You are the author of ‘Economics of Good and Evil’, one of the most existential works on economics of our era. In fact, it is about ‘meta-economics’, asking fundamental questions such as ‘What is economics?’ and ‘Who is it for?’. Traditional textbooks define economics as the optimal allocation of limited resources to maximize something called ‘utility’, whatever that might really mean. By explicitly ignoring fundamental moral questions, we have created an economy estranged from humanity. It has become this body without a soul that, instead of serving us, we all seem to be serving it. How do you think we can invert this relationship and how would you define such economics?
Sedlacek:
Let’s imagine we have two societies, A and B, both of them governed by the same rules of democracy and capitalism. Society A are the Elves: good spirited, caring people who mean well to each other and understand the value of friendship, nature, art, love, compassion, and freedom. Society B are the Orcs: egoistic, ignorant, evil, mean brutes. When both societies maximize their utility, A becomes heaven and B turns into hell. In the hellish society, the Orcs would probably vote for a tyrant or collectively agree to suppress some minority. Technically, these would be democratic decisions. But this would go directly against the spirit of democracy. At the end of the day, we need the culture of democracy even more than the rules of democracy. What Winston Churchill said about democracy is also true for capitalism: it’s a bad system but it’s the best we’ve got. And again, more than technical rules, we need the right culture, or spirit of capitalism. The American economist Deirdre McCloskey, a big hero of mine, talks about ‘humanomics’: human (meaning cultured, not brute) economics. In my view, economics should be studied as a subset or companion of sociology and moral philosophy, rather than pure mathematics or ‘natural laws of physics’. We precisely don’t want our economy to be ‘natural’, we want it to be cultural. We need to understand that markets only exist in societies. I also believe this inversion of the relationship between economy and society is already happening. For instance, during the COVID-19 pandemic, the vast majority of countries decided to stop their economies, valuing health and family more than GDP growth. Similarly, following the Russian invasion of Ukraine, the European Union made economic sacrifices just to help another country.
We precisely don’t want our economy to be ‘natural’, we want it to be cultural. We need to understand that markets only exist in societies.
Your quest to better understand our current economic thinking and market democracy takes us on a fascinating journey to the cradle of civilization. In the more than 4,000 years old Epic of Gilgamesh, we learn about the building of a massive defensive wall around the ancient city of Uruk in Mesopotamia. Gilgamesh, king of Uruk, saves nobody and nothing from contributing to this colossal project of his. He reduces his citizens to robot workers on the wall. He cuts down a sacred cedar forest and turns it into construction material. We become witness to a civilization process where a clear line is drawn between nature and humanity. We used to hold sacred trees, rivers, mountains and animals. Now Mother Earth is something beyond the wall. Out of sight, out of mind, she becomes an externality. But as we turn away from her, in a twist of painful irony, we seem to lose ourselves. What does a sensible return to nature look like?
Sedlacek:
A real return to nature is not possible, I think. We live in artificial worlds now. You can be born, raised and live the rest of your life in a big city without ever having seen anything natural. Even the tree in the city park is put there by an architect, often as decoration. Originally, we understood nature as threatening to us, something that could kill us. Now we understand ourselves as ‘outside and above nature’ – a threat to nature. This is a completely new emotion for humankind. Even up to a generation ago we often didn’t really understand that nature is not limitless. What I believe will happen next is what I like to call the ‘homeopathization’ of the real. Homeopathy, in spite of being a dubious alternative to modern medicine, has some philosophically interesting principles similar to vaccination: what used to kill you in a large dose will heal you in a small dose. That, I think, is going to be the future of our relationship with nature. We might not plant a real forest in our city, it will be a homeopathic forest. We will not return to hard physical labor to search or grow food, but we might take up hobbies like urban farming or going to the gym. The ultimate question in our relationship with nature, however, is our utility calculus. When we maximize our utility, who do we include? Do I just include myself? What about my family, friends, company, co-workers, city and country? Should I also include my dog or cat, or ultimately all animals and living things? As we mature in life, we realize we are more in others than we are in ourselves. The development of civilization follows a similar path as personal development and the same realization is exactly what is currently happening to society and economics. Step by step, we are enlarging the ‘I’.
Gilgamesh, king of Uruk, overlooking his great wall.
Illustration made using Midjourney.
Today, philosophy is regarded as a relatively useless pursuit. Children should rather study mathematics, coding or nanoengineering if they want to get ahead in life. In ancient Greece, it was the exact opposite: philosophy was the queen of all sciences, the highest source of wisdom. In those formative centuries of Western culture, a fundamental discussion took place between two opposing schools of philosophy: the Epicureans and the Stoics. Both attempt to fix the central problem of humans never being satisfied and always wanting more. The Epicureans believe we should increase what we have until we are ‘content’. The Stoics believe we should decrease our desires until they match with what we have. It is easy to use, and definitely misuse, the Epicurean solution as an untiring engine for growth. How can we instead pursue Stoic ideals and still find the drive for progress?
Sedlacek:
I believe that we first have to distinguish between two different worlds: the realm of matter and the realm of non-matter. The world of matter is composed of things like wood, iron, lithium, petroleum, and nature. This is clearly a finite world. The world of non-matter comprises things like science, education, knowledge, ideas, and stories. Most likely this world is infinite, but we don’t really know. But it’s definitely much more infinite than the world of matter. As long as our pleasure comes from material consumption, with economics primarily based on matter, then the growth of our economy is limited and thus the growth of our pleasure – or utility – is limited. In fact, I I believe we might already have reached the peak point in many places and among a huge part of the Western population. For many people in the West, there is not much more pleasure left in digging up more of the physical, material world. On the other hand, if we reroot our desires from matter to non-matter, from things to ‘thinks’, then our economy can probably grow indefinitely without destroying our planet. In other words, if we lower our material desires – and learn to be content in this area – we can build an economy primarily based on activities such as healthcare, ethics, aesthetics, knowledge, psychology and telling each other stories (like movies or computer games). In that area, we can still fuel progress. In a way, this is already happening in our economy. Today, 70% of the European Union’s GDP comes from services, or mostly talking. Banks, insurance companies, consulting companies, law firms, a large part of what we do at universities, and so forth, is an increasing collection of words. If we build our future economy intelligently, fuelled mainly by words, it could not only be circular (since services don’t produce matter or need as much natural resources), but would also still hold an occupation for mankind in an age of robots and artificial intelligence.
As long as our pleasure comes from material consumption, with economics primarily based on matter, then the growth of our economy is limited.
Two opposing schools of philosophy: the Epicureans and the Stoics.
Illustration made using Midjourney.
In your talks, you often mention the oldest recorded business cycle as the Biblical tale of the Pharaoh’s dreams. In one of those dreams, the Pharaoh stood by the Nile as a group of seven sleek and fat cows came out to graze. Next, seven ugly, starving cows came out of the river and devoured the first, fat group. The Pharaoh had his dreams interpreted by Joseph who proclaimed that Egypt will know seven years of great abundance, but they will be followed by seven years of famine. In an act of diligent macro-economics, Joseph convinces the Pharaoh to construct storehouses and set aside a fifth of the harvest during the years of abundance as a reserve for during the years of famine. There’s no easy answer to what exactly causes such business cycles, but clearly they have happened throughout the ages. It makes no sense then to always push for economic growth. Instead, like a bonus pater familias or good household manager, economists should sometimes push to decrease consumption and save surpluses for times of hardship. What is the most effective way to put that into practice?
Sedlacek:
The tale of the Pharaoh is a proto-Keynesian type of advice: make the good years a little bit worse so that you can make the bad years a little bit better, thus decreasing the amplitude of the business cycle – and that’s exactly the role of a good economist. The English economist John Maynard Keynes argued that it’s ok for governments to have deficits and use debt in order to create jobs and boost consumer buying power during times of recession on the condition that those same governments are able to save surpluses during better economic times. The role of the economist was never intended as maximizing growth at all times, at all costs. Yet, when we look at our recent history, even in periods of good years, we didn’t save any surpluses, on the contrary. In the abundant years, we ate all the grain and then we even borrowed some more so we could double the fun. Clearly, there’s more wisdom in this ancient piece of advice – that even a 7-year-old child can understand – than in today’s macroeconomic policy based on overly sophisticated econometric modeling and thousands of spreadsheets. In 2021, the average government debt in the OECD countries reached 90% of GDP. At these debt levels, when 1 or 2 more crises hit us, we will be looking at major government bankruptcies. It’s high time to start paying back all the debt we owe. But nobody’s even talking about creating surpluses, everybody just keeps on going about decreasing deficits – which still means more borrowing, just at a smaller pace. Apparently, we live by an ideology of what we can call ‘bastard Keynesianism’: we only adopted half of what Keynes prescribed, the part where it said it’s ok to have deficits.
The role of the economist was never intended as maximizing growth at all times, at all costs.
Cows by the Nile in the Pharaoh’s dream.
Illustration made using Midjourney.
Much more than just being at the negative end of a business cycle, our society evidently is in a state of transition from one belief system to another. You claim we are not witnessing the end of capitalism, but the end of growth capitalism. Either way, economics in its now traditional form is crumbling. It can leave the impression that there is nothing more to believe in, nothing more to trust. But you say it is exactly the opposite: now there is everything to trust and everything to believe in. Nevertheless, several generations are currently left stranded between two socio-economic operating systems: the dominant one that is obsolete yet very reluctant to change and an emerging one that needs much more trust and resources. How do you think we should bridge that gap? What is your advice to younger generations who seem stuck in the rigidity of choices their parents and grandparents made?
Sedlacek:
I believe the most important message would be to search for solutions within the system. As I said earlier, capitalism is the least worst system we have ever invented. When you take a look at my own country, the Czech Republic, it took 30 years of capitalism to clean up all the mess that 40 years of communism had left behind. Communism didn’t even manage to keep the air clean. I think we can all agree that air is a very important commons, something that the communist apparatchiks should have been able to protect as a common, communist good. Capitalist Finland, on the other hand, kept its common goods, like clean air, in a much better shape. So again, the end result depends more on the culture and values of society (which, for example, Finland had) rather than bureaucratic rules and proclamations (for example, of the communist block, with their mouth full of protecting the public goods). Evidently, capitalism can even deal with common goods better than communism. Obviously, we need to do much more. We need a new spirit of capitalism, one that is (even more) open minded, less autistic, without endless material growth or excruciating levels of debt. The younger generations should be the force behind the evolution of this system, instead of creating a revolution against it. Our problems might be bigger today than in the past, but mankind is also creating a new, global polis or res publica of the internet with an immense transformative power for politics and economy. Sometimes things can also change quickly, when a strong spirit meets a clear urgency. Look at how Germany, currently the fourth largest economy in the world, reduced its dependence on Russian gas from more than 50% to 0% as a response to the war in Ukraine – in just 1 year. That’s incredibly fast! So, where there’s a will, there’s a way. Where there’s spirit, there can be real change. In the 1800s, when the share of services in our economy was negligible, it would have been unthinkable for services to one day replace the dominant sector of agriculture. Clearly, we have been able to completely, unimaginably transform capitalism before. So why not now?
Our problems might be bigger today than in the past, but mankind is also creating a new, global polis or res publica of the internet.