From the Cape Times, 1 December 2009, in their series on “The Next Economy”
No wonder they can’t fix it: it doesn’t exist
It’s another day in the global financial crisis and I’m looking at the front page of Business Report: “Worse still to come, says economist”. The article offers three expert opinions. One says that the global economy could face a second dip as a result of recent massive injections of liquidity. Another sees a threat in South Africa’s reliance on exports. The third is hopeful the current recovery will be sustained.
On SAfm’s Market Update, they speak confidently of corrections, profit taking, sideways adjustments and – my favourite – the dead cat bounce. Yesterday the analyst said that prices had fallen because “traders were nervous”. Why were they nervous? “No, it’s a herd thing,” he laughs. “They’ll sell first and make up a reason later.” He’s equally frank today why the market has rallied. He doesn’t know – but he’ll “take it”.
Such are the specialists who report on the performance of the economy. They have two things in common. First, their analysis is not very reliable. Second, they all work primarily in the financial sector. This is the sector that, internationally, has caused all the trouble. Can somebody tell me why we’re still listening almost exclusively to them? Why share prices are the measure of everything?
Look. See. This emperor is stark naked. His counsellors are blinkered or blind. These economists (and financial journalists) didn’t see the crisis coming and they don’t know the way out. The empire’s treasury has been stripped by bandits who are laughing all the way to the bailed-out bank. Even Joseph Stiglitz says so.
If the roof of your house fell in, you would have a pretty good idea of why and what to do about it. If you consulted three builders, they would likely offer similar advice. Why is there no such common sense around the economy?
Answer: The economy does not exist. It’s just a way of talking, a story we tell.
Language is tricky. Because we give names to things that are real, we sometimes believe that a thing is real just because it has a name. This is one of those times. There is no “the economy”.
Think about it. What is real is people participating in a range of activities – producing, consuming, buying, selling and trading. These activities are naturally interrelated and interdependent. By bringing them together in a conceptual framework we are able to look at those relationships within a system. This is a good thing. We can generate useful knowledge. We can find patterns, look at trends and rates of change, measure costs and benefits, and regulate our economic activities accordingly.
So the theories get theorised and the numbers get crunched until it all gets so complex that those who dedicate themselves to this work have to tell the rest of us what’s going on. And soon these established economists start to think that their beliefs about “self-regulating markets” and such are the actual facts of the matter. This makes everyone happy, because now all that’s needed is disciplined management and technical precision to hold the ever-expanding economy on course. It’s just a matter of getting the fundamentals right.
But what happens when it all goes wrong? That’s where we’re at now. We don’t know what to believe. The orthodoxy tries to prevail. They’re manning the pumps, striving to get the ship of global market capitalism back on keel and on course. Pointing to “green shoots” in the distance, like Noah on his ark. Trying to restore our confidence.
At the same time, a lot of contrary voices are coming in from the wilderness. Interestingly, we’re more likely to find them on the newspaper’s general leader page than in the dedicated business pages. If you’ve always trusted the conventional economic wisdom, then you’re used to thinking of these people as cranks, fools and ideologues. But maybe now they’re not so easy to dismiss.
Here is the underlying philosophical question. As non-expert members of the general public faced with these conflicting views, what are we to believe? Should we continue to accept what mainstream economists tell us? How do we gauge the alternatives presented? How do we make up our minds?
I’d suggest a return to the fundamentals: that is, to all of us real people trying to make a living, and to how this is understood by conventional economics.
Three related issues come up. First, the range of activities our current economic account includes is rather arbitrary. Not every act of production or trade is counted by the gross domestic product – for instance, unpaid domestic work. Second, inclusion comes without regard to social or environmental costs. A coastal oil spill is good for this economy, and war can be a windfall.
Moreover, the objective of “restoring the system” is not a matter of quantitative technical measures. We have to wonder whose cost and whose benefit is considered. And, as the saying goes, not everything that can be counted counts, and not everything that counts can be counted. Alternative economics books carry titles like Economics As If People Mattered, or Economics As If the Earth Really Mattered or If Women Counted. For free market capitalism, these are really big ifs.
However we may respond to these questions, the act of raising them shows that our perspective of “the economy” is indeed the result of choices and not objective observation. We are therefore responsible for the consequences of the perspective we endorse. And we are free to choose differently. Getting the fundamentals right is first of all a matter of values, not value, of ethics before economics.
A very readable new book by Cambridge economist Jonathan Aldred, The Skeptical Economist: Revealing the Ethics Inside Economics (Earthscan, 2009), unpacks a lot of the dubious ethical assumptions made by mainstream economics. For instance, the belief that people are motivated solely by self-interest suggests that employees will perform better when competing for financial incentives. Aldred shows how, in practice, this only serves to diminish trust, undermine morale and encourage selfishness.
The truth is that we simply are not the self-serving dishonourable creatures that neo-liberal economists believe us to be. We’re better than that. (Perhaps the company they keep has skewed their judgement.)
What is the way forward? Since the crisis emerged, many economists and political leaders have been pushing for certain reforms, improved checks and balances and other technical programmes to get the pre-crisis system back on course. Is that the best we can do?
Consider this. The word “economy” carries a sense of prudence, thrift and harmony. Its Greek root means “household management”. How are we doing in those terms? When we imagined our democratic rainbow nation, did we imagine that red, orange, green, blue and indigo would suffer terrible poverty while violet did quite nicely and ultraviolet was right off the scale? Please.
I’m just a skeptical philosopher. I don’t know what comes next. But as I study the different opinions, I know what I’m listening for. Economists and policy-makers who know that their job is to ensure everyone eats. Alternative thinking that takes our local, national and global “households” as seriously as it takes “management”. A fundamental combination of urgency, honesty, practicality, vision and courage.
Douglas is a philosopher with a counselling practice in Kalk Bay.