JERRY ROBERTS. Neoliberalism, Neoclassical Economics, Twinkle-toes Turnbull and a New Year’s ResolutionDec 29, 2017
We have put the gender issue to bed. The priests have had their five years of infamy. The electors of New England and Bennelong have told the High Court where to stick the dual citizenship clause. Is there an opening for the Parliament and the press to consider the only issue that matters – the problem that causes all the other problems – the galloping inequality, the public squalor and private splendour of a neoliberal, deregulated capitalism?
We float on an ocean of triviality. Just when one sea of flotsam clears we sail into another. Now Hollywood actresses are recalling distant memories of how such and such an actor or producer went for a grope in the dressing room. At a time when we should be saying good-bye to Buckingham Palace and leaving that problem to the Poms we are bombarded with news of the royal family. We are back in the dark ages when the editorial staff of the Australian Women’s Weekly were under orders to include a royal story in every issue on pain of death or, worse than death, a lecture from Ita Buttrose.
Deeper in the ocean under all this garbage runs the current of the great debate around the question that has been asked since Aristotle. How does the economy actually work? I’m not an economist but I can read and write and my mother named me after Jeremy Bentham so I have an unfortunate genetic predisposition to meddle in politics. I’m familiar with most of the economic theories going back to the Physiocrats and they all make a contribution to our understanding. The problem arises when a theory becomes gospel and its adherents neglect to read the earlier theories. This is a weakness throughout the social sciences and perhaps in the hard sciences too.
Malcolm Turnbull is a well-read gent so it is reasonable to assume that he too has read the economic theories and that he is familiar with the classic paragraph that governs his thinking today. This is the paragraph of our times and it is often quoted from the letter Keynes wrote to Hayek on 28 June 1944 congratulating the Austrian on publication of The Road to Serfdom, with a famous reservation.
“You admit here and there that it is a question of knowing where to draw the line,” wrote J.M. Keynes. “You agree that the line has to be drawn somewhere (between free markets and planning) and that the logical extreme is not possible. But you give us no guidance whatever as to where to draw it. In a sense you are skirting the practical issue. It is true that you and I would probably draw it in different places. I should guess that according to my ideas you greatly underestimate the practicability of the middle course. But as soon as you admit the extreme is not possible and that a line has to be drawn you are, on your own argument, done for since you are trying to persuade us that as soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice.” (to totalitarianism)
As is common in the human condition Malcolm Turnbull’s strength is also his weakness. He is a barrister by trade and as such, a master of the art of debating, in which the speaker is trained to argue with equal ferocity the positive or the negative case, without necessarily believing either side of the story, indeed not necessarily believing in anything at all. In other words, young Malcolm is pragmatic rather than dogmatic.
This is likely a good thing at a time when conventional wisdom is falling apart. As the year closed we saw an extreme example of Twinkle-toes Turnbull in action. One day the Prime Minister was a small-l liberal supporter of the gender marriage issue. The next, his government announced the Gary Johns appointment, such a spectacular sop to the Coalition’s lunar Right that only the most brazen of barristers could have kept a straight face.
Looking at today’s politics, especially in America, the writer who comes to mind is not Keynes but Trotsky. In his History of the Russian Revolution, Trotsky quotes General Zalesky describing his fellow officers in the High Command of the Czar’s army in 1917. “Much adventurism, much ignorance, much egotism, intrigue, careerism, greed, mediocrity and lack of foresight, and very little knowledge, talent or desire to risk life, or even comfort and health.”
Because the American Democrats are so anxious to blame Russian spies for their own loss of direction the Republicans were able to skip through the Congress with what Paul Krugman calls their “terrible, no good, very bad tax legislation.” Illustrating the Republican triumph on our television news broadcasts we saw four men marching in step – Donald Trump, Mike Pence, Mitch McConnell and Paul Ryan. Would anybody in his right mind march behind this quartet? They in turn were marching to the tune of Arthur Laffer.
It did not cross my mind that any government would go looping the loop again on the Laffer Curve, embracing the cargo cult of trickle-down economics, but now we have Scott Morrison, The Australian Financial Review and even Treasury urging us to jump over the cliff with these American financial geniuses. Let’s hope Bill Shorten and Chris Bowen stand firm. Governments are crying out for revenue. We need to lift taxes, not cut them. On that subject, it does seem odd that it took a small group of journalists to uncover the Panama Papers and the Paradise Papers. Surely tracking down and destroying these tax havens is not beyond the professional skills of the world’s treasury departments, tax offices and political leaders. They can’t all be on the take …. can they?
Rising above an academic world suffocating under layers of its own bulldust is Frank Stilwell’s lovingly nurtured baby, The Journal of Australian Political Economy. (JAPE) Its arrival in my post box every six months is cause for celebration. The current edition (No 80) includes an essay by the South American, Professor Andres Blanco, attacking neoclassical economic theory’s pretence of scientific respectability. “Neoclassical theory is an ideology because it shows a distorted view of reality in a way that favours the interests that are behind the discourse,” he writes. “Neoclassical theory is practically devoid of any predictive and explanatory capacity. As an ideology its social function is not to explain reality or predict events but to preserve the capitalist system.”
Tony Lawson, Professor of Economics at Cambridge University, takes a different tack, writing in the same journal under the heading, “What is wrong with modern economics and why does it stay wrong?” Writes Prof Lawson: “Economic or political ideology is not the explanation. Most mainstream economists, in my view, do not think about the way they proceed: They are more sheep than conspirators. Few understand terms like neoliberal or neoclassical, or care what they mean.”
This has been my experience encountering Professor Paul Frijters who roams across the pages of Pearls and Irritations like the Caped Crusader, putting down economic heresies. When Christmas shopping I shouted myself to a present in the shape of the Paul Frijters/Cameron K. Murray book on Australian political corruption – “Game of Mates.” On the same shelf I picked up Steve Keen’s current paperback, “Can we avoid another financial crisis?” Both books are accessible to the general reader and are highly recommended. I would like to see both of them set as text books for high school students – say Year 11. The 16-year-old kids would love them. So would the teachers but the education ministers, Premiers and bank managers would have heart attacks, which might be a good way to start cleaning up the system.
Frijters and Murray kick off their story with the great Australian real estate racket and give us a welcome reminder of Henry George and his land tax. The parallel the writers draw between the Mafia and the Game of Mates played by our politicians and businessmen is too true and it is tempting to use Mafia tactics to deal with it – make them an offer they can’t refuse.
One of the scary aspects of the events described is that they went down in public view and were criticised at the time. For example, economics writer Ken Davidson pulled the Public Private Partnership (PPP) policy to pieces years ago. Bob Santamaria made the call on superannuation – that it should be a public scheme rather than private. Former Senator Robert Ray recalled that when Paul Keating brought the sale of the Commonwealth Bank to Cabinet he did not even provide briefing papers. Among many good counter-moves suggested by Frijters and Murray is the use of independent foreign experts to make decisions on discretionary government decisions – like the panels of umpires we see for international sporting events such as Test matches.
Looking at the revolving door between politics and finance from another angle, it seems such a sad thing for the politicians involved. Many of these people have been in politics since they were in short pants, literally. They have graduated from handing out how-to-vote cards to counting numbers in the Party branches, to the Parliament and eventually to high office. They retire with superannuation beyond the dreams of most voters. If they are in good health and hold driving licences they are in a position for the first time in their lives to do something useful in voluntary work such as driving for hospitals or for organisations like Meals on Wheels where they can work with decent, normal human beings, not the spivs, pimps, real-estate developers, mining entrepreneurs etc who hang around Premier’s offices. I suspect it is not just the money with these political types. They are addicted to the feel of power, to being at the centre of the action.
The saddest effect of all this corruption is identified by Frijters and Murray with stark clarity. It is the loss of the very ethos that we Australians like to think distinguishes our race – a rough and ready egalitarian spirit among a people not noted for saluting the officers. Mateship was not about money. It was about survival in hard times. “Australia is becoming a class society with an elite that robs the rest of us who are scrambling to salvage some self-esteem by secretly hoping to join that elite. The pathetic kowtowing to wealth that is so typical of class-societies has replaced the proud culture Australia had just decades ago where tall poppies were cut to size.”
Steve Keen explains the shortcomings of economic models based on dynamic stochastic general equilibrium theory that failed to predict the Global Financial Crisis and describes the Hyman Minsky view behind his own prediction. He acknowledges Wynne Godley, who also forecast the European Union’s problems at the time of the signing of the Treat of Maastricht when he commented on the Union’s inadequate architecture – a central bank but no treasury.
The same criticism was levelled more recently by critics from such diverse backgrounds as the Wall Street billionaire, George Soros, and the Greek patriot, Yanis Varoufakis. Steve Keen is difficult to classify but there is an integrity in his argument that commands attention. His demolition of Larry Summers is short and sweet.
In a general comment concluding the penultimate chapter he writes: “Forty years of neoliberalism – which is effectively introductory neoclassical economics disguised as political philosophy – has transformed the global economy so that on paper it looks much like the model world of a first- year economics text book. Finance markets have been deregulated, unions have been destroyed, tariffs have been dropped worldwide, competition policy is applied to basic services like health, education and transport.”
John Menadue in his suggested weekend reading linked up with the Yanis Varoufakis piece from JAPE in which the writer described the taking of red and blue pills to symbolise the gap between the real world and the fantasy created by universities, the media, corporations and politicians. This is a summary of an earlier book co-authored by Varoufakis in which the authors referred to a movie called The Matrix, which they used as a template to explain their argument. I was born with a red pill in my mouth so I think I understood the point but I stayed up late one night watching The Matrix on television and I could not make head or tail of what Keanu Reeves and his fellow actors were doing.
Thus we come back to the ancient question. How does this thing called the economy work? The next big book on economics is “Capitalism, Competition, Conflict and Crises” by Anwar M Shaikh, Professor of Economics at the New School for Social Research in New York. It is reviewed by Susan K. Schroeder in my favourite journal. (Schroeder.S.K. (2017),’Review Essay: Classical Political Economy Resurgent’ Journal of Australian Political Economy No.80, pp 212-20.) In her comprehensive review, Susan Schroeder compares the book to Joseph Schumpeter’s ‘History of Economic Analysis.’ Reading Anwar Shaikh’s magnum opus is my new year’s resolution. It is a substantial resolution because the book is over a thousand pages in the hardback.
Jerry Roberts is a former parliamentary reporter, still interested in politics.