Most economists seem to be stuck in an an orthodoxy rut, leading many to wonder why we take economists so seriously:
Why all this panic, though? Aren’t economists in charge of it all? Yes. And this is the problem. These highly skilled people carry on, though they exhibit not only a lack of foresight but an astonishing lack of hindsight. Why on earth are they taken seriously when they keep getting things wrong? […]
Economics is not a science; it’s not even a social science. It is an antisocial theory. It assumes behaviour is rational. It cannot calculate for contradiction, culture, altruism, fear, greed, love or humanity at all. […]
This is economic sense as it is practised by the deliberately dumb, those who bow down before the calculation that we can have even Spanish levels of youth unemployment (40%-50%) if it reduces the deficit by the next election. Meanwhile, if you have a job, do save up for your pension, because they have gone down the pan.
“Orthodox” economics has led to the incredible increase in inequality, and to the Global Financial Crisis and Great Recession. Now the same economists want to tell us that the only way out is for us to all tighten our belts – even though their solution defies history.
As Paul Krugman puts it:
“My spending is your income, and your spending is my income. If both of us try to slash our spending at the same time, then we are also slashing our incomes, so we don’t actually end up saving more.”
“Ending this depression,” he writes, “should be, could be, almost incredibly easy. So why aren’t we doing it?”
As Ha-Joon Chang of Cambridge University shows us, history knows austerity doesn’t work – in the Great Depression, the 1982 developing world debt crisis, the 1994 Mexican crisis, the 1997 Asian crisis, the Brazilian and the Russian crises in 1998, and the Argentinian crisis of 2002.
On cutting social spending:
From 1945 to 1990, per capita income in Europe grew considerably faster than in the US, despite its countries having welfare states on average a third larger than that of the US. Even after 1990, when European growth slowed down, countries like Sweden and Finland, with much larger welfare spending, grew faster than the US.
On tax cuts for the rich ‘wealth creators’, and deregulation for business:
this was tried in many countries after 1980, with very poor results. Compared to the previous three decades of higher taxes and stronger regulation, investment (as a proportion of GDP) and economic growth fell in those countries. Also, the world economy in the 19th century grew much more slowly than in the high-tax, high-regulation era of 1945-80, despite the fact that taxes were much lower (most countries didn’t even have income tax) and regulation thinner on the ground.
The argument on hiring and firing is also not grounded in historical evidence. Unemployment rates in the major capitalist economies were between 0% (some years in Switzerland) and 4% from 1945-80, despite increasing labour market regulation. There were more jobless people during the 19th century, when there was effectively no regulation on hiring and firing.
Where Keynesianism has worked, instead orthodox economics leads us into a spiral of recession, and a continuing wealth transfer from the many to the few. We end up with programmes like the UK’s where jobseekers are forced to work for private companies for free as “work experience” – or risk losing their dole. Which has ended up with stories like the bussed-in unpaid guards of the Queen’s Jubilee River Pageant being forced to sleep rough under London Bridge before a 14 hour rain-drenched shift in a plastic poncho, and then being abandoned in the dark in North London to camp out in the rain.
And stories of how the public sector cuts are hurting those who are already vulnerable. (Will we get such stories in our papers?)
Michael Meecher, UK Labour MP has an alternative source of funding for the public sector plus a stimulus. If the richest 1000 people in Britain (the 0.003%) paid a capital gains tax on the £155bn increase in wealth they’ve had since the GFC, there’d be a fund to create 1.5 million jobs. That would really kick-start their economy.
There are other economists who think that the likes of Paul Krugman and other neo-Keynesians – while better than the Austerions – still have it wrong. Professor Steve Keen would have a Jubilee bond to break us out of the debt that he suggests is the cause of stagnation, deflation and depression. Essentially instantly inflating us out of the problem, there still seems a fairly strong consensus of the need for greater regulation and less cheap debt among the non-Austerions – versus those who are just desperate to get us back to Business As Usual.
But whether Business As Usual is moral is a question we need to ask:
Do we want a society where 50% of young people are kept out of work in order to bring the deficit down from 9% of GDP to 3% in three years? A society in which the rich have to be made richer to work harder (at their supposed jobs of investing and creating wealth) while the poor have to be made poorer in order to work harder? Where a tiny minority (often called the 1% but more like the 0.1% or even 0.01%) control a disproportionate, and increasing, share of everything – not just income and wealth but also political power and influence (through control of the media, thinktanks, and even academia)?
I hope to hear discussion of all these ideas from some of New Zealand’s more free-thinking economic types at The Voyage tomorrow. Bernard Hickey certainly has some different ideas on how to structure our economy; Rod Oram is no fan of Bill English’s slash, burn and sell economics; and Rick Boven recognises the importance of the environment in our (and the world’s) economic future, as we pass tipping point for our unsustainability… It should be a great event.