Tag Archives: The Road to Serfdom

Alternative and/or Socialist Economics are overdue a revival

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

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

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

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

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

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

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

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A new and unusual solution to economic policy making. ‘Wittgensteinian’ Economics.

Recently I have been reading Ray Monk’s biography of Wittgenstein. In reading this book I realised that Wittgenstein’s approach to philosophy opens the possibility of there being a different approach to economics. What Wittgenstein is always criticising philosophers for is there constant search for the one grand theory, the unifying theory that answers all the questions. There was he argued no grand theory and it was pointless looking for one. This is an approach that I believe should be adopted in economics.

There is at present one theory that dominates economic policy making and that is what might be termed free market economics. One small book Hayek’s ‘The Road to Serfdom’ is the origin of all current thinking on economics. Usually today it is known as Neo-liberal economics, an economic philosophy associated with the political right. Although there is a left of centre variant, new Keynesianism. Proponents of the latter claim to have rediscovered in Keynes writings his love for the free market and put to one side Keynes radicalism.

Keynes radicalism was the consequence of his despair at the misguided policy making of the governments of the 1920s and 30s. Usually the policies of the 19th century Parisian commune are ridiculed by economists. One policy that was held up to ridicule was the policy of having the unemployed dig up the paving stones, only to replace them later. The unemployed were paid a wage for this work. Economists saw this as a foolish waste of money that did little to improve the economy. However as Keynes pointed out this created an income for the unemployed and that there spending could help bring a dormant economy back into life.

What this illustrates is that Keynes was asking a different question to that asked by his contemporaries. He was trying to find an answer to the question, how do we bring to an end the misery of mass unemployment? His academic colleagues were asking a different question, how do we restore a dysfunctional economy back to being a fully functioning one that will in the long term work to the benefit all? Different questions have different answers. While Keynes advocated greater government spending to increase the demand for labour to reduce unemployment; they wanted to cut government spending, believing that only a prolonged period of sound finance and balanced budgets could create the strong economy, an economy which would eventually generate new economic growth and so ending the time mass unemployment. All this government could say to the unemployment was to have patience, as eventually the economy would pick up and they would have jobs. Keynes had one answer to this policy and that was in the long run we are all dead. There was also the unspoken assumption that growth generated by Keynes spending policies would be bad growth, whereas the economy eventually moved into the upswing in the trade cycle that this was good growth. A set of unprovable and dubious assumptions

When George Osborne adopted a similar policy in 2010, that of fiscal consolidation, cutting government expenditure and balancing the books, he repeated all the errors of the politicians of the 1920s and 30s. Mass misery, although this time not caused by unemployment, but low wages and the insecure employment of the ‘gig’ economy.

Wittgenstein’s last book was ‘Philosophical Investigations’ crystallised my thinking on economics. Rather than believing that there was one grand unified theory of economics, there are series of economic investigations which belong to one family, as they all bear a familial resemblance. The economy as subject matter is the familial resemblance. He also writes about the grammar of philosophy, which provides the format or structure for ensuring that the correct questions are asked or the correct philosophical investigations undertaken. What is the nature of good is an incorrect question. The correct question is what actions are understood as good. Asking people what is good is silly, as anybody when asked that question could give numerous examples. They understand the concept good, what they don’t need is a philosopher telling them what good means. Philosophers when asking this question brings itself into discredit, as the answer is either I don’t or a definition that lacks application or validity to everyday life.* Politicians are also failing to formulate their questions correctly. What they ask is that asked by the politicians of the 1930s how can we the economy to health. What they should be asking is a series of questions about the economy, such as how can unemployment be reduced, when looking for policy solutions to all these individual problems they will be answering the big question, of how can we restore the economy to good health.

I can give examples to demonstrate my thinking. The British economy has a number of dysfunctions within it, but ones that the Neo-Liberals believe only require the one solution. These dysfunctions are:

• Slow and anaemic economic growth

• The highest trade deficit as a percentage of GDP for a developed country, as a consequence of a shrinking manufacturing industry

• An unbalanced economy, one in which the financial service sectors are booming and manufacturing is in slow relative decline, an economy also unbalanced in that the southeast and London are experiencing high growth and incomes while the other regions experience the reverse

• An economy that is increasingly failing to deliver for increasing numbers of people, who are denied the essentials of a good life, that is fair incomes, secure employment and good housing.

• Income inequality is now approaching those levels last seen in the dismal 1930s

• The economy is increasingly subject to speculative booms and busts in the various asset market, usually such busts originate in the property market

• A country which shares record levels of indebtedness with Japan. The majority of British debt is private sector debt, which an upward shift in interest rates could make unsustainable, as too many households would have difficulty managing their debt repayments

There are other dysfunctions that I could add to the list, however I had to end the list somewhere. Only today Areon Davis (Reckless Opportunists: Elites at the end of the Establishment) has in today’s Guardian newspaper outlined a different set of market dysfunctions, which could result in a repeat of the 2008/9 financial crisis. Yet the Neo-Liberals politicians always resort to the same set of policy options to deal with each of these dysfunctions. They are

• Vary interest rates, either lower or raise them

• Reduce regulation on business, thereby reducing the regulatory role of the state

• Cut taxes and government spending

• Recently they have added a new measure – quantitive easing, that is increasing the supply of money to the banks

What the British economy requires is a different set of policy options for each of these major dysfunctions. Why do these politicians believe that the same policy options should be prescribed for each policy? A doctor prescribes antibiotics to treat a bacterial infection, he would not use them a patient that suffered a cardiac arrest, yet this is exactly what the government does with economic policy making. It’s always the same prescription, whatever the problem.

The economy is a dynamic organisation that is constantly changing and each change in the economy offers new benefits or brings to the fore new problems. There can be no one theory of everything, while Neo-Liberalism offers some policy options suitable for some problems, that is all it can offer. If instead politicians realised that each new problem the economy threw up was asking a new question of them and not just some variant of an old question policy making would improve. To paraphrase Wittgenstein, economics is a series of investigations that ask different questions, each of which requires a different response.

*I am aware that my brief paragraph does an injustice to Wittgenstein’s thinking, as I have taken elements from ‘The Brown and Blue Books’ and ‘Philosophical Investigations’, which are dissimilar books written at different stages in the development of Wittgenstein’s thinking. However to do so suited my purposes.

Why does our government seem to be determined to increase the levels of criminality in our society

claudeduval

The famous incident in which Claude Duval the notorious highwayman tells a lady  whose coach that he has just held up that in exchange for a dance he will refrain from robbing her.

Our current government claims to be one that is tough on crime, yet in practice it seems to being doing the opposite. What I am going to suggest that the government through its policies is reverting back towards an earlier model of society, one similar to that of the 18th century. In that century policing was massively under resourced. Crime prevention and detection was in the hands of the Parish Constable. A man who had to rely on the support of his parishioners to arrest criminals. Policing was so ineffective that the government had to resort to the extreme measure of making most offences capital offences as a means of deterring crime. The Black Act of 1723 tried to compensate for the lack of an effective police force by making some 50 offences punishable by hanging, for example the punishment for breaking a farmer’s gate was hanging.The only way the to keep one’s household safe was to ensure that all the doors where secured by good locks and a variety of loaded guns where at hand to fend off any intruders. Ominously I was told by a member of the police force that his recommendation was to secure one’s house with good locks and stay in at night, he thought the policing levels were inadequate to guarantee the public’s safety. One senior police office ventured the opinion that he would not go into the centre of Manchester at night because it was not safe.

The combination of weak governments and under resourced policing is all to evident in Eire. Even before the financial crash and the austerity programme that forced large cuts on the Garda (Eire’s police force), this force was struggling to cope with the criminal activities of both terrorist groups and criminal gangs. These gangs were then so powerful that they could shoot a campaigning journalist at a busy cross roads and get away unhindered. Now an even more depleted police force is unable to prevent tit for tat killings that are occurring between these criminal gangs. Yet in spite of the evidence of the evident dangers of relying on an under resourced and undermanned police force to contain these dangerous criminal gangs the government is insistent on following the unwise path already trodden by Eire.

There is ominous evidence from my home city that this is already happening. Cuts to the number of the police have meant the ending of an effective pro active drugs strategy. The teams that were used to break up and disrupt the drug dealing gangs have been disbanded and the remaining police officers used to street patrols. The police will now only react to evidence of drug crime and only if it is thought that the individual in question has drugs in excess of a street value of £10,000. This means that the street dealers which are the bread and butter of the organised drugs trade are given a relatively free hand.

Why despite all the evidence of the dangers of allowing the drugs gangs to flourish has the government adopted policies that will encourage these gangs to flourish.

Why?

There are several possible answers but the most likely is the change in the philosophy of the government. The adoption of the brutalist philosophy of Neo-Liberalism, which emphasised the supremacy of free market, competition and the end of regulation. Regulation it was argued did not prevent wrong doing so much as impose additional and unnecessary burdens on business. However Hayek (The Road to Serfdom) who was the founding father of Neo-Liberalism did not argue for the extreme Neo-Liberal system of today. He believed in the good society, a society in which all paid tax for finance those items that made up the common good. He never once in his writings claimed that the ideal state is one in which the tax authorities collaborated with the rich in a programme of tax avoidance. He would have been horrified at the programme of tax cuts that reduced the effectiveness of the police and other public services.

Rather than looking to Hayek it is the writings of a novelist and minor philosopher called Ayn Rand that are the inspiration for the new Neo-Liberal State. In her influential novel “Atlas Shrugged” she wrote that the billionaires are the saviours of society. It is their energy and drive that moves society forward. Any restrictions on the activities of these people negatively impact on society as it prevents them fulfilling their primary purpose which is wealth creation. Therefore in her good society there are to be few regulations imposed on the billionaires or the businesses they run. Regulations that protect workers at their place of work are no more an unnecessary increase in costs as they disproportionately increase the costs of labour far beyond the contribution labour makes to wealth creation. All these high labour costs do is reduce the number of goods and service produced as what might have been produced if labour was fairly priced is now uneconomic. Similarly high rates of taxation on the rich do little more than reduce the amount of money that they have available for investing in the economy. In contrast the poor and the great majority contribute little to the economy, they are merely the simple tools that the billionaire uses to create wealth. Only if the billionaire class is freed from all restriction will they be able to use their energies creatively to add to the wealth of society. It is this author who is the inspiration behind the new Neo-Liberal State, that is the Britain of 2016.

Although her books are widely read amongst students at our elite universities, there has to be another reason as to why she has been adopted as the political philosopher of choice by our political classes. I think part of the answer is that they identify with her billionaire class. They see themselves as much victims of society as the billionaires of Ayn Rand. These leaders are continually frustrated in their great schemes for change and reform by the opposition of the little people. People of little worth, who lacking the skills or even intelligence for government think they have to right to a say in how policy is made. This contempt for the little people is demonstrated in the distain our leaders show for them. One former leader spoke of constantly being stabbed in back by public sector workers who failed to understand that the policies he was introducing were for their benefit and the good of society. Another continually referred to his opponents as the ‘blob’, abusive terms are the common currency of politicians who want to minimise the role of the people in a democracy.

It must also be mentioned that the political classes believed that the political and economic reforms espoused by Ayn Rand would if adopted would lead to a new political and economic dynamism in what they saw as a moribund society and economy , too rooted in the practices of the past.

Rather than continue with a psychological analysis of the political classes, what I want to demonstrate is the impact of what I shall call ‘Randism’ has on society and crime in particular. If the billionaires and their proxies the great business corporations are to be freed from almost controls and regulations, there are other greater predators the will benefit, which are the organised crime networks.

Changes in the legal system, in that is company law and tax law have created a situation in which the big corporations are largely outside the law (at least in the UK). What has been created is an opaque system of company organisation the will frustrate any attempt at regulation or control. However such a system is open to abuse and it offers possibilities for criminal organisations that had not previously existed. Formerly in the UK criminal groups used small businesses as a front for their illegal activities, such as scrap metal dealing, now they have the opportunity given the opaque nature of company organisations to move into large scale legitimate business. What is to be feared that the change or weakening of company regulation could result in a similar situation to that in southern Italy where the criminal gangs have penetrated legitimate businesses.This has already happened in the meat processing trade, there was a recent scandal in Britain where it was discovered that criminal gangs had infiltrated the food processing industry and were able to pass off horse meat as beef. While a few minor wrong doers were arrested the members of major criminal gangs were never arrested. The abolition of most regulation relating to food production has not freed the large supermarkets from unnecessary regulation but opened up a new field of opportunity for organised crime.
Perhaps the fate of the National Crime Agency illustrates best the dangers of an opaque legal system. The National Crime Agency was set up to tackle organised crime or more particularly the large drug gangs. It was to be a British FBI, with some of the best detectives seconded to it. However it has been largely ineffective in its main purpose which is to seize the assets of the big criminal gangs as a means of rendering them ineffective. Its ineffectiveness is a consequence of legal changes designed to minimise the impact of regulation on the big corporations and it is this lack of legal powers to intercept the flows of cash within big business that means this agency is unable to disrupt the large organised crime enterprises. It is not only in Britain that the law enforcement agencies are unable to confiscate the income of these criminal empires but also in Eire where the crime lords can amass their ill gotten gains without any apparent interference from the legal authorities.

Governments know that the lack of effective financial regulation means that the large income flows that enable the criminal gangs to prosper. What prevents them taking effective action is the corporate interest which is opposed to any stricter regulation of international finance. They see any change as a threat to them, what they want least of all is to be liable for their fair share of taxation. They will continue to work against any effective control of financial transactions, even if it means tolerating the growth of large scale criminal empires.

The political classes in Britain with the belief in Ayn Rand’s Neo-Liberal dream would never countenance any change in law which might disadvantage the billionaires or their proxies the large business corporation. Their rigid adherence this extreme ideology or dogma means that effective action will never be taken against these criminal empires as the consequence of any such actions may have what the big corporations see as negative consequences for them.

This belief is all to clearly illustrated in the actions of the British Treasury who believe that any government spending reduces national income and so the minimum should be spent on public services such as policing. Newspaper columnists can continue to write horror stories about the iniquities of the trades trade but the Treasury would never countenance any increase in spending on the police as they believe it would negatively impact on the nations wealth. They believe that if the price of greater wealth is increased criminality, that is a price worth paying, as its better to live in a dynamic society that has high growth and crime than in one that is the reverse.