I read an article in the Financial Times earlier this week (September 23, 2023) -…
It is Wednesday and I am travelling most of the day. We are now entering Week 3 of the edX MOOC and I outline what students can expect this week. And some ideas about why it is wrong to think mainstream economists have got it wrong. Plus a reflection on one of Australia’s great musicians who died this week.
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’.
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.
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.
And on Monday, I will explain exactly how the RBA in Australia is overwhelming the financial markets and demonstrating the power of government.
Week 3 of my edx MOOC – Modern Monetary Theory: Economics for the 21st Century
Week 3 started today and we are now into the second half of the course. This week’s theme is The Finer Points of MMT – which extends the knowledge built up in the first two weeks but remains at an introductory level.
In this week’s material we consider the differences between fiscal and monetary policy with a particular emphasis on why the central bank cannot be independent in any operational sense from the treasury function.
We learn about automatic stabilisers and why it is unwise for governments to set policy targets in terms of numerical fiscal outcomes rather than things that matter like achievement of full employment and price stability.
We consider some more complicated critiques of discretionary fiscal policy use, including crowding out, which reinforces the material on how the central bank interacts with commercial banks via reserve management.
While the labels different nations use may vary the fact is that all banking system require commercial banks to hold reserve accounts at the central bank, which are used for clearing purposes. The dynamics of those accounts provide vital keys to understanding how the whole system works.
Then we get onto the inflation and unemployment question and learn about the way our MMT understanding steers us towards the use of employment buffer stocks to maintain price stability.
We have interviews with Pavlina Tcherneva and Victor Quirk.
There are discussion opportunities, research tasks to pursue and at the end of the week a big quiz that tests whether you have been paying attention.
Enrolments are now closed (as it would be difficult to catch up now) but the MOOC has been such a success that we will be offering it again in one form or another.
This was the first major effort by – MMTed – and we will be following up with further introductory courses and an advanced course to build on the material presented in the MOOC.
This has been a resource intensive exercise to date and I thank all those who have generously donated to MMTed so far. Your help is very much appreciated.
Music – RIP Doug Parkinson
It must be telling me something – all these musicians that I have grown up with a dying.
The latest was – Doug Parkinson – who was an Australian soul singer who became famous as a result of his rendition of the Beatles’ song Dear Prudence (which I never liked).
Here is an historical bio of – Doug.
Here is a news story announcing the death – Australian musician Doug Parkinson dies aged 74 (March 15, 2021).
I first encountered Doug Parkinson when he was lead singer and guitarist with the Sydney band, The Questions in the mid-1960s.
Somehow my mother used to get tickets to what was known as the “Big Show” which was a series of concerts at Festival Hall, Melbourne that impressario – Lee Gordon promoted.
The Big Show would also do stadium shows in all the major Australian cities. The Big Show started in Melbourne in 1954.
Wikipedia tells us that:
The Lee Gordon “Big Show” tours were classic mid-20th century variety “package shows”, starring a major imported performer (usually a singer) as headliner, with several other imported acts supporting, including singers, dancers and standup comedians.
Initially, only international acts appeared but after a struggle from the Musicians Union of Australia, Gordon was forced to use local bands to support the main act.
Local musicians were used, however, from the start as backing ensembles to some of the big name vocalists because it was prohibitively expensive to bring out an orchestra (as in the 1950s big band sound). Acts like Louie Armstrong, Frank Sinatra, Nat King Cole, Johnnie Ray, Ella Fitzgerald, Buddy Rich, Artie Shaw came out to Australia to perform at the Big Show.
By the 1960s, as rock’n’roll made the big orchestras redundant, the Big Show then started to feature local acts, given that some of them were massively popular.
The early international acts in this era were Bill Haley and The Comets, Big Joe Turner, The Platters, Freddie Bell, and local Johnny O’Keefe.
By the middle of the 1960s, the British R&B invasion was beginning and as a very young boy I was able to go to the shows with my older brother (hello L!) using tickets that my mother somehow acquired. I never knew how!
By then, Lee Gordon has gone (died in a hotel room in London after being forced to leave Australia after serious drug charges).
I don’t know who took over the brand but the Big Show continued until the late 1960s.
Some of the big international artists who toured included – like Eric Burdon and the Animals, The Who, Small Faces, Dave Dee, Dozy, Beaky, Mick & Tich, The Walker Brothers, P.J. Proby, Manfred Mann, The Kinks, Herman’s Hermits, The Yardbirds – to name a few.
The international acts would be supported by some local bands – like The Loved Ones, and The Questions.
I saw most of these later acts at Festival Hall, Melbourne as a teenager. It was a magical experience at the time.
At The Who concert, which also had the Small Faces playing, The Questions opened the show – and I guess it was 1968. That is my recollection.
And I loved The Questions – they were better than the two international acts on the bill.
After that Doug Parkinson went a bit twee for me.
But later he started to do the Motown soul classics with a sensational big band and then he really shone (in my view).
Here is the soul classic from – The Spinners – Doug-style.
It was performed in 1007 at the ‘Live at the Concert For Max Merritt’, who was another legend of the Australian scene.
What a voice and what a song.
RIP Doug Parkinson – a giant on the Australian scene.
That is enough for today!
(c) Copyright 2021 William Mitchell. All Rights Reserved.