Thursday, June 13, 2013

Economics As A Morality Play

Stephen Harper and David Cameron live in a bubble of mutual admiration. That bubble is on display this morning in London. They are congratulating each other on their economic prowess. But the IMF has acknowledged that the policies which Harper and Cameron espouse -- and which the IMF used to officially endorse -- have been catastrophic failures. Carol Goar writes in The Toronto Star:

Late last Wednesday, the powerful International Monetary Fund (IMF), which led the Greek bailout three years ago, issued an extraordinary mea culpa, admitting it had underestimated the severity of the debt crisis and miscalculated — by a spectacular margin — the damage its harsh strictures would do.

“Market confidence was not restored, the banking system lost 30 per cent of its deposits and the economy encountered a much deeper-than-expected recession with exceptionally high unemployment,” the global agency wrote in a 50-page report.

Paul Krugman came to the same conclusion in an article he called  "How The Case For Austerity Has Crumbled" in The New York Review of Books. Krugman wrote:

In the beginning was the bubble. There have been many, many books about the excesses of the boom years—in fact, too many books. For as we’ll see, the urge to dwell on the lurid details of the boom, rather than trying to understand the dynamics of the slump, is a recurrent problem for economics and economic policy. For now, suffice it to say that by the beginning of 2008 both America and Europe were poised for a fall. They had become excessively dependent on an overheated housing market, their households were too deep in debt, their financial sectors were undercapitalized and overextended.

But rather than carefully examining the data, the Masters of the Financial Universe bought into the notion that economics, at bottom, was a morality play. Krugman opined:

Everyone loves a morality play. “For the wages of sin is death” is a much more satisfying message than “Shit happens.” We all want events to have meaning.

When applied to macroeconomics, this urge to find moral meaning creates in all of us a predisposition toward believing stories that attribute the pain of a slump to the excesses of the boom that precedes it—and, perhaps, also makes it natural to see the pain as necessary, part of an inevitable cleansing process. When Andrew Mellon told Herbert Hoover to let the Depression run its course, so as to “purge the rottenness” from the system, he was offering advice that, however bad it was as economics, resonated psychologically with many people (and still does).

At the beginning of the Greek Crisis, you may recall that the Reverend Mr. Harper went to Greece to encourage George Papandreou to apply more austerity than what the European Union had forced upon him. It should be perfectly obvious by now that -- despite his master's degree in economics -- Mr. Harper doesn't know what he's talking about.

He really is a fundamentalist preacher -- like Bible Bill Aberhart -- who abandoned the pulpit  for government.


Anonymous said...

The path from 'Bible Bill' to 'Reformer Steve' seems obvious. Marci McDonald explained it all in her book 'The Armageddon Factor'.

Personally, I view the Reformers as 'destructionists' - they destroy everything they touch.

Owen Gray said...

Thanks for the link, Anon. There has always been religious fundamentalism at the heart of the Harper program, Anon.

They link the destruction of government with personal salvation.

Kirby Evans said...

Though Krugman is interesting, he cites all the wrong reasons for the economic slump. It is not housing bubbles or household debts that are to blame. Rather, it is lack of proper government oversight of the financial sectors, the near elimination of taxation for the rich and for corporations, and willingness for governments to play to the international, neo-liberal race for the bottom. If, instead, governments had properly controlled markets, put an end to out of control international currency speculation, made the rich and the corporations pay their fair share, used a Tobin tax, and shifted a significant investment into alternative energy production, then we would be in the midst of Capitalism's biggest boom.

Unfortunately Krugman is perpetuating a number of capitalist myths about why things turned sour and therefore contributes to taking the heat off where it really should be.

Owen Gray said...

Admittedly, there was more than a housing bubble that brought the house down, Kirby. But I think Krugman would agree with you about low taxation rates and lax regulation.

And he has been saying for quite awhile that austerity doesn't cause economic expansion.

Unfortunately, the people who could have done something didn't listen to Krugman.

Dana said...

Nobel economist and New York Times economics columnist taken to task by unheralded Canadian former blogger.

What a headline. :-)

Owen Gray said...

That's the beauty of the blogosphere, Dana. It's the great leveler.

Kirby Evans said...

@ Dana - They gave Henry Kissinger a Nobel Prize. Nobel Prize winners are as driven by ideology as everyone else. Do you really need a lesson in the dynamics of power. Furthermore, you know nothing about me and less about economics.

On a positive note re; Kissinger and the Nobel Prize: never underestimate the Scandinavian wit!

e.a.f. said...

Kirby Evans pretty much nails it.

Politicians impoverished their nations by reducing taxes on the 1%ers. No income for a nation, you borrow. You borrow, you owe money and at one point you can't pay. The "bail outs" which some countries "received" did nothing to help the countries. They simply increased the unemployment rate. that means less taxes paid by the citizens and less items purchased so there goes manufacturing and retail.

The U.S.A. conttributed to the problem by bailing out the banks. They ought to have bailed out the people who had the huge mortgages. Now the Americans have large areas where no one can afford to live, homelessness, all for nothing.

Banks are not entitled to welfare. The country and world would have survived if the banks had failed. Those who might have been effected are those who had more in the bank than the bank insurance covered.

The problem is the average person has less money and the 1%ers continue to increase their wealth. There is only so much money to go around. If a few have it, the other suffer. You just have to look at third world countries. the U.S.A. is becoming one of them and by now Greece is a 2nd world country. Thank you to bankers for ensuring your friends kept all their money and the workers lost everything.

Owen Gray said...

After the Second World War, e.a.f. a social contract was established in the West. The wealth would be shared, if labour kept its distance from Communism.

That contract fell apart with the Arab oil embargo and raging inflation. Enter Margaret Thatcher, Ronald Reagan

The present generation of conservatives still emulate Thatcher. They don't realize that sharing the wealth keeps the economy going.

Kirby Evans said...

That is exactly correct Owen - that post-war social contract broke down and the concentration of the media made it easier to hide the nature of this break down. Furthermore, the discourses of economics has served to further obfuscate the issues. Economics as a discipline continues to manufacture reification on a grand scale. Marx was aware well over a century ago that if you create the illusion that the economy is a relation between things rather that a relation between people, then it would be easy to manufacture legitimacy.

Owen Gray said...

Economics lost its way, Kirby, when people like Friedman tried to turn it into a physical science with hard and fast rules -- which could be translated into mathematical formulae.

The recent trend toward "behavioural economics" is an attempt to put people back at the centre of the science.

Dana said...

Well, colour me put in my place.

I'll retire now and leave the great and famous "great leveller" blogosphere to those humourless few more qualified to parse and fraction ever greater and more important tiny distinctions in order to convert them to enormous and irreconcilable differences.

That's just the bestest thing ever about the world wide web isn't it?

Have at it.

Owen Gray said...

The great leveler doesn't always produce harmony, Dana. Most of the comments on this blog agree with the positions I take. But you don't always.

And I value that kind of comment.

Anonymous said...

"They call for an end to the 'Welfare State', which means an end to all social programs that assist the most vulnerable. Poverty they believe is genetic, and in a 'survival of the fittest' scenario, nature must be allowed to take it's course. The Northern Foundation that Stephen Harper helped to create, was kind of a big tent Anglo superiority movement, that housed everyone from intellectual theorists, race scientists and skinheads; not all working together, but simultaneously."

From the link in post #1

Interesting how these right wing religious zealots endorse welfare for corporate, religious and the 1% all on the backs of the poorest while espousing a denial of those same benefits to individuals in need; the religious right exposed as the hypocrites that they are.

Owen you have my vote of confidence and this is one of my favorite blogs. The religious right is neither moral nor a majority putting Harper in power though is like administering a drug worse than steroids for these loons.

Owen Gray said...

I caught that old movie, "Oh God!" with George Burns the other night, Anon. His best line was "Religion is easy. I'm talking about faith."

The movie is a rejection of religious fundamentalism. My bet is that Harper hasn't seen it. Or perhaps he fell asleep during it.