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Why I am such a poor economist

Actually I think I am quite a good economist, but I fail to match up to the standards by which professional or academic economists judge other economists to be good. This failing in my practice of economics began to develop in 1966. Then I was appalled by an article I read, which was written by two economists from my university advising the government of the island of Mauritius on how to improve their failing economy. It was a blue print for the most severe form of what today would be called Neo-Liberal economics. A reform programme that if implemented would have impoverished thousands if not millions of Mauritians. There was also a professor at my university who advocated an increase in unemployment as the best means of ending the inflation that beset the British economy of the 1960s. Today most academic economists now see increased unemployment as a useful policy tool in management of the economy. Then in the 1960s, it was heresy, as too many people remembered the misery caused by the mass unemployment of the 1930s.

Unemployment has always been seen as a necessary feature of a functioning market economy by economists. They believe that a certain level of involuntary unemployment is a required to make the market function efficiently. If there are people unemployed there will always be workers available to for expanding firms to recruit and there will always be workers made newly unemployed by failing businesses. Unemployment when explained in these terms can be seen as justified, as the free market model suggests that there is but a short time in which workers remain unemployed. Unemployment then is a short term pain suffered by a few, their temporary period of pain was for the benefit of all.

However the economy never worked in the way described by economists. There were a number for whom unemployment was a temporary situation, but there were many for whom unemployment was for the long term and who were subject to life of poverty and misery. What economists failed to take into account was there was always a mismatch between the location of  unemployed workers and the location of the expanding businesses. Large scale unemployment always occurred in areas where many businesses were failing or where many had already failed.

Economists had an answer to this problem, the unemployed workers should move to the areas in which there was work available. This is a solution of unbelievable callousness, it treats people as if there were a resource similar to other non human factors of production. One that should be used as the business though fit. Never have economist recognised the inhumanity of their policies. One can be sure that all economists are unfamiliar with Steinbeck’s ‘The Grapes of Wrath’. A book in which he describes the miseries suffered by the ‘Oakies’, the people forced off the land in Oklahoma by the Great Dustbowl and forced to look for work in California.

What makes me a bad economist is that I can’t accept the inhumanity of my subject. The golden rule of economics is that labour or humanity is just a resource like any other and should not be treated differently. This is very much the accepted rule today. It is unusual to find any economist speaking against the closure of any business and the unemployment it creates. All they see is human resources freed to work in more profitable sectors of the economy, the recent spate of closures of retail businesses to economists just part of the structural change in the economy. Put simply online competition in the retail trade has forced many high street shops to close, which they see as a consequence of the essential restructuring of the market.

One might add that in a British economy that is struggling there are few of the profitable sectors of business that will recruit these workers. Usually redundant workers find work in which they are paid an average of 30% less than in there previous work. Skilled workers are forced to take relatively low paid work in call centres and warehouses. There is no happy ending to a period of unemployment that the economist claim.

There is to an economist such as myself (one who sees unemployment as an evil to be avoided wherever possible) an alternative explanation for the closure of these high street shops. For me an equally important factor in this situation is the inflexible and dysfunctional commercial property market. The shops are always situated in central areas of towns or cities where the shop sites command premium rents. Economic theory states that when the demand for a resource declines its price should fall. Recently the House of Fraser appealed to its landlords for a reduction in their shop rentals in light of there falling profits. There landlords will ignore their plea and continue to demand sky high rents. All these city centre or high street sites are owned by large property companies whose only concern is to extract the maximum possible rent from these sites. It matters little to them if the shops fail and thousands lose their jobs. What matters most to them is the rents remain high, even it that means the site remains vacant. These people are eternal optimists and will wait as long as it takes to find a new tenant who will pay there extortionate rents. What makes me a bad economist to my peers is that I would seek a different solution to the problems of the failing high street. The solution for me is to introduce some form of rent control, there are plenty of mechanisms that can be used to ensure that a fair rent is charged for a property. This would benefit the economy as it enable many viable businesses to survive that would otherwise be put out of business through excessively high rental costs. Also it would preserve many thousands of jobs that would otherwise be lost.

Before anybody criticises me for being unfair to the commercial landlords through forcing them to let properties for uneconomic rents. It should be noted that all our city centre properties are owned by a few large property companies. These companies operate an informal cartel in which they co-operate in their self interest to maximise their rental incomes. In the past it was quite usual for such cartels to be regulated by the state to prevent them from abusing their powers.

Where I differ from so many economists is that I believe that policy measures or economic practices that create unemployment should not be a first resort. The first option businesses consider to increase profits, should not be to shed staff. The hollowing out of a business whereby labour costs are reduced to a minimum through shedding staff and premises closed to reduce costs to increase overall businesses profitability should be made difficult to undertake*. When hollowing out of a business occurs it is not just the staff who suffer, but the customers who experience poor customer service or a reduction in the quality and range of goods on sale.

The problem for me is the inhumanity of much economic theory and practice. I cannot accept economic policy and business practices that damage society’s well being as ever being justified. Not only is much of current business practice as sanctioned by economics harmful to individuals but it is also harmful to the state. When workers are paid wages that are insufficient to support themselves and their families, the state has to step in to provide in work benefits. The cost of these in work benefits are very substantial and represent a huge subsidy to bad employers, as state struggles to ensure that these low paid workers get a living wage.

What I have to answer is why economists are so indifferent to the suffering of their fellow inhumanity. Why don’t economists care? The answer I think can be found in the writings of Wittgenstein. He introduces the concept of the language game, language for him is not universal there are groups with society that have their own language or language codes which have meanings that are understood only by them. One such group are economists we use words and phrases that have no meaning to outsiders, such as monopsony, giffen goods and zero lower bound. Some I can easily explain to non economists others I would find it practically impossible so to do. Economists have their own unique language embedded in which are truths only known to economists. The supreme good in which economists believe is the free market. The greatest gift that mankind gave to itself was the creation of the free market which ensures the most efficient and equitable distribution of goods and services. All economic policy making should be directed towards ensuring the most efficient operation this free market. Other economists such as myself that don’t share this belief are dismissed as poor economists.

There is one example from the 19th century which best demonstrates how economists think. When the Irish potato famine was at its height in 1846, the government suggested that it should import wheat from Russia to distribute to the starving Irish. Economists, landowners, land owing politicians and farmers objected. It would be an interference in the free running of the market and no good ever comes from government intervention in the market. Governments they said do not understand the workings of the free market. These objectors argued it would lower the price of wheat in the British market and put British farmers out of business. This they argued it would be bad, as it would reduce the number of farmers working in the industry and reduce in the long term food production in the British Isles, so causing problems in the future. Anybody familiar with Irish history knows that the government rejected the proposal to import wheat to feed the starving Irish, preferring to let them starve. To those who would say this is an unfair depiction of the mind set of economists, my rejoinder is that they know nothing of the thinking of the economists employed by HM Treasury.

Economists always have a defence against the claims that the practice of economics is an exercise in inhumanity. They will claim that the free market will in the long term provide all the benefits and goodies that it is possible for an economy to provide. All that is required in patience however Keynes provided the best retort to this thinking he said ‘that in the long run we are all dead.’

*One easy means of making hollowing out a less popular practice, would be to reintroduce the employment protection policies of the past, such ending the practice of zero hours contracts and other short term employment contracts that make it easy to dismiss staff. Re-introducing fair redundancy payments for dismissed workers would be another.

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