Tag Archives: milton friedman

Weimar Britain 2010 – ?

There seems to be a gathering darkness in our society, unreason seems to increasingly be the language of our times. The darkness of unreason is said to have come from outside the political process, from  the extremists of the right who have been increasingly successful in infiltrating the political mainstream. Although there success is not entirely down to their own efforts, as they have been aided by collaborators from within the political mainstream.

Perhaps the most obvious example of this darkness is the increasing harassment of immigrants. All to often there are stories such as that of the grandmother of Singaporean origin who was sent back to her homeland, despite having a family in the UK. She was sent back penniless to a homeland where she had no family. Indifference often bordering on cruelty so often governs the actions of our politicians.

When I see the flourishing of unreason in society, I look to the past for explanation. One obvious parallel is the German Weimar Republic that was destroyed by the forces of unreason. One writer that tried to explain the rise of the forces of unreason was Ernst Junger. I find his book ‘On the Marbles’ particularly apposite. There exists within his narrative a wild uncivilised  family of huntsmen who live deep in the dark forest. This family breeds an exceptionally vicious and violent breed of dog, who are breed for nothing but fighting. In the climax of the book this pack of barbarous dogs takes on the hunting dogs of the foresters and destroys them. Now this barbarous family has control of the forest. There is one futile attempt later by the politicians to come to terms with the barbarians of the forest, but it ends badly in their death.

There is a darkness in the souls of us all, but a darkness that is suppressed by civilisation. Norbert Elias wrote of the significance of etiquette in making organised society and social  progress possible. When people started treating each other with courtesy and respect organised society becomes possible. These etiquette codes of behaviour or rituals are passed from generation to generations giving society its shape but once they are disregard or disrespected society begins to resemble a shapeless mass and loses its civilising aspect.* Football without rules is a meaningless undignified scramble and even the most aggressive and competitive of footballers who will resort to cheating to win a match, still accepts the need for rules. They know that if there were no rules to break there would be no game of football. Politicians increasingly resemble the cheating footballer but unlike them they don’t just want to break the rules to their own advantage, but they want to destroy the rules and reshape the game in their own image.

Ernst Junger’s allegorical tale was very prescient, there are dark groups in society who while they remain isolated and excluded from the mainstream, pose little threat to the larger society. If they are isolated in the depths of the forest they are little threat to the civilised whole. However once this dark group is welcomed into the mainstream of the body politic, their very ruthlessness enables them to rise to the top. Just like Junger barbarous dogs they destroy the opposition, an opposition that has not been breed for fighting.

This dark group existed within German society, they were the German nationalists. The most extreme of which were the Nazis. Mainstream politicians thought there ideas insane, such as wanting to return the bulk of the population to the land. Farm work and rural life they believed led to the cultivation the manliness virtues that the Nazi’s admired. Too many German men lived soft easy lives in the town and had lost the Aryan virtues that the Nazis admired. Having such crazy ideas led to the political elite believing that such simpletons could be easily managed.

When the economic crisis of 1929 lead to widespread unemployment, which many blamed on the government. The discredited ruling coalition thought that by incorporating the increasingly popular Nazi’s into government they come benefit from their popularity. They would be a useful counterweight to the powerful communist party. The conservative intellectuals such as Franz Von Papen thought that they could easily manage the ‘unsophisticates’ of the Nazi Party. Instead these conservative politicians lacked the ruthlessness of the Nazis and were out manoeuvred by them. The well behaved dogs of the conservative right proved no match for the wild dogs of the Nazis.

Once the Nazis gained control they removed those civilised constraints that kept those dark instincts of the German personality suppressed. Soon civilised Germans were treating there Jewish neighbours in the most cruel of manners. Once those civilised rules of social interaction were removed the darkest of behaviours become common. Millions of Germans knew of the existence of the death camps, yet only a small number of German opposed their use. Ordinary German citizen if they knew of Jews hiding form the authorities would not hesitate to betray them.

What I believe is that once the barbarous dark forces in society are admitted into the mainstream of the body politic they corrupt the political process and take it over. There barbarous belief systems cannot tolerate any diversity opinion or difference, so must they destroy it. That destruction as in Weimar Germany will be the destruction of the democratic system.

While the dark forces in Britain remained isolated and excluded from the mainstream, they could be tolerated as the harmless indulgence of a tiny minority. However in Britain as in Weimar Germany changes occurred within the governing elites that made possible the introduction of the barbarous views of the extremists. Within the conservative political spectrum there had always been a significant minority that hated the post war settlement. High personal taxation and the tax revenue used to fund of social welfare programmes and the health service they saw the illegitimate action of government. They saw the economic crisis of the 1970s as an opportunity to destroy the social democratic state. Whether it was the free market economics of Milton Friedman or the Neo-Liberalism of Hayek and Rand, they had a brutal philosophy. What they wanted was the re-create the society that pre-dated Hobbes ‘Leviathan’. They wanted a society of in which ‘nasty brutish’ men, were not restrained in their actions by the state. It was human competitiveness not social organisation they believed was the motor for economic and social progress.

As this philosophy increasingly took hold on the Conservative party, its policies became more and more brutal as it sough to recreate the society of ‘nasty and brutish’ men. Although policies were couched in morally virtuous terms such as taking people out of the dependency culture and making them self sufficient, all but the most deluded of Conservative must have realised they were practising a policy of cruelty. This policy was corrupting of the people making the policy, as implementing cruel social policies is not a morally neutral activity, it corrupts the mind. The poor become defined as a subhuman species unworthy of the decencies of human society.

With this degradation of moral sensibilities conservative politicians have not hesitated to exploit the those dark atavistic sentiments on race and ethnicity to win support. However what they fail to realise is that they these sentiments are not something that can used when needed for electioneering and then forgotten. Once they have been imported into the political dialogue they remain there. These politicians so resemble so many Franz Von Papen’s  who thought that they could use the extremists for their own ends.  Similarly these conservative politicians are offering extremists access to power, an access that they will exploit.

Again Ernst Junger’s allegoric tale offers a useful explanation of the current situation. Bad as the current conservative politician are, there are the much more dangerous extremists who are beginning to enter the political mainstream. The conservative politicians are like the hunting dogs in his tale, they are trained to hunt herbivores and not to fight other dogs. I liken them to they hunting dogs because they are trained to hunt weak herbivores of society, the poor and less well off majority. Neo-liberalism of the Ayn Rand type has schooled them in how to attack the less well off majority to benefit of the billionaires class, but it has not schooled them in how fight off the extremists. I fear that our conservative Neo-liberal politicians, will be as with Weimar’s conservative politicians little more than a conduit to power for the extremists. 

  • I must confess that my summary of Norbert Ellias thinking does not do justice to him. His ideas are far my complex that my summary would suggest.

The Cult of Neo-liberalism and the bizarre beliefs and practices of its believers

Cult movements are supposed to appeal only to the marginalised in society, that is the losers desperate to find a way of out the dire circumstances in which they find themselves. Yet evidence shows that cult movements are as equally likely to appeal to the rich and powerful. The Orange movement with its emphasis on sexual freedom was a movement that appealed largely to the young and wealthy. However a cult movement of the rich and powerful can avoid being labelled as disparagingly as such because they have control of the media. Cult like movements redefined as mainstream political or social ideologies much like established religious practices. In a secular society such as ours cult movements will lack the mystery and religion usually associated with such and instead claim ‘realism’, to be a practical movement for individual and societal improvement. The cult that currently grips the imagination of the rich and powerful is Neo-Liberalism.

Believers in Neo-Liberalism as with all cult members have a fervent belief in the rightness of the message and reject any evidence to the contrary. To paraphrase George Orwell it central belief is ‘private enterprise good, public or state enterprise bad’. Currently in Britain all our prisons are being transferred to private management. Despite reports from the prisons inspectorate that such prisons are poorly managed, largely due to cost or staff cutting measures intended  to turn prison’s management into a profit making activity, political leaders seem oblivious any problems arising from the privatisation of the prison service. Riots, rising prison suicides are not the things to turn the political leaders away from their belief that prisons can only be run successfully, if they are under private management. There is nothing to match the fervour of the converted for their cause. When criticised they will say that the reforms they have introduced will take time to take effect and what is being witnessed now are the painful birth pangs of a new society coming into being. Without wishing to name politicians I feel they are so similar in nature to the Jehovah’s Witnesses that come to my door promising me salvation if become a member. A salvation promised on as little evidence as that provided by the cultish Neo-Liberals.

All cults have a charismatic leader, one who have a message one which points out the failings of current society and the way to a brighter and better future. Scientologists had Ron Hubbard, Neo-Liberals have three Friedrich Hayek, Ayn Rand and Milton Friedman. Followers of each cult treat the writings of the founders as holy texts and try to follow to the letter their writings . It helps if the charismatic leaders as death sanctifies their writings, much as earlier death gives pop stars that aura of specialness and which boosts their record sales. All these leaders were persecuted and vilified in their own societies. Ron Hubbard was dismissed as a fraudulent science fiction writer and the prophets of Neo-Liberalism were persecuted by the liberal social democratic establishment of their time, who dismissed their writings as lacking merit. As all of these prophets are dead there writings cannot be subject to revision making it much easier for them to be seen as the unalterable holy writ.

One of the holy writs of Neo-Liberalism is that any state intervention in the market is hateful and destructive. For British Neo-Liberals the very personification of this hateful state intervention is the  European Union (EU). Any damage inflicted on the economy or social fabric of the nation occurring from a precipitate exit from the European Union is a price worth paying. When the Global Institute for Economic Affairs states that leaving the EU will diminish national income by 10% they dismiss it as a mere trifle. A valid comparison is with the regime of Pol Pot, they have a wish to return the economy to year zero so they can remake it according to the collective scripture of Ayn Rand, Milton Friedman and Friedrich Hayek. Fortunately for this group of very rich and powerful Liberals the martyrs that will be sacrificed are the less rich majority, not the rich minority.

A cult movement also sanctities its members and demonises outsiders. Ayn Rand writes that the saviours of mankind are the rich and powerful or more precisely the billionaires. All the powerful Neo-Liberals imagine themselves part of this class whether they are or not. This also makes them very greedy for money, as wealth demonstrates that they are one of the elect. Ayn Rand characterises the poor and desperate as the undeserving poor, who when they die in their thousands in ‘Atlas Unchained’  meet a fate they deserve. This makes tax avoidance a moral cause as by paying taxes the rich are merely giving money to the undeserving poor on whom it is wasted. Politicians can claim high taxes on the rich are immoral, as it takes money away from the rich who will use it well and gives it to the poor who will squander it. A morality given common sense expression by the Surrey woman who wrote that the rich have greater need of money than the poor as they have more things on which to spend their money. The wants of the rich are many according to her reasoning, whereas the wants of the poor are few, so they only don’t require much money.

Media commentators who write about the death of Neo-Liberalism misunderstand the persuasive power of a cult. Believers are immune to rational argument, the collapse of the economy on Brexit will leave them unmoved. There is a tribe in New Guinea who worship Prince Phillip as a God and who believe that one day he will come and distribute to them the wealth that was unfairly stolen from them by the Europeans. All they have to do is to await the arrival of Prince Phillip and the prosperity that he will bring. Neo-Liberals are as rational in their beliefs as this New Guinea tribe. They will believe that whatever economic disasters occur during Brexit, are unrelated to their practice of Neo-liberalism. The failures in the economy be a consequence of the government failing to implement Neo-Liberal policies properly, if only they had been more Neo-liberal in their approach to policy making all the problems that afflict the economy would never have occurred.

Neo-liberalism will only die when all its powerful proponents are removed from power. Until then Neo-liberal policy making will be practised by our government.

Bankers the unruly and uncontrollable children in the family

Politicians seem to think that as they can manage their own family budgets, they have all the knowledge necessary to manage the economy. This results in statements such as the government needs to balance its books or that the country has maxed out its credit cards. Such statements demonstrate an appalling ignorance of the economy and how it works. However there is a competence that is lacking at the most elementary of levels,  as too many MPs are appalling at managing their own finances. Disraeli one of the greatest leaders of the conservative party was always on the verge of bankruptcy because of his extravagant lifestyle. Fortunately he had a rich wife and friends ready to bail him out. Politicians are as likely to follow his example as they are that of his prudent rival Gladstone. The recent expenses scandal when it was demonstrated that most MPs used their expense account to finance their comfortable lifestyle. People still remember the MP who used his expense account to pay for a duck house. If financial rectitude is not characteristic of many MPs This should give pause to any claim that they are capable of managing the economy.

If the analogy of family finances is to be made it should be said that the government resembles the nominal head of an unruly family, whose views are largely disregarded by the family members. The unruly children in the family take little notice of the head of the family, only listening to them and accepting their authority when they get into trouble. The banks are the obvious example as they pay minimal heed to the authority of the government except in times of crisis such as during the financial crisis of 2008.Once the crisis passed the banks forgot their need for government support and showed a lack of gratitude to the governments actions for bailing them out during the crisis. They successfully prevented the government from introducing a reform which would have separated their retail banking activities from those of investment banking. If a bank fails  in future the government is still on the hook, as it can’t protect the individual customers of the bank without bailing it out for the much larger losses incurred by its speculative investment banking arm.

This is no small matter as the combined assets of the banks are in total ten times the value of our national GDP.    Our national GDP is the country’s national income. There are four large banks in the UK and it is not unreasonable to suggest that the assets of each is in total a sum near to, equal to our GDP or greater than it. In the event of a failure of one of the large banks the government could be called on to raise a sum equivalent to our national income to bail them out. At one time during the crisis of 2008/9 the government of Gordon Brown had to pledge a similar figure to our banks creditors to prevent a run on their finances. Fortunately the banks creditors did not call on our government to make good this pledge, they were satisfied with the the pledge alone. When the next crisis occurs the country may be less fortunate.

When I describe the banks as unruly children over whose actions their parent has little control, there are numerous examples I can cite of such behaviour. Britains biggest bank is HSBC and Standard Chartered is its branch in the US. This bank almost lost its licence to conduct banking in the USA because of its money laundering activities. Only the pleas of the British Chancellor of the Exchequer prevented the American financial authorities from withdrawing its banking licence. It had lost its licence to bank in the USA, its parent bank HSBC would have been in serious financial trouble and it would have had to ask the British government for financial support to enable it to cope with the crisis.

The family finance analogy of which so many politicians are so fond of using describes so well the activities of the banks. The banks are the prodigal children who can behave as badly and irresponsibly as they wish as they know that their parent the British government will always come to their aid no matter how badly they behave.

In Britain as in most countries the politicians are content to remain in ignorance of these unpleasant truths. They believe that their homespun economics all they need, or they are ideologues who believe that the great prophets of economics Hayek, Friedman and Rand said all there is to be said about economics and the managing of the economy. This last group believes that all the answers to matters economic are to be found in books such as ‘The Road to Serfdom” (Hayek) or ‘Atlas Unchained’ (Rand).

There are a small group of politicians who understand the problems of which I have written, but they are only too willing to pretend that all is well in return for government office or employment as well paid lobbyists for the financial sector. Money is incredibly effective balm for soothing fear.

I am not the first person to express concern about the appalling ignorance of our politicians. Leo Amery looking around at his fellow politicians in the 1920’s said that the country would be better served, if there was  separate parliament consisting of industrialist and trade unionists to manage the economy and industrial policy.

A suggestion from an economist as to how the free market could be made to work for the benefit of all

All the evidence from the economy suggests that the free market system is failing. The list of markets that are failing seems almost endless. Perhaps the most obvious failing market is the housing market. In 1973 a minister (when the state directly provided social housing) could state with some justification that there were no homeless people, today the reverse is true. Yet despite the evidence of thousands either living in temporary local authority accommodation awaiting rehousing andthe  countless others living in unsatisfactory private rental property, politicians deny that the housing market is broken.

Why do politicians not recognise the failure of the free market system? One answer is political fashion, which to paraphrase George Orwell pigs ‘public sector bad, private sector good’. This belief in the supremacy of the market system for providing goods and services can be traced back to one influential thinker, Friedrich Hayek. In his book ‘The Road to Serfdom’  (1944) lauded the supremacy of the free market over any alternative economy model. In this very readable book he states that freedom is the free exchange of goods and services between individuals. When the state decides what people want it is tyranny, an economic tyranny comparable to the political tyranny exercised in the fascist and communist states of Europe. Although to this economist cannot see how the provision of state subsidised social housing is a deprivation of economic liberty.

Hayek was a voice speaking in the wilderness until the economic crisis of the 1970s happened. In Britain in 1976 inflation hit the unheard rate of 27%. Politicians desperately looked for a solution and found one in the writings of Hayek and his prophet Milton Friedman. The next twenty years saw a bonfire of regulations and a rush to transfer what public sector services and businesses to the private sector. What politicians hoped and believed was that the introduction of the free market economy was the once and for all solution to the economic ills of the this decade.

Hayek still grips the imagination of the political classes. The privatised railway system in Britain is one of the most expensive and inefficient in the developed world. Yet despite polling evidence suggesting that a majority of British voters would welcome the re-nationalisation of the railways, the majority of politicians regard this as beyond the pale. Only an outsider such as the current opposition leader would argue for this popular cause. There is one certain outcome from this election and that is even if the opposition won the election, the consensus view within parliament would effectively nullify any attempt to return to a nationalised rail service.

There is one failing in the free market philosophy of Hayek that is always ignored. He assumes that the exchange of goods and services takes place between individuals who are equals. The worker for him is free to bargain with the employers to obtain the best possible wage. In Hayek’s impossible scenario the worker and employer equally benefit from the exchange. What he does not recognise is that there is no equality of power in this exchange. While the employer is free to buy the workers labour at the lowest possible wage he can negotiate, the employee very rarely has the power to negotiate the highest possible wage. History demonstrates that in a market lacking employment protections and trade unions, the worker rather than being able to negotiate the best possible wage has to accept the going rate, no matter how poor. It is a market in which Says law applies. Rather than workers negotiating for the highest rate of pay possible, they have to accept the wage whatever rate of pay the employers are prepared to offer.

When the market works well it is unrivalled as a means of exchange of goods and services. The problem is that in Britain it rarely works well. It is the unequal distribution of bargaining power that prevents the market working to the benefit of all. When one person has significantly more bargaining power than the other, be that person an employer or landlord, the other person is at a significant disadvantage. They will inevitably lose out, whether it be having to accept a low wage or by paying a high rent for inferior accommodation. The only way to make the market work is to introduce some equality of power into the relationship. Only then will the more powerful not be able to exploit the less powerful.

One solution would be to introduce legislation to remedy the imperfections in the free market, as was the practice in the 1950s and 60s. However this is not possible when the majority of political classes are committed to Neo-Liberalism or the free market economy. A majority of the of the current generation of politicians would oppose any such policy. There is another solution that might appeal to the free market politician. Greater equality could be introduced into the market and through the legal system so making the exchange of goods and services a more equal relationship. At present civil law with its remedies for civil wrongs is unavailable to the majority of the population, because of the high costs of legal action. Not only is there the high  cost but the wealthy subject of a legal action can spin out a case almost indefinitely so discouraging all but the most determined and wealthy of plaintiffs. A reformed legal system that made justice available to all could make Hayek’s free market work in a manner which he intended. The free market politician would have no reason to object as such a change would only be to enforce the rights of the individual and not subject the business to the whims of the almighty state.

This might seem an incredible statement but the legal system of the Roman Empire particularly that of Justinian was in some ways superior to that of contemporary Britain. Under this system the aggrieved individual could bring their case before the local magistrate. These magistrates seem to have had more power than contemporary British magistrates. They could interrogate the plaintiff and witnesses before arriving at a verdict. From what I understand of the Roman system there was an approximate equality of position of the plaintiff and defendant, something lacking in British courts.

There already exist in Britain a network of small claims courts(1). The remit of these courts could be extended to include a new category of civil wrongs. These courts would retain the principle of not penalising the less well off plaintiff, by not privileging those defendants that have legal representation and through preventing the defendant claiming their legal fees from the plaintiff. What matters would be that the court proceeding do not privilege the wealthy, making these courts accessible to the poorest.

There is one example demonstrates the ugly nature of our current legal system. The British Human Right act gives every person the  ‘right to enjoy the privacy of your own property.’ In our unbalanced legal system a rich property developer was able to persuade the high court, that privacy meant the right to develop their property regardless of the noise nuisance it caused the neighbour’s. In a fairer legal system there would have been a counter claim by the less well off neighbour, which would have prevented this nonsense becoming law.

One further requirement would be an amendment to the Human Rights Act, an amendment that included new rights such as a fair recompense for work. These rights could be incorporated in a relatively short document as they are only statements of principle and it would be the role of the courts to define what these rights meant in practice.

What I am proposing is a remedy for market failure. A remedy that restores a measure of equality in  the bargaining process in the free market. Rather than looking to government to remedy market imperfections, individuals working through the court system will able remedy the failings of the free market. Employers and landlords will be less inclined to adopt exploitative or abusive practices, if they know doing so will involve them in having to defend such practices in open court. Instead of a race to the bottom in which employers vie to adopt most exploitative cost cutting practices to save, there would be a move upwards towards a fairer employment regime.

A salutary lesson for this left of centre economist is that the legislature cannot be relied upon to protect the rights of citizens. Individual legislators are too easily corrupted by powerful corporate interests. As the recent past demonstrates they are only too willing to legislate away the right of citizens to further the corporate interest. Not so long ago a senior member of the government (of a party claiming to represent the workers) saw his role as frustrate the EU commissions attempt to increase the rights of agency workers.There is an old adage that states that the person who can be best relied upon to defend your rights is yourself. The record of the Westminster parliament over the past forty years only too clearly demonstrates the truth of this adage.

This is only intended to a sketch of how the free market could be changed to the benefit of all. Today’s news has demonstrated the need to find an alternative to seeking remedies through parliament. The Prime Minister announced that she would be introducing a policy which entitled all workers to a 12 month period of absence to care for an ill relative. What she failed to make clear was that this would be unpaid leave. A meaningless reform on a par with all the rights of the Soviet citizen that were written into that country’s constitution. Rights that in a police state were meaningless.

(1) There are a number of tribunals that at present that consider these wrongs,but I have left out reference to them for ease of writing.

Why economists lie

I should start with a disclaimer, I am an economist who likes to think that I am generally honest. What I am protesting against is the tendency of many practitioners of my profession to lie. They lie when faced with problems to which they have no solution, by claiming that to have policy solutions that in practice are unrealistic or untrue. 

Rousseau in his writings used the term amour-propre, words which have many synonyms in English and they include pride, self respect and vain glory. It is the last which is a fault that afflicts so many economists. They are the self acknowledged experts on the economy and are never willing admit that they are stuck for an answer. When a problem occurs they will look for an answer from their memory bank and choose one which seems to be offer the best solution. It is not an original solution, but one borrowed from the collective memory bank of all economists. What matters to the economist is that their answer will be judged as correct by their fellow economists not that it is the correct solution to the problem posed by the economy.  Given the complexity of the economy, they can always blame the failure of their policy recommendations on unexpected events.  The familiar its somebody else’s fault excuse is always available as a defence for a failed  policy. In this case its either the fault of the economy when they claim that the fault lies with  unexpected changes in internal or international economy, or its the politicians who fail to understand the policy prescriptions and implement them wrongly. When the great reforms of the 1980s were imposed on the British economy which led to a decimation of the British manufacturing sector; economists introduced another lie, which was that the pain being endured now would lead to a better future in which a revitalised economy which would work to the benefit of all. A future which never materialised.

What I am leading is a campaign for economists to say I don’t know. A willingness to look  at each situation afresh and use the skills of economic analysis to come up with original and new solutions to economic problems. Unfortunately the majority of economists believe that the economic toolset was largely completed in the time Alfred Marshall, whose most influential book the ‘Principles of Economics’ was published in 1890. All that is now required is a tinkering with the toolset left by Marshall to develop the economic policies needed for today. (Marshall systemised the study of market economics, developing a series of tools of economic analysis which are widely used today.)

The great change in the practice of economic policy making in the 1980s was the introduction of monetary economics associated with the American economist Milton Friedman. What was not realised was that he was merely adapting the quantity theory of money which was explained in a  book published  by Irving Fisher in 1911 to the world of the 1980s? Plagiarism in economics is not frowned on but worshipped, so long as the correct work in plagiarised.

Perhaps self censorship might be a more accurate term to describe the practice to which I am objecting. However every economist when studying the subject at university will either be taught about the flaws in the dominant model of economic analysis or would have come across them in one of the texts that they have studied. Yet once they leave university to practice their profession, they suppress their knowledge of the weaknesses or flaws of the favoured method of economic analysis. The act of forgetting probably becomes second nature to the practising economist. Deliberately ignoring the evidence that might suggest that their suggested policy remedies are flawed is an act of dishonesty. Lord Oakshott the former Liberal Democrat Treasury Minister once said that the British Treasury is populated by free market fundamentalists. What he was saying was that  Treasury economists were excluding from their economic policy making any evidence or thinking that was contrary to the free market model of economic analysis. This suggests that economic policy making by the government will be constantly subject to error, because of the wilful deception practised by Treasury economists.

The Great Lie and the Rise of Trump and the alt.right

Economists have to shoulder their share of the blame for the dawning of the age of Trump, May and Farage. Their responsibility lies with the creation of the ‘Great Lie’ which led to the economic and social change which caused the current economic malaise. Governments longer seem to be in control, they seem powerless to arrest the decline in living standards. We now have government that operates on the Pontius Pilate principle, it shares the people’s pain, but it is powerless to anything to alleviate their suffering. In such circumstances when government claims to be helpless in the face of the current crisis, it is hardly surprising that those who claim to have a solution, no matter how wrong headed that solution are now gaining  power.

The ‘Great Lie’  is the one propagated by economists that they have discovered the economic model that if adopted will resolve all the economic and social problems that beset society, that is  the free market. A great lie can be easily identified, it is when economists claim that they have the answer to all society’s problems. Usually such optimistic solutions are called utopian, but economists have greater credibility and there claims are never subject to such scepticism. Economists never seem to accept that the economy as a human creation is as flawed as its makers, mankind. They will never admit that there proposed model for change is but an experiment that may contain as many or more flaws than the system it is replacing.  It is hard to explain why the free market model was so widely accepted, when the very failures of such a system had led to the Great Depression of the 1930s. Until the 1970s it had been accepted that the unfettered free market system was subject to extremes of volatility, whose worst manifestation were the periods of economic depression. Times whne unemploynent was high and people were impoverished. Overnight economists seemed to forget all the negatives of a free market economy and all began to speak from the same hymn sheet, the free market one. The deciding factor seemed to be the unending slow growth and high inflation crisis of the 1970s. A crisis whose origin lay in politics not economics, yet this fact was ignored by politicians desperate a for a solution to the current crisis. (For this particular economist the origins of the crisis were in the excessive demand for raw materials that the Americans required to fight the Vietnam war, which pushed up prices for steel to astronomic levels.)

Economics is pervaded by dishonesty, an unconscious dishonesty but dishonesty never-the-less.The free market or monetary economists never admitted that there would be any downsides to their free market model. Humility was the one quality lacking among these economists. They could make valid and reasoned criticisms of practice of social democratic economics, but were completely blind to the failures of free market economics. When such dishonesty is prevalent among government policy advisors, it should be no surpise that the dishonest claim made by the alt. right with its claim that immigration is the cause of all the problems is an acceptable a truth as the one that the free market works,when it it obvious to many that it does not. 

What these new economists failed to admit was that in creating a free market economy that the people would be exposed to the negative effects of adverse changes in the market. There would be many more losers in the free market. One such example comes from Sunderland, one of the areas that voted in large numbers to leave the EU. One of the main employers is  the Swan Hunter shipyard, which built merchant ships. In the 1970s it was failing to win orders because it could not compete with more modern shipyards in the Far East. The government realised that if it invested in re-equipping the yard with the latest in ship building technology, it could compete with other major shipyards. This would create many new jobs in an area of high unemployment. In 1979 a Neo-Liberal government came to power who thought any government intervention in the economy was wrong and they withdrew their support for the shipyard. All the new shipbuilding technology was sold to a rival shipyard in South Korea. Swan Hunter survives as a manufacturer of warships and equipment for the North Sea oil industry. However the people of Sunderland seem never to have forgotten the government’s betrayal of them and this year they could demonstrate their hostility by voting to leave the EU, against the advice of the government.

While the economists cannot be held responsible for the decisions of the government, they were the cheerleaders for the changes in economic policy making. One of the greatest of these new economists Milton Friedman supported the government of Pinochet when it tortured and killed its opponents, claiming that Chilean society would be better off without these people. A variation on the saying that you cannot make an omelette without breaking eggs, except that in this case the eggs are people.

One chilling example of the eggs being broken is housing policy. Increasing numbers of people, particularly the young are being forced into the private rental market. There they suffer from the twin problems of exorbitantly high rents and insecurity of tenure. When it has been suggested that the solution is to give private tenants security of tenure and to introduce rent controls, the social democratic party in this country has always rejected it as an unworkable solution. They claim that the introduction of such controls would reduce the number of properties for rent and so be against the long term interests of the private tenant. In reality a policy that did both things and which included measures to prevent a reduction in the number of rental properties could be devised. Yet this party clings to the Pontius Pilate principle of politics, vicariously sharing the pain of the private tenant while saying that bad as the situation is there is nothing they can do to improve the lot of the private tenant. When such is the official policy of this party it is no surprise that it is threatened with losing constituencies to the party of the alt. right that claims to have an answer.

There is little doubt that the adoption of free market economics has created an increasing number of losers in society and it is these losers that are looking to the alternatives for a solution. The only solution to the woes of society appear to be those  offered by the xenophobic right; as all the other political parties seem to adopt the same message which is that things may appear to be bad now, but they would be much worse if the government tried an alternative policy.

One solution to the current malaise is for politicians to accept responsibility for their actions, instead of looking for unreal solutions from the world of economics. While it was the unregulated financial markets that caused the crash of 2008/9 the slow recovery has been due to the governments adoption of an austerity policy. If the governments of the West had learnt anything from the 1930s it should be that adopting those economic policies to tackle non existent problems, they should take action to ameliorate the negative effects of the crash. Austerity programmes designed to do little more than cut government debt and increase and prolong the agonies of 2008/9. What is required is imaginative solutions to the crisis, usually not available from economists who are stuck with ‘Big Lie’, that the market will solve the current crisis if left to itself,when it quite obviously won’t.

Why economics fails

There is it seems a present a desire to doubt the validity of economics and the skills of its practitioners.  Just yesterday there was Chief Economist at the Bank of England issuing a mea culpa on behalf of the profession, in which he apologised for his and their failings and said that economists must do better in the future. He is just another ‘failing expert’, as Michael Gove would have said. When Michael Gove said in the EU referendum debate that the people were fed up with experts and were best of without them, one assumes that he was speaking about economists. However Michael Gove as with many politicians is adept at deflecting the blame for their own mistakes on to others. Politicians are those in charge and they make the decisions on matters of economic policy and not the economists. Yet whatever failures of government policy that occurred in the period 2010 to 2016, Michael Gove and his colleagues will never put there hands up and accept their share of the blame. Politicians such as him have a list of scapegoats to use to disguise their failings and another such favourite is the  EU. Teresa May’s disparaging comments about citizens of the world being citizens of nowhere can be paraphrased to describe contemporary government ministers, they are the ‘ministers of nothing’ knowing and caring little about their departments. Just sitting out their ministerial brief waiting for an upgrade to a more high profile ministry.

While it is the politicians that have been responsible for the disasters of recent policy making, economists still share some of the responsibility, in that they have encouraged politicians to develop an almost papal like sense of infallibility. Neo-liberal or free market economists claimed in the decade 1970-80 to have discovered the holy grail of economic policy making. They claimed that at the heart of any economy there was a self regulating market which when left to itself produces the best results for all. This market mechanism was capable of outthinking any politician. If  left to itself it would settle on the natural equilibrium levels of growth, employment and inflation, which would in turn mean society would enjoy a level of prosperity that it would otherwise never achieved if the economy had been managed by politicians. All the politicians had to do was to create the optimum conditions in which to enable the market to work unhindered, which was quite simply a bonfire of regulations. They can maintain an Olympian disdain knowing that they know  the answers to everything and have to hand the one key policy measure, impose the free market on the seemingly intractable problem.

One thought  that never occurred to these politicians or economists is fallibility of human thought, never in history has mankind ever succeeded in creating the perfect social organism. They seem to have forgotten such schemes are referred to as utopian in the history books, because they are always hopelessly impracticable.

What cannot be said is that there were no warning signs. When with great enthusiasm the Conservative government of the 1980s followed the policy prescriptions of Milton Friedman, failing to notice that his major policy prescription was unworkable. He said that the government should be regulate the economy through control of the money supply. Unfortunately he had not done his homework, as in practice it proved impossible to define what exactly was money supply. The Bank of England came up with at least five possible descriptions of money supply. There preferred choice was description number 3, what was known as M3. The only reason for choosing M3 was that it was easier to calculate than the other possible choices. Then having settled on M3, they realised that it would be extremely difficult to devise ways of controlling this money supply. All possible solutions would involve interfering in how the banks managed their finances. Instead the government opted for controlling by money supply by controlling demand for money. If they changed interest rates this would either or lower the price at which people could borrow, so if they put up interest rates people would borrow less and the amount of money (bank deposits) in circulation would fall. Never once did it occur to the government that controlling interest rates was not the same as controlling the money supply. Interest rate changes could change the supply of money held but it was a very indirect and imprecise control. Unlike what Milton Friedman desired what the government used as a very rough and ready measure to control money.

Politicians were obvious to the problems of implementing this policy, is it because the economics of the time was encouraging them not to think and question. They cannot claim not to have any warnings of the volatility of the free market as there were many financial crashes from the period 1979 to 2008.Yet these politicians believing they possessed the holy grail of policy making were  able the collapse of the Asian tiger economies or the dot com crash.  In consequence the great financial crash of 2008 which should have been foreseeable became the catastrophe that came out of nowhere, a veritable economic tsunami.

What economists should also be blamed for is there willingness to overstate their abilities and knowledge of all things economic..The economy is one of the most complex of mechanisms developed by mankind and yet economists all to often suggest that they really do know, when they don’t. I as an economist take my lead from Socrates. The oracle at Delphi told him that he was the wisest of men, yet this was a man who claimed to know nothing. Was not the oracle stating that Socrates was wise because he was the only man prepared to acknowledge his ignorance? I always wished that as a teacher I had told my students that I really knew nothing about economics. Yet as an economist I know a thousand times more things about the economy that any politician. What I see Socrates as saying is not that he lacks knowledge but answers. He was I believe using his ignorance as ploy to unsettle  his rivals, as a reading of any of Plato’s dialogues does demonstrate that Socrates knew quite a lot. Any economist when faced with a problem should be prepared to state his ignorance, as with a rapidly evolving and every changing economy, yesterdays’ knowledge is never sufficient to provide today’s answers. As  an economist what I possess is a knowledge of problems that have occurred in the past which appear to have some similarities with the problem at hand. Using that knowledge I could suggest a variety of policy solutions and recommend that which I think would be most effective. However I know that in what is an ever changing economy events may happen to make my policy recommendations ineffective. Humility should be part of the economists weaponry. I know that I can’t give Michael Gove the definitive answer he craves, the world is much more complex than the one viewed from Westminster or his newspaper column. I do know that my answers are better than his on all matters economic, as some knowledge of the economy and its workings are always better than none.

The last word I leave to Erasmus, ‘only a fool boasts of their ignorance’ or should it be ‘that only a fool takes pride in their ignorance’. A faulty memory prevents me recalling Erasmus’s exact words.