Tag Archives: The Great Depression
Why it matters that politicians lie
Why are people so tolerant of lying politicians? It no longer seems to matter that politicians are exposed as liars, in fact some politicians have made a career out of being known as audacious liars. When one senior British politician is caught yet again in manufacturing falsehood, it is said that its only X behaving as X does. His lying makes him bit of a card. Nobody seems to mind that lies are increasingly becoming the common mode of the political dialogue. Politicians have always lied to protect their careers or to advance party interest; what has changed now is that the political lie is now seen as noblest of the political arts, being exposed as a compulsive liar no longer disqualifies a politician from the highest office, rather it is seen as a necessary qualification for high office. This terrible corruption of public behaviours is destroying the integrity of the political process. Democratic politics can only function if there is a certain degree of integrity, that is the political players must respect the rules of the game, when they show a contempt for these rules they discredit the whole system of governance.
There is a terrible warning from history that our politicians ignore at their peril. When in the fourth century BCE, Athenian democracy was threatened by the Persian kings, the whole population was united in resisting the invaders. Then when in the first century BCE the Romans invaded Greece, the population of Athens offered no resistance to the Romans when occupied their city. Once reason for this lack of resistance was that the political leaders of Athens had by their behaviours so discredited Athenian democracy that few felt it worth preserving. These politicians were masters in the art of fake news. They would use informers infiltrate their rival’s households and these informers would then claim to have evidence of salacious misbehaviour or wrong doing by their rivals. Personal vilification became the main mode of political debate, the practice of politics was largely reduced to the art of personal assassination. Although there is some difference in political practice today, politics tin its essentials increasingly resembles that of first century BCE Athens. Fake news, deception and dissembling are the most practiced of the political arts.
One obvious example of this practice is the attacks directed at the Leader of the Opposition. Whenever a government minister speaks of him, phrases such as a ‘friend of terrorists’ are always inserted into the conversation. Just as did the Athenian politicians ours practice the art of personal vilification. Not so long ago the government discovered a report by a former Czechoslovakian agent in which this agent claimed that the now leader of the opposition had sold state secrets to him. When these secrets had been supposedly sold to the agent, this leader was then an obscure backbench MP with no access to any state secrets. The fact that the story was totally implausible and easily discredited did not matter as it was an opportunity to smear the man. It’s political mud throwing it does not matter what is thrown as some will stick.
However the real problem of lying being elevated to the principle political art is that politicians never have the need to confront the truth. When evasiveness and dissembling characterise the art of politics, difficult and uncomfortable truths can be avoided. Particularly if confronting those truths would mean taking actions that would make the politician or government minister unpopular. Apart from a few dissidents, scientists are united in the view that the global climate is warming and this poses a serious threat to mankind. When for example the sea level rises as a consequence of global warming, many of the great cities of the world will become uninhabitable because of flooding. If the politicians took action to avert this impending catastrophe, it would be action that would make them unpopular with the voters. Averting this catastrophe is only possible if there is significant reduction in the production of the main green house gas carbon dioxide, this can only be achieved if there is a significant reduction in energy consumption. Such a reduction could only be achieved if the people, particularly those in the richest countries who use the most energy would accept a cut in their standard of living. Cutting energy means producing less of the goods and services that people desire. Making people poorer if only temporarily is a very unpopular policy option.
There is a good example of this dilemma in Britain’s recent political past. A city council in Scotland wanted to introduce a congestion charge to reduce the number of cars using its roads, as a means of reducing pollution in that city. Unfortunately it is common understanding amongst politicians that denying people the right to use their cars when and how they please is electoral suicide. Although this city council was controlled by the party in government, that government collaborated with the objectors to the scheme to prevent it being introduced.
Our political culture of lying and obfuscation provides a convenient escape clause for those politicians who don’t want to take unpopular action to halt climate change. There is an influential group of climate change deniers, funded and supported by the fossil fuel industries. Politicians can claim that the evidence for climate change is not yet conclusive, they can point to the research conducted by climate change deniers as proof of this. What matters least is this research is of little scientific validity, what matters most is that it exists. Claiming uncertainty as an excuse means that politicians can postpone or avoid taking those unpopular measures that are required to prevent global warming.
Perhaps it is the American Congress that provides one of the best examples of truth avoidance and evasion. There was from medical experts a demand that government to improve the nations health should persuade people to eat five portions of vegetables or fruit a day. Any such measure would mean that Congressmen would be going against the interests of the powerful processed food industry. As they would be promoting the same of fresh fruit and vegetables, which would have been at the expense of processed food. What Congress did instead was contrary to the recommendations of scientists, they decide that the tomato topping used on pizzas should be included as one of the five a day foods.
What the Athenian citizen witnessed in the First Century BCE, we are witnessing today. The slow decay of democracy. Democracy has always had its enemies, either foreign powers or powerful individuals and business corporations who hate the idea of being subject to the people. However just as with Athens the greatest threat comes from within the democratic system, that is from it’s leading practitioners. The practice of lying is corrosive of the human personality, such people no longer recognise or value truth. Truth is something quite alien to them. A list of all the ignored inconvenient truths about the threats to the health and viability is lengthy. When a senior official at the Bank of England said he could not understand how the Governor of the Bank of England could sleep at night, given the threat posed to the economy by the enormous debts of the banking system, he was ignored. All his concern rated was a short article in the little business columns of the newspapers.
When its leaders no longer value the norms and conventions that make democracy possible, its future is bleak. People who lie, cheat and are adept in all forms of malpractice, don’t make good guardians of our democratic system. A corrupt and dysfunctional Westminster or Washington no is incapable of serving the people. The people become disenchanted and see contemporary politicians as venal and corrupt. Such politicians have lost the respect of the people. Unfortunately the yearning of the people for good governance makes them susceptible to the charms of right wing populist leaders. Leaders who promise to clean up politics and make government once again the government of and for the people. In the 1930s when Washington and Westminster seemed helpless in the face of the Great Depression and did nothing to ameliorate the suffering of the people, right wing fascist leaders such as Huey Long in the USA and Oswald Moseley in the UK became immensely popular. If circumstances had been more favourable to each they could both have brought to an end the liberal democratic experiment. Whatever Donald Trump might be he is no Huey Long, American democracy will survive Donald Trump. The real threat lies in the future, when the continued failure of the American Congress and the British Parliament fail to deliver for the people will discredit Anglo Saxon democracy. Then the people will welcome a strong leader to deliver from the self serving and venal politicians that currently govern them. What will destroy democracy is the worms at the centre of the democratic apple that cause it to decay and become rotten.
What I am writing now would be familiar to the people of the U.K. and the USA, who in the 1930s despaired of there governments taking effective action to solve the problems caused by the Great Depression. Only when democratic leaders such as Franklin D. Roosevelt took measures to reinvigorate the democratic system to ensure that it delivered for the people, was it able to survive. However if Huey Long had no been killed in 1935 it is likely that he would have become President in 1936 and replaced Roosevelt. He as President would have brought an end to liberal democracy in the USA. Surveying the contemporary political scene it seems that there seems to be a paucity of Franklin Roosevelt’s who could save liberal democracy from itself.
The Great Lie and the Rise of Trump and the alt.right
Economists have to shoulder their share of the blame for the dawning of the age of Trump, May and Farage. Their responsibility lies with the creation of the ‘Great Lie’ which led to the economic and social change which caused the current economic malaise. Governments longer seem to be in control, they seem powerless to arrest the decline in living standards. We now have government that operates on the Pontius Pilate principle, it shares the people’s pain, but it is powerless to anything to alleviate their suffering. In such circumstances when government claims to be helpless in the face of the current crisis, it is hardly surprising that those who claim to have a solution, no matter how wrong headed that solution are now gaining power.
The ‘Great Lie’ is the one propagated by economists that they have discovered the economic model that if adopted will resolve all the economic and social problems that beset society, that is the free market. A great lie can be easily identified, it is when economists claim that they have the answer to all society’s problems. Usually such optimistic solutions are called utopian, but economists have greater credibility and there claims are never subject to such scepticism. Economists never seem to accept that the economy as a human creation is as flawed as its makers, mankind. They will never admit that there proposed model for change is but an experiment that may contain as many or more flaws than the system it is replacing. It is hard to explain why the free market model was so widely accepted, when the very failures of such a system had led to the Great Depression of the 1930s. Until the 1970s it had been accepted that the unfettered free market system was subject to extremes of volatility, whose worst manifestation were the periods of economic depression. Times whne unemploynent was high and people were impoverished. Overnight economists seemed to forget all the negatives of a free market economy and all began to speak from the same hymn sheet, the free market one. The deciding factor seemed to be the unending slow growth and high inflation crisis of the 1970s. A crisis whose origin lay in politics not economics, yet this fact was ignored by politicians desperate a for a solution to the current crisis. (For this particular economist the origins of the crisis were in the excessive demand for raw materials that the Americans required to fight the Vietnam war, which pushed up prices for steel to astronomic levels.)
Economics is pervaded by dishonesty, an unconscious dishonesty but dishonesty never-the-less.The free market or monetary economists never admitted that there would be any downsides to their free market model. Humility was the one quality lacking among these economists. They could make valid and reasoned criticisms of practice of social democratic economics, but were completely blind to the failures of free market economics. When such dishonesty is prevalent among government policy advisors, it should be no surpise that the dishonest claim made by the alt. right with its claim that immigration is the cause of all the problems is an acceptable a truth as the one that the free market works,when it it obvious to many that it does not.
What these new economists failed to admit was that in creating a free market economy that the people would be exposed to the negative effects of adverse changes in the market. There would be many more losers in the free market. One such example comes from Sunderland, one of the areas that voted in large numbers to leave the EU. One of the main employers is the Swan Hunter shipyard, which built merchant ships. In the 1970s it was failing to win orders because it could not compete with more modern shipyards in the Far East. The government realised that if it invested in re-equipping the yard with the latest in ship building technology, it could compete with other major shipyards. This would create many new jobs in an area of high unemployment. In 1979 a Neo-Liberal government came to power who thought any government intervention in the economy was wrong and they withdrew their support for the shipyard. All the new shipbuilding technology was sold to a rival shipyard in South Korea. Swan Hunter survives as a manufacturer of warships and equipment for the North Sea oil industry. However the people of Sunderland seem never to have forgotten the government’s betrayal of them and this year they could demonstrate their hostility by voting to leave the EU, against the advice of the government.
While the economists cannot be held responsible for the decisions of the government, they were the cheerleaders for the changes in economic policy making. One of the greatest of these new economists Milton Friedman supported the government of Pinochet when it tortured and killed its opponents, claiming that Chilean society would be better off without these people. A variation on the saying that you cannot make an omelette without breaking eggs, except that in this case the eggs are people.
One chilling example of the eggs being broken is housing policy. Increasing numbers of people, particularly the young are being forced into the private rental market. There they suffer from the twin problems of exorbitantly high rents and insecurity of tenure. When it has been suggested that the solution is to give private tenants security of tenure and to introduce rent controls, the social democratic party in this country has always rejected it as an unworkable solution. They claim that the introduction of such controls would reduce the number of properties for rent and so be against the long term interests of the private tenant. In reality a policy that did both things and which included measures to prevent a reduction in the number of rental properties could be devised. Yet this party clings to the Pontius Pilate principle of politics, vicariously sharing the pain of the private tenant while saying that bad as the situation is there is nothing they can do to improve the lot of the private tenant. When such is the official policy of this party it is no surprise that it is threatened with losing constituencies to the party of the alt. right that claims to have an answer.
There is little doubt that the adoption of free market economics has created an increasing number of losers in society and it is these losers that are looking to the alternatives for a solution. The only solution to the woes of society appear to be those offered by the xenophobic right; as all the other political parties seem to adopt the same message which is that things may appear to be bad now, but they would be much worse if the government tried an alternative policy.
One solution to the current malaise is for politicians to accept responsibility for their actions, instead of looking for unreal solutions from the world of economics. While it was the unregulated financial markets that caused the crash of 2008/9 the slow recovery has been due to the governments adoption of an austerity policy. If the governments of the West had learnt anything from the 1930s it should be that adopting those economic policies to tackle non existent problems, they should take action to ameliorate the negative effects of the crash. Austerity programmes designed to do little more than cut government debt and increase and prolong the agonies of 2008/9. What is required is imaginative solutions to the crisis, usually not available from economists who are stuck with ‘Big Lie’, that the market will solve the current crisis if left to itself,when it quite obviously won’t.
The Immorality of Current Economic Practice
Jeremy Bentham one of the more influential figures in 19th century economics was also one of the founders of the philosophy of utilitarianism. The foundational principle of utilitarian philosophy is that good actions are those that give the greatest pleasure to the greatest number. Those of an older generation of economists such as myself, will remember how utilitarian principles were used in the construction of market theory and in particular the laws of supply and demand. I think that utilitarian principles still influence economic theory and practice, although they have been modified with time. Welfare economics is still an accepted part of economic theory, a theory that tries to explain how the optimum levels of production can be attained in a particular economy. However the practice of economics has led to a very modified form of utilitarian theory, economic practice still aims at maximising the pleasure and happiness of people, but it is not always the maximising of pleasure of the majority, all to often economic practice can be directed at maximising the happiness of a privileged group.
Economic utilitarianism can now rewritten as follows,
‘happiness can only be maximised for the few through the pain and suffering of the majority’,
A recent example from business demonstrates this principle. Sir Phillip Green was only able to buy his third super yacht at the expense of his staff at BHS. There is a rough equivalence between the money that he took out of the retail chain BHS and that which he paid for his new yacht. His yacht cost the jobs of 11,000 BHS workers. It can be argued that this one example of bad business practice is not representative of the theory of economics. However the most popular of current economic theories is supply side economics, which has been practised by both government and business over the past thirty years. This teaches that the major obstacle to maximising economic welfare are restrictions that the limit the supply of the factors of production, the principle factor being labour, that is people. Governments have since the 1980’s have successively removed employment protection legislation, so that today there are very few restrictions on how employers can use their workers. Given the removal of these protections Sir Phillip Green had few obligations towards his workers and could pass on his near bankrupt company to another knowing that he could avoid having to make redundancy payments and having to honour the pensions payments promised to BHS staff. This is not a unique example but just the latest in a long line of business owners of refusing to take any responsibility for their staff. If it had not been for the adverse publicity in the media and the hostile reaction of some MPs, his actions could have been put down to yet another failure of a UK business that failed to adapt to the times.
The name Ayn Rand is little known outside political circles, the media and the profession of economics.Yet this novelist cum prophet is the inspiration for much of current government policy. What she preached was a crude social darwinism. The poor did not deserve to survive in society to which they contributed little. The poor through their low incomes and poverty demonstrate their unfitness to survive ,as they cannot even provide for themselves. In her novel ‘Atlas Unchained’ she sees the death of so many of the worthless people as a necessary means of social cleansing. The heroes of her books are the billionaires and the money men, those who through their own efforts have made millions. Any restriction on their activities such as taxes on their incomes only makes society the loser, as it limits the creative and wealth making activities of these individuals.
‘Randian’ philosophy is applied to welfare policy. Those who claim benefits are part of the dependency class. These people who have come to depend on the state for their income and who in consequence have lost the incentive or will to provide for themselves. The harshest of sanctions are required to get this class of people into work, any suffering of benefit claimants is justified, as it the stick required to make this class of people work. This why the government can be indifferent to the suffering of those deprived of benefit for a number of weeks for a minor infraction of the rules. They don’t mind if these hungry and desperate claimants have to resort to food banks to survive, as they provide a useful example to others. Hunger is the best spur for making people work.
Even in the benign 1960’s this malign philosophy was active within economics. At that time unemployment was around 1% of the workforce, it hovered around 100,000. People thought that the full employment of the post war period was a success. I believed that myself and was shocked to discover at university that there were economists advocating an increase in unemployment. They wanted the government to take action to increase unemployment to about 3% of the workforce. This they claimed would reduce the pressure of prices and cut inflation. Yet this was a time when the majority of people remembered the horrors of the Great Depression of the 1930’s. They found little support at first in government, because there was no desire to return to the 1930s and the misery of that period. Then for these economists the utilitarian maxim would have been
‘the happiness of the majority can only be achieved through the suffering of a minority’, now with ‘Randian’ philosophy dominating government it can be rewritten, as ‘the happiness of the minority can only be achieved through the suffering of the majority’.
This may seem an overly pessimistic assessment of government economic policy, when the majority of people are well fed, well housed and living well. The misery seems to be confined to the precariat, that is those in insecure low paid employment such as cleaners and shop workers. However the impoverishment is slowly seeping upwards. Large numbers of whom would have been the future well off middle classes, university graduates of whom large numbers are looking forward to an insecure future of low pay and insecure work. The government is actively working to reduce the privileges and protections enjoyed by the professional middle classes in their employ. Teachers and doctors are just two groups that are expressing discontent with the negative impact of government policy on there working lives.
There is no reason why economics should be directed by such a malign philosophy. Economic policy in the 1950s had the aim to maximising growth, employment and the welfare of the people. Apart from a small minority economists shared these goals. Only bad economics as practised today aims to immiserate the many and enrich the few.
This is not the way to manage an economy
Sometimes I think economic policy making can be best explained through stories, with ogres, giants and other mythical figures from folk tales wreaking havoc on the economy. Contemporary policy makers are obsessed with the ogre of inflation, although that particular ogre was slain years ago.
The events of the 1970s traumatised the political classes in the West. There are two explanations of the inflation of the 1970s, one is that the world economic system became increasingly dysfunctional in response to political crises such as the Vietnam war and the actions of OPEC in raising oil prices to cripplingly high levels. However that explanation became disregarded and instead policy makers focused on what they termed cost push inflation. Workers by pushing for above inflation pay increases were causing inflation to spiral out of control. This inflationary spiral was given further impetus by excessive government spending, this spending increased faster than the capacity of the economy to increase output of goods and services and in consequence prices rose (demand pull inflation).
Rather than accepting the inflation of the 1970s was due to a series of one off events, they believed that the cause was a malfunctioning economic system. Inflation had to be squeezed out of the system through controlling wages and reducing government spending. This caused in Britain the recession of 1981 in which it lost 20% of it’s manufacturing capacity and a massive increase in unemployment. This policy was counted a success as inflation was reduced to historically low levels. The policy of limiting the increase in incomes has been so successful that in the USA the incomes of the majority have remained unchanged since 2003 and in Britain since 2008.
However the economic is a dynamic creature and cannot be constrained within policy straight jacket. Businesses that have successfully limited the incomes of their employees to keep down costs are now faced a new problem. People on low or stagnant incomes don’t buy lots of goods and there was a danger than stocks on unsaid manufacturing goods would build up. Mountains of unsold goods would diminish the profitability of these businesses.This certainly seemed to be true of the motor industry, where for year on year output of cars exceeded demand for them. There was some reduction in capacity, the closure of much British owned car manufacturing. However a dynamic economy will soon go into reverse if demand for goods is not maintained.
If rising demand could not be financed from ever increasing incomes, an alternative had to be found. The alternative was to be consumer credit. At first the credit came from the ever increasing use of credit cards and from loans raised on the security of ever increasing house prices. Growth was driven by the ever greater use of credit. Banks cooperated by making increasing amounts of money available on ever more generous terms to finance house purchases. All this extra money in the housing market pushed up house prices, which in term increased the value of assets (houses) on which loans could be raised. Any economy whose growth is dependent on ever increasing levels of consumer debt is inherently unstable. Debt financed trade is particularly vulnerable to adverse changes in the economy. A rise in interest rates can lead to a crash in demand as people can no longer afford to borrow at the new higher rates. This happened in 1990, 1999 and 2008.
The unvirtuous circle
When economic growth is dependent on ever increasing levels of consumer credit, extraordinary steps have to be taken to keep consumer credit growing. In the years immediately preceding 2008 banks and other financial providers took increasingly less prudential steps to keep the level of consumer credit growing. Applicants for mortgages if self employed could self certify their income, mortgages were increased to 125% of the value of a property and to make possible the purchase of increasingly expensive properties the time over which a mortgage could be repaid was extended from twenty five to forty years. The whole financial sector was gambling that house prices would increase at an ever increasing into for the indefinite future. This could not continue forever and inevitably the whole system came tumbling down in 2008, resulting in the greatest recession since the great recession of the 1930s.
Rather than taking the difficult step of rebuilding the economy on sounder lines, the government took extraordinary steps to stoke up the credit bubble. Interest rates were reduced to record lows, so people could continue in their risky habits of funding expenditure from credit. The government poured record amounts of money into the banking sector to keep rates low and to ensure that the banks had plenty of cash to lend for the various speculative activities that would fund the demand for goods and services that would keep economic growth going. Strangely enough they were abetted in this by the employers who would keep wages low as possible, but who would instead give those same employees whose income they froze, access to the most generous of terms for credit. Since the crash there has been a rapid growth in what is called shadow banking, a system where the manufacturers rather than the banks provide credit. One such example is the credit hire or leasing system for the purchase of cars. A system whereby the buyer leases a car for a period of say three years and then returns the car to the dealer and then takes out another car on a lease. While car leasing is not unsound, it becomes unsound when it becomes part of an ever increasing credit bubl. Leasing as with another system of credit is particularly vulnerable to any adverse change in the economy.
One such event was last Friday when the result of the referendum was announced. A debt driven economy will be easily upset by such an event. There has been since Friday a rapid collapse in the share prices of banks and other financial institutions, as any adverse change in the economy makes it more likely that there will be an increase in the rate of default and the profits of the banks will be particularly badly hit.
The great mystery is why conservative businessmen who will use any method to keep down or reduce the wages of their employee’s down and yet will throw increasing amounts of cash to enable the same employees and those of other businesses to buy goods on credit. To this particular economist this is the riskiest of economic strategies, yet governments encourage such practices. The only conclusion that I can arrive at is that rather than these businessmen being the great leaders they are lemmings that follow the worst instincts of the herd.
What skills does a good economist need?
Humility and the willingness to change their minds
Winston Churchill when speaking of Maynard Keynes (the greatest British economist of the 20th century) said that when four economists are gathered together you will get five opinions and two of them will be from Keynes. What this illustrates is that what the good economist recognises is that economics is dogged by uncertainty. The economy and its host society is so complex that any unexpected change can result in the policy measures undertaken producing contrary results. When Nigel Lawson in his budgets in the 1980s cut taxes he overstimulated a rapidly growing economy. All that extra money from the tax cuts had no outlet except in for investment in the property market, causing a housing boom that ended in a crash in 1990. Policy recommendations should be made in the spirit of cautious optimism. With the recognition that policies might need to be changed if circumstances change, as there is no certainty in the practice of economics.
When Mrs Thatcher said, ‘that the lady is not for turning’, she made a terrible mistake. Her policy of using high interest rates to squeeze inflation out of the economy through depressing demand had the unfortunate consequence of driving the exchange rate. This high exchange rate made large sections of British manufacturing industry uncompetitive. The consequence of this was that British manufacturing industry lost 20% of its capacity, which had the long term consequence of Britain developing the largest trade deficit in the developed world. A problem that still persists today.
A capacity for scepticism
There is no ‘economic cure all’ that can solve all problems, although many economists and politicians foolishly believe that there is such a policy. The latest ‘economic cure all’ is Neo-Liberal economics. In the 1970s the post war economic settlement seemed to be falling apart. In 1976 inflation hit the unheard of high of 27% in Britain. A group of economists the Chicago School claimed to have the answer, they diagnosed the problem as being one of excessive government borrowing to finance its spending programmes. This borrowing increased demand to a level beyond that which the economy could meet and as supply could not be increased prices rose, as consumers entered into bidding war to get these relatively scarce goods and the consequence was rising inflation. This problem was made worse they said by all the restrictions on the market which prevented industry responding to change by increasing supply to meet increased demand. These restrictions were such as the managed exchange rates, trade unions, employment protection laws and health and safety legislation. If government spending was cut and the restrictions to the market were removed, inflation would fall and the economy would grow ending what was a period of ‘stagflation’. What these economists ignored was the massive increase for the world’s oil etc caused by the American participation in the Vietnam war. There was such a massive expenditure of material in this war that it seriously distorted the world economy. More bombs were dropped in this short war than during the whole of World War II. When Nixon negotiated an end to the Vietnam War that decision did more than any economic policy measure to end the malfunctioning of the world economy.
Whether its called the monetarist or the Neo-Liberal economic school of economics, it has failed.There have been three world wide recessions since 1990 each one worse than the previous one. Growth remains minimal, the growth in incomes has stalled yet economists (the majority in the universities and those employed by government and international institutions) and politicians refuse to change their policies. They have invested too much prestige in the Neo-Liberal revolution to abandon it now. A little scepticism about the policies of the present would not come amiss. There are plenty of alternative policies that can be used, it’s only stubbornness and ignorance which prevents them being used.
When politicians and economists state ‘that things have changed’ and that we are in a new economic paradigm, it a sign things are going badly. It’s a weak defence offered for a policy that is failing and for which no better defence can be thought of. It is the wisdom of parrots as politicians repeat this mantra endlessly without understanding that these phrases are completely meaningless.
A good economist will be well versed in literature, in fact English literature should be an essential part of the course of study undertaken by a trainee economist.
Economics has the potential to be the dullest of subjects. I remember that in the second year of my university course all the second year students had to attend a series of lectures given by one of the world’s greatest monetary economists. They were so boring that students did all kinds of things to distract them from the tedium of the lecture. One particular incident sticks in my mind and that was when a group of bored students launched a giant paper plane from the balcony which soared over the lecture hall.
Literature should be an essential part of the course, because a great novel can better than anything else explain the impact of economic and social change on a people. One of my favourite novels is “The White Guard” by Mikhail Bulgakov. This novel details the impact on one Ukrainian family of the Russian civil war. The play on which the novel was based was Stalin’s favourite play, even although he was on the opposite side of the conflict. The reading of such novels will hopefully lead to the development of some sensitivity towards the human condition in the trainee economist and hopefully led them when qualified and employed by government to hesitate before recommending policies that cause unnecessary economic and social hardship. One cannot impose a test on economists for the possession of those essential qualities that go to make a wel rounded human being, but hopefully immersion in a course of literature will be a good substitute.
Milton Friedman the Chicago economist provides an example of the extreme insensitivity of which economists are capable. General Pinochet launched a coup to overthrow the socialist government of President Allende. The aftermath of the coup involved the torture and killing of many of those people opposed to the coup. Milton Friedman lauded the actions of Pinochet as necessary for the greater good of society, as the imprisonment and killing of these socialists made possible the introduction to Chile of the free market economy. Only a person of extreme insensitivty would applaud the killing of people as the best means to achieve some ultimate end. I tend to agree with Ivan who at the end of the novel “The Brothers Karamazov” asks God why does he permit the death of a child. (when being shipped of the Labour camps of Siberia he witnesses the pain and a suffering of a woman holding her dead baby). Any economist should ask does my policy proposal cause unnecessary suffering and is there a better alternative that will minimise human suffering. Killing may be necessary in fighting a war but never in imposing economic change on a society.
It may also hopefully prevent economics students suffering from too many dull and boring lectures, as the lecturer will have a better grasp of the English language and human nature than would otherwise be the case.
A good economist will be schooled in philosophy
Any economist must recognise that any policy proposal will be flawed or wrong in some measure. J.S.Mill in the 19th century stated that there could be no science of the humanities because human society was so complex. There were so many possible causes of a particular social or economic event and so many possible unintended effects of a policy measure that the one essential requirement of a science could not be fulfilled and it was impossible to have a science it which it was impossible to demonstrate cause and effect. Mills’ words seem to have been forgotten in the twenty-first century. It is believed that computers that can overcome this problem, as they can make calculations involving thousands if not millions of variables. However what politicians and economists at the world’s Treasuries fail to recognise is that the output of the computer findings are only valid if the calculations on which the predictions are based are valid. What politicians fail to recognise and economist ignore, is that the model of the economy used in the computer does not work, there is something missing. Treasury economists have to insert an ‘x’ factor into the calculations, a reality factor to enable the computer to deliver a realistic prediction. This x factor is little more than an informed guess. This is why the Treasury computer can only make a correct prediction about economic growth after the event when the necessary corrections can be made to the computer model.
Any student of philosophy learns the limits of human knowledge in the first year of their course. It was a shock to this particular student that philosophy provided few of the answers to the questions that he wanted answering. One such question is what is good, Plato tried to answer this question in this question in his book ‘The Republic’ written in 380 BC and it is a question which philosophers ever since have struggled to answer. Now analytic philosophers tend to think it is an unanswerable question and not one contemporary philosophers should waste time on answering. Instead the quests of past philosophers to understand the nature of the good are to be seen to provide a good schooling in the techniques of philosophy but little else. Students such as myself had instead to look to theology to provide some answers. The point that I am trying to make is that philosophers understand the frailty of human nature and its limitations. A true philosopher can only laugh at the claims of Neo-Liberal economists who claim to understand the workings of the economy, as the evidence from philosophy demonstrates the continued failure of man to have a complete and full knowledge of human nature let alone human society. The problem with so many economists today is that although they have studied PPE, they compartmentalise the philosophy they learn and think that its findings do not apply to economics.
Diogenes Laertes in his history of the philosophers recalls how visitors to Democritus frequently found him laughing in his garden. A thing he frequently did when considering the follies of mankind. If the effects of the wrong economic policies were not so disastrous, I would join Democritus in his laughter.
A good economist is aware of the past and does not think today’s events are unique and without parallel in the past and is prepared to recognise the similarities between today’s events and those of the past.
One extreme example springs to mind, both the governments of the Roman Empire and contemporary Britain regard the provision of cheap food for the people as a priority. Rome was able to supply cheap bread to its people through conquering the countries that were the bread baskets of the Mediterranean and then by supplying low cost labour for the farms in the form of slaves. Contemporary Britain by contrast encourages the production of cheap food through the provision of subsidies to farmers, one estimate is that now 50% of farmers incomes now comes from EU subsidies. Most of this money goes to towards subsidising what is termed industrial farming, which produces large quantities of food at low cost, but in an environmentally damaging manner. Unfortunately there is evidence that British food suppliers are adopting some of the practices of the Romans. Some of migrant workers on Uk farms adopted in work in slave like conditions.
What the government could learn from Rome is that using low cost labour methods of production discourages investment and innovation in industry. If there are endless supplies of cheap labour employers see no compellilng reason to invest in expensive machinery, if there are endless supplies of cheap labour. Studies of slave labour have demonstrated how slave labour acted as a deterrent to industrial innovation. A government and business class that believes the only solution to problems in the economy is to make labour as cheap as possible have a lot to learn from the slave economies of the past.
While the one lessons that can be learnt from Rome’s history are negative, much that is positive can be learnt from the actions of the government in the 1930s. This government tried to stimulate an economic recovery after the devastating crash that was the Great Depression. The government then recognised the importance of getting new investment into manufacturing industry so as to kickstart a recovery. Recognising that the banks were unwilling to do this, it set up an industrial investment bank which would lend money to manufacturing industry. Today one of the issues that is delaying the recovery is the comparative lack of investment in industry and manufacturing industry in particular. A recent study showed that only 15% of bank loans went to investment in industry most when into speculative trading in property etc. There is nothing to be lost and much to be gained by setting up a new industrial investment bank and it could be financed through a levy on commercial banks, as happened in the 1930s.
This list of criteria for judging what is a good economist is not intended to be exhaustive but suggestive.