Limits govern everything – from the speed of light to our ability to absorb oxygen or withstand heat. The art of operating within the tolerance thresholds of the material world is what keeps roofs above our heads and bridges standing. Yet, we blithely disregard this at the level of the whole economy. When Daedalus, the Athenian master craftsman, flew, it was a triumph of intelligently crafted ambition. The fall of Icarus, his son, when he failed to respect the heat tolerances of the wax and feathers keeping him aloft, is a lasting monument to fatal disregard of material boundaries.

Britain's economy is in the grip of an Icarus complex. It touches everything from, appropriately, the debate on aviation expansion, to our increasing dependence on fossil fuels and the historically unprecedented scale and speed of tropical deforestation driven by over-consumption.

At the micro level, engineers learn to work within the thresholds of the material world, but at the macro level economists do not. Their models allow them to externalise the cost of failure. However – as with pyramid-selling schemes – this only delays and makes larger a later, system-wide collapse. The macroeconomics practised by government remains clueless with regard to any theory of optimal scale. Yet, as finance and the sub-prime mortgage market discovered, bigger often doesn't equal better.

A straightforward proposal logically follows: the economy should operate within the biosphere's thresholds, its ability to absorb our waste and replenish its productivity. Good estimates are available for what this means in terms of most of our planetary boundaries, from the climate to forests, farming and fisheries.

Once this simple principle is adopted, it introduces an urgent and immediate decision tree. If something like a new airport runway, or expansion of fossil fuel extraction, is going to take you closer to, or further beyond, one of the biosphere's tolerance thresholds – such as potentially runaway climate change – you branch off and do something else. In a world of rational policy debate that would mean no enlargement of Heathrow, or having to identify compensatory carbon savings elsewhere. The latter is not as easy as it sounds as some official projections for expansion lead to the aviation industry using up the UK's entire fair global share of safe carbon emissions before too long.

All the tax breaks and subsidies given for gas fracking or offshore oil would be redirected to beneficial alternatives.

If you reject the notion of living within our environmental means and the immediate choices it implies, what is the logical counter-proposal: that we consume and produce waste beyond the biosphere's ability to absorb and replenish? Such an approach relies upon magical thinking. Yet this is the proposition on which every major economy operates, because none seeks scientifically to identify and operate within the best estimate of its limits.

A peculiar self-absorption allows us to think we can exist separately to the laws that govern the physical world. In its survey of economists for 2014, the Financial Times asked a question about the likely "sustainability" of the UK economy in the year ahead. In it the meaning of sustainability was completely drained of any sense of the environment. It referred only to whether "recovery" – growth in consumption – would continue.

Strangely, the economics of austerity is held up with constant reference to more ideological, self-imposed limits: limits to what we can expect from health, education and other public services, of the pay we can expect or the age at which we can receive a pension. Expectations and ambitions for what the public sphere can achieve are constantly restrained. The only area which knows no bounds in policy terms is the assumption of unlimited consumption growth from finite ecosystems.

There's an unspoken judgment that to acknowledge limits is defeatist, rather than a mature recognition of basic operating conditions. But, as any architect or civil engineer will tell you, the art, precisely, is in discovering what can be achieved creatively given the tolerance of your materials. Working with physical, material limits doesn't block creativity, it sets it free – think of the sound unleashed from wood and gut crafted into a violin, the sight lines of a Frank Gehry building or a statue in stone by Michelangelo, Moore or Hepworth. Push, yes, but don't break.

Concern for the environment doesn't mean a hair-shirt rejection of the material world. On the contrary, it calls for a healthy relationship with it, based on more respect, knowledge, creativity and care. Yes, it rejects wasteful, debt-fuelled, passive consumerism and calls instead, for a more engaged, hands-on "new materialism".

A green economy does this by insisting on quality over quantity, repairability over disposability and by treating people as intelligent agents, capable of learning about, using, maintaining and remaking material objects that endure. In an economy that recognises and revels in the real world, and more active, creative production, there is far more potential for novelty and pleasure.

The popular retelling of the Icarus myth tends to overlook the achievement of Daedalus, who not only flew but landed safely because he understood limits. Take flight, says the moral of the story – soar – but find a way to do so that doesn't melt your wax.

A new edition of Andrew Simms's book Cancel the Apocalypse is published by Little, Brown next month. He works for Global Witness and is a fellow of the New Economics Foundation