Capital Ideas

I walked completely around the Christchurch central cordon a few weeks ago, and over the handful of hours it took I started to wake up to some realities I’ve really been trying to ignore. My city, the country it lives in, and indeed the world, is in the grip of a deep crisis. We are led by a National government that not only underfunds our recovery, but actually wants to cut back further. They are captives of an ideology of government that is opposed to governing.

I needed to get out of the city. Driving out south, mazing through closed turnoffs and bumping over rippled roads, I caught the end of a National Radio broadcast about the World Economics Association. This international organisation, launched in May, aims to break the neoliberal lock American economics has on the discipline. The coverage is illuminating.

Ideas on Sunday interviewed Robert wade, who talks about the lack of change in macroeconomics, and the way that its outdated, ‘respectable’ ideas favour big financial institutions over productive businesses and people. He notes how large international financial organisations have avoided the initial post-crash moves towards regulation, and how the theory economists promote looks after economists, and their classmates (hah! a pun) who went on into finance. Deregulation is founded on the faith that the market best takes care of society – a fantasy that nobody should believe anymore.

Ideas also spoke to Ha-Joon Chang, author of 23 Things They Don’t Tell You About Capitalism, who exposes the illusion that the market pays people what they’re worth, and explains how individual productivity is dependent on social setting. Society, he concludes, therefore has the right to intervene. Individual rewards are collectively determined; pretending otherwise merely privileges those individuals who manage to secure a disproportionate slice.

The final third of the hour is spent with Steve Keen, author of Debunking Economics: The Naked Emperor of the Social Sciences who explains the logical flaws in neoliberalism, well-known for over 50 years, and says that economics has rebuilt the world in its own image – a pseudoscientific, flawed and unfair image, if his critique is to be believed. Neoclassical economists, he says, don’t understand neoclassical economics. Naive, they are like Ptolemaic astronomers post-Copernicus, unaware or unwilling to accept that they are not at the centre of the universe. Unlike astronomers, unfortunately, these economists dominate global education and decision-making, and their provably false beliefs (Keen cites their belief that the level of debt does not matter) create crisis after crisis, which the rest of us have to bear while financiers reap gigantic bailout packages (government intervention in the economy… what?).

I have just started economics at university. In the first week, they introduced and then glossed over the major flaw in market capitalism: markets, it is claimed, are allocatively efficient, that is, they portion out goods and services to those who want them most (and will therefore pay the highest price). In the words of my lecturer Steve Agnew, the problem with this is people have different amounts of money to spend. In other words, markets are only efficient when everyone has the same ability to indicate their preferences. In a world where CEOs make over 500 times the average wage (ignoring the income gap between nations), the idea of allocative efficiency is simply a fallacy. Markets are systematically inefficient, ignoring the needs of the poor and the many, and massively overvaluing the demands of the rich and powerful. Who knew? This is a major problem in economics and apparently solving it will give one instant celebrity among economists worldwide. Well, we’ll see.

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1 Comment

Filed under economics, Government policy, media

One response to “Capital Ideas

  1. That “and will therefore pay the highest price” bit is often ignored. Also most people seem to think that allocative efficiency means general efficiency, which is not always (in fact, mostly NOT) the case.

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