Fortsätt till huvudinnehåll

Eleven years of New Labour economics - should anyone be blamed?

We shall soon be celebrating eleven years of New Labour. There was a long honeymoon period as the government was seen as a huge improvement on the sleazy old Conservatives. And being on the upwards side of the economic cycle, it looked as if Labour's policies were doing a good job, a success which Labour was not slow to claim as its own. And so, without any checks put in place to deal with it, the cycle moved on to its path of boom-to-bust, the point we have now reached, pretty much on schedule.

Is the government to blame? Had there been a Conservative or Liberal Democrat government in power, things would have turned out much the same. Moreover, any measures to prevent the boom-and-bust would have had to be put in place by 2003.

When Labour was elected, Gordon Brown became Chancellor of the Exchequer, and followed policies framed by his advisor, Ed Balls. Those policies, and the assumptions underlying them, were set out by Ed Balls in an article published in the Observer around 1995. But it was evident then that he had little real understanding of the forces that drove the economy. So should Balls be blamed?

I suggest not. He was an an academic high-flyer, educated at the independent Nottingham High School and Keble College, Oxford where he studied PPE, and later as a Kennedy Scholar at Harvard University. While at Oxford, Balls joined all the main political societies so that he could "hear all the speeches at all the political clubs." His career began as economic leader writer at the Financial Times (1990–94) followed by appointment as an economic adviser to the then shadow chancellor Gordon Brown (1994–97). In 1995, in a speech written for Gordon Brown to give to an economics conference, he managed to insert the jargon phrase "post neoclassical endogenous growth theory"Wikipedia entry

Thus, the British government has had the benefit of the best that academia has to offer in the way of contemporary understanding of economics. If, despite this, things can go so badly wrong, surely the blame must lie with those who shape the thinking in the academic world? Or is that unfair?

Of course there are many parallel streams of economic thought, but this surely is part of the problem? In the physical sciences, by contrast, whilst there is contention at the frontiers of knowledge, there is a hinterland of agreed principles and theory. It was a actually an economics professor, Wynne Godley, at Cambridge University, who, writing in the Financial Times some time in the 1980s, described economics as a subject in a state of great confusion, with no settled and accepted body of theory. Not having been through the system myself, I observe critically from the outside and it seems to me that not only that some of the fundamental concepts in modern economic theory are nonsensical and not in accord with what can be readily observed in practice, but that important insights from the economists of earlier times, notably the French Physiocrats, David Ricardo and Henry George, are dismissed as interesting historical notions of no importance now. This is strange because they systematise what every shopkeeper, every street busker, every Big Issue seller even, understands instinctively. In other words, economics as studied in the academic world has become so abstracted as to be useless as a means of guiding governments wishing to achieve their objectives, whatever those may be.

And so if there is any blame to be laid, it must be on complacent academics whose studies have got out of touch with the real world away from the dreaming spires. Or is this an unduly harsh judgement on people who one must assume are doing the best by their lights?

Kommentarer

Populära inlägg i den här bloggen

Importing people to sustain demand

I got involved in a discussion with a Youtuber called “Philosophy all along”. This was in connection with criticism of Trump’s policy of deporting illegal migrants, which he argued would be bad for the economy as it would reduce demand. This implies that there is a need to import people to sustain demand. There is no obvious reason why a population should not be able to consume everything that the same population produces. If it can not, then something else is going on. It is a basic principle that wages are the least that workers will accept to do a job. Wages are a share of the value added by workers through their wages. The remainder is distributed as economic rent, after government has taken its cut in taxes. Monopoly profit is a temporary surplus that after a delay gets absorbed into economic rent. Land values in Silicon Valley are an example of this; it's like a gold rush. The miners get little out of it. Rent and tax syphon purchasing power away from those who produce the g...

The dreadfulness of British governance

I wrote to my MP on two entirely separate issues recently. The first was to do with the replacement for the Inter City 125 train, which at £2.6 million per vehicle, is twice as expensive as it ought to be. The second concerned the benefits of a switch from business rate and Council Tax to a tax based on site values. In both cases, the replies were full of spurious, unsubstantiated assertions and completely flawed arguments. This is typical. You will not get an iota of sense from the government on any area of public policy at all - finance, economics, trade and employment, agriculture, housing, health, transport, energy. All junk. If you write to your MP you will invariably receive answers that are an insult to your intelligence, no matter what subject you are writing about. Of course they cannot understand statistics. They are innumerate. Whitehall is staffed with idiots with a high IQ. Look at their IT projects. And mind your purse, they will have that too.

How much more will the British tolerate?

The British are phlegmatic, tolerant and slow to rouse. Thus there was no great reaction after the terrorist attack in July 2005. The murder of Lee Rigby created a sense of outrage, but nothing more, since it appeared to be an isolated incident. Two serious incidents within a fortnight are another matter. Since the first major terrorist incident in 2001, authority has tried to persuade the public that Islam is a religion of peace, that these were isolated events, or the actions of deranged "lone wolves", having nothing to do with Islam, or to reassure that the chances of being killed in a terrorist attack were infinitesimally small. These assurances are are beginning to wear thin. They no longer convince. If government does not act effectively, people will take the law into their own hands. What, however, would effective action look like? What sort of effective action would not amount to rough justice for a lot of innocent people? Given the difficulties of keeping large n...