Levy Scholar James K. Galbraith for Bloomberg: “Why Economists Are Looking at Economics All Wrong”

Senior Scholar James K. Galbraith appeared on the Bloomberg podcast Merryn Talks Money to discuss his new book Entropy Economics.

This interview was recorded before the market chaos of the last week.  There’s a problem with economists, says James K. Galbraith. It is that almost all of them are working with the wrong models. They look at it in terms of equilibrium, as though the natural destination of an economy is “some kind of stable state.” But absolutely nothing else tends to equilibrium. Instead it is all about entropy – the way in which all organic systems systems must tap into and use up – or degrade – some kind of resource.  Economies are the same. Most models don’t take account of natural resources – and they don’t figure much in our GDP calculations. But think of the economy as an organic system only operating because of the resources it has access too and everything makes more sense. Without easy and cheap access to energy for example economies don’t work well at all – something that has implications for our attempt to increase our use of “low quality” renewable energy. It also means we should have a look at the financial sector: it is much larger than it was and absorbs too resource. Can it be cut such that it is made to “serve the productive sector rather than being the master of it?” The same goes for the military in the US. It’s too big and crowds out too much of the rest of the economy. With that in mind, says Galbraith, perhaps the way in which the Trump administration is rejecting the complacency of the last 40 years is no bad thing, The problem? The direction it wants to take instead. “I’m inclined to be pessimistic.”

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