24 October 2010


Prolix Australian economist John Quiggin has posted a full-on old lefty polemic on Foreign Policy against five ideas he says "form a package that may be called 'market liberalism,' or, more pejoratively 'neoliberalism', [which] dominated public policy for more than three decades, from the 1970s to the global financial crisis".

Quinn looks back to "the postwar economic golden age [during which] massive reductions in inequality brought about by strong unions and progressive taxes coexisted with full employment and sustained economic growth." He dishonestly fails to connect this to the stagflation of the 1970s, which he presents as the bad faith excuse used by academic economists to bury his beloved Keynesianism. Taking its place (boo, hiss) came:
  1. The idea that the period beginning in 1985 was one of unparalleled macroeconomic stability that could be expected to endure indefinitely. This one seems most self-evidently refuted by double-digit unemployment rates and the deepest recession since the 1930. [That the second part of the opening statement has been comprehensively disproved does not make the first part false]
  2. The idea that the prices generated by financial markets represent the best possible estimate of the value of any investment, most evident in the attention paid to ratings agencies and bond markets in discussion of the 'sovereign debt crisis' in Europe, despite the fact that it was the failure of these very institutions, as well as the speculative bubble they helped generate, that created the crisis in the first place. [Share apples and bond oranges, and anyway what's the alternative to the stock market?]
  3. Dynamic Stochastic General Equilibrium (DGSE) - the academically influential concept that macroeconomic analysis should not be concerned with observable realities like booms and slumps, but with the theoretical consequences of optimizing behavior by perfectly rational (or almost perfectly rational) consumers, firms, and workers. [Academics like to think they lead, but they follow. That's why they are academics]
  4. Trickle-Down - policies that benefit the wealthy will ultimately help everybody. The rising tide of wealth has conspicuously failed to lift all boats. Median household income has actually declined in the United States over the last decade and has been stagnant since the 1970s. Wages for males with a high school education have fallen substantially over the same period. [Every one of those statements is over-simplified to the point of outright falsehood; doesn't mean he's wrong to skewer the concept, only that his argument is knowingly dishonest]
  5. The idea that nearly any function now undertaken by government could be done better by private firms. Privatization failed to deliver on its promises. Public enterprises were sold at prices that failed to recompense governments for the loss of their earnings. Rather than introducing a new era of competition, privatization commonly replaced public monopolies with private monopolies, which have sought all kinds of regulatory arbitrage to maximize their profits.
Oh dear. When privatizations failed, it was because governments turned a public into a private monopoly; and they did that precisely so that they should gain more from taxing the spun-off corporations than they ever managed to from running them. Not to mention the pay-offs to the politicians and officials who managed the privatizations. The basic idea - to attract greater investment while getting out of the way of endless disputes with rent-seeking trades unions - was and remains self-evidently sound. 
Three decades in which market liberals have pushed policies based on ideas of efficiency and claims about the efficiency of financial markets have not produced much in the way of improved economic performance, but they have led to drastic increases in inequality, particularly in the English-speaking world. Economists need to return their attention to policies that will generate a more equitable distribution of income.
Wow. Not much improvement in economic performance since 1980 - this guy teaches economics? He sure as hell could not teach mathematics, logic - or ethics.

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