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Tearing it up by the roots – a new approach to economics

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Michael Gove dismissed the profession of economists, as one of those unnecessary groups of professionals, who stopped the common sense will of the people from prevailing. Although Michael Gove knows little of economics and the value of his statement can be questioned, he is right to suggest that something is rotten within the economics profession.

Just as Karl Popper looks back to Parmenides (early 5 BCE) as the originator of the modern scientific discourse, I believe that the same philosopher can be used to demonstrate the failings of contemporary economics. Parmenides has a vision in which the Goddess reveals to him two separate worlds that of truth which is known only to the Gods, and the world of shadows and falsehoods known to man. Man can only glimpse but shadows of truth, he can never know. Certainty is only known to the Gods. What Popper understands from this is that scientific inquiry can never know certainty, truths known today will be demonstrated as false tomorrow. Scientific truths are conjectures which should be in a form that makes capable of refutation. It is this verification process that makes possible the advance of science as new and better truths replace those of today and yesterday. However he does suggest that these founding fathers are giants on whose shoulders we stand to advance. They make the initial discoveries that make possible the advance of science. Today Newton’s cosmology and theory of gravity are regarded at best partial truths. Yet without Newton’s discoveries Einstein and the advances of modern cosmology would be impossible.

What Karl Popper believes is that there can be no certainties only probabilities. The latter being an admission that we don’t know. Contemporary economics ‘does know’ it knows certain truths about the economy. There are two fundamental truths and they are those of the market economy and modern monetary theory. These are the two foundational principles that underpin all contemporary economics..

Market theory is often referred to as Neo-liberal economics. This theory asserts that the free market is a self regulating organisation, which if subject to minimal government interference will find its own level of equilibrium. Governments that interfere and over regulate the economy risk upsetting the balance of forces in the economy, that determine the best of all possible outcomes for all. It was Alfred Marshall (1840 – 1924) who demonstrated the truths of market economics with the supply and demand theories with which all students of economics are familiar today. Familiarly known the diagrams that demonstrate the ‘Marshallian Scissors’. Nearly all economic theory is a derivation of market economics.

Perhaps the most notorious is Says’ law of incomes. This states that it is self defeating to try to maintain wage levels during a recession, as this will merely increase unemployment through making workers to expensive to pay. Far better to let wages fall to a level at which it becomes profitable for firms to employ workers. These newly employed workers will spend the wages they receive, which will increase demand and kickstart the recovery. With the economy growing wages will return to their former high levels, as newly profitable firms bid against each other through paying higher wages to attract workers from the diminishing pool of unemployed labour. No government will ever admit to following Say’s law, but it is implicit truth, as they are always concerned to avoid the situation in which high wages make workers unaffordable to employers. When Tony Blair introduced the minimum wage he took great pains to ensure that it was not set at a too high a level, as that would make labour too expensive to employ.

A common sense truth which seems obvious to all. However there is very little economic evidence to demonstrate the truth of this ‘common sense’ theory.

The other great truth of orthodox economics is modern monetary theory (now associated with Milton Friedman). This quite simply states that the level of economic activity is determined by the quantity of money in the economy. Increasing the quantity of money in the economy increases the number of purchases people make, so increasing the level of economy activity. However if the quantity of money is increased too much, there is too much money chasing too few goods and so inflation occurs. All the government needs to do to control the level of economic activity is to either change interest rates or the supply of money (so called Quantitive Easing). Although this theory is associated with Milton Friedman he was merely putting the ideas of Irving Fisher (1867-1947) into a more modern format. This school of thinking in fact has a long history, as it’s origins can be traced back to Copernicus who first gave it form 1517.*

Unfortunately modern monetary theory has one flaw, if if the government is to control the supply of money, it must know what it is controlling. Unfortunately it does not. When the Treasury introduced this policy in the 1980’s, I think they came up with seven different definitions of what constituted money. In practice they adopted one definition, M4 as the most likely one. Despite this flaw in the theory, governments have since the 1980’s all been practitioners of modern monetary policy. Never in academic circles will you hear this criticism mentioned.

J.M.Keynes and the economics named after him is regarded as an aberration and no longer regarded as one the foundational truths of economics. The British Treasury the fount of all economic truth has long since dismissed his ideas as irrelevant.

What the economists ‘who know’ have in common, is that they possess what that they believe is a bag of tricks from which the appropriate tool can be chosen to fix any crisis. At present the favoured tool is a combination of reducing interest rates and increasing the supply of money through quantitive easing.

Karl Popper influenced me in my choice of names, he does as do I, belong in the school of ‘don’t knows’ or to put it more accurately we believe our respective subjects consist of a series of probable or possible truths which for the present have great utility. As Karl Popper writes that to state that something is a probability is to admit to doubt. Probably the best known advocate of this school is J.K.Galbraith.* As he had no grand theory linked to his name and was dismissive of such theories. Academic economists tended to regard him as not one of them. He was an agricultural economist, who caught the eye of Franklin Roosevelt and who drafted him in to help manage the wartime US economy. He was one of the authors of the post war report into the effectiveness on allied bombing on Germany. They as a group were surprised to discover how little impact it had on the German economy. A fact conveniently overlooked in the Vietnam war.

What discredited him in the eyes of other economists was his prioritising the human factor over any grand theory. While Hayek claimed that the mad speculation that led to the Wall Street crash of 1929 was due to a drying up of legitimate investment opportunities, Galbraith lays the blame squarely on the shoulders of the financiers. The bosses of Goldman Sachs and the other major banks were both reckless and irresponsible. They made huge profits from the foolish and reckless investments made on the Stock Exchange and had no incentive to discourage them. This is illustrated in the example of the Florida property developer who bought swamp land claiming to to be prime real estate. The authorities on the New York Stock Exchange saw no reason to prevent the sale of stock in this fraudulent enterprise. It was just too profitable. In Galbraith’s words the great crash was 1929 was due to the activities of a group of rogue financiers.

Not surprisingly it turned out that Goldman Sachs was involved in similar activities in the events leading up to the crash of 2008. They were fined millions of dollars for selling what they knew to be worthless bonds to their clients.

When I studied economics at university, I was disappointed to discover it avoided the big questions. The issue of distribution of wealth was redefined as the optimum output curve. Any point on that curve represented the best possible distribution of resources within a given community. This as an exercise in logical thinking was impeccable, but it had no relevance to world outside the seminar room. While this ‘economic scientism’ dominates the subject of economics it remains detached from the real world. When Russians during the ‘Moscow Spring’ came to study economics or more precisely free market economics; they expressed disappointment about how little it taught them about the real economy.

After a number of years teaching economics I came to realise that the teaching of economics was about developing the ‘economic imagination’. This was not so much learning the economic theory that relates to a particular scenario, but being creative within the parameters of economic thinking. A Socratic economics in which reasoning is used to disabuse the student of the ‘truths’ of orthodox economics. The conventions of orthodox economics often stand in the way of developing a real solution to the problem. Only the most unimaginative can think that changing interest rates, increasing or reducing money supply is the answer to everything. Any study of the post war management of the economy would surprise today’s readers.Realising a shortage of houses meant that this could lead to a rapid rise in house prices and inflation in the housing market, the government took action to prevent this happening. The annual in increase in house prices was subject to a tax. This of course meant house owners had a disincentive to the over valuation of houses and house prices remained low in this period. This made the majority of houses affordable unlike today.

Again J.K. Galbraith provides an illustration of this in his work in managing the US wartime economy. One of the problems of the wartime economy is inflation. With so much of the nations output requisitioned for the war effort, a shortage of goods in some parts of the economy would lead to a rapid rise in prices and inflation. Galbraith realised that it was not necessary to introduce a national system of price controls, but instead to control prices with the cooperation of the great corporations. Since they accounted for a majority of the nations output, if they could be persuaded to keep prices down there would be no price inflation. All the other medium and small businesses would follow suit, particularly if they were suppliers to the major corporations.

Economics suffers from one problem that is unique to it. What is true yesterday may not be true today. The economy is a dynamic institution that is constantly changing. Evidence about what is happening in the economy is from yesterday. There is no evidence, apart of the most impressionist kind about today and none about tomorrow. This is why J.S.Mill said there can be no science of of economics. Given this uncertainty governments prefer to use the old tried and tested methods, fearing that any policy innovation will make things worse rather than better. This Conservative mind set explains why governments never get to grips with the problems that plague the economy.

The consequences of adopting the ‘economics of don’t know

Universities would change, economics departments would have to teach students to think creatively. Old dead economists, the founding fathers of the subject would no longer dominate the curriculum. The subject would become more open ended, there would now be no arbitrary limits to subject knowledge. All the old certainties associated with this subject would go. Current academic economists would resist any change, as the knowledge they hold so dear would no longer be valued. University departments of economics would revert back to the liberal humanism of the past.

Resistance to this change would not just come from current academics, but also government. University education is now a commodity that is bought and sold. All the current means that are used to measure a universities output would cease to work. Creative and innovative thinking does not lead itself to the current system of box ticking. Governments would lose the main means through which they control what is taught in the universities.

The two greatest employers of economics graduates the investment banks and the Treasury don’t want graduates who think. They want them versed in the ways of the old economics, together the statistical skills acquired in the study of the old economics. This is the problem already known of, when Manchester students demanded a radical change in the economics syllabus, they had to contend with the fact that they would denying themselves lucrative employment in the world of banking.

Economics can be one of those subjects has to be endured and best soon forgotten on leaving university. What I am suggesting would lead to a revolution in the teaching of economics, it would now be a subject that valued creativity, rather than conformity amongst its students. If instead of discouraging students from continuing an interest in the subject, economics would be one of those stimulating subjects whose students would now retain a life time interest. Since so many MPs have studied PPE at university, those MPs would be better informed and rather than parliament collectively demonstrating an ignorance of the subject and debates on the economy and its management would be better informed and enlightening.

Politics would have to change, Chancellors such as Rishi Sunack and the Treasury itself would have to adopt evidence based economics. Rishi Sunak could no longer quote the truths of the founding fathers as justification for his policies. In constructing economic policies real thinking would be required, as real answers to problems would be required. I look forward to the day when any politician is laughed at when they turn to the old economic pieties to justify there ill thought out policies.

* J.K.Galbraith would probably be horrified to know that I consider him the doyen of the economists who don’t know. I include him because he is one of the few economists, unlike many economists does not know the answer before he starts the investigation. He possesses no ready made answers.

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There is an alternative – moral economics and economists

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Economists see the free market economy as the end point of social evolution. Industrialisation and the market economy are but inevitable stages in the development of society. Sophisticated developed societies are market economies. They are the high point of social evolution, a belief best demonstrated in Francis Fukuyama’s claim that history ended with the development of liberal democracy. All these democracies were of course free markets. Human freedom has reached it’s zenith in the free market. (Milton Friedman even thought the killing and imprisonment of thousands in Pinochet’s Chile, as a price worth paying for the restoration of human and economic freedoms.)

This triumphalism of the market economists is a recent phenomenon. In the period after the second world war and as a consequence of the Great Depression, free market economists were a small discredited minority. Instead economists such as Karl Polanyi, Nicholas Kaldor and John Maynard Keynes who supported the state management of the economy were those held in the highest regard. However with the economic crisis of the 1970s, these economists fell out of favour to be replaced by the free market economists, who persuaded governments institute the new era of neo-liberalism.

Karl Polanyi is now one of those unfashionable economists that is now being studied again after the collapse of the market economy. What makes him so different from the free market economists is that he did not believe that free markets were a product of social evolution. He sees the economy as part of an integral part of a network of social institutions. Changes in the economy were a consequence of changes in wider society and changes in the economy in its turn changed the society in which it was located.

Polanyi traces the origins on the free market industrial society of today to Tudor society. The old military aristocracy was losing power to a new rising class comprised of small landowners and the merchants in the towns and cities. It was the demands of these two groups that kick started the social and economic change that led to industrialisation and development of the free market. Landowners wanted the rural peasantry off the land, so they could introduce new and more profitable farming methods. This was enclosure of common lands. Legislation made it almost impossible for the poor ‘inefficient’ peasant farmers to continue to farm the land. They could not afford the costs of enclosing their farmland. . The great merchants in the cities wanted the end of the guild system, which they believed restricted their ability to make money. Guilds imposed regulatory controls on their members, which the great merchants believed placed unfair restrictions on their ability to trade. These two groups were over represented in parliament. Also the great merchants (Wolsey and Thomas Cromwell) were the source of loans for a government that was always short of money. Consequently the government introduced measures to help both groups.

Once example was the vagrancy laws which could be used to control the landless peasantry. Landless peasants without work and no support within the community could be whipped and driven out of the community, so relieving the landowners of the obligation to support them. E.P. Thompson about the Black Laws introduced in the 18th century) which further disempowered the working poor. These acts introduced capital punishment for offences such as trespass or for destroying a farm gates. These had the effect speeding up the exodus of peasants from the land. Formerly the rural peasantry could collect fallen branches from the woods, now this was illegal. Similarly poaching as means of supplementing a poor diet was now a hanging offence. This created a new class of landless proletariat who would supply the labour for the new industries that were developing in the towns and cities.

This breaking of the link between the poor and the land, created the flexible and mobile workforce that the new industries would need. Obviously there were other important factors that facilitated the industrial revolution such as advances in technology.

If I understand Polanyi correctly the free market and industrialisation, were accidental changes following on from a power grab by the landowning and merchant classes.

Social and economic change produced a new ideology, that of capitalism. In the new social environment, people thought differently. What now ensured societies well being was Adam Smiths ‘invisible hand’ of the free market. Now the price system would be responsible for distribution of wealth, and consequent responsibility for people’s well-being. Poverty now was not deserving of amelioration, it was a consequence of a personal failings. However even Adam Smith was shocked at the brutal way the new capitalists were treating there employees in Glasgow. However the moral coda that he inserted at the end of ‘The Wealth of Nations’ stating that employers owed a duty of care to there employees was ignored. Capitalist ideology dehumanised society, people and land were now valued according to their utility. They were now things, society was commodified, people and land were things that were bought. Valued only according to their usefulness. This was according to Weber the process of disenchantment. What today has become known as financialisation. Society was an inhuman affair in which people only had value in their functionality.

Perhaps the best illustration of the new way of thinking is represented in the writings of those twentieth century economic historians who wrote that the introduction of the Factory Acts were responsible for the slowing of economic growth in the 19th century, as the money that should have been reinvested in the business was instead spent on wages or improving the welfare of the workers. This was the cause of Britain’s relatively poor economic performance compared to foreign rivals. There spokesman was the liberal MP John Bright who argued that the country’s continued prosperity was dependent on the continued exploitation of children in the Mills. An attitude that still prevalent today. During the 2015 election campaign Ed Milliband was criticised by a member of the audience for not understanding that the success of his business depended on his continued ability to continuation of that exploitation of his workers through the zero hours system. Some employers certainly in the medieval period treated their workers equally badly, but they did not boast of the fact, or claim that their behaviour had moral sanction from the nations code of ethics. Then the prevailing Christian code of ethics would have condemned such behaviour. The stocks were often occupied by tradesmen who had cheated there customers. Whatever the failings of the Middle Ages a different and anti capitalist ethics prevailed.

Polanyi writes that the unregulated free market is a threat to social order. The example he uses to demonstrate this is the Speenhamland system which was introduced in the late 18th century. Until industrialisation there was a thriving cottage based textile trade. With the introduction of new technology and the growth of the factory system, these people faced impoverishment. Trade was lost to the new mills taken and payment for whatever they produced was reduced to the price paid for such products by mills. In France the impoverished peasants together with the urban proletariat provided the foot soldiers that made revolution possible. This was avoided in Britain, because the poor could apply to the parish for relief. They never became as desperate as the working poor in France. The parish money enabled these workers to remain in their homes and provided them with sufficient money to satisfy there family’ basic needs. Unlike their French counterparts desperation did not drive them to revolution. There were no equivalence in England of the Chateau burnings of France.

One writer rightly describes Polanyi as a moral economist. All new economics students in the U.K. are taught that moral preoccupations have no place in the study and practice of economics. It is a science different in nature from ethics. Even today economists and writers prefer Polanyi without the moral dimension. Threats to the social order posed by the economy are said to bring forth a reaction, societies develop protective measures that seek to minimise the disruptive effects of the free market. Anybody who has read ‘The Great Transformation’ cannot fail to note his suppressed anger when he describes the impact of the Great Depression on people in Europe.

Polanyi is important today not just because he offers an alternative vision of economics and society; but because he was one of that great generation of economists, who persuaded governments that a new way of managing the economy was possible. A way that would prevent a recurrence of both the crash of 1929 and the Great Depression. Unfortunately a later generation of economists have persuaded governments to abandon the policies of these economists and revert to the failed economic policies of the 1920s.

One last point Polanyi makes and that is that the market based price system is only a recent historical development. Only in the last two to three hundred years have households satisfied a majority of there needs by exchanging money for goods and services in the market. Prior to take the market only provided a minimum of a households needs. There is no reason why the price system and free market will always be the means by which goods and services are distributed. When the managing director of the IMF warns of another Great Depression, all that can be certain is that the free market so beloved of the Neo-Liberals will disappear.

The Dead Economist’s Society*

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Politicians have constantly complaining about economists, usually for not giving them the answers they want. Only recently Michael Gove a leading Brexit campaigner complained that the people were fed up with experts. What he was complaining about was the fact that economists who had previously supported the government weren’t making the upbeat predictions about Brexit that he expected. The loss of these expert cheer leaders must have been galling.

Michael Gove is typical of many politicians in their misunderstanding of economics. While throughout the course of his political career economists tended to speak with one voice, that of the Neo-Liberal free marketers. Free market economists of the Chicago school dominated the universities and the professions and maverick economists were marginalised or silenced. Economics Journals now refused to print articles that did not fit in with the mainstream view. Only by exposing free market economics could academics hope for preferment in their profession. However that did not mean that economics had completely lost their integrity, all economists still believe that their subject is an evidenced based one. Surprising to the Brexiteers these economists could not agree that leaving the largest and most prosperous free market in the world was a good idea. Only the most ideological and extreme of economists could believe in the Brexit fantasy.

What economics has lost is it’s robustness. Although economists have as a profession tended to be of the right and free marketers, they have in the past accepted that there is a space in their subject for alternative voices. Unfortunately in the 1980s these alternative voices were suppressed. Their books disappeared from the university curriculum. Now these alternative voices are needed as the government seems to have emptied the basket of free market policy measures and needs an alternative approach to policy making. If only government ministers and their civil servants were familiar with the writings of the non free market minority of economists of the past they would not be short of policy alternatives.

One such past economist is Michael Polanyi. Michael Polanyi argued that the unregulated free market was the worst possible of economic systems. What he suggested was that the state could be better at second guessing what people wanted, than did the market. In a free market the rich and powerful have undue influence over how the goods and services that the economy produces are distributed amongst the people. Not only could they claim the lions share of the wealth, but they could also deny the majority a fair share of the nations wealth. The health care system in the USA provides an example of his thinking. There the well off can have access to the best health care in the world, but also deny access to adequate health care for the less well off majority. Health care in the USA is run by for profit health care providers. The poor have the most health problems but they are the least able to pay for treatment. Since the provision of health care to the less well off is a loss making service, it is not provided. The poor and less well off instead have to rely upon the health care provided by those hospitals run by charitable institutions. These institutions are poorly funded and cannot provide the best of care. Michael Polanyi would argue that health care is a universal good, as all have a right to good health care only a state run health care service can provide health care for all.

When only one voice is heard the result is bad policy making. Michael Polanyi has long since been forgotten and the government only gets policy advice from free marketers of the school of Friedrich Hayek and Milton Friedman. (However today’s politicians are ignorant of the latter’s seminal work ‘Monetary theory and the Trade Cycle’. A book which if they read, they would realise that he would regard their current policy of quantitive easing and low interest rates as wrong headed.) Now all too often government policy has been that of trying to fit square pegs into round holes. Every government embarks on a new policy to make health care more market efficient, each reform costs billions, yet is considered as necessary by each new government. Never does any health minister ever stop to think that their policy might be wrong and that there are alternatives to remaking the NHS into a faux free market, by continually dividing and re-dividing health service care providers into competing groups of buyers and sellers. Never do they consider that each new bureaucratic structure they impose on the NHS, is yet another costly diversion of resources away from front line services.

What economists know but politicians do not is that evidence demonstrates that a health service run by health care professionals is more cost efficient that its for profit alternative. For example health care professionals might adopt some wasteful practices such as the over ordering of medicines, but this is less costly than its alternative. If this over ordering is to be eliminated a new and expensive bureaucracy of stock controllers, accountants and financial controllers is required to take over the purchasing and distribution of medicines. The cost of these bureaucrats far exceeds the cost of any over ordering of medicines. In the well managed private hospitals of the USA administrative costs account for 40% of the costs of running the business. Unfortunately in the U.K. the government with its various reforms is trying to divert an increasing share of the health care budget to these financial controllers in the name of cost efficiency.

Although Michael Polanyi was once was a well known economist, he is now virtually unknown. Contemporary economists are overwhelming free market economists and little is published that is contrary to their consensus view. What is now needed is a ‘Dead Economists’ society. A society that will popularise the policy prescriptions of these long dead and forgotten economists. There are a number that I can recall such as Michael Polanyi, J.K.Galbraith, Piero Staffa and John Maynard Keynes. If politicians were familiar with Friedrich Hayek’s work other than his short populist text, ‘The Return to Serfdom’, they would realise that he would have been critical of much their ill thought out policy making. There are numerous economists who have written about solutions to many of the now problems of facing the U.K. economy, but ignorance of them means they are never considered. What politicians want are the simple easy to under policies of the type offered by the free marketers, they have little patience with good economic practice, as it can be difficult to understand and ones that do not provide the simple answers that make good headlines in the popular press. Donald Trump is not a maverick politician contrary to the mainstream, but rather the exemplar of a mainstream politician that has little time for the different reality that is the real economy.

What adds urgency to my writing is an article published by the Institute for Public Policy Research that the Bank of England which states that the government is ill prepared for the next recession. They have exhausted all the possibilities that can derived from expanding the money supply, through a policy of quantitive easing and low interest rates. What they state is that the government’s policy cupboard is bare and they now lack the anti recessionary policies to deal with any future economic downturn.

* I don’t wish to claim originality for my title. It is one that I have borrowed and adapted from Larry Ridener’s website, Dead Sociologists Society, one which I used to good effect during my teaching career.

Alternative and/or Socialist Economics are overdue a revival

Economics, Neo-Liberal economics, Politics, , , , , , , , , , , ,

Politicians have constantly complaining about economists, usually for not giving them the they want. Only recently Michael Gove a leading Brexit campaigner complained that the people were fed up with experts. What he was complaining about was the fact that economists weren’t making the upbeat predictions about Brexit that he wanted. It was disappointing to him that all these economists who were backing the free market reforms of his government were no longer supporting him.

Michael Gove is typical of many politicians in their misunderstanding of economics. While throughout the course of his political career economists tended to speak with one voice, that of the Neo-Liberal free marketers, that resulted from the suppression of alternative economic voices. Free market economists of the Chicago school dominated the universities and the professions, maverick economists were marginalised or silenced. When he proposed that the UK leave the European Union, the largest and most prosperous free market in the world they could not support him. What he had misunderstood that while some economists were willing to ignore the evidence that a precipitate break from the EU would be bad for the EU economy, most economists subscribe to the view that there subject is evidence based and could not back a policy that was contrary to the facts. Free market economists could not support a policy that led to the U.K. breaking with the world’s largest and most prosperous free market.

However Michael Gove is not totally to blame for his misunderstanding of the nature of economics. Economists fail to recognise the divisions within society and the conflicting interests of the various groups that make up society. What they prefer is one ‘great theory of economics’, a theory that explains everything and benefits all. In the 1980s for a variety of reasons mainstream economists adopted the free market economics of the Chicago School. This is its essence stated that the free market brought about the most equitable of outcomes. The free bargaining of sellers and consumers would deliver the best outcomes for all. No longer would the state be ineffectively second guessing what the people or consumers wanted.

Contrary voices such as that of Michael Polanyi were ignored. Michael Polanyi argued that the unregulated free market was the worst possible of outcomes. He stated that the state was in effect could be better at second guessing what people wanted, than the market. In a free market the rich and powerful have undue influence over how the goods and services that the economy produces are distributed amongst the people. Not only could they claim the lions share of the wealth, but they could also deny the majority a fair share of the nations wealth. The health care system in the USA provides an example of his thinking. There the well off can have access to the best health care in the world, but also deny access to adequate health care for the majority. Health care in the USA is run by for profit health care providers. These health care businesses are usually companies owned by shareholders. Those share holders that hold a majority of the companies shares are the super rich and they are not going to permit their business to provide loss making services, as they want the best possible return on their investment. The provision of universal health care to the less well off is a loss making service, so it is not provided. The poor and less well off instead have to rely upon the health care provided by the hospitals run by charitable institutions. These institutions are poorly funded and cannot provide the best of care. Michael Polanyi would argue that health care is a universal good, as all have a right to good health care and only a state run health care service can provide health care for all.

When only one voice is heard the result is bad policy making. Michael Polanyi has long since been forgotten and the government only gets policy advice from free marketers of the school of Friedrich Hayek and Milton Friedman. Now al too often government policy has been that of trying to fit square pegs into round holes. Every government embarks on a new policy to make health care services more market efficient, each reform costs billions, yet is considered necessary by each new government. Never does any health minister ever stop to think that their policy might be wrong and that there are alternatives to remaking the NHS into a faux free market. What all ministers believe is that by dividing the NHS into competing buyers and sellers (hospitals are sellers, selling there service to the various local health trusts) they get the most efficient of health services. Never do they understand that each new bureaucratic structure they impose on the NHS is yet another costly diversion of resources away from front line services and that these expensive bureaucracies may prevent health care being provided in the most effective and efficient way.

What economists know but politicians do not. Is that a health service run by health care professionals might adopt some wasteful practices such as over ordered get of medicines, but the cure for this problem is far more costly. If the most efficient distribution of medicines is to be ensured a new bureaucracy of stock controllers, accountants and financial controllers of all kinds. The cost of these bureaucrats far exceeds the cost of any over ordering by medical professionals. In the well managed private hospitals of the USA administrative costs account for 40% of the costs of running the business. Unfortunately in the U.K. the government with its various reforms is trying to divert an increasing share of the health care budget to these financial controllers.

Although Michael Polanyi who once was a well known economist he is now virtually unknown amongst contemporary politicians. Contemporary economists are overwhelming free market economists and little is published that is contrary to the consensus view. What is now needed is a ‘Dead Economists’ society. A society that popularises all the policy prescriptions of these long dead economists. There are a number that I can recall such as Michael Polanyi, J.K.Galbraith, Piero Staffa and John Maynard Keynes. If politicians were familiar with Friedrich Hayes’s work other than his short populist text, ‘The Return to Serfdom’, they would realise that he would have been critical of much ill thought out policy making. There are numerous economists who have written about the problems that face contemporary U.K. and suggest policy solutions, but all are ignored. What politicians want are the simple easy to under policies offered by the free marketers, they have little patience with good economic practice, as it is time consuming and does not offer the simple answers that make good headlines in the popular press. Donald Trump rather than be seen as a maverick politician contrary to the mainstream of politicians, should seen as representative of current political process in which politicians have a limited time span and want solutions produced within five minutes.

Intellectual stupidity a practice common to both Economists and Politicians

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Intellectual stupidity is not a concept that is to be found in book on either the subject of economics and politics. This is a concept that was created by Robert Musil. He distinguishes between two types of stupidity, natural and intellectual. The first is the one due to physiological factors, it occurs when an individual lacks the mental capacity for higher order thinking. Although he would be criticised today for his use of this offensive word, he can be justified when its contrasted with intellectual stupidity. A term Hannah Arendt had in mind when she criticised evil as personified by Adolf Eichmann as banal. This was a man who lacked intellectual curiosity, he was unable to empathise with the millions of victims of the holocaust. He thought the was a good man because he made the trains to the death camps run on time. The fact that these trains took millions to their deaths was no significance to him. Their deaths were somebody else’s responsibility. He was in his mind a good administrator not an essential player in the holocaust.

Politics and economics practitioners are blighted with a similar failing. Milton Friedman was guilty of this failing. When Milton Friedman was told that the Chilean government when introducing the free market reforms he advocated were imprisoning, torturing and killing opponents of these reforms, he said it was a price worth paying. Just as with Adolf Eichmann his vision all that mattered was the introduction the Chicago School of Economic management to human societies. Human rights was for him just a matter of secondary concern. Recent political history has been dominated by such practitioners of intellectual stupidity.

In Britain such stupidity has been demonstrated by successive governments in there implementation of the free market economy. They see there role as being facilitators of a Hayekian free market system. When ever such reforms produce failures such as the collapse of Carillon, a company to which many government sources had been outsourced; it was a consequence of poor management with the company. Never was the policy of privatisation of government services considered to be a flawed concept. The ‘Economist’ magazine while exposing the failures of Carillon’s management mounted a strong defence of the outsourcing of government services. Now two other outsourcing giants Capita and Interserve are in trouble. Yet our government remains committed to outsourcing as a policy practice. This is demonstrates intellectual stupidity, as government ministers cannot contemplate any alternative policies or thinking.

Intellectually stupid politicians are always trying to second guess their civil servants. Rather than seeing them as experienced administrators who can offer them practical and useful advice on policy matters; they are seen conspirators who are trying to obstruct their policies. The traditional civil service practice of providing the minister with a series of policy alternatives from which to choose is seen as a threat to the integrity of government policy making. Just recently a senior politician who studied history at University decided that economists at the Treasury were conspiring to undermine Brexit, by producing erroneous data on the consequences of leaving the EU. This politician who has only a brief acquaintance with the subject of economics, claimed he could see not just errors but treachery in the work of these Treasury economists. This failure to accept any alternative view of events to the individual’s own is typical of the intellectually stupid thinker.

Why is intellectual stupidity the default mode of thinking of our politicians?

Perhaps part of the explanation lies in the books they read. Friedrich Hayek’s book ‘The Road to Serfdom’ can be read in a few hours, possibly on a wet afternoon, when there is nothing else to do. In this short book he claims to offer the solution to our contemporary malaise. There is no end to these books that claim to have the answer. Another such is Ayn Rand’s ‘Atlas Unchained’, yet another writer who claims to provide the solution to our current malaise. What these books encourage in their readers is a cult like belief, that they alone have the exclusive possession of the truth. The blinkered mindset of an ‘Moonie’, Jehovah’s Witness or Scientologist, is mirrored in the thinking of so many of our leading politicians. The lack of curiosity about alternative thinking is characteristic of the intellectually stupid.

These politicians have also been to the elite universities and this has given them an intellectual arrogance. They after a short period at university just ‘know’. One exemplar of this type is the politician who is an English graduate who decided that he did not need any advice from experts in their field (educationalists and economists), as he had acquired sufficient understanding ‘to know’. He as with so many of his colleagues ‘knows’ any further knowledge would be superfluous to the task in hand. These politicians can be best described as ‘generic’ politicians, as such they believe that they have already possess all the skills and knowledge necessary for the most demanding of political positions.

This lack of intelligent curiosity is demonstrated in these three remarks made by politicians about food banks in the U.K. The first said that increase in food bank use food was because people were attracted there by the free food on offer. Another said increased food bank use was a good thing, as it had shown that his government was more effective than the former at publicising this service. The last said people go to food banks for many reasons. What none of these politicians could say that people on low incomes were reduced to such desperate straits, that they were forced to go to food banks to get the food they needed for themselves and there families. Just as Adolf Eichmann could not bring himself to admit the his trains were taking the Jews to there death, so these conservative politicians cannot admit that there policies are creating such widespread impoverishment that thousands are now forced to go to food banks in order to survive.

This callousness is not the consequence of intellectual dishonesty, but a thinking that prevents thinking of either the Jews or the less well off, as people of any consequence. They are demonised either as a threat to the well being of the German people or a threat to the well being of the British economy and society. The political philosophy of both Adolf Eichmann and contemporary conservatives treats certain groups of people as inferior beings who lack the rights accorded humanity in general. A world view best summed up by the Nazi official who called Jews vermin.

What Robert Musil writes about intellectual stupidity is very similar to the thinking of Augustine on evil. He describes evil as a not knowing of God. People who don’t know God commit what we term bad acts. Augustine as a Neo-Platonist also equated God with Good, so people who did not choose to know God could not know good. The intellectually stupid chose not to know the evil of their actions and as such are unable to know good. These intellectually stupid would be the people who Augustine’s would accuse of doing evil acts.

When a visitor encountered the philosopher Democritius* in his garden, he to his surprise found him laughing uncontrollably. When asked why he was laughing, he said it was at the follies of mankind. If Democritius was living today he would have found plenty to laugh at in the follies of our leaders.

Economics, Neo-Liberal economics, Philosophy, scepticism, , , , , , , , , , , , , ,

One of the more interesting of the Greek philosophers was the sceptic philosopher Pyrrho. This was a man so sceptical about the possibility of there being such as human knowledge, that he did not bother to look where he was going went he went walking, as he thought that if he was going to fall into a ditch there was little he could do to prevent it happening. While this story recounted by Diogenes Laërtius is apocryphal it does illustrate quite clearly the nature of his thinking. As all human knowledge was fallible, he said that we should be wary of putting too much trust in the great systems of the philosophers that claimed to ‘explain everything’. Why I value Pyrrho is he an  antidote to stupid thinking. Whenever I contemplate the latest popular fashion in contemporary thinking, I always think of Pyrrho. I am wary of the latest popular enthusiasms, whether it be for hygge, Gloop the philosophy of Gwyneth Paltrow or Neo-Liberalism, as on examination they all seem to rest on similarly filmsyl foundations.

Unfortunately politicians with a naive belief in rightness of free market economics are particularly prone to such stupid thinking. The politicians of the New Right,  despite their claims to realism are often the enthusiasts for the silliest of ideas. One such is the idea that the when the UK leaves the EU it can install an computer based system to record all foreign trade transactions. This scheme will operate so efficiently it is believed, that traders will find litle difference betwen the new trading system  and the current regulation free trade system. Traders will find it as easy to move goods in an out of the country as they do at present. The only flaw is that there is no such system anywhere in the world and the record of governments installing new computer systems is one of failure. This government has spent seven years trying and failing to introduce a computer system to pay benefits, the much derided universal credit system. If this scheme in which all the recipients of this benefit are already known and yet the government finds it impossible to get the scheme to work effectively, how can it possibly develop an IT scheme that will be able to handle the thousands of daily transactions that make up our international trade. Already the fallibility of the HMRC computer system enables thousands of people to avoid paying tax. Yet even although they know this, these Brexiters claim that they will be able to introduce a new marvellous IT system which will have none of the failings of any of its predecessors.

What Pyrrho would have advised these politicians and economists of the New Right to do; would have been to look at the past history of government failure in the procurement and introduction of new IT systems. This would have reminded the Brexit enthusiasts that there has never been a government IT scheme that has not been a magnificent failure.

If they were not convinced by that, he could have told them to look at the problems of IT in the defence system.  The operating system in our new aircraft carries is Windows XP, an operating system so outdated that Microsoft has stooped supporting it with updates. The vulnerabilities of this operating system were exposed when hackers (from North Korea)? were able to shut down so many of our hospitals that relied on this as an operating system. Also the broadband speeds available to these carriers does not exceed 8mb, a speed slower than most household broadband systems.  Pyrrho would have told these politicians to stop being foolish and indulging in stupid fantasies and instead address the reality of the real world of flawed computer systems.

Why blame economists when all the failures that I have outlined are those of the politicians? Quite simply because all these politicians of the New Right and our Brexit are believers in the economic philosophy called Neo-Liberalism. Neo-Liberal thinkers such as Friedrich Hayek and Milton Friedman have taught that mankind has invented the best possible of social institutions and that is the free market and that the role of politicians is merely to ensure the smooth operating of this market.

It would be anathema for these politicians to install customs barriers at our sea and airports, as that mean introducing a barrier into the smooth working of the free market. Their philosophy then poses for them an unsolvable problem. Having decided that the UK must leave the free trade area that is the Single Market and the Customs Union, how do they introduce customs barriers that are not customs barriers? They know that once they introduce customs checks on imports and exports at Dover, they face the possibility of there being long tailbacks of traffic. Some estimates state that these queues will be up to 15 miles long. Now having introduced a problem that has no solution, they resort to a fantasy answer. The IT system for exports and imports that they propose only exists in the realms of their imagination, it is incapable of an existence in the real world. Its nonsense but nobody in government wants to admit to this.

What puzzles me is the great majority of these politicians who are enthusiasts for this scheme studied philosophy at one of our elite universities as part of their Philosophy, Politics and Economics degree. Even although scepticism is not the fashionable mode of philosophy in our universities, philosophy departments do boast that they teach their students critical thinking. Obviously our politicians of the New Right seem to think that this is a skill that only applies to essay writing.

*Democritius was a philosopher who lived in the fourth century BC in the cityl of Adbera, Greece.

Weimar Britain 2010 – ?

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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

Economics, Neo-Liberal economics, religion, , , , , , , ,

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

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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

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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.