Greece and the Sceptical Economist

Three kinds of economics

http://www.neuerope.eu

From a glance at the media it would seem that there is only one economics, usually what is now termed free market or Neo-Liberal economics. People are familiar with the mantras of these economists whether it spoken by them or a politician. Mantras such as a country must live within its means and it must reduce its debts to a sustainable level as is constantly repeated in the debate on Greece. However economics can be divided into three separate schools, Neo-Liberal economics being but the most dominant strand in but one school of economics. What ever school economists belong to will determine their approach to the crisis such as that in the Eurozone and Greece?

Neo-Liberal economics derives from the school of economics that sees the economy as an integrated system that when working well maximises the welfare of all. Economists from this school will see their role as to explain how the system works and how to make it work better. Changes such as removing restrictions or impediments that prevent the free market from working at its optimum. This has lead to the emasculation of trade unions and worker protections,as each are seen as an impediment to the smooth working of the free labour market. A loss it is believed that will be offset by higher incomes the now more efficient workforce. Ideally there should be no restrictions on how and where individuals choose to work and how employers choose to use them.

There are other schools of economics within this school that sees the economy as an integrated social system that can be made to work for the benefit of all. Although disregarded by policy makers today, they are the Keynesian economists who believe that through intelligent government intervention the economy can be made to work for the benefit of all. Their concern is ameliorating the damaging effects of the trade cycle, that is the economy goes through a repeated series of bans and busts. In the upswing period they are determined to stop the worst effects of the boom,  which is inflation, by regulating credit; similarly they wish to avoid the worst effects of a recession which is unemployment by using various measures such as increasing public spending to stimulate economic recovery. This school is anathema to the Neo-Liberals who believe that any government intervention in the economy can only have a malign effect.

Next there are a group of economists who see the economy as working for only one privileged group and merely providing the majority with the means of survival. These are the Marxist economists of whom there are few today. At the core of Marxist economics is the labour theory of value. This theory at its simplest states that it is labour that in the production process that adds value to the product, but that added value is skimmed off by their employers the bourgeoise. This group take a disproportionate share of the added value (profit) leaving the worker with only the minimal means of income. Marxist economists advocate measures to reduce or eliminate the power of the bourgeoise to take a disproportionate share of national income to achieve a more equitable sharing of that income.

There is a third school of economics of which I am a member, we are probably the smallest of all the economic schools. These are the sceptical economists who believe that seeing the economy as an integrated social system that works as fallacious. (I use the term sceptic after the sceptical school of philosophy, whose most prominent recent exponent of whom was Nietzsche, from whom I take my understanding of scepticism.) This is not to deny that the economy does not produce goods and services that add to the sum of human welfare, but to see it as working mechanism or a well functioning social system is wrong. There was a film realised  in the 1965 about an air race from London to Paris that took place in 1910.  In it there was song about ‘Those Magnificent Men in their Flying Machines’ which included the words if my memory is correct, that these machines fly but I do not know how they stay up in the air. A sceptical economist has this view of the economy, we know that somehow the economy works but not exactly how. Parts of the system we do understand but not the whole, we even doubt if it correct to describe the economy as a system, we only use the term system to imply a something. What we deplore is seeing the economy as a mechanism that is capable of being perfected, that can be made the best of all possible economic systems, as is the claim of Neo-Liberal economists. Not that we don’t believe that changes cannot be made to improve the working of the economy but those changes will have only a limited impact. The revolutionary economics of the Marxists or Neo-Liberals who claim to have the ability to transform society and its human members we see as misguided. Economics is the science of small changes that have been proved to work not the messianic social science promising a better future for all.

Greece and the sceptical economist

Greece provides the perfect example of the fallacious nature of much of economics. When the financial crisis of 2008/9 came it exposed the frail nature of the Greek economy without its over dependence on foreign loans. The European Union (EU), the International Monetary Fund (IMF) and the European Central Bank (ECB) provided the loans Greece needed on the condition that it adopted a programme of austerity and embarked on a series of Neo-Liberal reforms. These reforms were to cut welfare spending, remove labour protections and embark on a large scale privatisation of state owned assets. After five years debts have increased to 177% of GDP, youth unemployment has reached 50% and many individuals especially pensioners have been forced into poverty. Despite the disaster that is now the Greek economy the EU insists that Greece most continue to follow the programme of austerity and Neo-Liberal reform. Even the election of a government opposed to austerity and the issuing of an IMF report saying that the continuation of the current policy will make it increasingly unlikely that Greece will ever repay its debts,has failed to make the EU change its policies. The Neo-Liberal politicians and economists that control policy making at the EU believe that in spite of the evidence to the contrary that the Neo-Liberal reforms imposed on Greece will eventually deliver. It is a matter of holy writ for these people that only the truly free market can deliver the best of all possible worlds.

A sceptical economist such as myself might point out to the failure of a similar radical Neo-Liberal programme in the former USSR. This programme of radical reform had such disastrous effects that some Russian nationalists believed that it was a programme implemented to deliberately weaken the Russian economy and nation. There was in the 1990s after the collapse of the communist system, the wholesale privatisation of state run businesses. The least efficient were closed for lack of buyers so creating large scale unemployment and poverty.  Those businesses that were bought were purchased at knock down prices from the state by the oligarchs (often former officers of the KGB), with the result that control of the economy was transferred from the state to the oligarchs to the detriment of the Russian people. Economic reform was introduced by a government that had no real understanding of Western society and economy and into a society that lacked the social institutions to make the reforms work. Instead of the free market reforms creating a new Russian liberal democracy, they created a new authoritarian state. All the old methods of repression are returning, political dissidents are confined to mental institutions or imprisoned. Poverty is still persists and it is no coincidence that Russian men have the lowest life expectancy in Europe.

Perhaps a phrase for describing the policy towards Greece would be Iraqi economics. When George Bush successfully conquered Iraq he ordered the destruction of the existing governmental system. He intended to create a liberal democracy out of the ruins of the old Baathist political system. Instead this overly optimistic programme created a political wasteland which has lead to a decade long period of internecine warfare, as the authoritarian government that existed was replace with nothing more than misplaced optimism that once freed the Iraqis would by themselves create a democratic state. The radical Neo-Liberal economic policies that have introduced to the former USSR and Greece have created an equivalent economic and social wasteland.

At some subconscious level of thought it does seem that the European politicians do seem realise that radical Neo-Liberalism can only be imposed by an authoritarian government. They have been trying to remove the democratically elected Syria government and replace it with one of technocrats that will do their bidding.

What the sceptical economist would have done is to work within the existing political system and with its leaders to adopt a gradual reform programme, consisting of those measures that would bring some amelioration to suffering of the Greek people.  The obvious one is some measure of debt relief, this would mean that the European banks that made irresponsible loans to the Greek government would suffer financial loss as their would the Greeks would be defaulting on their loans. However they would be paying their price for their irresponsible lending, which is what should happen in a free market economy. There would be no ‘big bang’ reform of the economy but a series of negotiated and sensible reforms. Reforms that would be made with the consent of the Greek political leadership and people. There would be sufficient incentive to reform as the downgrading of Greece’s credit status, would make raising international loans difficult and costly until the Greek economy showed signs of recovery. The reforms would be modest in scope, there would be attempt to destroy Greek ‘clientelism’ as it is one of the key elements of the existing society. Reform certainly of its worst features but recognition that it is part of the unique nature of Greek society. No attempt would be made to make it a southern European equivalent of Germany or free market Britain.

What I am trying to say is the politicians and economists of the EU should recognise the limits of their knowledge. They are the last people that should claim to have a knowledge of the ideal society and economy, as people in glass houses should not throw stones. One of the criticisms is that the Greek tax collection system was ineffective, as one writer stated it was as if the state was putting out a collection plate. Yet these European critics are in their own countries encouraging rich individuals and business corporations to avoid tax. Many business corporations locate their head quarters in Luxembourg, Ireland and the Netherlands to avoid tax. Soon the UK will be added to their number as our government is developing new tax avoidance schemes to encourage business to locate in the UK.

The sceptical economist has no one big answer to the problems of managing an economy, instead they have a series of small answers. These small answers are to be tried and if fail to be replaced by alternate measures that might work. What the sceptical economist recognises is the uniqueness of different societies, which come up with different solutions to solve common problems. Is the Greek system of ‘clientelism’ really much worse than the employment practices of the United Kingdom? If clientelism produces over employment, the Anglo Saxon free market produces under employment. Government departments in Greece may have been over staffed with political place men, but British business corporations such as supermarkets are staffed with the under employed, that is workers working on split shifts on low incomes, who desperate for extra hours of work  to boost their incomes. The Greek practice of clientism is far from perfect but so are the practices of the Anglo Saxon free market. What I want but don’t see is a recognition of the fallibility of social institutions and that what might work in one society does not necessarily work in another.

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