Why our times desperately need the economics of optimism

Economics can be categorised and divided in a number of ways, but one the most fundamental divisions in economics is between that of the economics of optimism and that pessimism. Quite simply the first tells you how to do things and the second why should not attempt to do things. The former is the economics of change, the latter is the economics of no change. Usually the first is associated with left of centre politics and the latter with right of centre politics. Possibly the best example of the latter is the current policy of austerity practised by the Conservative government. They can say no too many desirable things such as more spending of health care on the grounds that there is no extra money to finance such spending. In the words of the Prime Minister Mrs May,  there is no ‘money tree’. They prioritise sound finance over other social goods. In contrast the social democrats or socialists would ask the question, how can we raise more money to finance increased spending on health.

Usually the economics of pessimism holds sway in economics, so I will explain that first. One of the earliest exponents of this school was the clergyman Thomas Malthus. The originator of the theory of diminishing returns. He stated quite simply that there was a finite quantity of productive resources and if the population increased indefinitely the same quantity of wealth would be divided between more and more people and so each successive generation would have less than the previous. There was he believed a  saviour which prevented the mass impoverishment of all, a natural system of checks and balances that kept the population numbers in check. These were disease, famine and war.

Today’s economists of pessimism believe that there is a similar limit on to the good things in life and for the sake of the well being of society the poor must be denied a fair share of these good thins. There is just not enough to go around.  Far better that wealth is restricted to the deserving few, the wealth creators, without whom we would all go hungry. These are the billionaires that the popular right wing novelist  Ayn Rand lauds in her books. Wealth is the just reward for their zeal and enterprise. She does not deny that the masses deserve some share of the  wealth. However all they are entitled to are the ‘crumbs’ that fall from the rich man’s table. What these economists call the trickle down theory.

In the simple story told by Ayn Rand, if the super rich were prevented from enjoying their obscene wealth, they would cease in their work of wealth creation. In one of her books she describes how the billionaires disappear from society and go into hiding. Without their enterprise societies collapse and thousands of the poor starve to death. Only when the billionaires cease their strike do things return to normal and the surviving poor are now able to benefit from that minimal income that the generous billionaires think they deserve.

There is interestingly another strand to this economics of pessimism, traditional Catholicism of the Catholic ultras. This although a Christian philosophy of life and economics, is in practical terms is little different from that of Ayn Rand. Mankind they believe is corrupted by original sin and human society is but a corruption construction made by sinful man. Any attempt to reform or improve this damned and corrupt society is doomed to failure. Only God has the power and knowledge to create the good society, or heaven on earth. Any attempts to redistribute are income doomed to failure by the very nature of this dysfunctional society. They are likely to have the unintended consequence of making things worse for all as increased taxes to will add to the costs of production so making businesses inefficient so reducing output making all poorer.  All that is permissible is individual acts of kindness or charity. In a corrupted society inequality is inevitable, as are the vast inequalities of wealth and income. Changing or improving a society of people damned with original sin is impossible and should not be attempted.

Although the economics of pessimism has usually been the dominant mode of economics, there was a brief period during the 1950s and 60s, when the reverse is true. Usually this philosophy is associated with J.M.Keynes, but there were others such as Michael Polanyi. Briefly economic practice was directed to making and preserving the good society or the welfare state. Economic policy making was intended to  five combat what William Beveridge defined as the “Giant Evils” in society: squalor, ignorance, want, idleness, and disease. Perhaps for the first time in its history the economy was directed in a manner which benefited the majority of people rather than the lucky minority.

Then when the economic crisis of the 1970s hit the Western economies it was easy for the economists of pessimism, to demonstrate that the crisis was caused by the profligate spending urged on governments by the economists of optimism.   Since then the pessimists have prevailed.

Now when faced with a crisis in Western economies, economies that fail to generate sufficient employment and income to meet the needs of their people, government policy can be summed up as either ‘can’t do’ or ‘won’t do’. As the governments have shown little interest in the welfare of their peoples, populist movements have developed. Movements that threaten governments with their ideology of economic pessimism. European right wing populist movements with the exception of the British, are threatening to intervene in the economy to protect and maximise the welfare of the people. If governments persist with their policies of ‘can’t and won’t do’, they will be replaced by those that can. What the populists of both the right and the left espouse is an economics of optimism or more simply the economics of ‘can do’. While some doubts must be expressed about the politics of the populists, what they do believe is that governments need an activist economic strategy. If the National Rally of Marie Le Pen ever attain power they will find that they need to intervene in business to protect the welfare of the people of France. Employment protection measures will be re-introduced, employers will find it impossible to pay less than a living  wage. Taxes will be increased on business to finance health and social care. Policies that are normally associated with the left. Societies may become less free and more intolerant but people will accept that if it means a better standard of living. What is forgotten is that the popularity of Hitler in Germany came improving the material well being of the German people. In return they tolerated the cruelties and barbarism of the Nazis.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s