Rethinking Economics?

During periods of boom, people do not want to hear of criticisms of the forms of economics they benefit from, especially when it brings immense wealth and power, regardless of whether it is good for everyone or not.

It may be that during periods of crisis such as now, the time comes to rethink economics in some way. Even mainstream media, usually quite supportive of the dominant neoliberal economic ideology entertains thoughts that economic policies and ideas need rethinking.

Harvard professor of economics, Stephen Marglin, for example, notes how throughout recent decades, the political spectrum and thinking on economics has narrowed, limiting the ideas and policy options available.

Some have been writing for many years that while the current economic ideology is flawed, it only needs minor tweaking to correct it and make it work for everyone; a more compassionate capitalism, but capitalism nonetheless. Others argue that capitalism is so flawed it needs complete doing away with. Others may yet argue that the bailouts by large government will distort the markets even more (encouraging bad practices by the big institutions) and rather than more regulation, an even freer form of capitalism is needed.

As a small example, Raj Patel notes how the price of an item (fundamental to neoliberal capitalism) often doesn’t capture or reflect true value.

Patel argues that the markets in their current shape have created a convoluted idea of value; “value meals” are cheap but unhealthy whereas fruit and veg are often more expensive; rainforests are hardly valued whereas felling trees adds to the economy.

Flawed assumptions about the underlying economic systems contributed to this problem and had been building up for a long time, the current financial crisis being one of its eventualities.

"But there is a recognition among the public and some politicians that today’s economic crisis is a failure of free market thinking, and not a warrant for more. In response to popular outcry, politicians around the world seem ready to discuss how to regulate and restrain the market. The question is, can they, and, if they can, in whose interests will this regulation work?"
~ Raj Patel

What is hoped is that fruitful debate will increase in the mainstream.

This will also attract ideologues of different shades, leading to both wider discussion but also more entrenched views. Those with power and money are less likely to agree to a radical change in economics where their power and influence are going to diminish, and will be able to lobby governments, produce compelling ads and do whatever it takes to maintain options that ensure they benefit.

The highly regarded Hazel Henderson has written about how difficult it has been for years to get mainstream economists to think about a broader economic system that considers the environment and ethics. She goes into how many mainstream universities and economists have actively avoided these alternative thinking from as far back as the 1920s, but suggests that now may be a time for change.

Drawing on the work of Karl Polanyi’s The Great Transformation, Raj Patel notes that:

"What Polanyi offers is a way of understanding not only why the economy and society are part of the same set of processes, but also why we erroneously believe that market and society are separate. The culture of profit-driven markets, what Polanyi calls the myth of the self-regulating market, turns out to need society far more than it pretends to—but the myth that economy and society are two distinct realms needs to be widely propagated if the self-regulating market is to spread farther."

In times of crisis, the myth becomes far easier to see through. After all, the failure of the banks could have spiraled into total economic meltdown were the public sector not there to catch it. Capitalism can no more bail itself out than it can stand on its own shoulders. The market has always depended on society, which is why the language of 'too big to fail' simply means 'so big that it can depend on society to pick it up when it topples.'”

The logic of laissez-faire always needs a social base, and this is why Polanyi does not separate the way we live into “government and the free market” — for him, it’s simply “market society.”

As another example, Canadian economist Jeff Rubin notes that access to oil is a crucial element of the current form of globalization because manufacturing has been moved to very distant places from where the goods are used (so transporting those goods require oil, and hence cheap oil is important to make that affordable). As oil prices increases, it threatens globalization itself.

Amongst the various implications is that alternative energy sources and localization (e.g. reviving local industries that have long been in decline as a policy of globalization, regional trade, etc.) may therefore be a necessary strategy as globalization may unravel due to the inability to afford transportation of manufactured goods from far away. But those who benefit (money and power) from the current form of globalization are hardly going to agree to fundamental changes that this implies, just like that.

It is perhaps ironic to quote, at length, a warning from Adam Smith, given he is held up as the leading figure of the economic ideology they promote:

"Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people."

"Merchants and master manufacturers are … the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects than with regard to the latter."

"Their superiority over the country gentleman is not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his."

"It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction that their interest, and not his, was the interest of the public."

"The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers."

"To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens."

"The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."
~ Adam Smith, The Wealth of Nations, Book I, (Everyman’s Library, Sixth Printing, 1991), pp. 87-88, 231-232 (Emphasis added. Additional paragraph breaks added for readability.)

With the mainstream media often representing such entrenched interests, true democratic participation will be very critical.