Economic model drives destruction
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Experts say the economy is broken, and it could take the planet down with it.
A new study led by sustainability experts from the University of New South Wales (UNSW) Sydney has concluded that the current economic system is driving both environmental destruction and social inequality.
The research, published in the journal Global Sustainability, critiques the foundations of neoclassical economics, arguing that many of its core assumptions are scientifically invalid and exacerbate global challenges including climate change.
According to the study, neoclassical economics, which underpins much of today's market-driven decision-making, is based on hypotheses that lack empirical support.
Neoclassical economic theory focuses on supply and demand as key drivers of production, pricing, and consumption.
It assumes that individuals act rationally to maximise their utility and that markets are efficient in allocating resources.
It supports the idea that minimal government intervention is needed, advocating for free markets and deregulation.
However, it often overlooks environmental limits and social factors, making it inadequate for addressing complex global challenges like inequality and climate change.
“Neoclassical economics is fundamentally flawed, bad science, and irrational in the common meaning of the word,” said one of the study's authors, Associate Professor Mark Diesendorf.
He says that it benefits powerful corporations at the expense of environmental and social well-being, calling for governments to stop using this framework for policy making.
The research specifically challenges ten key assumptions of neoclassical economics.
Among the assumptions is the belief that economic growth can continue indefinitely on a finite planet, and that Gross Domestic Product (GDP) is a meaningful measure of well-being.
GDP growth is strongly linked to increased material and energy consumption, which threatens the Earth’s life support systems.
The study also disputes the idea that market-driven mechanisms alone can address existential threats such as climate change, as well as the concept of 'trickle-down' economics, which claims current wealth distribution benefits lower-income groups.
Evidence from OECD countries shows that tax cuts for the wealthy have no significant impact on economic growth or unemployment but increase income inequality.
Neoclassical economics has contributed to poor government policies, such as reliance on markets to solve issues like climate change, which has not worked.
The authors advocate replacing these economic assumptions with a more interdisciplinary, ecologically sustainable approach.
They call for economic systems that prioritise ecological health and social justice over market efficiency and GDP growth.
Diesendorf emphasised that stronger government intervention, along with community involvement, is essential to addressing these global challenges.
The paper concludes that the current market system is insufficient to deal with the scale of issues like climate change and inequality, calling for a managed reduction in human consumption to balance environmental sustainability with improved quality of life.