Tag Archives: Neo-Liberal economics

Reading Thomas Aquinas gives a better understanding of human society, than does a reading of the works of Friedrich Hayek

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Just recently I have been reading and studying Thomist philosophy and works of other medieval Christian philosophers such as William of Ockham. The thinking and is usually regarded with contempt by contemporary philosophers. When I studied philosophy at university, the only philosophy of this period we studied was Augustine of Hippo and he was regarded with interest, because his work was a reworking of Plato’s philosophy. However what I discovered in these philosophers was a clarity of thought and elegance of writing lacking in so many contemporary thinkers. Anybody familiar with the writing of contemporary post modern philosophers will be perplexed by the obscurity of expression in their writing. They seem to believe that the difficulty one has in reading in there is a demonstration of their intelligence.

What particularly interested me was the question that these philosopher’s struggled to resolve, which was in God created the world, and he was a God of good intent, why did he allow evil to thrive in the world he created. There is a similar problem with contemporary economics. Nero-liberal economists have created there own best possible of world’s, the free market. They believe that the free market represents the epitome of collective human endeavour. The free market they believe possesses the mechanism to ensure the fairest distribution of wealth between members of society. When problems occur such as the lack of housing provision in the housing market, it is not the fault of builders or property developers, but some factor extraneous to the market. One favourite culprit is the local authorities who fail to release enough land for housing. Another is green belt regulation that also limits the amount of land available for housing. Never to blame are the suppliers of housing, they are the victims of foolish and vindictive governments.

What these economists are guilty of is dishonesty. They cannot admit to there being no fault with that creature of their imaginings, the free market. In fact in all economics textbooks,* there will be a section devoted to perfect competition. This is the idealised free market with all the imperfections of reality removed. Medieval Christian philosophers unlike free market economists face up to the problem of evil, in what should be the best of all possible worlds. Unlike contemporary economists they don’t blame some extraneous agency for failings within human society. As this was an age of belief they could easily have blamed all human failings on the devil. Instead face up to the problem as how a good God could allow evil to exist. They employ sophisticated logical reasoning to demonstrate that evil actions are a consequence of the choice made by human actors, nothing to do with God. It is in fact a turning away from God that leads to evil acts.*

This naivety has not always been a characteristic of economics teaching. When I started teaching economics in the 1970s, I taught my students both the failings and strengths of the free market. In particular how natural monopolies were unsuited to the free markets, as monopoly power of the suppliers would always enable them to exploit their customers. Monopolists because they lack any effective competition, maximise their profits by either charging exorbitant prices for their products and services, or by minimising costs by providing the minimum service possible. British rail companies do both, offering the customer a very poor deal.

There are many economists who have written about how it is possible to combat the abuses of the free market. The majority of them were writing in the 1940s and 50s. All these economists are hardly known by politicians today, in consequence a wealth of knowledge on how to manage the economy equitably in the interests of the majority has been lost. It’s a situation similar to that of the great Christian philosophers of the medieval period, apart from a small minority all knowledge of their works has been lost. If only our rulers would consult these ‘old’ books, they would find solutions to many of the problems that now bedevil our economy.

* Friedrich Hayek is the doyen of free market economists, who in his ‘The Road to Serfdom’ gives the best account of the virtues of the free market economy.

* This brief summary does little justice to the thinking of Thomas Aquinas and the other medieval Christian philosophers. Perhaps the best explanation of the thinking of these philosophers, can be found in Etienne Gilson’s ‘The Spirit of Medieval Philosophy’

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Bad economics, bad politics – Britain’s policy towards Syrian refugees

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There has been an ongoing public debate in Britain about what the country’s policy should be towards the refugees arriving in Europe from Syria and other war torn countries. The consensus is that our Prime Minister’s response has been determined by the hatred expressed for refugees in the popular media and fear of losing votes to the anti immigration party (UKIP). However there is another compelling reason as to why our Prime Minister is so opposed to Britain taking its fair share of the immigrant population now arriving in Europe and that is bad economics. This government has claimed the mantle of fiscal probity and as such is committed to keeping public spending to minimal levels. If the government admitted large numbers of refugees to the country it would be committed to increasing it’s spending. Much of that increase would go to local authorities (to house the refugees) just at a time when the government is committed to reducing their budgets. It is fear of breaking its fiscal rules that prevents it from admitting these refugees.

The government has as a consequence made a pig’s ear of its policy and produced a immigration policy that will please no one. It has made a commitment to admit 20,000 refugees over five years or 4000 a year on average. This will be financed from the foreign aid budget, money that would otherwise be spent in developing countries will instead be used to finance the accommodation needs a modest number of refugees for one year. After that the councils will have to fund from their much reduced budget all the extra services that these new arrivals will require.

What the government fails to understand is that economics is unsuited to providing policy goals at what can be called the ‘summum bonum’ policy level. Economics is a servant subject a subject that when used correctly determines the feasibility of government policy proposals, it cannot provide the grand objectives that determine all policy decisions. The object of economic policy making is to set intermediate goals whose attainment will make possible the attainment of the greater goals of universal policy making. This government has reversed this process, the grand overall objective is to attain a budget surplus, whereas good economics would demonstrate how to or whether an open door policy to refugees is economically feasible. If this government is trying to disguise its greater policy goal of keeping Britain a predominantly white non-muslim country through rejecting these immigrants, this would count as a greater policy goal.

What I am trying to state is that economics is a terrible subject for providing the greater goals that should be at the heart of any government policy making, that is the role of ethics or political philosophy and economics should not intrude areas into which it is unfitted. Formerly the conservative party was a practitioner of “One Nation Toryism”, a philosophy that stated while the aristocracy, financial and industrial elites were best fitted and entitled to rule, they owed an obligation of care to the lower orders of society. This is why the Conservative party of the 1950’s was able to embrace the National Heath Service and full employment. Now the vision of the Conservative party has shrunk to accommodate the goals and principals of Neo-Liberal economics, which can offer nothing more than series of lower order objectives. The philosophy of Ayn Rand dominates this government, a government that like her sees the lower orders of society as nothing more than a drain on the nation’s resources. While the only people it see’s as demanding of respect are the giants of business and finance. These people it rewards with generous tax allowances and government grants. Hume, Oakshott and all the great conservative philosophers of the past would despair of a government that only had good housekeeping as the only summum bonus of its policy making. Minimal government of the sort practised by this government makes for ineffective and bad government.

The folly of an economics first policy is demonstrated by the government’s policy towards Syria. It is now proposing armed intervention to end the current conflict so as to halt the flow of refugees from that country, yet its policy of budget cuts have denied it the means to make any effective intervention. The cuts have reduced the fighter bomb force to a total of six planes and its cuts to the army budget have made it impossible for the army to make any effective contribution to any overseas conflict through lack of resources. Realism demands that the policy becomes not one of intervention but one of appealing to other countries to fight the battle on Britain’s behalf, not the most effective of policies.

Greece and the Sceptical Economist

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Three kinds of economics

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

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

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

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

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

Greece and the sceptical economist

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

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

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

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

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

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

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

A good lie told well, the secret of managing the economy

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What every economics student used to learn at university was how difficult it was for leaders to make policy decisions on the economy. The effectiveness of policy measures were uncertain and the time lag in implementing these measures meant that when they came into effect they were often  addressing yesterday’s issues. What we learnt was how difficult it was to understand and manage that highly complex human institution, which is the economy. In one of our seminars it was decided that there were no economics was not a science comparable with physics and that economic  theory was at best a good guess as to how the economy worked. Consequently economics  for the student in the 1960’s was very much a work in progress. It was Churchill who said that if you asked four economists for a solution to a particular pressing economic problem you would get five answers and two of these answers would be from Keynes. (Keynes was the outstanding British economist of his  generation. This humility did no fit well with the demands from politicians for policy solutions, as exemplified in the words of Margaret Thatcher who said she wanted answers not problems. There was a group of economists responded eagerly to such requests and began to supply answers that were not hedged about with caveats about what might possibly make the policy ineffective. 
Economists had to know and there was a school of economists that knew. These new economists where named variously as the Chicago School of Economists, Monetary Economists, Free Market Economists or Neo-Liberal Economists. They took inspiration from the economist Milton Friedman the doyen of the Chicago School, who in turn was inspired by the economist Friedrich Hayek. What this group offered was a solution to the one problem that dogged the Western economies of the 1970 and that was inflation. They offered two solutions to the problem of inflation, they said that inflation could be controlled by controlling the money supply and by supply side economics.  
Monetary economists could supply answers to for example that of inflation, which reached 27% pa in 1976. Politicians could understands that if the money supply increased faster than the supply of goods, more money would be chasing relatively fewer goods and so prices would be pushed up. If money supply was cut inflation would fall and the economy would continue to grow on a smoother trajectory. What they did not want to know was as any non monetarist economist could tell them demonstrated a relationship between increased money supply and inflation is not the same as demonstrating a cause. 
However once politicians began to follow the policies advocated by these new economists, it became obvious that these new economists did not know. Britain was one of the first countries to practice monetary economics as suggested by Milton Friedman. In doing so one huge problem was discovered no Treasury economist was able to define what made up the money in circulation and what was the total money supply. The government came up with five possible measures and from this they selected one as their preferred measure which they called M3. M3 was chosen which was the total of currency in circulation plus bank deposits. They chose this one because it was the easiest to measure, after all the banks regularly published accounts showing their total bank deposits. They then made one huge assumption that all other measures of money supply would change in the same way as their preferred measure. However there was no evidence that all the other possible measures of money supplies the bank identified, would change in the same way as M3. It was a hope that all the unmeasured changes in money supply would follow M3, but the evidence for this was lacking. 
In desperation the Treasury and Bank of England gave up trying to account for changes in money supply and instead adopted a new practice. Admitting they could not count the money in circulation they opened for controlling the demand for money by changing interest rates. They believed that the supply of money was determined by the demand for money, therefore by controlling the latter they would control the first. Ever since the 1980’s changes in interest rates have been the main instrument for controlling the economy. Nobody today every mentions that the central plank of government economic policy is based on a theory for which evidence is lacking, simply because they cannot identify or correctly measure the key determinant, money supply.
Something very similar happened after the great financial crash of 2008/9. There were three deficits that could make recovery difficult the government or public sector debt, the private sector debt and the banking sector debt. The smallest was the government debt amounting in 2009 to about 60% of GDP and the largest was the banking sector deficit of 540% of GDP(as identified in a report by Paul Tucker, Deputy Governor of the Bank of England.) It is obvious that the debt that is in most urgent need of attention was that of the banking sector, yet the government of the day and succeeding ones chose to ignore it and focus instead on the government debt. The latter is the easiest to reduce as all the government had to do was cut its own spending, whereas the more serious bank debt was much harder to tackle. The government would have to take on the big banks and the City of London, very powerful opponents of whose power the government is in awe. Also if the government was serious about reducing bank debt it would negatively impact on the property market, as cutting the debt would be achieved by reducing the loans the banks could make in total. If there was less money available for house purchases, prices would fall. It is a truism of British politics that the easiest way to achieve electoral unpopularity is to preside over a fall in house prices. Consequently Britain remains with Japan one of the most indebted of the developed nations.
While these facts are known amongst the community of economists there is a conspiracy of silence in parliament about the true nature of Britain’s debt problems. There is no leading political figure that wants to be responsible for the painful economic adjustment that would result from putting the bankers house in order. Instead they focus on how they will reduce the least significant of the three debts and the noise of the debate on government debt crowds out any possible alternative debate on the real nature of the debt problem. 
The economic debate as understood by politicians is what matters, as they determine economic policy. The fact that the economic debate is founded on on misinformation and lies is irrelevant. What matters is that the economic lie is the one that every one accepts. In consequence the economic debate is about the wrong debt and the government has pursued the unnecessary austerity programe that impoverishe  an increasing number of people, while turning a blind eye to the excesses of the financial industry. Lies matter because they can be based on simple easily understandable untruths, whereas the truth about the problems of the economy is complex and hard to understand. To admit to truth would deny the politicians the opportunity to offer simple policy solutions that they could sell to the electorate. As the political debate of today is conducted in the simplistic language of the tabloid newspapers the truth about the real nature of Britain’s economic problems will remain concealed. Concealed that is until some major economic crisis forces the political and media classes to recognise the true nature of the problems facing the British economy.

Human Sacrifice the oldest of economic policies

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Economists seem to have a historical blindness in that what happened in the past has no relevance today. Unlike contemporary economists I see a continuity in economic policy making that stretches back from now to the earliest civilisations. One such policy is the practice of human sacrifice,that is the practice of sacrificing certain individuals to appease the Gods. 

  

One early civilisation that practised human sacrifice was the Mayans. I mention the Mayans, because they practised a peculiar ball game in which the losing side where sacrificed to the Gods. They were in fear of the Gods that controlled nature, in particular the great God Itzamn. If these great Gods were satisfied with the sacrifice, the Mayan cities would be spared earthquake and other natural catastrophe’s that threatened these cities. In times of great peril the angry Gods would require even greater sacrifices. The remnants of Mayan cities are graveyards containing the remains of the hundreds of people sacrificed in the vain attempt to prevent impending catastrophe.

The nature of human sacrifice has changed in our more civilised society, it is not human life that is sacrificed but the hopes of the people, usually the young. While the Mayan invented cruel Gods to explain the threats that the Central American climate and geology posed to the people, economists and politicians have invented a God called the market to explain the seemingly random catastrophes that market failure inflicts on the people. Instead of killing their young people in barbarous rituals, they appease the market God by making a sacrifice of hopes the young have for the future. A sacrifice made through the ritual of austerity. In a Southern Europe young unemployment amongst the young has reached 40% in Greece and it’s even 20% in the UK, one of the so called success stories. Generation Y is expected to accept willingly a lifetime of poverty so as to pay for the follies of their betters and elders. 

One perceptive American IT zillionaire has warned his fellow American super rich that they risk the people coming after them with pitch forks. Probably the best phrase to describe the febrile situation in both the USA and Europe. 

There is one common theme that underlies the practice of human sacrifice. In both examples an elite group has invented a malign God to explain their failure to control the environment to the benefit of the people. The only policy that can offer is one of human sacrifice to appease the angry Gods. Both groups offer the same storyline to justify the policy of human sacrifice, that is the people have angered the Gods and must pay the ultimate price of human sacrifice. In contemporary Europe and the USA it is the feckless borrowing of the people that has angered the God of the market. Only by giving up part of their income and rendering themselves poor can the angry market God be appeased. If their sacrifice pleases the market God, prosperity will return to the people. Not really very different from the Mayan practice.

What the ruling caste of priests and the ruling caste of economists, financiers and politicians have in common, is an ignorance of the causes of the misfortune affecting their people. Priests and politicians both create seemingly plausible stories to explain the misfortune visited on the people, stories which conceal their ignorance. From the perspective of time it is easy to see the folly of the Mayan priesthood in ascribing natural events to the activities of supernatural beings. It is humbling to realise that the great combined caste of politicians, financiers and economists have little more understanding of the events of 2008/9 that caused and perpetuate the crisis of that date. Can anybody really believe that any of the current generation of policy makers have any idea of how to end the current crisis. The only criteria they have for judging the effectiveness of a policy is the scale of human suffering, the more pain caused the better the policy.

Scroogism the principle at the heart of the New Economics

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Washington University Political Review

Scroogism is key principle at the heart of the new economics, that is economics as practised since the 1980’s. This can be explained by reference to the opening pages of Charles Dicken’s novel Scrooge. When he arrives home from the office, Scrooge gets an unwelcome visit from two of men collecting money for distribution to the poor at Christmas. His famous answer is, are there no longer any workhouse or prisons in which the poor  can be housed and fed. The assumption at the heart this tirade is that money should go to to those who deserve it most and who will make the best use of it. Men such as Scrooge a banker and trader who will invest it wisely to create more wealth. Any money going to the feckless poor is wasted, as in their folly they will only squander it. A philosophy best expounded by the politician who said installing bathrooms in the houses of the poor was the height of folly, as they would only use their baths to store coal. 

The belief that money is best kept in the hands of the deserving rich and out of the hands of the undeserving poor, is one of the core beliefs of the new Neo-Liberal economists. If money is in the hands of the entrepreneurs of society, ‘the great movers and shakers’ society will benefit from the activities of these people which creates more wealth for society to enjoy. Fairness is redefined, the majority of wealth created in society should goes to those that deserve it most, that is the wealth creators. The poor are poor because they create little in the form of wealth, their poverty level wages are fair recompense for their lack of effort and skill. The beggar who so inconveniences the theatre goer by asking for money at the entrance to the theatre is there because he deserves to be there, it’s his own fault.

Whenever their is any debate about welfare or the plight of the poor in Parliament Scroogism is seen at its most active. When parliament ever approves giving money to the less well off its only ever given on the most niggardly of terms, the unspoken assumption is that he poor are poor because of their own failings. Benefit caps are imposed or penalties are imposed on the most of undeserving of the poor. Parliamentarians are loath to throw good money after the bad, that is giving it to the poor, whereas they are over generous in giving tax breaks, subsidies and grants to the deserving  rich. Some of the richest landowners in the country receive hundreds of thousands of pounds from the tax payer in agricultural subsidies. 

Scroogism is the hypocrisy of the well-off, it’s provides a moral justification for ignoring the needs of the less well off.   This hypocrisy is best demonstrated in the debate on social mobility. Rather than give money to the poor, they will be given ever opportunity to better themselves, that is become one of the better off. In what can only be described as cover for the inherent meanness and nastiness of the prevailing philosophy of Neo-Liberalism, the poor are to be helped to become one of the well off. A good education is seen as the best means of achieving this, consequently there is in education a ‘constant revolution’ in teaching methods and practise. While  this ‘constant revolution’ has achieved little in practice, it gives politicians the sense of moral superiority in that they are doing their best to help their inferiors. If the recidivists among the lower orders reject there help its nobody’s fault but there own. 

There is one fact ignored by the politicians who preach the virtues of social mobility, if people are to move up the social scale this can only be made possible is some move down. Whether well off parliamentarians and the class of well to do, recognise this fact either unconsciously or consciously, they do their best to prevent anydownward movement as this would harm them and their families. In Britain the barriers of  social exclusiveness give it one of the lowest rates of social mobility in the developed world. Education provision is strictly rationed according to income. The quality of education varies according to the income of the pupils, an apartheid of wealth applies. In the wealthy suburbs pupils receive an education that is beyond the dreams of those living within the impoverished areas of our cities. Given that the children of politicians are educated in the wealthy suburbs, it is going against human nature to expect them to sacrifice the advantages that their children enjoy to benefit the poor. 

The only effective way of increasing social mobility for the poor is to increase their income. If a family has sufficient income they will keep their children in school to enable them to gain a higher education. Wealth is a qualification for citizenship, the individual on a low income, who perhaps has two jobs, who suffers from insecurity of employment and tenure, will lack the time and confidence to participate fully as a citizen. They know that their social situation excludes them from full citizenship.   A confident well resourced class of the less well off would exert pressure on the socially exclusive social system to provide ‘real’ opportunities for their children to join the social elite.  What is needed is a political and social revolution similar to that which developed forbtge organised working classes of the nineteenth century.

Knowing the Correct Nothing is the surest way of advancing in economics and politics

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Probably it has been remarked elsewhere that ignorance is no barrier to advancement. This is certainly true of the economics. Despite the subject matter of economics being the stuff of existence, economists have little knowledge of the real economy. There are two explanations of this ignorance.

One is the age old bane of economics and that is economists of previous generations have already established all the fundamental truths of the subject and all the current generation of economists need to do is to refine the ideas and practices of the past. They are literally standing on the shoulders of the giants of the past, giants such as Ricardo and Marshall.  Economists established in the nineteenth century that the truth that the free market was the best possible economic system and their contemporaries today see their role as providing the necessary information and advice to enable policy makers to make the imperfect market nearer to the free market ideal. They do not see any need develop and advance the study of economics through a study of the real economy, as they already know all they need to know. The fallacy of this approach can be demonstrated by the famous question the Queen asked of economists after the crash of 2008/9, which was why did none of you know it was coming? The inward looking nature of the subject means they will always be caught by surprise by events in the real world.

The other explanation is that the practitioners of economics in the real world are politicians and all they want is winning slogans that will enable the to win elections. Slogans that mask the truth, that is the very vacuous nature of their economic policy making. Rather than truth what matters is appearance, what sounds right or appears right. These politicians have no interest in those few economists that talk about the complex nature of the economy and the difficulty of effective policy making. They prefer the economist that in Mrs Thatcher’s words ‘give answers’, and these economists tend to be the apostles of a simplistic Neo-Liberal economics. There are dozens of economic thinks tank that for the right money will come up with a simplistic solution, that can be sold as a winning economic policy.

One of such of these simple sellable solutions is the need to cut of government bureaucracy. In this vein both the Labour government of Gordon Brown and the coalition government of David Cameron have boasted about the number of civil servants they have cut from the payroll. It’s a simple solution that everybody knows is right, as if you employ less civil servants you reduce the cost of employing civil servants and you reduce taxation. In such a scenario everybody is a winner, except no politician have ever considered that some of these civil servants they dispense with may perform a service that is essential for the maintenance of the good society. 

Now with the Treasury and every other government department are lacking the core of experienced civil servants that in the past would have advised on policy making. Now they have to buy in the expertise that would formally been provided in house. The bill for consultation on the proposed High Speed Rail link has cost £1/4 billion pounds and is rising, much of this money has been spend on outside advisers from various think tanks and consultancies. One wonders how much less the bill would have been,  if much of this work had been provided in house. 

Perhaps the supreme example of this folly is the reducing the number civil servants is at the tax collecting body that is ‘Her Majesties Revenue and Customs’.  There are only 300 tax inspectors employed in the investigative body that collects taxes from the rich and powerful. Constantly these overworked and under resourced tax inspectors are out manoeuvred by the accountants of the rich and powerful so they frequently fail to collect the tax owed.  In consequence the IMF has laBelled Britain the world’s largest tax haven.

In practical economics that is politics what matters is not being right or having tge correct understanding economic reality, but a sharing the common fallacy and ignorance of the real economy that passes as the public debate. If one listens to the economic spokesman of either party they in the essentials relaying the same message. It never matters in politics if the economics spokesman is wrong, only that they share in the general consensus of wrongness.    

Why is the politics of our country so focused on headline grabbing? Is politics any longer an activity for grown ups?

economic history, Economics, Politics, , , , , ,

Recently a prominent member of the opposition complained about the behaviour of the back bench MP’s of the governing party. She said that their behaviour was that of a group of three year olds. What she was referring to was the infantile sexual gestures made by these men whenever a woman spoke. This seems to be symptomatic of a change in the behaviour in the commons, the practice of politics does seem to have become more infantile. What makes this more surprising is that this change has occurred when we have the most educated parliament in our history. There are more graduates with good degrees from good universities in our parliament than ever before.  What I will argue is that politicians have since the 1980’s increasing  adopted a self denying ordinance which prohibits them from engaging in what most would consider politics. Instead too much political debate is devoted to trivia. Possibly the best example of the new politics comes from the USA, where Congress under pressure from the food industry decreed that the tomato topping on pizzas would count one of the five day fruits  or vegetables needed for a healthy diet. The fact that this decision was meaningless in terms of improving the health of nation mattered little to Congress.

This self denying ordinance which effectively prevents politicians from decision taking dates back to the 1980’s and the revolution in political thinking that was Neo-Liberalism. Prior to that time the management of the economy was considered part of the practice of government, now it was to be considered as something alien to the art of good government. As the former practices of economic management appeared to have brought the economy to its knees.  The economy was to best left unregulated, as government intervention no matter how well intentioned only had a negative impact on human welfare. This ‘avoidance of doing’ became so ingrained that the policy of doing nothing began to be applied to other parts of government. Politicians of both the right and left developed a phobia about the nanny state. 



http://www.mitchell the taxman

One of the best examples of the fallacious nature of the current political debate is that on alcohol consumption. In 1914 strict licensing laws were introduced to limit the hours in which licensed premise could sell alcohol as it was feared that the excessive consumption of alcohol was a threat to the war effort. These strict limits on the sale of alcohol were largely kept in place until 2003 when most restrictions of the sale of alcohol were removed. Now alcohol could be served 24/7 and it was argued that this would lead to the adoption of the ‘civilised drinking practices’ of the Europeans. It would lead to the introduction of the European cafe culture. Instead it led to introduction of the vertical drinking establishment in which the number of table and chairs were reduced , which enabled the pub/bar to cram in as many drinkers as possible. These pubs can be compared to the assembly line, the process of serving alcohol was simplified down to its minimal elements so as to speed up the sale of alcohol. The consequence was a massive increase in the consumption of alcohol with all its attendant social and health problems. 

There is one simple example that illustrates this change in social behaviours towards the more negative. In the 1950’s being drunk and disorderly was a criminal offence, now such disorderly behaviour has become normalised and being instanced by a as a senior officer in London’s police force said they no longer considered the stopping of such behaviour part of their role. Was this officer merely recognising the inevitable in that alcohol based disorder has become so common a behaviour that the the police can no longer control it? 

The reason I have highlighted the alcohol issue is because it’s a useful illustrative of the fallacious nature of so much political debate. I saw a late night TV programme in which politicians were debating the merits of raising the price of alcohol to reduce its consumption. All of the politicians on the panel agreed that it would be wrong, because it would penalise the less well-off sensible drinker. They argued vehemently that these sensible drinkers would be unable to afford their usual tipple. My reaction is the one my was wife has when interviewing parents about their misbehaving children hi say that they don’t want to upset their child by stopping them from doing what they want, event if it’s wrong bad and that is – who is the adult here? When the price of alcohol is increased,  it will mean that the less well off will be able to buy so much alcohol, but that is the purpose of the legislation. 

What characterises the political debate debate on this issue is the avoidance of any action to reduce alcohol abuse. Politicians debar themselves from any action that would limit alcohol consumption, such as increasing the price of alcohol by increasing taxes on it, reducing the number of places that are licensed to sell alcohol or limiting the hours for which those premises can sell alcohol. These politicians through believing any regulation of the free market is misguided have in effect prevented themselves from effectively intervening in the alcohol market. Their role is reduced to one in talking about alcohol they have no other role. 

The political dialogue about alcohol consumption demonstrates how out sourcing decision making to others removes any meaningful role the for politicians in so many areas of society.Their self denying ordinance not to interfere means they are reduced to talking  about the problems that affect society, while playing down the ineffectiveness of their role. This is why they command of the media is so vital to them, media noise will hide their ineffectiveness and insignificance.

Why have politicians given up on the exercise of power

Today’s politics cannot be explained without reference to the traumas of the 1970’s, when economic crisis threatened the stability of Western society.  It came to a head in Britain in 1976 when the government was forced to ask for a record loan of £2.3 billion from the International Monetary Fund (IMF) to avert national.bankruptcy. The IMF saw the problem Britain faced as a fundamental structural dysfunction. The political and economic institutions of Britain were not fit for purpose.  They insisted as a start of the necessary reforms that the government cut its spending programmes. Cuts in government spending would mean the transfer of investment from unproductive government programmes to productive private sector businesses. 

Neo-Liberals the over mighty state, caused the crisis as it had expanded far beyond its area of competence. Industry was shackled by regulation and suffered from too much political interference. What was required was what is now termed as supply side reforms. The labour and financial markets were to be freed of regulation which would create an economy flexible enough to respond to economic change. If for instance the government put money into a failing business such as British Leyland, it was investing in a business in which the returns were minimal and by keeping those workers on in a failing business it was preventing them from moving into a more productive business, so holding back economic growth. 

This new political philosophy not only demanded that government should get off the backs of business, but that it should get out of those parts of the economy and society, where it would be better managed by business. This meant  the wholesale privatisation of the nationalised industries and the outsourcing of many government services to the private sector. What was a crisis of political confidence meant that politicians were now willing to abdicate much of their powers of decision making to others. These others are referred to collectively as the free market. 

One consequence is that decisions that would have been taken in parliament are now taken by ministers in negotiation with outside contractors. Prisons and probation services are now the responsibility of various private contractors, not something that is considered to be within the remit of MP’s. Politicians have constantly acquiesced in the diminution of their authority. The Department of  Trade and Industry once one of the mightiest of departments is now a departmental backwater serving only to facilitate the requests of various business corporations. 

Given that parliament has diminished itself and become only a peripheral player in society, politicians will constantly over compensate for their insignificance by shouting as loudly as they can to draw attention to themselves. This means that they must constantly attract the media with new policy statements (of little real purpose) to demonstrate that, yes they still do matter. 

Coda 

There is an alternative reading of the history of the 1970’s which suggests that the problems of Western Democracies were not a product of structural dysfunction, but events unrelated to structural dysfunction.  One such event was the attitude of Jimmy Carter’s government in Washington towards the Labour government in London. They were concerned about there being a socialist government in London, which could act contrary to American interests. Great Britain with its command of the North Western European sea ways off Europe was a key strategic asset for the Americans. London was also home to the largest CIA station outside the USA. They wanted a friend in London, which could not be a socialist government.   When the financial crisis occurred in 1976 they saw it as an opportunity to destabilise this government. When the London government asked for American financial support they refused and discretely encouraged the financial speculation that threatened to undermine the British economy. This worsened the financial crisis forcing the London government to ask for an IMF loan, which came at a heavy price. The price was the acceptance of the free market ideology of the Neo-Liberals and an end to any possible policies of state socialism. 

There are other events, but to discuss them would needlessly lengthen the essay to no purpose and would not alter the conclusion of my essay, that the immaturity of the current political debate is in a large part due to the loss of confidence within the political classes. Politicians need to find a new sense of purpose, possibly hope can come from the margins, with parties such as the Greens with their plans for a renewal of British society.