inputs come. With such great losses annually, the time it will take to approach these limits grows shorter every year.

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I like the metaphor in the title; it truly captures the opportunity of this, hopefully only a single, moment in historical time. Crises have a strange sociological or psychological tendency: they bring to the surface underlying beliefs and values that drive individual and collective action. And when that happens, the possibility of reflection and change enters the space we are in.

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It continues to be difficult to focus on sustainability while the financial markets are so turbulent. But the importance of systems thinking grows as the crises deepen. Herman Daly, who has for many years seen limits to growth rooted in the real coupling of our economic system to the natural world, recently offered his always deeply thoughtful views on the present situation. For us who at this point in life rely largely on our hard-earned assets, his words are not terribly reassuring.

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The financial debacle has many tentacles, each threatening to strangle our sense of security and plans for the future. Jobs are in jeopardy because the credit crunch stops the normal pattern of business borrowing dead in its tracks. The typical assets of saving families have lost 20-30% of their value. Maybe the rise over the past few years was illusory but that matters not at all when the investors have to readjust their present spending and plans for the future.

Fears of a recession are fueled by a drop in consumer spending which sends signals to producers to reduce output which causes job loss which leads to lower consumption which continues on and on, hopefully not ad infinitum.

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Maybe I should start doing this every week after the weekend break in the hurly-burly of the typical work week. I started this blog to talk about sustainability and, of course, introduce you to the ideas in my book. I have, as you probably now know, pretty deep-seated academic roots although my time in academia came on the tail of a long career in the “real” world of business and government. But given all that is happening out there, I feel OK with straying from this theme and the comfort of academic arguing.
It is hard for me to decide which crisis to follow: the financial market, the election as an indicator of the mess that goes for our political/governance system today, a collapsing global environment, or whatever seems to pop up with increasing frequency.

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