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The Environmental Endgame: Mainstream Economics, Ecological Disaster, and Human Survival

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This slim book is a popularization of Nadeau's earlier, more scholarly work "The Wealth of Nature: How Mainstream Economics Failed the Environment". It's a solid and sorely needed critique of mainstream economics, based on up-to-date developments in physics and mathematics as well as environmental science.

For example, real-world economics is described as an `open system' with energy, resource, and regulatory inputs, operating under a regime that is frequently chaotic due to `feedback loops'. This is in sharp contrast to the `closed-system' axioms of neo-classical economics, focused on the mathematics of `equilibrium', with environmental issues relegated to `externalities'. And when Nadeau started listing the many false assumptions of neo-classical economics, such as limitless growth and perfectly rational economic actors, then I became eager to see this breath of fresh air blow away the `dismal science' of yore.

Nadeau characterizes the fundamental failure of neo-classical economics as an understanding of part-whole relationships based on out-of-date Newtonian thinking. Several illuminating chapters are devoted to analyzing the historical development of neo-classical economics. Yet I found the `part-whole' discussion rather opaque. It seems to be an unsuccessful attempt to popularize the difference between a modern open-system understanding informed by the mathematics of nonlinear dynamical systems and chaos theory, versus the classical closed-system understanding associated with the law of the conservation of energy and the linear differential equations of Newtonian physics.

In fact the part-whole critique comes off as somewhat ideological. It has the virtue of denouncing the false assumption that there is an `invisible hand', or `natural law' of economics, guiding economies toward perfect equilibrium if government, assumed to be external to the closed-system, would only keep its hands off. Yet I think that a more successful critique would be to just demonstrate that the neo-classical model is a very bad model for the real world, except in very specialized circumstances. I also found the opening gambit of the `Godgame', though well intentioned, to be somewhat offputting.

The larger task is to actually construct a new `ecological economics' based on the new mathematics and physics. Nadeau says that mainstream economists haven't been listening to the ecological economists, however correct they may be. Therefore he has launched a more direct attack on the foundations of neo-classical economics. But I think what is missing is the mathematical development of ecological economics, to the point where this new economics supplies much better quantitative tools, not just qualitative analysis, for economists to do there jobs.

A big obstacle here is the need to change the mindset of economists for prediction to scenarios. The neo-classical economics of equilibrium is ideally suited to prediction. And in very specialized or short term circumstances these predictions can be accurate, with customary statistical confidence intervals. But the real world of economics is more like the weather, a chaotic system.

So how are climate scientists now predicting climate change over the coming centuries? They use scenarios, to give people a sense of the range of possibilities, so that we may be prepared. Moreover, these scenarios put the focus squarely where it needs to be: On the validity of the assumptions that go into the scenarios. A global economy based on a wide range of scenarios will become adaptable and resilient, instead of highly optimized for one particular scenario, e.g., 'just-in-time' supply lines.

In economics this quantitative approach was actually pioneered decades ago by the "Limits to Growth" project, though it was neglected by mainstream economists. This celebrated and still worthy project was fully grounded in the nonlinear dynamics of feedback loops and scenarios based on just a few global variables, such as population, food, industry, and resources. This work needs not only its own axiomatic development, but a vast extension to deal with the ecological, political, and economic world at all levels, in both theory and practice.

An example is that control theory for chaotic systems teaches that very little energy, if properly applied over time, is needed to guide a system that is on the `edge of chaos'. Thus a democratically constituted economic authority could successfully guide the global economy with a gentle, not heavy, hand, if it has patience and the proper levers. Nadeau, to his credit, recognizes the need for democratic global governance to tackle the many global crises that are already becoming manifest.

Unfortunately Nadeau does not point us to who is actually doing this exciting development of post-Newtonian economics. I suspect the reason is that the real science of economics is still in its infancy and it is up to us to develop it. Thanks to Robert Nadeau for throwing down the gauntlet.

I found Mr. Burkhart's review to have said everything that I want to say about this book, except that I had a much stronger negative reaction to the discussions of Newton, Darwin, and linearity. The arguments Nadeau makes with regard to these topics expose a deep misunderstanding of them and that, for me, undermines his credibility. It also results in a misplaced blame for the fact that economists and politicians have misused the priniciples of physics and other natural sciences and applied them to social systems in which they do not belong.

Nadeau also fails to recognize that ecological economics makes the same error in attempting to apply yet another body of scientific knowledge to social systems. The last thing that economists need is to continue the myth that economic systems are natural. Nadeau must recognize that even an ecological application to a non-natural system will inevitably be forced into linear approximations of answers to the complex problems that arise in this non-natural system.

I do agree with Mr. Burkhart that Nadeau deserves some credit for throwing down the gauntlet, but as Mr. Burkhart points out, Nadeau has not provided any real solutions. Neither has he provided any original thought. Further, he has contributed to the perpetuation of a gross misunderstanding of mathematical and physical science principles and the appropriateness of their applications to the social world. Nevertheless, he has made the longstanding criticisms of neoclassical economics, and the need for something altogether different, more visible.

THE ENVIRONMENTAL ENDGAME: MAINSTREAM ECONOMICS, ECOLOGICAL DISASTER, AND HUMAN SURVIVAL reiterates we've moved even closer to global environmental disaster - and maintains that distinctions must be abolished which consider environmental issues as outside the sphere of 'real' or everyday concerns. Scientists have long attempted to bring these issues to consumer attention: here perspectives from a range of disciplines connect environmental issues with the real worlds of people around the world. From government institutions to economic concerns, THE ENVIRONMENTAL ENDGAME is an important tool for linking environmental science with the rest of the world.

Diane C. Donovan
California Bookwatch

Robert Nadeau reminds me of the piano player in an hotel lobby who knows all the notes and all the tunes but lacks overall understanding. He jumps from 1860 physics to 1907 physics leaving entirely out the 'science of energy' which is what ecological economics, Soddy & Geogescue-Roegen et al, is all about. The 'science of energy' is the purest form of physical economics stripped of metaphysics and the statistical analytical methodology that substitutes for philosophy in formulation of an economic neo-pseudo-science, which neither conforms to physical laws or 'common sense. There is well sufficient knowledge and especially thought from other disciplines in this book for me to happlily recommend it to those with an open mind, to accompany I suggest Rifkin and 'Entropy' unless one wishes to read 200 very hi-brow entirely brilliant pages of G-R to arrive with him at the conclusion that neo-classic economics does not comply with common sense. One should also read Soddy (1911) 'Matter and Energy', Balfour Stewart (1875) 'Conservation of Energy', Crosbie Smith (1998) 'The Science of Energy' and the biographical sketches of Herman Daly relating to Soddy, Schumpeter and Boulding and the latter's 'spaceship earth' that is easily downloadable. The single greatest block to understanding is thermodynamicists trying to explain classic thermodynamics as quantum theory statistical mechanics which as recognized up to about 1960 was a completely diiferent science; no one will ever understand economics from 'molecular science' and that sadly included Paul Smanuelson who was a second genration disciple of Gibbs. Nadeau still has not got the foggiest clue what the economic process is and should refer to Schumpeter before dismissing physics so inadvisably, or what the 'invisible hand' is and guides to such that Smith's interpretation of it being benevolent is wrong and Malthus can never be wrong as he only highlighted a tendency, which is strangely consistanly with the conclusions of Smith's 1859 hand, which doubtless is why someone edited the last five words of the exert from Wikipedia. For a rollicking romp through neo-classical economics it is difficult to surpass Eric Hockenhiem (2007)'s 47 page demolition - great fun. If one accepts that Eric too does not understand the whole economic process he does a wonderful job of presenting the part he does understand, but I will leave the 'commercial' in the last section to others. Eric is an absolute role model for all economists in the way that he defines his terms, such that whether one agrees or not one actually knows what one is agreeing with or not. It is 100 years since Soddy first put economics on late 19C science footing, yet not a single professionally supported textbook introduces even for discussion, I suppose lest it induce students of economic thought to advance their thought against the serious 'vested interests'. No one should be surprised if they have read George Oswald who observed that all inconvenient views challenging the orthodox would be shut down.

The author of this book is correct that the foundation of neoclassical economics is based on the linear and additive approach of the mathematical physics of the 1850's to 1890's time frame.The same holds for the particular representation of mathematical probability used by neoclassical economists,which is the linear and additive Subjective Bayesian approach of Ramsey,De Finetti,and Savage combined with a linear and additive Morgenstern-von Neumann Utility function.This theory is called Subjective Expected Utility(SEU) Theory .It is linear and additive.The author,however,is incorrect in the following conclusion :

"If Keynes had been able to convince other neoclassical economists that Walrasian general equilibrium theory is " nonsense ",then the revolution he had in mind might have actually occurred.This did not happen,however,because Keynes wed new assumptions about economic reality to a mathematical formalism that was essentially the same as that which Walras derived from mid-nineteenth-century physics ".(Nadeau,2006,p.112).

The author overlooks the fact that Keynes recognized that neoclassical( Walrasian )economics was a consistent,logical whole that was also a special case built on the assumptions of additivity and linearity.Keynes's GT generalizes economic theory in the same manner that Einstein generalized Newtonian mechanics.

The author appears not to have worked through or understood the mathematical analysis presented by Keynes in chapters 20 and 21 of the GT.Keynes demonstrates on pp. 304-306 of the General Theory (GT;1936) in chapter 21 that neoclassical economics is a special case of a more general case.The neoclassical special case occurs only when the elasticities e,ed subscript and ep subscript,derived, specified,and analyzed by Keynes, all equal 1.The general case occurs when these elasticities are less than 1.Keynes generalized the equation of exchange to incorporate decision making under uncertainty and ignorance,as opposed to the neoclassical belief ,based on the special type of decision making that focused on the belief that only risk, that required that all of the probabilities be linear and additive ,is essential in decision making.The same result is written out clearly in Part IV of chapter 15 on pp.208-209,which Keynes characterized as an introduction to chapter 21.It is unfortunate that no philosopher,decision theorist,psychologist or economist of the 20th or 21st century was able to follow Keynes's analysis.The analysis ,on pp. 304-306 or pp.208-209 of the GT ,is equivalent to the analysis put forth by Keynes in chapter 26 of the A Treatise on Probability (TP;1921).Keynes specified a conventional coefficient of risk and weight.Keynes's demonstration is provided below after my review.

The author appears to believe that Keynes's theory of effective demand is equivalent to the linear and additive multiplier analysis based on the specification of a linear and additive consumption function in chapter 10 of the GT.
The Multiplier has a role to play in Keynes;s theory of effective demand,but it is a small one.

The author also appears to have overlooked much of Smith's analysis.Smith was not a Classical economist.The founder of Classical and Neoclassical economics is Jeremy Bentham.Smith was the last practitioner of Virtue ethics.The socalled economic laws that the author ascribes to Smith are interwoven with moral laws and ethical behavior.Self interest is self love.It simply means that before you are in a position to help anyone else you need to make sure that you and your family are taken care of. The Good Samaritan is just such an example.The Good Samaritan can help the victim of the highwaymen because he owns a horse,sword,and has a bag of gold coins.
Smith makes it clear that the operation of the invisible hand of the market ,self interest and the division of specialized labor,can lead to a work force that is without creativity and innovativeness.The result will be stagnation and economic decline unless the state remedies this failure of the invisible hand by providing for the education and religious instruction of ALL its citizens.Such needed education and religious instruction will be provided for free to all those who are unable to pay.It will be funded by progressive taxation.
I recommend the book despite these lapses on the part of the author.



Keynes presented a clearcut mathematical,technical analysis of ambiguity aversion using his conventional coefficient of risk and and weight( uncertainty),c,in chapter 26 of the TP. A very specific example of Keynes's nomlinear and non additive approach to probability in chapters 15,17,20,and 22 of the TP was worked out in great detail by Keynes in chapter 26 using his conventional coefficient of risk and weight ,c, on p.314 and in Footnote 2 on p.314.Edgeworth, in his 1922 article on " The Philosophy of Chance " in Mind ,was certainly correct in asking for the help of the readers of that philosophy journal in order to figure out the what and the why's involved in the application of Keynes's c coefficient.This will be provided for the reader below since it was never done in Mind or anywhere else with the exception of Brady's work.

The foundation of Neoclassical economics is merely the mathematical development of a theoretical approach first proposed by Jeremy Bentham in 1787.Bentham claimed that all individuals have the capability to calculate the odds and outcomes and act on the expected value (the probability times the outcome) in a rational way.This can be expressed by the following ,where p is the probability of success and A is the outcome:
Maximize pA.

The modern version of this is to Maximize pU(A),where p is a subjective probability that is additive,linear,precise,and exact.U(A) is a Von Neumann-Morgenstern Utility function.The goal is to

Maximize pU(A).




The modern name for Benthamite Utilitarianism in neoclassical economics is SEU theory(Subjective Expected Utility).Therefore,a microeconomic foundation based on Utility Maximization is just Benthamite Utilitarianism updated with modern mathematical techniques.Modern macro is all SEU theory.

Keynes rejected Benthamite Utilitarianism as a very special case that would only hold under the special assumptions of the subjectivist,Bayesian model-that all probabilities were additive,linear,precise,single number answers that obeyed the mathematical laws of the probabiity calculus.

Keynes specifies his conventional coefficient of risk and weight,c, model in chapter 26 of the TP on p.314 and fotnote 2 on p.314,as a counter weight to the Benthamite Utilitarian approach.

Essentially, Keynes's generalized model is given by



c=2pw/(1+q)(1+w),

where w is Keynes's weight of the evidence variable that measures the completeness of the relevant, available evidence upon which the probabilities p and q are calculated.(Benthamite Utilitarians assume that the value of w is always 1.)w is an index defined on the unit interval between 0 and 1,p is the probability of success,and q is the probability of failure.p+q sum to 1 if they are additive.This requires that w=1.Keynes's c coefficient can be rewritten as

c=p [1/(1+q)][2w/(1+w)].

Now multiply by A or U(A).One obtains


cA= p[1/(1+q)][2w/(1+w)]A.

The goal is to maximuze cA or cU(A).The weight 1/(1+q) deals with non linearity.The weight 2w/(1+w) deals with non additivity.Modern Macroeconomics amounts to nothing more than the claim that c=p or cA (cU(A)= pA (pU(A)) .



It is now straightforward to see that the neoclassical microfoundations of macroeconomics assumes that all probabilities are additive and linear.This is nothing but a special case of Keynes's generalized decision rule to maximize cA,or cU(A),as opposed to the Benthamite Utilitarian pA or neoclassical pU(A).It is now clear that Keynes had created general theories of macroeconomics,probability,and decision making between 1921 and 1936.Keynes's accomplishments,once understood,make him the only rival to Einstein for the title of the greatest scientist of the 20th century. Economists have only a very vague,hazy,cloudy understanding of Keynes 's distinction between risk and uncertainty . It is this distinction that has to be grasped first before any economist has any hope of understanding what Keynes means in the GT.



The conclusion is very straightforward. New Classical,New Keynesian,rational expectationist,and real business cycle theorists use the rule to Maximize pU(A).Keynes used the rule to maximize cU(A).This is the same type of rule used by the overwhelmingly ambiguity averse decision makers that populate the real world both in the past and today.