Bill Mitchell-en Why economists kept getting the policies right!
(http://bilbo.economicoutlook.net/blog/?p=47077)
It is Wednesday (…) And some ideas about why it is wrong to think mainstream economists have got it wrong. (…)
Why economists kept getting the policies wrong
The title came from a Financial Times article I read last month (February 18, 2021) – Why economists kept getting the policies wrong – from journalist Philip Stephens.
The answer is obvious – they kept getting policies wrong because their models were wrong.
But then that misses the point or one point.
At one point in the article, Philip Stephens writes:
Thus detached from reality, economic policy swept away the postwar balance between the interests of society and markets. Arid econometrics replaced a measured understanding of political economy. It scarcely mattered that the gains of globalisation were scooped up by the super-rich, that markets became casinos and that fiscal fundamentalism was widening social divisions. Nothing counted above the equations.
Which means the title of the article was incorrect and should have been ‘Why economists kept getting the policies right’.
Confused?
Don’t be.
It all comes down to what the purpose of the policies were and are.
We keep getting lured into thinking that our governments are somehow elected by us to advance our well-being in a way that we, as individuals cannot.
Collective goods that require scale and technologies beyond our means as individuals.
The currency.
And the rest.
And from that perspective the title of the article is correct. The policies deployed by governments over the last four or more decades since Monetarism arrived and morphed into a pervasive attack on the social democratic state in the form of neoliberalism have been disastrous for many of us.
So in that respect we think, what the hell were these economists doing.
But if you have been inside the profession all your life, as I have, then you get a pretty good feel for what is going on. And it is not what the rest of you think.
Economists are not fellow travellers ‘on a mission from god to do god’s work’ (great movie by the way).
They are part of the capitalist establishment designed to safeguard capital and its profits and keep the working class in its place so that challenges are confined to disputes about wages and conditions around the margin, but, never question the basis of the system – the ownership of the material means of production and the capacity of those unequal ownership relations to extract surplus value as profits from forcing workers to work longer than they have to to produce their (social) subsistence.
As I have spoken about in workshops etc, the development of neoclassical economics, from which the modern day Monetarism and New Keynesian economics emerged was no accident – no scientific event.
Economists were hired by industrialists to come up with a body of work that made capitalism appear fair. It was in the second half of the C19th when Marxist thought was spreading among workers and the intellectual class and manifesting into social and political instability as evidenced by the – Revolutions of 1848 – and later, the – 1871 Paris Commune – among other uprisings.
Capitalism was under threat because workers were beginning to understand the wage form of the system – work for 10 hours but produce enough to cover the wage in 4 (or something).
Who gets the 6 hours of labour that manifests as production?
Why do they get it when they don’t do any of the work?
So mainstream economics came up with marginal productivity theory that massaged those uncomfortable questions away.
Accordingly, economists started writing and teaching that capitalism was intrinsically fair because every income recipient received back what they contributed at the margin to production.
You contribute X. You get paid X. How could that not be fair?
Economists were part of that conspiracy to obfuscate the inner workings of capitalism.
And it has been that way ever since.
Our training, particularly in graduate schools attempts to anaesthetise us – reduce our capacity for free thought, reduce our moral and ethical compass, by purging these concepts and holding out the body of work as a mathematical verity – hard, scientific, without values.
I recall still to this day a referee’s report I received on the second article I submitted as a young academic to a peer-reviewed journal. The article was about how the NAIRU was a nonsensical concept – but there were lots of equations in the paper and very elegant (terse) language as is required for those exercises.
The referee’s report was one sentence long and went something like this:
It is obvious that the author hasn’t understand Chapter 1 of Lipsey’s Positive Economics and the paper should be rejected.
Welcome to the all-caring, all-helpful, all-supportive, all-mentoring academy Bill!
Richard Lipsey’s book was an introductory first-year book on economics that tried to claim that mainstream economics was value-free. It was just positive factual science.
Students learned this stuff and as they progressed through the years became inured to it and mostly stopped asking any questions that mattered and were sidetracked into feeling self-important and ‘smart’ for comprehending the stochastic properties of some function, or, how transversality conditions could be stated in formal terms.
Geniuses all of them. About nothing that mattered.
Me, I was an aberration. A black sheep. That got through this system because my mathematics and mathematical statistics was first-rate and I could jump their hoops with ease.
Which, by the way left me heaps of time to read real stuff – philosophy, politics, sociology, psychology, history, anthropology, and still have time to play guitar!
The FT article is curious because it doesn’t go to the heart of the matter (great book by the way).
The author notes how everyone is jumping on the big deficits bandwagon now and no-one is talking much about the public debt issue any more.
Only some real diehards.
Even the IMF is warning against premature “cuts in public spending”.
He is astounded that the IMF:
… is the organisation that in the intervening years had a few simple answers to any economic problem you care to think of: fiscal retrenchment, a smaller state and/or market liberalisation.
He recounts how the mainstream orthodoxy was drummed into him early in his journalistic career:
My first job after joining the Financial Times during the early 1980s was to learn the language of the new economic orthodoxy.
The Groupthink echo chamber and enforcement mechanism.
The problem is that the predictions using the orthodoxy were never congruent with reality.
He cites many examples: the failure of monetary targetting in the 1970s and 1980s; the failure of exchange rate targetting in the early 1990s, and on.
He recites the “eternal truths” that financial journalists were taught by economists to repeat ad infinitum – “that public spending and borrowing were bad, tax cuts were good, and market liberalisation was the route to sunlit uplands.”
But the predictions were never accurate.
Real wages growth has faltered.
Unemployment has persisted at higher levels.
Underemployment has become a scourge.
Income inequality has risen to indecent levels.
Wealth inequality has risen to indecent levels.
Productivity growth has faltered.
Public infrastructure is decaying.
Public services have been decimated.
And he wonders why economists got that wrong.
They actually got it right. They have not been working for us. They have been working for them.
And the policies they pressured governments into implementing were designed accordingly.
That is why we have to fast track the paradigm shift away from mainstream macroeconomics.
That is why progressive political forces have to jettison all their ‘we are cool and respect the financial markets’.
They have to tell the financial markets that they are going to close most of them down once they resume office and there will be nothing the ‘investors’ can do about it.
[…] I will explain exactly how the RBA in Australia is overwhelming the financial markets and demonstrating the power of government.
