The recent economic collapse encourages us to understand what just happened and why so we might extricate ourselves from the current crises and avoid such a calamity in the future. An interesting observation is that while the collapse was anticipated by ecological economists (Herman Daly, for example), biophysical economists (Bob Costanza), energy analysts (Vaclav Smil), oil geologists (Colin Campbell) and historians (Kevin Phillips), it was a complete surprise to neo-classical economists (for example Phil Gramm and Alan Greenspan). This despite the irony that Gramm and Greenspan share culpability for the collapse. In their own words:
“I made a mistake.” Alan Greenspan testimony before Congress, October 23, 2008. The Wall Street Journal article continues: “In his prepared remarks to the committee, Mr Greenspan said he was in “a state of shocked disbelief” about the breakdown in the ability of banks to regulate themselves and, without putting a number on it, predicted a significant rise in unemployment in the coming recession.”
“You’ve heard of mental depression; this is a mental recession …We have sort of become a nation of whiners” John McCain’s Economic advisor and former senator Phil Gramm in an interview with the Washington Times, July 9, 2008. The recession officially began in the fourth quarter 2007.
Secondly, the science of Anthropogenic Global Warming is robust and there is a lack of science supporting denial. One wonders then what motivates people to invent nonsense to support the denial view. It turns out that in addition to the bad science there exists a large body of global warming denial argument based on bad economics. While economic arguments are not relevant to any scientific discussion in any event, the nature of these arguments and the fact that they are even proffered at all gives us a hint as to why deniers are motivated (and why they are being generously paid) to make stuff up.
Surprising to an engineer or “hard” scientist is that economic study is a collection of disparate “schools” of thought which generally contradict each other. As we have shown previously using the example of the recent housing bubble, we seem to be able to find economists who will support almost any opinion, such as that the housing bubble existed and its bursting was imminent (Shiller ) and that it did not exist at all (Smith and Smith ). The Smiths were clearly wrong and one wonders if they’ve ever come clean or simply made excuses.
I thought it would be interesting to compare two assessable and divergent economic points of view: Gregory Mankiw’s neo-classical views reflected in his popular text book Principles of Economics, 2007, and Herman Daly’s ecological economic views reflected in the text book he wrote with Joshua Farley titled expectedly Ecological Economics, 2004. While they don’t reflect extremes in economic thought by any means, I selected these two principally because I happen to own them. Daly is the founder of ecological economics, was a senior economist with the World Bank and is Professor Emeritus at the University of Maryland. Mankiw is a neo-classical economist, who served as President George W. Bush’s economic advisor, and is currently a professor of economics at Harvard University. As Bush’s economic advisor, Mankiw has a share of the blame for our current economic mess.
Whenever I read a non-fiction book, I begin with the front and back matter: the introduction, table of contents, acknowledgements, references, endnotes and index. If there are no references, I generally don’t read the book because by definition the material will not be verifiable.
As it turns out, Mankiw’s book, surprisingly, contains no reference section and no obvious references to the economic literature. There are references to some articles and commentary in the main stream media but these are themselves opinion and not information. By contrast, Daly’s book contains a reference section as well as generous references throughout the text as footnotes in addition to referencing my two favorite economists Frederick Soddy and Nicholas Georgescu-Roegen. Mankiw’s book presents this problem for students: some bits of it may be correct and some may be wrong but we don’t know which bits are which and no easy way to find out. It is strictly speaking for the lack of references a useless text book. By contrast, I’m reading Dan Simon’s text book Optimal Estimation for work. Simon provides a wonderful and rich reference section at the back of the book but he also provides an appendix which gives an historical perspective on the subject matter and another appendix which describes other books on the topic. This book is highly theoretical and that book has practical applications, and so on. Simon’s book reflects quality. There are several very good reasons for insisting upon good references in a text book. The first is so that the student can verify the material contained in the book. Secondly, the student might need to do a research paper on a specialized topic and the reference section would provide the sources a student needs to learn more about a particular topic. The third is a matter of attribution. Peter of Blois wrote (cited by Simon): “we are like dwarfs on the shoulders of giants.” Attribution is simply a demonstration of integrity.
As I generally have some reasons I’m exploring a field of study, the index entries can tell me if the book covers what I may be interested in. I would expect an introductory college level text book on economics would contain these entries: energy, material, thermodynamics, entropy, pollution, agriculture, production, or similar. On this basis, Daly’s book offers considerably more insight. Mankiw’s book strikes out again.
Considering our motivation to understand the recent recession, the following entries are also of interest: recession, depression, inflation, deflation, housing bubbles, derivatives, credit default swaps, total credit market debt, and similar entries. Neither book scores well here.
In the future, I want to address a couple of topics which are well known to economics such as the tragedy of the commons and private property. Both books address the tragedy of the commons. As we might expect, Daly references the salient paper on the topic by Garrett Hardin, published in Science in 1968, and Mankiw does not. We can compare the treatment in both books against the original Hardin paper plus the considerable scientific progress on the topic since 1968. Another topic worth examining is Adam Smith’s invisible hand. Again, it is useful to compare the treatment in Daly and Mankiw with the original text in Adam Smith’s The Wealth of Nations.
 Robert J. Shiller, “Long-Term Perspectives on the Current Boom in Home Prices,” Economists’ Voice www.bepress.com/ev March, 2006.
 Margaret Hwang Smith and Gary Smith, “Bubble, Bubble, Where’s the Housing Bubble?” Preliminary draft prepared for the Brookings Panel on Economic Activity, March 30-31, 2006.