Another perspective

There is another way of looking at the quadrant diagram I have drawn: that is to view it in cross section. It then looks like this:

diag16

This is the cross section of this diagram, which has no one plotted on it, as described in this blog:

diag6

Absolute poverty (A) or deprivation is at bottom of the U shaped diagram. It is broad because the scope for deprivation is large. It is however shallow. Once in this situation you cannot go down much further. Put simply, death might be the alternative.

Above absolute poverty there is relative poverty. This is little broader than the area of deprivation, but the depth is considerably greater. The reason is simple. Here the return on relatively small additions in achievement yields considerable rewards for the person who enjoys them.

Above both there is an area of relative abundance, where we have sufficient. In terms of area it is broad. In depth it is no more than that for poverty. In this area the return in well being for additional achievement diminishes. It does not disappear though. Even when the limit to potential is reached, as shown by two vertical lines on the diagram, there remains a return to be made from additional effort. This is not surprising. Those whose enquiring minds have driven them to the limits of current knowledge will still want to know more. But to achieve that might just not be possible. This is the reality that the diagram represents.

Breaking the limits

So what, you might ask of the previous blog? Does the fact there are limits to achievement constrain emotional, intellectual or spiritual potential? In theory it does not. But there is a much more practical constraint on these: our own predispositions and abilities define the constraints of our own achievement in these areas. We can approach, and might even occasionally reach our potential in all three areas but we can do no more than that, for if we suggested otherwise we would simply have incorrectly defined our limits. As such in all three quadrants our achievement will be within the constraints of the outer circle that indicates the limits of our potential.

This though is not true of our potential to consume material goods. Here we do not know the limit of our own ability. We can waste that which should reasonably belong to others. We can consume that which should belong to generations that should follow us, knowingly or unknowingly. But however we look at it we can actually do this:

diag14

This is important. First, the fact that we can consume more than we should if we are to act either equitably or sustainably has consequences. We remain finite, even if we consume more than we should. That excess consumption does not create 26 hours in a day. It does not mean we can either receive more from or give more to our emotional relationships. In fact, the reverse is likely. The time spent consuming material goods does not just create waste in the sense that others are deprived of what is rightfully theirs: it denies us the chance to do all we might to achieve a balanced lifestyle. I propose something quite simple: to the extent that we over consume materially we constrain our ability to achieve in other aspects of our lives. The diagram looks like this:

diag15

The blue line (which should be smooth: forgive my electronic drawing ability) shows that the area of intellectual, purposeful and emotional achievement has been constrained by having sought to consume to over-capacity in the material area. And, the more we over consume the more the relative impact of that constraint is, I suggest. That is because of a simple rule that is well known to conventional economists, which is called the law of diminishing marginal returns. This is not a perfect rule: it is a model and like all models it has flaws, but within reason it holds true. It says that as one has more of something (anything, it does not matter what) the value you attribute to each additional unit of that thing you acquire falls.

Basic instinct says that this is usually true. Some would argue that cash avoids the rule because additional cash simply provides the ability to substitute between different forms of consumption. But I’m not even sure that is true: I have no doubt at all that an additional pound, euro or dollar is worth more to a person on low pay than to a person on high pay. If that is the case then relatively speaking as the excess consumption rises then the impact on emotional, intellectual and spiritual life increases until it is quite possible that it could induce a crisis in society, or in education and all through a lack of apparent meaning because consumption has become the god we worship. Does that sound familiar? The result is that over consumption gives rise to an increase in material will being and yet a loss in the overall sense of well being – call it happiness if you like. It is a phenomenon well known amongst those now observing developed economies.

Accepting constraints

It is my belief that the goal of human life is to achieve one’s potential: to seek to explore the possibilities available to you to the full within the constraints placed upon you. So, logically, you would want your area of achievement to approach the outer circle of your limit of possibility.

The clear implication of the model being proposed here is that the green area in the diagram is better for the person who enjoys it than the red area: it is not just that they appear to have more, they have come closer to fulfilling their potential for achievement, and that is their aim.

diag13

That though begs the question, is there a limit to possibility? And does that mean achievement is constrained? It is this question that fundamentally changes the approach used here from that offered by conventional economics at this time. Conventional thinking is that the individual should think their consumption unconstrained, even though the reality is otherwise. In the economics proposed here is the individual is recognised to be constrained they then recognise a different goal – which is to work to achieve within the constraint. And, of course, the answer is that the individual is constrained, and there is a limit to possibility that they must accept.

To some degree this is internally imposed by our finite nature.

It is also externally imposed. The simple reality is that we cannot consume without limit. The world is finite. Like us it has a beginning and an end. Of course, like us it also has a capacity to regenerate itself. But ultimately the laws of entropy apply: there is a limit to what is possible.

The calculation of that limit at a point of time would be complex, and has exercised me much over the years. Variables in the question would include some things unknown (which adds to the complexity) such as the relative age of the world. If it is now 99.9% through its period of human habitation we need not worry too much about human exploitation of resources: there will be enough to go round for all of us who remain. If, as most of us would I think hope, the life span for humans on earth might be somewhat longer than that then we might well take a different view. The state of biodiversity, the number of people on earth, the amount of energy we might receive from the sun and our ability to convert it, the state of our knowledge, both technical and in the form of wisdom (which I think much undervalued) have impact, and so on. I’ll not seek to develop formulas here: suffice to say that however they fall out it is clear that at a point of time we will only have claim on a limited proportion of the material resources of the world if we are to leave the world intact for those future generations we hope to follow us.

In that case it is obvious that if we define our limit to achievement as involving the best available use of the resources available to us within the external constraints that are imposed by our own finite nature and the finite nature of the world then maximising our achievement within that constraint is not something that puts us in conflict with that finite world, it does instead mean we work with that world to realise the best that is possible in life. Seeking more within the constraints of the circle drawn here is not therefore a negative exercise – it is a positive one of achieving personal potential in a way that does not cause harm.

Two further assumptions then need be made. The first is that if this is the case the available resources of the world should be allocated equally subject to the impact of geography, which is a component factor in distribution of the benefit of those resources.

The second assumption informs the first, and is that no one has an a priori claim to well-being over another person, which is a way of saying that equality of opportunity is important, even if equality of outcome cannot be achieved.

Given these two assumptions it follows that there is a fixed material amount of resource we may each enjoy at a point in time. That defines a practical limit to achievement.

Inputs and outputs: best in balance

It is important to note that the area of achievement (C – marked in red  in the previous blog) is more complex than initially shown. It is in fact a composite of interaction at two levels. First there is an area of achievement that represents the person’s contribution to well being: what they produce, what they give, what they share with others. There is a second area: what they get from society, be it material, emotional and so on. Of course one would assume they are additive and that can be the case. I enjoy my work. In the process of work I both hope I create benefit for others; I do definitely benefit myself. But the process can also be negative: a person can have constraints placed upon their ability to achieve, whether by law, lack of resources, failure to learn, lack of support, or sheer lack of purpose (the apparently brilliant person who simply wastes their talent for reason of having no idea how to focus it on anything). I won’t explore this aspect of constraint now. I mention it to make clear that the area of achievement is more complex than a matter of totting up a scorecard. The area of achievement is the combination of what are in effect outward and inward flows resulting in a compromise result.

The following diagrams illustrate this for the moment:

diag11

Here the red area is the person’s own desired achievement. But society pulls the person in quite different ways. This person clearly seeks intellectual achievement: society (the blue area) pulls them in the direction of material well being. This might be the academic who goes to the City. And it is clear that this person’s family attaches emotional reward to that material success. Neither society or the individual themselves is giving sufficient attention to the person’s purpose: they are in poverty here in both diagrams.

Combine the tw0 and you get an area of actual achievement something like this:

diag12

The intellectual achievement of this person has been muted: their material success enhanced. Their own conflict at the consequence reduces their emotional sense of well-being: they cannot respond to the input they receive because that input from others demands of them a response they cannot wholeheartedly give. They remain confused as to their purpose, and at risk in this area of feeling meaningless. The resulting conflict that means they neither achieve what they desire or what others desire of them, and as such actually overall are diminished in the benefit they secure from what they do compared to either input position might reflect that lack of purpose.

The key point is, once again, that balance is better. If those surrounding an individual can enhance what the individual has to offer and encourage it to flourish they will clearly be better off. If they (individually and collectively) cannot do that then the outcome detracts from the individual’s well-being. That may be obvious. I suggest the diagrams help make it clear.

Balance is best

The reality is that  once a person has escaped relative poverty as described in the previous blog they are almost certainly going to be better off when their activities result in reasonably balanced achievements. I could do the maths to show why that is true: I won’t here, not now. These diagrams suffice. The person possessing the ellipse in this diagram (which are now smoothed for ease of presentation and with area C, the consequence of action, being highlighted in red) is better of than the person in the one that follows:

diag9

The first person may not have the peak experiences that the second one does with regard to both spiritual and material well-being but nor are they in relative poverty, or even life threatening destitution in any area of their life, but the second person is in that situation.

In fact, it is also possible to say that this person is better off than the person whose diagram follows:

diag10

Balance is best even when absolute poverty is avoided.

Plotting people

In the last blog a model of absolute and relative poverty was developed, leaving plenty of space over for varying states of prosperity to be recorded. All of which then begs the question, where am I on this diagram? Am I achieving, or not?

I think this can be plotted, but I would add straightaway that this plotting is subjective. It might be done by the individual themselves. It could be done by someone else. In either case the result is subjective because the criteria for assessment will always be subjectively chosen in the first place.

This plotting process is helped by a desirable characteristic of a circle, which is that it offers an infinite number of radii that can be drawn within it. The reality is that out of the enormous range of choices available we will choose a very limited range of options to try. That is one of the characteristics of being constrained, if only by time, which this model explicitly recognises. For each option that we try a radius could be drawn from the centre of the circle indicating the range of achievement we had reached. Analysis could be done on those choices. I am not pursuing that line of thought now. Instead, I want to draw a line joining a person’s achievements together. This becomes their area of achievement. It might look like this (and is described as C, the consequence of actions):

diag7

This is a person who is materially sufficient: they have enough to live on. They are largely emotionally satisfied. They have only two areas of relatively limited emotional concern. Their intellectual life is constrained, but only partly. They are however suffering a substantial lack of purpose and this is creating a serious threat to their well-being because they have moved into an area of absolute deprivation.

This situation is easy to translate to the reality of life as we see it. There are very many people who are materially well off and emotionally supported and who can apparently interact with society perfectly well who are nonetheless in crisis. The indication of this malaise in a person’s spiritual well being is relayed through anxiety, stress and ultimately the threat off or actual practice of suicide.

The importance of the model presented here is immediately easy to see. Conventional economic models only relate to material well-being. This model defines well-being in a very different fashion whilst (as I will show in due course) being able to handle the issues that a conventional economic model addresses. The implications will be explored later. The importance should be noted now.

What the model lets us do is assess relative well-being with comparative ease. For example, this person’s life is obviously unbalanced:

diag8

They are clearly materially well off. They have very poor social relationships despite that. It may well be that their sense of meaning is diminished as a result.

Adding values

Having created the quadrant model we can add some more depth to the model.

First there are two critical additional circles to draw. The first is tightly defined and will, for most people, be insignificant because of its remoteness. This is an inner circle which indicates absolute life threatening poverty. This might be caused by hunger, emotional isolation, an inability to communicate, the failure of your purpose: all can be life threatening (sometimes making people take their own lives). If a person’s level of experience is reduced to this level of achievement then they are at imminent risk, probably of death. Urgent action is needed.

This state of being is indicated by this inner circle, marked A for absolute poverty here:

diag5

Thankfully for most people most of the time this is not an issue: they are surviving at a higher level than this. But they can still be in what society would define as relative poverty; their well being is below that which it is generally considered to be necessary to achieve a reasonable standard of living. So this justifies the addition of a second circle, between that which represents absolute poverty and that which represents a person’s potential achievements. It is shown here marked R for relative poverty:

diag6

There are now three concentric circles. The innermost circle, marked A represents absolute deprivation. The area that surrounds it, marked R represents relative poverty. The area between poverty and a persons potential represents, for now, relative abundance

More about the quadrants

I stress that the allocation of space to quadrants referred to in the previous blog is an abstraction from reality. In practice most things most people will do most of the time will have some elements of more than one area of need contained within them. So eating in isolation may just be material satisfaction (although even then some intellectual curiosity about the food may arise). As soon as eating becomes a communal meal it has an emotional element too. Some meals are ritualistic: they are incorporated into the process of searching for meaning. I think my point is clear: don’t assume we single task. We never do, but it makes the diagram easier to think about things if drawn the way I have. This is what modelling requires.

I’m sure some will wish to challenge the choice of quadrants: all I can say is that based on much reading over many years in many cultural, faith and wisdom traditions these four seem to be recurring themes. They fit Maslow’s hierarchy of needs, for example (and don’t worry that he has five such needs and there are only four quadrants: this model will develop).

Representing need

The circle can by itself represent these ideas but that is not enough to take us very far forward. So I next recognised that each of us has real needs, and each of us has at the same time the potential to meet these needs in others. There are four of these needs. They split the circle like this:

diag3

The axes are deliberately diagonal: I hated the idea that we might be back on the conventional economist’s graph already. We’re not. Each of these quadrants has equal positive value for example, but by using horizontal and vertical axes this might not be obvious.

Each quadrant represents a type of human need. One is for material well being. We all need air, water, food, shelter, clothing, warmth, and more besides to survive. In our modern world we believe we need much more than that.

Another is for emotion. Just start with the needs inherent in a person’s relationship with their mother and move on from there: there is no one who can survive as a healthy human being without emotional relationships.

Next there is a need for intellectual development. We all need language. We must learn to provide for ourselves within the society in which we live. We are curious.

And, perhaps most contentiously (although it seems to me absolutely unambiguously), a person has a need for meaning. I call that their purpose. It could be called a spiritual need. I would be happy with that, but know that might alienate some, and I think purpose, in any event more encompassing. Either was, in I stress that it is definitely not religion. This is the quest for the answer to the question ‘why am I here?’ Unless that question is addressed it seems pretty unlikely to me that a person can achieve their potential.

You can lay them on the diagram like this (using M = Material, E = Emotion, I = Intellectual and P – Purpose):

diag4

The allocation of the quadrants is arbitrary. It’s just the one I use. Another would do just as well.

Living constrained lives

The unconstrained two axis graph cannot adequately describe the world we live in. It implies endless possibility. That does not exist.

Suppose for a moment we view ourselves as constrained in whatever we do. How might we represent that?

I would draw a circle around myself:

diag2

You could put a dot in the middle if you like to represent the centre of your being. I haven’t.

But what is clear from a diagram such as this is that the human being is constrained. There is a limit to their potential. This comes from limited ability, limited resources within the world, limited time (we all die, after all), constraints others impose on us, and so on.

It need not depress us. It seems apparent that human beings have, do and will continue to live goods lives in constrained circumstances. The question that economics needs to answer is how that is possible, and how the process of exchange enhances this possibility.

This is the focus of attention for my thinking.

Why do we need a new economics?

We need a new economics to replace this diagram:

diag1

The two axis graph is used as the basis of explanation when beginning to teach current approaches to economics.

The implication of this diagram is clear: unlimited possibilities exist in the northeast direction to which the arrow points. The further you move in that direction the better it is implied your life will be.

Long ago I realised that this is not true. The life of unlimited consumption which this diagram suggests possible is not attainable.

The earth is constrained. We can only consume its resources without limit now if we ignore the consequences for the future.

We are constrained. Our lives are finite. We want to so much more than the consumption which, inevitably and without comment,  these graphs  suggest desirable.

When I was 19 I realised that a graph like this could never explain the complexity of the world in which I lived. By the time I was 21 I had learned enough economics to know that others shared the opinion. Despite that thirty years later the basic philosophy that more is better that is implicit in that arrow heading off to the North East in this graph remains the absolute bedrock and foundation of our economic thinking.

This graph has a lot to answer for. I have concluded that it is beyond redemption. We cannot build a new economics unless we can build an explanation of the world that can be visually explained in another way.

What follows is my attempt to build that alternative explanation.

A word of explanation

A word of explanation concerning my reasons for creating this blog is needed.

I already have a blog, with a significant number of readers. That is the Tax Research blog, and as its name suggests, it’s mainly about tax, and how to create tax justice for ordinary people in the UK and developing countries: justice they are denied at present because of the existence of tax havens and the abusive behaviour of multinational corporations and the lawyers, bankers and accountants who provide them with tax avoidance services.

This blog is about something different. It’s about economics: a new type of economics, and in particular a new economic theory. They audience may not be the same. And in any event, since this blog is about the production of a single idea, longitudinally over time, it needs to have space dedicated to it, and it alone.

The idea I want to explore is a simple one. It is that we humans need to give up the idea that we maximise our happiness, wealth or income, all of which ideas are implicit in the economics which governs behaviour in our society. I suggest that we need to practice the concept of having enough instead, but that in the process we will in fact be better off. If I could explain why in a sentence or two I would; it would save me a lot of time. The fact is that, at least as yet, I can’t. Hence this blog.

So why do this now? And why do I think it’s my job to do this? The questions are linked. The answer requires a little background information, but since I like to know who is putting ideas to me (which means I thoroughly dislike the anonymity which characterises much of the blogosphere), please excuse some personal explanations for a moment.

I am 51 when writing this. I trained as an economist at university. Except I’d read E F Schumacher’s ‘Small is Beautiful‘ before I went. And E J Mishan’s The Cost of Economic Growth. And quite a bit of Keynes. You could say I had a sad sixth form, but I’d disagree: I was a nascent green in the making. So university economics was a bit of a shock. Within a term I’d realised that it did not offer an explanation of what happened in the world. It was quite clear to me that people did not, and could not, behave in the ways described by those teaching economic theories to me. Very obviously this ‘positive economics’ I was being taught was in fact highly subjective, and sought to impose a system of behaviour, not describe one.

The result was a crisis: I switched to joint honours with accountancy but stuck to the course as a whole; it provided too many opportunities to be editor of the university newspaper, partake in politics and much more besides to forego. So I graduated as an economist with some accountancy on the side, and became a chartered accountant.

Then at 25 I had to decide, which was it to be: accountancy or creating a new economics? I registered for a PhD. I went to the first TOES – ‘The Other economic Summit’ progenitor of much that has happened in this area – and I started a firm of accountants at the age of 26. Accountancy won. I’m glad it did. My ideas simply weren’t good enough then. I needed real world experience to let them develop.

But I never ignored my interest in a new economics. I’ve been working on it for twenty five years now, off and on, but pretty much on the same course throughout. This blog will reflect, and I hope develop, that thinking.

But why now? Partly because I’m 51. Half a life time thinking about this is long enough. Now it is time to give this stuff an airing.

Partly because I’ve found that I have a voice: my work on tax has given me that.

Partly because it is very obvious that there is a need for a new theory of economics. As Tim Jackson said in his introduction to his report published in March 2009 for the Sustainable Development Commission :

What we still miss from this is a viable macroeconomic model in which these conditions can be achieved. There is no clear model for achieving economic stability without consumption growth. Nor do any of the existing models account fully for the dependency of the macro-economy on ecological variables such as resources and emissions. In short there is no macro-economics for sustainability and there is an urgent need for one.

Is what follows that model? I’m not the person to answer that. It’s just my contribution to debate, and as I’ve discovered from my work on tax justice, making such contributions can both be worthwhile, and can change things. If for the better then making the effort is worthwhile.

Mainly though I am writing this because I feel I have little option but do so. The choices I made, the life I have lived will not be available to my sons. James and Thomas are 8 and 6 (or nearly seven, as I am reminded, often). I was brought up in a world where most believed there were no constraints. They were wrong. Very wrong. We are very, very constrained. But we have still to work out how to react to that truth. That model of economics I was taught at university is the main impediment to that absolutely essential process of change. It still says that growth is good, and that there is no alternative.

I believe there is an alternative. I have to believe that. If I there is not then I can’t imagine the problems that might be faced by people around the world as my natural lifespan might draw to a close, and what inheritance I might leave to my sons, and all others of their age.

So this blog is really for James and Thomas, and all of their generation.

But as with just about everything I do in life it’s only possible because of the love, support and encouragement I receive from Jacqueline, my wife. So it’s for her too, with thanks.

And what is the aim? Simply this: to create a new economic model that can be taught as a system, that can replace the dire view of life that is presented in schools and on undergraduate university courses almost everywhere as if it were the truth about how people and businesses operate: that they really do profit maximise in a perfect and unconstrained world in which the gifts of nature are free and boundless. Let me assure you: I know that economists have tried to overcome the constraints these assumptions impose in higher level work. But that really does not matter. It is the basics that are taught in year one that people remember of their economics, and that is that life is all about profit and that unlimited growth is good. The aim of this blog is to help change that. It’s a big task. When I decide I’ve reached the end of the tale it will be for you to decide if I have succeeded. I can but try.

Richard Murphy

Downham Market, Norfolk, UK

June 2009


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