The document summarizes a lecture on understanding the global crises and their implications for economics. It outlines the impacts of the crises such as malnutrition, food riots, and child poverty. It examines various views on the causes including instrumental, structural, moral, and ontological perspectives. It discusses economic theories from mainstream and heterodox schools. It argues responses have missed elements like complexity, learning, and transitions. The conclusions call for a more inclusive economic-ecological theory that accounts for physical limits and innovation within complex, dynamic relationships between nature and humans.

1. Global crises and implications for
economics
Invited lecture as part of the “Globalisation and Governance
Module”, Sustainability Institute, Lynedoch
16 August 2012
By
Martin de Wit

2. Leading questions
• How can we understand the global crises?
• What are the implications for economics?

3. Outline
• Setting the scene
• Measures on the impacts of the crises
• Alternative views on the causes of the crises
• Economic theories on making sense of the
crises
• Missing elements in main responses
• Conclusions

4. Definitions
• According to the New Oxford American
Dictionary, a crisis can be defined as ‘a time of
intense difficulty, trouble or anger’ as well as
‘a time when a difficult or important decision
must be made’.
• The origin of the word is from the Greek
‘krisis’ – ‘decision’ and from ‘krinein’ – ‘decide’

5. Impacts: Malnutrition
• Malnutrition in children affects
their physical and cognitive
development and has long-
lasting effects on livelihoods and
economic prospects, even after
the financial crises have been
resolved (Von Grebmer et
al., 2009).
• Approximately 925 million
people were still under-
nourished in 2010, two years
after the financial crisis.
• This reflects deeper structural
problems in accessing food and
the production of food
(WFP, 2010). Imagecredit: doctorswithoutborders.org

6. Impacts: Food riots
• Timing of violent
protests in North
Africa and Middle
East in 2011, and
earlier in 2008
coincide with large
peaks in global
food prices
• Adds up to
political failings of
governments
Lagi et al 2011. The Food Crises and Political Instability in North Africa and the Middle East.

7. Impacts: Child Poverty
• Child poverty already high in SA => poor human capital and
lower productivity later in life
• International economic crises => drop in world demand => fall
in production => reduce employment (worse for informal
workers) => drop household income and drop in firm
investment
• Major impact of crises is on the poorest
Source: Chitiga, M. et al. 2010. The impact of the international economic crises on child poverty in South Africa
Image credit: doctorswithoutborders.org

8. Impacts: Iceland’s financial failure
• Financial excess, cronyism and poor governance
made it first victim of 2008 global financial
collapse
• Privatised banks: aggressive lending, high interest
rates of 15%, could not repay loans
• By 2008: average Icelander $403 000 in debt and
25% of homeowners faced mortgage default, 50
000 people lost savings
• Political reaction 2009: modesty, hard
work, respect, moderation
Boyes, 2009. Meldown Iceland.

9. Impacts: Ecological
Indicator Result for SA Key aspects Outcome
Ecological Footprint 2.8 ha/pp/yr vs. Carbon Ecologically
target of 1.8 Crop land unsustainable
ha/pp/yr Grazing land
91st out of 134
countries (2009)
Environmental 0.508/1.0 Environmental Environmentally
Performance Index burden of disease unsustainable
115th of 163 Climate change
countries (2010) Air pollution on
ecosystems
Imagecredit: The OilDrum

10. Impacts: Healing or Collapse
• “An examination of the aftermath of severe financial crises
shows deep and lasting effects on asset prices, output and
employment. Unemployment rises and housing price
declines extend out for five and six years, respectively. On
the encouraging side, output declines last only two years on
average. Even recessions sparked by financial crises do
eventually end, albeit almost invariably accompanied by
massive increases in government debt” (Reinhardt
&Rogoff, 2009)
• Some even speak of a ‘Global Mega-Crisis’, defined as “a
global environmental and economic collapse or near
collapse, along with attendant problems of rising
prices, mass protests, wide-spread psychic stress, and
lawlessness.” (Halal and Marien, 2011).

11. Why a reflection on crises?
• Denialism
– A culture of ‘denialism’ makes one acutely aware of the irreversible damages that are possible
to individuals and a country.
– A chilling example is former Pres. Mbeki’sAIDS ‘denialism’: “…more than 330,000 people had
died of HIV in South Africa between 2000 and 2005 as a consequence of the government’s
failure to widen access to anti-retrovirals (ARVs) in a timely fashion.” (Mbali, 2010)
– *The ecological crises does not exist; e.g. waste is not a problem…+
• Moralism
– commenting on issues right and wrong, typically with an unfounded air of superiority)
– some religious, social justice and green advocacy groups react in response to crises
– [Thou shall recycle…+
• Pragmatism
– an approach that assesses the truth of meaning and theories or beliefs in terms of the success
of their practical application
• Critique: key actors in Western society seek solutions to the shadows of progress (i.e. global
poverty, environmental ruin and violence) by stubbornly deploying the means of progress, such as
money, economic growth and technological development, as well as the institutions of progress, such
as the market, planning and democratic mechanisms (Goudzwaard)
– [We only recycle if pleasures are greater than the pains…+
Examine the evidence…!

12. Causes of the crises: Instrumental
• How to jump start consumer demand?
– choices of policies, programmes and policy instruments needed to reach the
goal of increased liquidity in the markets or to counter the credit crunch and
associated weak demand.
– relative merits of using spending, incentives or tax credits, a balance between
fiscal and monetary policy and policy instruments.
– how regulations need to be enforced and how criminal activities can be
minimised.
• The debate is usually amongst economists and policy-makers, operating in
the powerful neo-liberal economic traditions of thought
– Keynesian (govt spending and tax cuts on low income)
– Neoclassical/laissez faire (monetary policy and tax cuts on business and
wealthy)
• Green New Deal’
– Green economy strategies are launched around the globe and promise jobs, a
revitalised economy and, at the same time, intend to start addressing the
ecological crisis mostly through the deployment of cleaner technology

13. Causes of crises: Structural
• need for interventions in what is perceived as the underlying bio-
physical state of the real economy and/or in the structures, cultures
and institutions that lead to social and economic injustice.
• From an ecological limits point of view, such responses include
explicit attention to sustainability of the integrated world system, as
achieved, for example, through the de-coupling of economic growth
from materials, pollution and waste.
• The focus is on accepting social and biophysical limits to economic
expansion and finding ways to circumvent these.
• In other words, increased consumption may not even be
possible, let alone desirable.
• Heterodox economics, incl. ecological economic response

14. Causes of crises: Moral
• asks deeper-level questions on how individuals and culture
operate
• importance of individual behaviour, ethics, religion and
cultural drivers manifesting itself, for example, in aggressive
exploitation, hubris, greed and unfettered capitalism
• Religious roots of dualism between humanity and nature and
humanity exploit nature to serve human interests (Lynn White
Jr.)
• Death of ‘joy’ in nature (Schaeffer)
• Moral philosophical, moral principled (ethics) and eco-
theological responses

15. Causes of crises: Ontological
• How humanity’s poor interpretation of what the nature of reality is caused
the crises
• Argued that humanity has not interpreted and acted on the fullness of
reality, but on selected and reduced parts of it(see Von Bertalanffy, 1972;
Boulding, 1956), leading to the crises.
• Call for alternative anthropology and cosmology (Naess)
• Is there a fundamental, ultimate economic reality?
– e.g. Conceptual “market model” vs studying actual markets and institutions
• Elegant, deductive mathematical models at expense reality (Lawson)
– Colander et al. (2008) calls for an ethical code for economists to communicate
the limitations and potential misuse of their models.
– Not a simple claim to be morally good within a particular
understanding of reality, but at its heart is the realisation that the
ontological limitations of economic science have important ethical
implications.

16. Economic theories on crises:
mainstream
• Many causes, three main
factors (du Plessis, 2011)
– Incentives leading to
credit-fuelled bubble (esp
property), loose monetary
policy (below Taylor
principle) for too long
– Gearing in financial sector
(financial leverage through
creditor funds)
– Failure of highly geared
banks impacts on economy
(sale of other assets, tight
credit)
Imagecredit: The Economist

17. Ecological economics
• Kallis et al (2009): The root of the crisis is the growing disjuncture between the real
economy of production and the paper economy of finance.
• Gains from specialisation and exchange come at cost of detachment actors from
(natural) realities and the moral implications of their decisions
• Brings a broader view: complexity of reality, nature, justice, dynamics
• Ambitious and transformative objectives: sustainable and just
• Intellectual and methodological pluralism
• Propensity for structural reform
– Biophysical limits on wealth accumulation
– Structural change proposed: Heavy handed interventions
• Mix of morality
– Generalised entropy as if earth is closed system
– Aristotelean virtue ethics, invest in ‘power of judgment’ of ecological economists
• Fragile discipline, not well-grounded response to ecological crises (Faber)
– Risk to break apart old Kantian philosophical fault lines of natural determinism and human
freedom

18. Biophysical economics
•
25
Neoclassical economics is
inconsistent with the laws of 20
thermodynamics
Cleveland (20
U.S. EROI [-]
15
– Human actions should conform to
physical realities, objective natural
05)
10
laws (Cleveland, Costanza, Hall) Exp
Lin
on e
ntia
ea
l
r
•
5
Survival of living creatures is limited
by the concept of energy return on 0
1930
1940
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
2110
2120
2130
2140
investment (EROI)
• Question strategies of debt-based
fiscal stimulus in context of declining
fossil fuels
• Tverberg (2012):
– “The financial crisis may eventually
worsen, to resemble a collapse situation
as described by Joseph Tainter in The
Collapse of Complex Societies (1990) or
an adverse decline situation similar to
adverse scenarios foreseen by Donella
Meadows in Limits to Growth (1972)”.
http://netenergy.theoild
rum.com/node/5304

19. Missing elements in the main
responses
• Economics as complex system (Kirman, Faggini, Schweitser)
– Change (speed and slowness)
– Learning and feedback of human actors
– Interaction between (bounded rational) agents
– Robust socio-economic networks
– Local self-organisation
• Innovation (Atkinson, Etzkowitz):
– Government role in spurring innovation?
• investments in steam engine, Internet, iPhone.
– Schumpetrian “creative destruction”
– Invest in R&D
– Manage globalization, not “knee-jerk mercantilism”
• Transitioning
– call for a broader analytical framework to reassess innovation and techno-
logical change, crucial factors for a successful transition (Smith et al).

20. Conclusions (I)
• Economic and ecological crises have severe real world
impacts (malnutrition, food riots, child
poverty, household hardship, banking system failures)
• Crises stimulates to explore beyond
denialism, moralism and pragmatism
• Causes stylised as
– instrumental (lack of consumer demand),
– structural (sustainability and justice needs institutional
overhaul),
– moral (greed and hubris calls for ethics) and
– ontological (dualism, reductionism, abstraction calls for
holism and realism)

21. Conclusions (II)
• Economic theoretical responses:
– Mainstream: incentives, policies, safeguards, regulations
– Ecological economics: agents in economy operate within and be
aware of physical limits of real economy
– Biophysical economics: as EE, but a focus on energy, EROI, peaky
fossil fuels and minerals and recessionary feedback with
probability of collapse
• Towards a more inclusive economic-ecological theory in
response to crises
– Nature and humans in complex, dynamic relationship
– Alternative behavioural theories
– Interplay context-specific physical limits and innovation
– Transitions

22. Earlier work
• De Wit, M.P. 2011. Reflecting On How To Respond To The Economic And Ecological Crises.
International Conference on Ecological Theology and Environmental Ethics-
ECOTHEEOrthodox Academy of Crete, 1-5 June, 2011.
• De Wit, M.P. 2011. How do we approach practical, messyproblems? A reflectiononhow to
respond to the economic and ecological crises. Presentation at Building the ScientificMind
2011 Colloqium, SustainabilityInstitute, Lynedoch, 7-11 March.
• De Wit, M.P. 2010. FactoringSustainabilityintoSouthAfrica’sFuture. Invitedpresentation to
World Future Society, Cape Town, 6 May 2010.
• De Wit, M.P. 2001. EconomicPolicyMakingfor Complex and DynamicEnvironmentalProblems:
A ConceptualFramework. Thesis submitted in fulfillment of the requirements of Doctor
Commercii (Economics) in the FacultyEconomics and Management Sciences at the University
of Pretoria.