Sun Sep 26th, 2010 at 03:20:11 PM EST
Britain's Broken Economy - and how to mend it by The new political economy network. An e-book published by Soundings.
This is an attempt to construct a compelling alternative to the current Neo-Classical Economic which has been taught to almost all now alive who have formally studied economics. Sadly, more than 90% of those accept that framework as reality. The popular attitude is that, while there may be some problems, there is really no alternative to this existing approach. This e-book is an attempt to provide just such a compelling alternative. This is a difficult task and I believe this could become a valuable contribution. The authors are generally on point, at least in their conception, though I do find some aspects with which to quibble:
The economic crisis should herald a new progressive moment for the centre left, but instead there is a lack of a sense of purpose, and a difficulty in defining a new radical politics. Nowhere is this problem more acute than in the realm of political economy, where the discrediting of neoclassical economics has left an intellectual void in policy making.
The revival of a progressive politics requires a new political economy that will enable Britain's transition from casino capitalism to a balanced, low carbon, equitable form of economic development. We need an economics whose principles are ecologically sustainable wealth creation, cultural inventiveness, equality and human flourishing.
I must dispute one of the above statements:
Neo-Classical Economics should have been but, in fact, has not been discredited and still stands in the place that should be occupied by a genuine economic theory. In fact Neo-Classical Economics has constituted the very void the authors describe for the most of the last century, as it is much more a piece of effective propaganda than it is an effective economic theory. Thus the paper assumes much of what very much still needs to be accomplished. NCE will not be discredited until >60% of the public understand that NCE is retained despite its failures and not because of its utility but rather for its propaganda utility to the wealthy as a means of both justifying and disguising their success in accumulating great wealth while impoverishing 95% of society. I do grant, however, that such assertions need a healthy development before being presented in a general forum and the authors do understand that NCE is a problem, despite some unfortunate ways of casting their views, and their goal of building a positive alternative very much needs to be done and the paper is helpful in that regard, especially for UK audiences.
The political analysis is obvious and on track:
There is no cast-iron law that states that crises of capitalism end in victories for the left - and certainly not in Britain. And yet this is not a Conservative moment - it is clear that the Coalition has no viable plan for rebuilding the economy. The problem is that Labour does not have one either. The task for Labour now is to come up with a vision of the economy that is different from what it was offering justbefore the crash.
Labour made the mistake of buying the snake oil of neo-classical economics. It must now discard it, and develop ideas for the economy that are both practical and humane - based on the principles of environmentally sustainable wealth creation, durability, cultural inventiveness, equality and human flourishing.
But to say that neo-classical economics has been discredited when the supposed party of the center left in Britain still needs to discard and repudiate NCE is a bit contradictory. And there remains the question: from whom are the campaign contributions to come? But it is a good sign that, at least, there is this organization.
The Foreword goes on to note the dangers in accepting the cliches about the discrediting of the existing economic theory by pointing out how the response by the current Con-Lib Government seems to be reverting to views last put forward in the '30s, such as balanced budget orthodoxy and concentrates too much on criticizing the NCE of the last 30 years, without acknowledging that the orthodoxy of the '30s was also NCE. But they at least caution against a return to the even more poisonous Snake Oil of that era.
There had always been a diaspora of discontents - old Keynesians, socialists, Marxists, greens, liberals, members of non-governmental organisations - that kept going during the long, wilderness. And it was in an attempt to bring together these voices, in the hope that the sum would be more than the parts, that the New Political Economy Network was born. The left's answer to the Mont Pelerin conference in 1947 that launched the fightback against collectivism was a meeting in The Guardian's new offices in King's Cross in the autumn of 2009. A series of seminars and public meetings followed, and the network continues to grow. This e-book is the first attempt at piecing together an alternative to the orthodoxy. It is still very much work inprogress.
The problem seems to be that, in an attempt to bring together many voices, they have created a muddled chorus that meanders along for 60 pages, 25 of which are foreward, introduction and afterword. In its present form this e-book is not a magical sword with which to slay the dragon but rather a large, fluffy pillow with which to annoy the dragon -- suicidally, I fear.
Another complaint is that the paper does not truly even attempt to defend foundational concepts put forward by Keynes and rejected, largely without basis, by Thatcher, Reagan and the NCE crowd at the first occasion after the death of Keynes that there was a problem with the Keynesian approach . The particular way in which Keynes' theories were being applied ran into problems and the NCE crowd used this as an opportunity to spew forth voluminous rhetoric to make everything Keynes ever wrote toxic. This cannot be allowed to stand.
NCE doesn't work. Keynes' macroeconomics largely does. Keynes provides a foundation on which a functioning theory of economics can be built. NCE does not.
The programs the NCE think tanks had assembled were merely a coherent set of assertions and beliefs, which have almost entirely turned out to be unfounded and have been dis-confirmed by events. The "think tanks" mostly thought about rhetoric and polemics. Can anyone cite a significant contribution to economic theory coming from a libertarian think tank?
Yet the accomplishments of the "think tanks" are legion. The problems of the '70s largely were failures of governmental regulatory responses to increasingly assertive attempts by the financial sector to avoid regulation via globalization and to repeal existing domestic regulations. It was the rhetoric coming from the "think tanks", picked up by the popular press, that paved the way for Margaret Thatcher Ronald Reagan, under whom deregulation and fiscal policies favorable to finance and the wealthy began in earnest.
The promise was that de-regulation would produce private sector jobs, but the result was that all sectors but finance suffered. Domestic industry was largely allowed to be disbanded. The benefits went mostly to Wall Street and The City. The promise was broken. Instead of prosperity the UK got an epidemic of looting by the financial sector which itself has turned into an over-sized parasite that continues to drain the life out of all other sectors.
The essential validity of Keynes' General Theory needs to be publicly reasserted and NCE must actively be discredited in the public mind as the fraud it is and to be shown to have served, consciously or not, as the cover story for the looting of the society via control fraud by a tiny elite of wealth who have, perhaps legally, gotten control of the levers of power and used them, almost certainly illegally, to their massive personal benefit. In its present form the paper seems too timid to even attempt a vigorous push back against received stupidity, though it does suggest the further calamities which await 95% of the UK population if national policy continues down these lines.
A crisis in the private sector caused by massive market failure and corporate abuse of power has been reinvented as a crisis of the public sector. A public debt that is modest by historical comparison
and largely attributable to a fall in tax revenues has been turned into an opportunity for the Coalition government to pursue a destructive level of fiscal austerity.
This folly, and the reinvention of economic reality by the right and its media allies, is a consequence of the left's political weakness and Labour's lack of a social and democratic political economy. The Coalition's economic policies threaten to plunge Britain back into recession or a protracted period of stagnation. Millions of people who gained little if nothing from the economic boom will be asked to bail out the few who took the lion's share.
However, I fear that a clear description of the likely consequences of the current policies, absent a sharp critique, a clear contextualization of what Classical and Neo-Classical Economics has wrought in UK society over the last two centuries and a set of coherent alternative theories, policies and goals is more likely to demoralize than to inspire broad opposition. What is needed is greater specificity. A critique by Merijn Knibbe of Britain's Broken Economy in Real-World Economic Review makes similar points and then proceeds to provide some of that specificity:
Redefining economics to redefine the economy
Once upon a time, economists like Milton Friedman, Gary Becker and Robert Lukas redefined economics with concepts like `Permanent Income', `Human Capital' and `Rational Expectations'. There might be some value in at least the first two of these concepts. But it is not just these individual concepts. These (and other) concepts are linked by three common denominators which makes them neo-classical: atomistic man, rational choice and efficient markets. These denominators are, in my view, not needed to define these concepts - but at present they are at the core of it. These concepts, in a less precise shape, are also cornerstones of neo-liberal thinking and are (or were?) even part of what Germans call modern `Zeitgeist', the `atmosphere' of a certain era (there is a surprising similarity between the `You can do it if you want it' individualism part of the new age movement and `rational neo classical man). The e-book does a good job when it, implicitely, attacks this `Zeitgeist' by, for instance, stating that job security is not just a `rigidity' which hampers the working of efficient markets - but also a cornerstone of many peoples live. It does not do a good job - in fact: a bad job - when it wants to restrict these ideas to `Labour'. The very succes of neo-liberal `There is no such thing as society' economic ideas is partly caused because left wing as well as right wing economists have embraced these ideas. Or, I do dare to state this for my country, they are often not even aware of alternatives. Many Dutch economists are, for instance, probably not able to mention even one Dutch economic historian, have never mastered double entry accounting, are not familiar with National Accounting and know next to nothing of modern consumer studies. Indeed, these are not radical methods, but that's exactly the point. So called `radical' Post Keynesian ideas are quite consistent with i.e. mainstream modern consumer studies - while neo classical economics are not. It's not the Post Keynesians (or the Georgists, or...) who are the fringe-thinkers!
When we want to succeed in changing economics for the better, i.e. in the direction of a more real life science which does take account of the importance of social bonds, uncertainty, the difference between labor/entrepreneurial incomes like profit and wages and rentier incomes like rents and bonuses and which recognizes cultural differences we will have to redefine economics again - the individual concepts as well as the `worldview' behind these concepts. As part of my (very) long term goal, `Indices of food and housing as indicators of human welfare, 1600 - 2020′ I will try to make a humble contribution to such a redefinition. None of the individual parts are new, all of it is consistent with National Accounting and double entry bookkeeping but the combination of the individual items may be slightly less usual.
Knibbe then proceeds to list three re-definitions that would be very helpful:
1. A redefinition of investing and saving which includes consumer durables.
In National Accounting and Keynesian economics, saving is basically seen as producing something (capital goods, stock) which is used in a later period. The same holds, of course, for consumer durables....
2. Redefining inflation.
The largest single item in the `basket' of goods used to calculate inflation is `housing', including energy and the like....The reason why `imputed rent' is used is straightforward: it is closer to a `monetary efficient market' price than costs of housing of an owner occupied house, like interest, write offs and the like. But that's exactly the problem. Households as a producer which own a house do not operate on a `monetary efficient market' - and our statistics should reflect this.
3. A `long term double entry accounting view of market transactions'.
Market transactions, by definition, have to be booked at the left as well at the right side of the accounts. For a person, this does not make much sense when one buys an icecream. But it does make sense when one buys a house (or a car, or other large items). To be honest: it makes so much sense that the bank every month reminds me of the passiva side of my balance sheet. Money, in the shape of debt, is surely not neutral, just read the Dean Baker op eds on housing....The unifying background of these ideas is the household as a producing unit which is embedded in a society and culture
It is a sobering fact that the role of the family, the only legitimate source for workers and citizens per conservative cant, is not acknowledged in the theory they use to protect their position.