Tag Archives: #economics

The Immorality of Current Economic Practice

Jeremy Bentham one of the more influential figures in 19th century economics was also one of the founders of the philosophy of utilitarianism. The foundational principle of utilitarian philosophy is that good actions are those that give the greatest pleasure to the greatest number. Those of an older generation of economists such as myself, will remember how utilitarian principles were used in the construction of market theory and in particular the laws of supply and demand. I think that utilitarian principles still influence economic theory and practice, although they have been modified with time. Welfare economics is still an accepted part of economic theory, a theory that tries to explain how the optimum levels of production can be attained in a particular economy. However the practice of economics has led to a very modified form of utilitarian theory, economic practice still aims at maximising the pleasure and happiness of people, but it is not always the maximising of pleasure of the majority, all to often economic practice can be directed at maximising the happiness of a privileged group.

Economic utilitarianism can now rewritten as follows,

happiness can only be maximised for the few through the pain and suffering of the majority’,

A recent example from business demonstrates this principle. Sir Phillip Green was only able to buy his third super yacht at the expense of his staff at BHS. There is  a rough equivalence between the money that he took out of the retail chain BHS and that which he paid for his new yacht. His yacht cost the jobs of 11,000 BHS workers. It can be argued that this one example of bad business practice is not representative of the theory of economics. However the most popular of current economic theories is supply side economics, which has been practised by both government and business over the past thirty years. This teaches that the major obstacle to maximising economic welfare are restrictions that the limit the supply of the factors of production, the principle factor being labour, that is people. Governments have since the 1980’s have successively removed employment protection legislation, so that today there are very few restrictions on how employers can use their workers. Given the removal of these protections Sir Phillip Green had few obligations towards his workers and could pass on his near bankrupt company to another knowing that he could avoid having to make redundancy payments and having to honour the pensions payments promised to BHS staff. This is not a unique example but just the latest in a long line of business owners of refusing to take any responsibility for their staff. If it had not been for the adverse publicity in the media and the hostile reaction of some MPs, his actions could have been put down to yet another failure of a UK business that failed to adapt to the times.

The name Ayn Rand is little known outside political circles, the media and the profession of economics.Yet this novelist cum prophet is the inspiration for much of current government policy.  What she preached was a crude social darwinism. The poor did not deserve to survive in society to which they contributed little. The poor through their low incomes and poverty demonstrate their unfitness to survive ,as they cannot even provide for themselves. In her novel ‘Atlas Unchained’ she sees the death of so many of the worthless people as a necessary means of social cleansing. The heroes of her books are the billionaires and the money men, those who through their own efforts have made millions. Any restriction on their activities such as  taxes on their incomes only makes society the loser, as it limits the creative and wealth making activities of these individuals.

‘Randian’ philosophy is applied to welfare policy. Those who claim benefits are part of the dependency class. These people who have come to depend on the state for their income and who in consequence have lost the incentive or will to provide for themselves. The harshest of sanctions are required to get this class of people into work, any suffering of benefit claimants is justified, as it the stick required to make this class of people work. This why the government can be indifferent to the suffering of those deprived of benefit for a number of weeks for a minor infraction of the rules. They don’t mind if these hungry and desperate claimants have to resort to food banks to survive, as they provide a useful example to others.  Hunger is the best spur for making people work.

Even in the benign 1960’s this malign philosophy was active within economics. At that time unemployment was around 1% of the workforce, it hovered around 100,000. People thought that the full employment of the post war period was a success. I believed that myself and was shocked to discover at university that there were economists advocating an increase in unemployment. They wanted the government to take action to increase unemployment to about 3% of the workforce. This they claimed would reduce the pressure of prices and cut inflation. Yet this was a time when the majority of people remembered the horrors of the Great Depression of the 1930’s. They found little support at first in government, because there was no desire to return to the 1930s and the misery of that period. Then for these economists the utilitarian maxim would have been

the happiness of the majority can only be achieved through the suffering of a minority’, now with ‘Randian’ philosophy dominating government it can be rewritten, as ‘the happiness of the minority can only be achieved through the suffering of the majority’.

This may seem an overly pessimistic assessment of government economic policy, when the majority of people are well fed, well housed and living well. The misery seems to be confined to the precariat, that is those in insecure low paid employment such as cleaners and shop workers. However the impoverishment is slowly seeping upwards. Large numbers of whom would have been the future well off middle classes, university graduates of whom large numbers are looking forward to an insecure future of low pay and insecure work. The government is actively working to reduce the privileges and protections enjoyed by the professional middle classes in their employ. Teachers and doctors are just two groups that are expressing discontent with the negative impact of government policy on there working lives.

There is no reason why economics should be directed by such a malign philosophy. Economic policy in the 1950s had the aim to maximising growth, employment and the welfare of the people. Apart from a small minority economists shared these goals. Only bad economics as practised today aims to immiserate the many and enrich the few.

Why are our leaders so stupid?

What puzzles me is why are people such as Donald Trump and Boris Johnson so popular. The first advocates the policies of a clown and the second pretends to be a clown to achieve political success.

When I was at school in the 1950s I remember being told about Columbus’s voyage to America. The Headmistress told us that it was a particularly daring adventure, as people at the time believed the world was flat and thought that Columbus was in danger of falling off the edge of the world. The  truth was very different as I discovered later. Columbus was an experienced sailor who knew about the fishing grounds off North America that European sailors visited each year that the Atlantic Ocean was bounded by a large landmass to the West. Also it was known at this time that the earth was round. The classical Greeks had realised that the earth was round because they knew there was a horizon, beyond which the eye could not see, therefore  the earth surface must be curved.If was the geographer Eratosthenes (276BC to 195/4 BC)  who calculated with an incredible degree of accuracy the earth’s circumference. It is highly unlikely that Columbus was unaware of that the earth was round. My teacher was typical of those of the time that believed that people of the past had a childlike understanding of the world, whereas in fact the opposite was true.

We assume today that our knowledge and understanding is superior to that of the past. Yet our politicians constantly disapprove this notion. In the USA Donald Trump is likely to become the Republican Party’s candidate for the Presidency and Boris Johnson possible future Conservative Party leader What both these leading politicians have in common is an anti-intellectualism, both of them in their campaigns seek to  appeal to most primeval of voters instincts. Trump blames the Mexicans for crime and wants to erect a wall to keep them out, and Johnson believes that Obama’s part Kenyan ancestry makes him anti British, because of the injustices the British inflicted on Kenyans during the days of Empire. To say that both these politicians are intelligent men who are just using anti immigrant and anti foreigner feeling to win support and that they don’t really believe what they are saying does these two men a disservice, they believe what they are saying. They are both populists who believe in simple solutions to difficult and complex problems, both of them personify the  anti-intellectualism which is dominant in the our society. The political dialogue in both countries is dominated by the anti-intellectualism of those such as the Tea Party whose policies are moving closer to the mainstream in both countries. UKIP a party that gets much media coverage seems to be campaigning for things such as ending the smoking ban in pubs. Sam Goldwyn once  said a movie never lost money for underestimating the intelligence of the average cinema goer, now in politics the belief is that no politician ever fails for underestimating the intelligence of the average voter. There is a change in society that has made stupid politics the dominant strand. Possibility it is linked to Walter Benjamin’s insight (when writing about the cinema) that contemporary media  leaves little time or scope for reflection, as the media image is all involving leaving no opportunity for distancing necessary for reflecting on the projected image.

If I was to compare contemporary England with medieval England, I would say that the former is technically sophisticated but intellectually unsophisticated. This is not to say that there are not a community of intellectuals whose thinking is far superior to that of those of the medieval era, but these people are excluded from the public debate, which is dominated by the advocates of stupid politics. Obviously Trump and Johnson are not stupid men, they just find a politics of idiocy the most effective means of self promotion. What is most disturbing is that these men intend to pursue the policies they advocate, without regard to the damage caused to society through the introduction of their simplistic policies.

As an economist I can see the dangers of practising stupid politics. Britain has endured years of austerity because the government believes in a nonsense called ‘expansionary fiscal contraction’, that is cutting government expenditure will increase growth. Despite this policy having no economic credibility the opposition’s chief economics spokesman, a man who had a top class degree in economics from Oxbridge immediately signed up to the policy. Knowing it was fallacious economics made no difference, he did not want to appear out of step in with all the others who were practising stupid politics. Bonhoeffer said that the success of the Nazi’s was due to fact that good people did not speak up, similarly stupid politics is prevailing because the intelligent do not speak up. In England it is the noise and abuse made by the practitioners of stupid politics that scares of the intelligent when we most need them.

Intelligent women for example are put of entering the English Parliament because of the sexist behaviour in the bear pit that is the House of Commons. When female opposition MPs speak, male MPs on the government benches often  make crude sexual gestures with their hands and shout sexist abuse. Also any show of intelligence is likely to get a politician pilloried in the tabloid press as a geek, as happened to the last leader of the opposition. Anti-intellectualism is rife in the English political culture and it’s preventing intelligent government.

What really provoked me into writing this article was a tweet by the illusionist Derren Brown, in which he referenced a You Tube in which two evangelical preachers explain why it is necessary for them to own private executive jets. One says it is so he can get some quiet time in which to talk to God, as he would be unable to do that on a flight with other passengers who would disturb him. Christ when he wanted a quiet place for meditation found a quiet spot in a garden or in the countryside, surely these two men could have done the same. These two men are Christian literalists they believe that the bible is the word of God and that all should to obey the word of God as explained in the bible. These two Christian literalists are following a practice condemned as being wrong as far back s the early Middle Ages. St. Augustine in his book on Christian teaching explained that the bible should not be taken literally, the word of the bible required explanation by the Christian teacher. Following St. Augustine’s advice all medieval bibles contained commentaries on the page side by side with the biblical text. These commentaries were there for the preacher to help him explain the text to the people. What these evangelical preachers are doing is practising a type of Christianity that even the least educated of medieval priests would have recognised as wrong. If these men had been medieval clerics they would have been relegated to some obscure rural parish where they could have done little harm. Yet these men are seen as representative of true Christian belief, religion seems to mirror the practice of stupid politics.

This simplistic religious view of the world that divides the world up into good and bad guys is very influential. George Bush’s crusade against the evil of Saddam Hussein’s Iraq is representative of good versus bad guy politics. Isis and other Islamic fundamentalist groups embody the same good bad guy philosophy. A philosophy that justifies the cruel treatment of all unbelievers whether they be Christian, Yazidi or Shia Muslim, as they are already condemned by God for rejecting the true religion and as such are wordless people. One of the main targets for Islamic fundamentalists are the Sufi Muslims who practice a more sophisticated and humane religion. The simplistic belief of the fundamentalists contrasts unfavourably with the sophisticated Islam of the medieval  period as demonstrated in the poetry of the Rumi  (1207-73) or the philosophy of Averroes (1126-1198). Christian thinkers owed much to these men, Francis of Assisi’s thinking was greatly influenced by the poetry of Rumi. Depressingly anti-intellectualism is not only a feature of Western politics but also in the politics of much of the Muslim world.

There are many sophisticated and intelligent clerics today but they do not get a hearing in today, because their speech is too subtle and nuanced for a world that wants simple truths. Rowan Williams the very intellectual former Archbishop of Canterbury was pilloried in the press as a bearded weirdy. They were not interested in the message from an educated Christian, for them Christianity is that of the simple minded fundamentalists.

There is no doubt that the public appetite is for stupid thinking, there is a wanting for people offering a few simple homespun truths that they claim will solve the world’s ills. Does not the constant diet of super hero films coming out of Hollywood demonstrate that something is very wrong in our culture? Hollywood appears to have opted out of making adult films, as it has correctly judged that the audience for its films want simple child like stories. The only hope is that the world particularly the Western world will tire of simple childlike stories and politics. When politicians such as Donald Trump and Boris Johnson get chance to put into practice their childlike policy solutions and those policies prove to be a resounding failure, the pendulum will surely swing in favour of a more grown up politics.

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.

Religious mysticism and economics

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Javanese Mystical Beliefs The New York Times

All my adult life I have been trying to come to terms with what I learnt in my undergraduate philosophy classes. Coming from a relatively isolated rural Anglican background I had a belief in moral absolutes such as good and truth. Such terms where regularly used in conversation in my rural community, local villains were known as such and there was no ambiguity in our moral understandings. However at university I was introduced to a critical philosophy that undermined my belief in moral absolutes. One such example were the writings of Gilbert Ryle in which he dismissed the concept of a moral good. Good he explained was a term incapable of definition, as people would give differing explanations of what good meant, therefore could could be no more than an emotion. The same philosopher dismissed human consciousness as the ‘ghost in the machine’. He was sceptical of the notion of a special quality called consciousness existing apart from the biological mechanisms, which produced emotions and feelings. The idea of self was suspect, it did not fit with the understanding that biologists had of the human being. Consciousness and self were unscientific, their existence could not be proved, so it was illogical to believe in them. I guess I like many students felt the moral tectonic plates shift beneath my feet and realised the moral truths in which I believed had no firm foundation. Using the biblical analogy I was living in a house built on the shifting sands of contemporary morality.

However these relativist philosophers had not abandoned any notion of moral good. In practice they saw good as having some functional value, they behaved as would good men and women. They were fair in their treatment of us, turned up regularly to lectures etc. If they had behaved immorally the whole system would have collapsed. The first lesson I absorbed as that even if they did not see good and truth as moral absolutes, they saw them as having a practical utility.

I never really abandoned my Anglican beliefs, although I ceased to be a practising one. The 1960’s and 1970’s were an age of secularism and I used to enjoy discomforting my friends by telling them I was a Christian. Christians were for them a kind of pre-modern being, who were as distant from modern man, as were the Neanderthals from Homo Sapiens. Intelligent people for them could not believe in the myths and fairy stories of which organised religion was composed.

What I have sought since my university days is some intellectual underpinning or substance for my pre-modern beliefs in good and bad. I could not accept that there only purpose was that of enabling men to live together in an organised society. Interestingly I did learnt of one community in the Pacific, where stealing and dishonesty were valued. However this particular community, because of its dysfunctional nature was dying out.

Obviously I read widely, there is probably not a major philosopher of whom I do not have some knowledge, but it was not until I studied theology as a postgraduate that I began to make progress in finding solid ground on which to found my beliefs. The answer lies in the paradoxical nature of the unknown God, whose is both unknown and known. All theologians are to some degree negative theologians, they admit God is beyond human understanding, yet they claim some knowledge of this unknown God. Bertrand Russell scoffed at these theologians who believed in an unknown God as he pointed out that it was absurd to claim belief in a being that had no existence. However he misunderstood what theologians mean when they say they have no knowledge of God. God is unknown because he cannot be known through the usual methods of human understanding, as he exists beyond human existence. There can be no book of God as it is impossible to describe or explain what God is in language. There can be no science of religion, the science of observation or the laws of cause and effect have no relevance to the study of God. Yet this God can be known to the individual, but not through the usual means of human understanding.

Knowing God is a peculiarly individual experience, it is not as Kierkegaard states something that can be picked up from an afternoon’s study. There are no texts of instruction as such or a required reading list. Following Kierkegaard we cannot use direct language to speak of God, he cannot be described, but instead the language of God must be indirect language. The great religious teachers of the past are largely ignored but to learn the way to knowing truth or God it is to them that one must turn. It’s a knowledge quite unlike the knowledge of science or the humanities. Indirect learning or knowledge is the means of accessing these higher truth. The twentieth century philosopher Jasper explains that myth is one very successful way in which these truths can be accessed. Probably he’s thinking of Plato’s myth of the cave, in which he compares humanity to a group of men chained in a cave facing a wall behind which is a fire. Behind that wall are passed images which cast shadows of the cave wall and the chained men believe that those shadow images are reality. When one of the chained men escapes and goes into the sunlight and returns to tell the chained men what he has seen they refuse to believe him; they prefer the shadows or appearances with which they are familiar. What Plato is demonstrating is that the knowledge for understanding everyday existence is inadequate for the task of understanding what he and his Islamic successors (Sufis) would term the real. Plato has another a myth that explains the link between the real and the world of appearances in which we live. The creator God fashions the world and humanity out of clay and he uses as his model for creation the ‘real’. We are but copies of what the creator God could see, but which are concealed to us. Plato never believed the myths he created were ‘real’ but they was the only way he could explain, the complex nature of reality and existence. Jaspers put it more succinctly, there are some truths that can only be told through the use of myths.

Plato’s separation of the world into two spheres that of appearance and reality has remained influential. It is an understanding of existence that has been developed within the religious traditions of both Christianity and Islam. Rather than myth the Sufi sages use poetry, metaphor being a substitute for myth. One of my favourite phrases is taken from Rumi’s poem ‘The North Wind’

‘No matter how hard you stare into muddy water
you will not see the moon or sun’

It’s one of the best summaries of the Platonic need to search for truth beyond the world of ‘appearances’. However describing this world as one of ‘appearances’ does contradict our understanding of reality. Doctor Johnson gave the best retort, when he criticised Bishop Berkley’s theology, which saw the world as a product of God’s imagining. He said the pain he felt when stone he knocked his foot against was all too real, and was not a product of somebody’s imagining. All I can say is that Plato was trying to describe a level of reality that as it was not immediately visible and it could be distinguished from a reality that was all too apparent, which appears to us.

A person such as myself is described as a mystic, a term which I feel is derogatory as I believe my approach to knowing truth is quite rational. There is however a good reason for writing about my understanding of mysticism as a economist. Mysticism gives a very different understanding of the world to that of a practitioner of a science of the world of appearances. Economics judges the world in quantitive terms, using terms such as cost, loss and profit; it has no place for values. Therefore its practitioners are capable of making the most inhumane decisions, as they lack any sense of value. Milton Friedman could approve the torture and killing of trade unionists because their destruction paved the way to the free market. Ian Duncan Smith the minister for welfare can pursue a policy that through the removal of benefits impoverishes the poor and which even in extreme cases has led to suicide, as a means of incentivising people to return to work. To an economist misery and suffering are good if they produce the right result. Religious mystics could never accept such an inhumane belief system, they value the individual human too highly. Inflicting suffering is never an option for them, one hungry child is never the justification for this cruel method of incentivising work. Only an economist of the Neo-Liberal persuasion could be indifferent to human pain. Economics will constantly fail as it lacks a value system that would enable it to satisfy human wants. What economics so lack as a contemporary science is a knowledge of the old.

Notes
Plato (428/427 or 424/423 – 348/347 BCE) Classical Greek philosopher
Jelaluddin Rumi (30 September 1207 – 17 December 1273) Islamic jurist, theologian and mystic
Søren Aabye Kierkegaard (5 May 1813 – 11 November 1855) was a Danish philosopher, theologian, poet, social critic and religious author
Milton Friedman (July 31, 1912 – November 16, 2006) American economist

Lies told by economists 2 – the economy is always managed so as to maximise the welfare of all

One of the constantly repeated stories told by economists is that the current programme of austerity is for the good of us all. The austerity programmes adopted by Western governments are necessary to root out from the economy of the excesses of the past spendthrift governments. The austerity programme will restore the economy to health and all will benefit from a new era of economic prosperity. A story that is so untrue, as acute observers will have noticed that it is the less well off who have suffered disproportionately in this recession, while the incomes of the better off have hardly been touched. Despite the recession, London for instance is home to a record number of billionaires.

There is another story that needs to be told and that is that economies very rarely work in a way that maximises the welfare of the majority of the population. They instead maximise the welfare of those groups with the greatest market power, who use that power to gain the largest share of wealth for themselves. Only very rarely does market power reside with the majority as happened in the social democracies of Europe after the Second World War.

This is demonstrated in the current time period which its one characterised as the time of Neo-Liberalism. A misnomer as it is a period that has seen the ever increasing accumulation of market power by the owners of capital at the expense of those who depend on earned incomes. Neo Liberalism is a political doctrine that these wealth holders have cleverly exploited to aid their rise to power. This doctrine states the the greatest impediments to the free market and the maximisation of wealth are over powerful governments and power trade unions, both of which impede the workings of the free market. Strong Governments and trade unions are the two factors that place obstacles in the path of those who wish to acquire unlimited wealth.

Growing up among the serving classes in the 1960’s, I observed close up the anxieties and fears that gave rise to the putsch against the strong governments and trade unions of the social democratic state. The 1960’s were a period of relative prosperity, there was full employment, constantly rising incomes and people were well housed, yet the rich hated this period. All they could see was the threat to their social and economic status from the newly prosperous working and middle classes. It seemed to them that all the barriers that preserved their social exclusiveness were under threat. Students from the working class now attended the two bastions of educational privilege, Oxford and Cambridge. Working people could own cars and more threateningly rise up the social and occupational ladder and threaten to displace the previous incumbents.

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Tunbridge Wells and its environs where I grew up were home to exiled European aristocrats forced into exile by the communist revolutions of Europe. Travelling on local buses you would come across impoverished Eastern European aristocrats talking about their lost estates and wealth. I lived near a family of White Russians who were so worried about the possibility of a communist uprising that they were only family locally permitted to keep fire arms. It was this anxiety that fed into the paranoia of the wealthy who feared for their social position.

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One of the most frequently expressed concerns was that people no longer knew their position. Servants would talk back to their masters and mistresses. The relative prosperity of the times meant it was difficult to get servants, as who would want the demeaning job of servant when a job a sales assistant in a shop gave gave greater freedom and a better wage. It was this newly acquired power to be no longer beholden to The Lord of the Manor for employment, that empowered servants. This group looked back to the horrors of the Great Depression as a ‘golden age. Then servants were plentiful and people knew their place. On the estate in which I lived prior to World War 11, it was a dismissal offence to talk without being first addressed by old Lord ***, now the very real shortage of estate workers and servants meant at worst all that could be done was reprimand the worker. I can remember a servant at the castle being reprimanded for being cheeky to her ladyship, an offence that would have warranted instant dismissal in the 1930’s. How the rich hated the prosperous sixties, with their indolent and independent minded workers.

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Even in these social democratic times the rich had begun to regain their former powers. The setting up of trusts encouraged by a friendly judiciary enabled the aristocratic owners of the great estates, meant that these aristocrats could claim that their estates were held in perpetuity by a trust and therefore not subject to estate duties.

The determination of this group should never be underestimated, they worked constantly to weaken their two enemies over mighty governments and trade unions. Rather than going through the details of how they achieved this weakening it is sufficient to say that in their enterprise they were greatly aided by the naivety of social democratic politicians. Today the most powerful groups in society are the financial, business and landowning elites. Given the lack of restrictions on their power they are able to abuse that power to award themselves an increasingly disproportionate share of the nations wealth. In 2000 the average company directors pay in Britain’s top companies was 69 x that of the average employee and by 2009 it increased to 149x that of the average employee. This disproportionality in income take demonstrates why the British economic recovery will be good for the rich and the super rich but less good for the majority.

Economists fail because they see a society as one atomised individuals, who are best off if they can trade freely amongst themselves, as they individuals know what they want. Any intervention by a government no matter how well meaning, could not second guess the wants and wishes of individuals and they whatever they did would lead to people being more dissatisfied that satisfied. The only social group that they recognise are trade unions which they identify as malignant growth which disrupts the efficient running of the business enterprise. They never recognise that owners of capital might group together to abuse their market power to gain a disproportionate share of society’s wealth. For an economist bankers, financiers and land owners only act in a benign way for the benefit of society.

Society in reality is divided up into a number of social groups competing for power and wealth. This power and wealth is distributed disproportionately, the owners of capital compared to the owners of labour have disproportionate power. This disproportionality of power and its potential for harm was recognised in former times. Durkheim in the 19th century wrote of the essential role of the state to protect the individual from local bullies and tyrants. He knew that employers had unlimited power to abuse their workers, with their being no labour protection legislation, they could pay as little as possible, work them for long hours, subject them to unhealthy and unsafe working conditions and dismiss them if they fell sick. The state was needed to regulate conditions of employment and protect the worker against unfair exploitation by bad employers. A lesson forgotten by the current generation of economists and politicians.

I can as a child of the serving classes quote an example. A remember an old servant telling my mother of the bad country house in which she worked. The men of the house if a young pretty house maid took their fancy, they would abduct her and rape her in the cellars. Staff were powerless to intervene and the abusive males never faced any sanction. It is this story that springs to mind whenever I hear a politician or economist advocating the removal of yet more labour protections.

Today Britain is a country that is safe for the rich, but unsafe for the poor. The poor can be housed in unhealthy private rental homes for which they pay exorbitant rents and dare not complain for fear of eviction. A good government would legislate to prevent such tenants as recommended by Durkheim, instead we have a bad government, supported by bad parliamentarians of all major parties who would never countenance such a measure. In contrast the government does its best to make life comfortable for the rich by co-operating in all schemes to protect their wealth, most notably in the emasculation of the tax collecting agencies.

When being wrong is being right, the majority perspective on economics

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One of the greatest of follies is the excitement that is generated over the Bank of England’s announcement of interest rates. Once a month the monetary policy committee meets to decide the bank rate, that is the rate of interest the bank will charge on loans it might make. This committee of the great and good holds the nations future in their hands, holding rates steady as they have done yet again, brings great relief to the nation’s borrowers. In a nation that is as over indebted as the UK even small changes in the interest rate can be of great significance to borrowers, particularly those with large outstanding mortgages. Yet this is an illusion as so much economic policy making is a matter of smoke and mirrors. What matters is what people believe, if they think, as do the nation’s politicians and financiers, that such rate changes are of great importance, they are of great importance. However in moments of great crisis when events spiral out of control, they are almost useless. On Black Wednesday bank rate went up to 15%, 30 times today’s rate of 0.5%, yet it did little to halt speculation against the pound in the financial markets. The speculation was only ended when the pound was effectively devalued by Britain leaving the European Exchange Rate Mechanism and accepting a low market valuation for the pound. Raising interest rates did not stop financial speculators bringing the Bank of England to its knees.

While focusing on bank rate politicians and central bankers can pretend that they are in control of events. Stagnant incomes, over indebted banks (whose debts in 2013 were approximately 500% of GDP or £6.7 trillion), low productivity and spiralling trade deficit (now the highest in the developed world at 5% of GDP) are problems that can be ignored. At least until some future crisis reveals the fault lines in the UK economy. Incompetence in managing the economy despite popular misconceptions to the contrary never results in a lost election, unless it impinges on the popular imagination as in the form falling house prices.

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There is another misconception that a dysfunctional economy such as that of the UK is self correcting or pressures from within society will lead to a correction of the failures within the economic system. Nothing of the kind is true,dysfunctional economies such as the UK’s can function as they are for many years unless some internal or external shock forces traumatic change in society. If the political classes can somehow convey the impression that they are in control of the economy nothing will change. Nonsense if dressed up as sound economic policy will be accepted by the people as a whole in an economically illiterate society. Strangely enough for a subject whose practitioners claim to subject the economic to forensic analysis, artifice and appearance are often what matters.

I am not alone in my analysis as today one economics commentator described the policy of the central banks as applying cosmetics to the mummified economy.

Spoken or written truths are not welcome in such situations as this when the political,class and the supporting cast of economists are all desperately reassuring us that everything is well. The shrillness of the abuse with which they shout down proponents of alternative strategies is an indication of weakness of their grasp of the truth. They are aided in the suppression of the truth by their media allies who through controlling print and media outlets can prevent any alternative strategies being published or becoming known. What matters is that only the same story is told by politicians, economists, industrialists, the media etc.

What should not be underestimated is the staying power of the fictional story that by manipulating the bank rate the government is in control of the economy. Fortunately for all in the governing classes economics is going through the ‘dog days’, when all pretence of critical objective analysis of economic affairs has been abandoned, in favour of just telling the one story. If it is possible to describe one of the social sciences as a dead science, that description is true of economics. There will never be a university economist who will state that the emperor has no clothes.

Given my interest in theology, I can cite a similar example. Belief in the Gods of Olympus persisted for hundreds of years, even through the late days of the Roman Empire, when the educated classes had long since abandoned such a belief. Conservatism and the usefulness of such beliefs to the government, who could manipulate the fears of the population through supernatural portents gave belief in Jupiter and the other Olympian Gods an exceptionally long life. Belier in the efficacy of manipulating bank rate to control the economy started in the 19th century and despite a few short periods of disrepute it continuing to be the main measure of government economic policy.

There will be another financial crisis possibly worse than that of 2008/9 and again economists despite all the evidence too the contrary will again say that it was an event that nobody could have predicted. Policies that were adopted in 2008/9 despite their evident failure will be used again, as to do otherwise would be an admission of fallibility among the ruling class of politicians, bankers, industrialists, economists etc. What is needed is a new governing class with a new set of stories about the economy, hopefully stories that are grounded in reality. That will only result from a major trauma within society that destroys the myth of infallibility that cloaks the governing classes. The last time this happened was after World War 11 when a series of military disasters destroyed the credibility of the governing classes, when they were replaced with a middle class imbued with the ideals of social democracy.

Don’t believe the pessimists who are our leaders, it is possible to build a better society

Western societies are affected by a paradox which is that as these societies become richer and richer they are less and less able to ensure that their peoples enjoy a reasonable standard of living. This is in large part due to the malaise that affects the political classes. They know something is wrong, they are disturbed by their inability to help the neediest, yet they believe it is impossible to help their peoples. All they can do is repeat the failed policies of the past and hope than eventually these policies will deliver better outcomes.

Their problem stems from the fact that work within a very narrow set of guidelines which are known as free market economics or Neo-liberal economics. Their policy mindset can be summed up in the following phrase, if the problem cannot be resolved by the actions of the free market that their is nothing they can do. When it comes to the unfairness of zero hour contracts they are unwilling to act for fearing to upset the market equilibrium and that their misinformed actions can only make the situation worse. They for instance fear that by putting restrictions on the use of zero hour contracts that they will by increasing the costs of labour will increase unemployment.

What our political leaders lack is a sense of ‘can do’, a political philosophy that validates their taking action to end the abuses in society. Although I cannot draft that philosophy, I can put forward a theory of economics that justifies an activist economic policy, and that is MODIFIED MARKET THEORY. One of the greatest problems afflicting society is gross inequality which impoverishes many people which in turn prevents them experiencing any of the benefits that should accrue to people living in one of the world’s richest societies. Rather than the free market functioning well, the market has become a dysfunctional mechanism which enriches the few that possess market power and impoverishes the many that lack any real market power. What is needed is a recognition that the market does fail and state intervention is needed to correct those failures.

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The Ideal Economic System

The market fails when the market mechanism rather than creating wealth impoverishes people. Market economies such as Britain have created a system of social and economic equality that is dysfunctional. Rather than being a wealth creating economy ours is a wealth taking economy, which only benefits a small high status group.

Critics such as our Neo Liberal politicians will criticise those such as myself for naivety. The core criticism is that we are being unrealistic as we fail to recognise the realities of a world in which people have unequal talents and skill. Life is a competition and its wrong to expect the losers in the occupational race to have the same income as the winners. There is even a theory of inequality propounded by Davies and Moore which explains the benefits of social inequality. They explain that inequality is an economic sorting mechanism which distributes the right people to the right jobs. Society needs the best people as doctors, so the best should be encouraged to become doctors by paying them the most. It is the competition that is training to be a doctor that weeds out the incompetent and leaves as the winners the best educated and most skilled practitioners of medicine. There is no society that would benefit if it paid road sweepers received the same salary as doctors, as that would result in a shortage of skilled doctors and many unnecessary deaths.

This is as an unfair criticism as we too are realists. We recognise that society is unfair and unequal and believe that inequality must be one of the principles on which society is organised. What I and others want is a narrowing of the range of inequality, we don’t see why being in a low status and low income occupation should deprive people of their rights to a reasonable standard of living. Social Democrats such as myself accept that the rich as with the poor will always be with us, what we cannot accept is that there should be a large number of people who are impoverished in a market society which deprives of many of the decencies of a civilised life.

David Ricardo clearly understood this problem when he wrote about the price of labour. There were for him two prices for labour, the natural and the exchange price. Their former was the price which gave the worker an income sufficient to pay for the necessities of life and the latter is the price which the worker gets when he sells his labour in the market. Problems occur when the exchange price of labour falls below that of the natural price, as is happening in contemporary Britain. Many workers are on zero hour contracts or work split shifts both of which pay a price for labour way below that of its natural price. These people are poorly fed, housed, face constant insecurity of income and employment, suffer disproportionate ill health, living a life coming to resemble that of the slum dwellers of Victorian England. (Having worked as a social worker on some the poorest housing estates, I can state that this is an unfortunate truth, not an hyperbole.)
One of the major evils that afflicts British society would be removed if all who wanted it could receive the natural price for their labour. This would enable them to participate in society and enjoy the benefits of a rich consumer society.

There is a criticism that can be levelled at the understanding that labour can have a natural price, and that its extremely hard to determine what would be a natural price. Already those advocates of a living wage accept that the living wage will be different for those in London and the regions. The real criticism is that the list of items that the person earning the minimum wage be able to purchase can be limitless. What are the necessities of life? How many of today’s consumer goods are one of life’s necessities, is for example a smart phone a necessity? Yes if an individual needs it for their work. When I fell and cut my forehead badly the surgeon took several pictures of the gash on her iPhone, including before and after surgery, to guide the surgery and my after care, so for her a smart phone was a necessity. The real problem is that what is a necessity is both relative to the individual, the society in which they live and the time in which they live. I have a silly example as an illustration. I heard on the radio a rich women saying that the rich have greater needs than the poor so they need a greater income as their lifestyle has more wants and needs. She needs to go the Opera and theatre, which is a want a poor person lacks. However despite these criticisms there is an answer.

The answer can be formulated in in terms of what a natural price is not. A person is not paid the natural price for their labour, if they are unable to feed and clothe themselves adequately, lack the income to purchase reasonable living accommodation and lack the income for those simple luxuries that make life pleasant. Why should not the poor buy a packet of cigarettes is it gives them a sense of relief from a life of hard labour and pain? If any of these is lacking they are not receiving the natural price for their labour. While it is impossible to give an exact monetary value to the natural price for labour, it can be used to identify those incomes that fail in to come near what is the natural price for labour. A pizzeria in London that pays only the minimum wage to its staff and gives them only the minimum hours of work is not meeting this criteria.

Similarly for coffee addicts such as myself paying perhaps 10 pence more for a price of coffee is not a great hardship. Even if it increased it by 20 pence a cup that would be little compared to the future price rises that are in the pipeline. Climate change is adversely affecting the coffee crop both in terms of quantity and price and this will result in huge rises in the price of coffee. At present my small cappuccino in Starbucks costs £2.15 a price which could conceivably rise to £3 in the near future.

What I don’t want to do with this essay is describe in any great detail how the government can ensure that all who want can earn the natural price for their labour. Intervention can be justified because the labour market is broken, its dysfunctional, by its very nature it prevents millions earning the natural price for their labour. Our politicians who claim that any state intervention would have a malign effect on the labour market are those who have not recognised this fact.

There would need to be further interventions in the market other than legislating for the introduction of the living wage. If the example of London is considered it can be seen how inadequate is the concept of a living wage. Prices for accommodation are exorbitant, high rental prices deny the majority the option of having decent living accommodation. If the living wage was increased to take account this fact the average London income would have to rise in excess of £50,000. Obviously such a large increase in incomes would be inflationary and would have a negative impact on the London economy. The only practical solution are rent controls, controls that reduce rents to an affordable level. If the cuts were large enough it could reduce the need for a large increase in the living wage. Yet again there is every reason for the state to intervene when it is obvious that there is a failing market. There is only one beneficiary from the housing market being organised as it is and that is the 2% of the population that are landlords. A figure that rises to 33.3% when the question is asked what proportion of MP’s are landlords. This is a group who aggressively promotes their self interest over that of the nation.

The defenders of the current private rental market claim that rent controls would harm tenants as many landlords would withdraw from the market and cease to rent out property. This is extremely unlikely, as many have borrowed heavily to buy their properties and would not want to risk personal bankruptcy. A timely rise in the bank rate would make it even less likely to happen. There is no reason why a system of fair rents would not allow landlords to earn a reasonable income; all that’s preventing it is the current extortionate high prices in the property market. Landlords have for a long time been the beneficiaries of an unfair housing market being indirectly subsidised in their life style by the state paying housing benefit to finance their accommodation of their tenants.

To conclude I want to return to Victorian Britain and its writers. When studying this period at university I was made acutely aware of the fear of destitution in the middle classes. Dickens demonstrated this in his character Wilkins Micawber who is best known for his phrase “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.” At the end of ‘David Copperfield’ a destitute Wilkins Micawker is fleeing England for hope of a better life in the colonies. Britain in the immediate post war period and up to the 1980’s had freed from the minds of the people the fear of destitution, now that fear has returned to the minds of the people.

To conclude I want to return to Victorian Britain and its writers. When studying this period at university I was made acutely aware of the fear of destitution in the middle classes. Dickens demonstrated this in his character Wilkins Micawber who is best known for his phrase “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.” At the end of ‘David Copperfield’ a destitute Wilkins Micawker is fleeing England for hope of a better life in the colonies. Britain in the immediate post war period and up to the 1980’s had freed from the minds of the people the fear of destitution, now that fear has returned as is to real.