SOME THOUGHTS WHERE ECONOMICS IS CONCERNED,
IT’S RELAVENT, TIMELY & FUN!
If memory serves, I was supposed to do Business Studies at university (starting in 1960)—but that particular course wasn’t yet operational—so I ended up doing Economics. I think at the time it was called Economics & Sociology—though the focus was primarily on Economics, and the statistical aspect. Mathematical models were coming into vogue, even in that pre-computer period.
I was doubtful about such modeling—and still am. There are just too many variables.Given big data and the vast increases in computer power that are coming we may get there in the end—but we are not there yet.
I was 16 at the time—way too young for university) with hindsight)—but I had the necessary qualifications (and my ever persuasive mother met the Dean at a party) so the age rule was overlooked, and I was allowed in.
I was highly skeptical of much of what I was taught—and have remained so ever since. There was normally some truth in what was said—sometimes a great deal—but most of it needed to be qualified more than it was. For example:
- There is no such thing as a free market where everyone has access to the same information. Some people always know more than others, legally and otherwise. All markets are rigged, but some are more rigged than others.
- Competition works—but only up to a point—because corporations make great efforts to avoid it through price fixing, takeovers, cartels etc. (regardless of what the law says). Fair competition is a worthy goal, but an oxymoron. Still, some competition is normally better than none.
- The fact that the centrally planned Soviet economy did not work well does not prove that central planning, as such, doesn’t work. It merely demonstrates that the Soviets didn’t get it right. Singapore, and many other countries, plan pretty effectively. China puts a great deal of effort into planning (and training people to execute) and has achieved truly spectacular results. Of course, anyone who expects perfect results from planning is an idiot. Human nature doesn’t do perfect. Planning rarely survives contact with the real world, but it doesn’t have to. Generally speaking, it still works better than no planning. To quote an Israeli general (I forget which one) it provides a common basis for change.
- People aren’t particularly rational when it comes to economic decision making. Emotion, ignorance, prejudice and insecurity play no small part—and rationalism, even if you accept its primacy, is heavily influenced by time and underlying motivation—and can be hard to predict. For instance, if you think long-term, cutting back on corporate investment and borrowing money to engage in share buy-backs makes no sense at all, because it weakens the company, but if you are motivated by personal gain and solely concerned with putting up the share price, such short-termism makes a great deal of sense. So rational decision-making, in economics terms, can be so variable as to appear irrational.
Economics, as far as I am concerned, should be about improving the economic aspect of the quality of our lives. That doesn’t cover everything—the quality of one’s life includes a great deal that is hard to define—but it covers, or touches on, most aspects.
A formal definition of economics is:
Economics is the science that deals with the production, allocation, and use of goods and services.
You might argue that falling in love hasn’t a great deal to do with economics—and I might concede that point—but maintaining a happy relationship certainly does, in most cases. Yes, it is quite true you don’t have to be rich to be happy—and can be content on remarkably little (just as well, if you are a writer) but you still need a minimum to survive—and that comes courtesy of whatever economic system you happen to live in.
Similarly, you may advance the notion that the beauty of the natural environment might contribute to your life in a way that has nothing to do with economics—but let me tell you that keeping that environment appearing unspoiled, when all kinds of economic interests want to extract economic benefit from it (by altering it in some drastic way), certainly does.
I have now been either studying or following economics—largely out of intellectual curiosity—for 56 years (a mind-boggling thought)—so here are some observations.
- Apart from its crappy name, economics is a lot of fun. You never know quite what will happen next. The only certainty is that economic forecasters will get it wrong. Economists make lousy forecasters because they try and forecast the inherently unknowable with too much precision (all too often on the back of bad statistics). The convention then is to revise the figures—and forecast all over again. And the crazy thing is that the media will quote them all over gain.
- Economics is not a science. It’s a professional discipline.
- Essentially, it is a study of human behavior so I prefer the term ‘Behavioral Economics.’
- Though economists are lousy forecasters when it comes to detail, they still know a great deal about how how economies work. In short, this is an extremely useful, practical discipline. However, economists rarely run an economy—or even have adequate influence over it—politicians do. Secondly, all too many economists are hired by vested interests to give credibility to some specific agenda—whether supported by the facts or not. In all too many cases, economics is a perverted discipline much influenced by, “He who pays the piper calls the tune.”
- Economists are generally regarded as experts—which can be dangerous. There are things economists know—and things they merely have about opinions about—and the two tend to be confused both by the media and economists themselves. This is really dangerous—and common.
- Economics should be about trying to discover what economic system works best for most people—a quest for the optimum system. Instead it tends to be perverted by ideology.
- Ideology is a set of beliefs which triumph both facts and rational thought. It is the leading opponent of intelligence, and is dangerous, destructive, and pervasive. Unfortunately, most politicians tend to be ideological (perhaps because they lack the ability to engage in rational thought).
- Ideology has a symbiotic relationship with greed. Greedy people habitually use ideological arguments for personal gain. They don’t necessarily believe in them, but they provide a reason (an excuse) for some pretty unpleasant behavior.
- Economics should be largely based upon practical experience because we have a truly enormous amount of data to guide us. Though circumstances change—sometimes a great deal—we still know more than enough to do a great deal better than we do. However, a combination of greed-driven ideology, and an ignorant public, conspires to ignore the evidence. It’s a great pity because most economic unpleasantness is preventable. For instance, when the Great Recession struck, U.S. business laid off workers arbitrarily at rates approaching a million a month—causing chaos and making the recession worse. In contrast, the Germans introduced subsidized work-sharing which mitigated the situation and proved to be highly effective. There are numerous examples like this but U.S. economic policy tends to be ideologically based and to ignore what works in favor of ideological purity.
- A key factor, where economic decisions are concerned, is whether the underlying political goal is to benefit all—or some special interest. Unfortunately, the U.S. economy has been dominated by special interests since the Reagan presidency to the great detriment of most of the population. It is hard to credit, but real earnings (after inflation has been factored in) for most Americans haven’t increased to any real extent for decades. It is even harder to believe that there hasn’t been any real outcry over this because costs have gone up—as have the real earnings in other developed nations. Meanwhile, U.S. earning have been stuck.
- The current American Business Model is structurally flawed in a number of fundamental ways. I have listed them elsewhere often enough so I won’t go into all that again. However, it is self-evident that the ABM isn’t delivering the kind of economic wellbeing that Americans want and need.
- Wealth and income inequality constitute a much more serious problem than is generally realized. I don’t grudge the rich having lots of money—providing I have enough—so confess I underestimated the significance of this for a long time. The evidence indicates quite clearly that above a certain point income inequality is incredibly destructive in a whole host of ways. Where the U.S. is concerned, the most worrying aspect concerns the suborning of the political system and the substitution of a plutocracy that, quite clearly, is not run in the National Interest.
- Every country needs a financial system—but financialization is a disaster. Financialization operated like a filter which sieves off money out of just about every transaction. It is also so structured as to make normal living without heavy debt virtually impossible. In the U.S., unless you are wealthy, it is now virtually impossible to get by without a mortgage (unless you rent), car loan, student loan, medical debt, and credit-card debt—and you will be hit with bank charges and high interest every which way. Along with excessive corporate power, it is the greatest threat to our economic wellbeing that exists right now. Some degree of debt can be useful, but the system is out of balance right now—and is unsustainable.
- Austerity works—eventually—if you don’t mind the human cost. The issue should not be whether austerity works (at some level) but whether other approaches work better.
- In most cases, there are superior alternatives to austerity. An economy shouldn’t be run in an either/or way. The private sector is not always the most efficient. Indeed, there are many things that only governments can do. Cost-cutting can—and normally should be—combined with investment.
- There is a great need to come up with new economic (and political) structures. Right now, corporate power—as vested in large corporate entities—has got out of hand so needs to be reined in. However, that doesn’t mean we should do away with the corporation. It is far too effective to scrap. Instead we need to improve it, and come up with variations.
- We need to experiment a great deal more than we do. For instance, there is huge debate about how to grow an economy. Well, let’s invest $5 billion each in five projects over five years (for example) and see what happens in terms of specific metrics like well-paid jobs, ROI, and so on. We absolutely need more innovation.
- Where governments are concerned, we need to understand the difference between consumption—and investment and run a government balance sheet. Strangely enough we don’t do that at present largely because it can be hard to tell the difference where some matters are concerned. Fair enough—but other cases are clear so why not focus on them. Paying all civil servants more would be categorized as consumption as far as I am concerned—but building a city, which would result in permanent wealth I would characterize as an investment.
- For a democracy to be healthy, most people need to know something about economics. I have been much criticized for this opinion on the grounds that most people have better things to do with their lives than concern themselves with the arcane technicalities of the economy. They have to commute, work, fall in love, have sex, have babies—and so on. These are all time-consuming activities—sex all day is no picnic, I can tell you—so why worry about the trading deficit? That’s why politicians are elected and we have a government. We subcontract our concerns, so to speak.This is a reasonable argument. However, I take a different view. I think economics affects so many aspects of our lives that it cannot, and should not, be ignored. I think of it rather like health or the environment. It behooves all of us to keep an eye on such things. Beyond that, my theory is that one could develop an economic scoreboard (a ‘dashboard,’ in computer parlance) which most people could understand, and which would monitor the core wellbeing of the economy much better than GDP. In addition, it would act as a much needed check on the professionals (politicians and civil servants) who excel, primarily, at bamboozling us. Their success at doing this is greatly assisted by our laziness.
- I’m a great believer in walking-around economics. You can learn a huge amount by just walking around a city and doing the shopping. Talking to people as well doesn’t hurt.
- The most successful economic system, by far—as best I can determine—is the socially democratic version of capitalism practiced in various ways by most of Europe and Northern Europe in particular. Such systems are mixed economies which combine socially concerned activist governments with regulated capitalist systems—combined with efficient healthcare, excellent education, and comprehensive social safety nets. Mind you, I don’t know as much as I would like to about the Asian economies—but such is my feeling based upon what I do know (and we now have decades of data to back up such a viewpoint).
Overall, I think Keynes was largely right. What I like best about him is that he wasn’t an ideologue. He was a pragmatist.