Saturday, December 17, 2016

It's Gone Viral

They used to call economics the "dismal science." Actually, it's never been a science -- despite recent attempts to make it so. However, in the last fifty years, the dismal discipline has been elevated to the status of a religion, its practitioners having taken on the role of oracles. Murray Dobbins writes that the discipline went off the rails when its oracles bought into the dogma of neo-liberalism:

If it were a science the facts would long ago have prevailed and they would have denounced the ideology from the rooftops.

But, no, instead we get articles on a weekly basis about Canadians' staggering debt load and the only attempt at explanation is so-called "human nature" -- i.e. "Gee, people just don't seem to be worrying -- they're ignoring the warnings." Then there's the ingenious concept of "recency bias" developed by someone in the field of  "behavioural finance" (who knew?). Recency bias means, according to the Globe's Rob Carrick, "People are looking at recent events and projecting them into the future indefinitely." 

How are people doing when it comes to living a middle class lifestyle?

Carrick's article detailed just how serious the problem is -- repeating numbers that have been quoted numerous times: over 700,000 people would be financially stressed if interest rates rose by even a quarter of one per cent. One million would face that circumstance if they rose by one per cent. The Canadian Payroll Association regularly tracks people's financial stress and its recent survey revealed 48 per cent of people said "[i]t would be tough to meet their financial obligations if their paycheque was delayed even by a week. Almost one-quarter doubted they could come up with $2,000 for an emergency expense in the next month."

I'm sorry, but that's insane in a country that creates as much wealth as Canada does. But don't expect "the profession" to shed any light on this situation. Why? Because economists suffer from SIB -- Self-Interest Bias, a condition rooted in their elitist role in society. Actually it's not unlike "recency bias" -- they've been doing fine for the past 25 years rationalizing this madness, so they will just project that success "into the future indefinitely."

That's what neo-liberalism is all about: rationalizing madness:

The economic policies [neo-liberals] keep endorsing are a disaster for all but the few. The middle class can only sustain its standard of living through ever-increasing debt; the vast majority of the new wealth created every year (such as it is) goes to the top 5 per cent; the working class has been largely relegated to service jobs (we have lost 540,000 manufacturing jobs since 2000) with no security, lousy pay, no benefits and -- increasingly -- part-time work. There is not a single minimum wage in the country that comes anywhere near a living wage. The gap between rich and poor is now the same as it was in 1928. Young people's university degrees are both outrageously expensive and often worthless.

And small and medium businesses are virtually all struggling because the government's obsession with foreign trade leaves them (over 90 per cent of whom export nothing) on their own to cope with the stagnant incomes of their customers. And what do economists say about all this? Not much. They observe and then move on, waiting for the next batch of statistics proving, once again, that the brave new world of unfettered markets and unregulated corporate power cannot and will not deliver the goods. Of course, if they were honest they would acknowledge it was never intended to: these outcomes were predicted from the start by the handful of heretical economists who choose not to join the courtiers of masters of mankind.

Rationalizing madness. It's gone viral.

Image: Creative Guerrilla Marketing


Lulymay said...

What a staggering indictment of neo-liberalism, Owen, and there is nothing in the article that anyone with any brain (even if they are a vaunted economist) can argue with. Truth is reality. I'm now in my late 70's but always had a personal motto: You can be poor when you're young but never when you're old".

With that in mind, budget was mandatory, so no matter how little I earned - and at times it was very little - adjust as needed but keep to a budget. I'm feeling lucky now that I did live during a relatively stable time in our country and that I was able to put some money away for retirement so that I wouldn't have to be poor in old age.

It galls me that for the last number of years my poor old GICs are getting a phenomenal 1.2 to 1.7% but its no risk and my current budget says I'm doing just fine. Lucky me! and I feel sorry for young folks.


Hugh said...

When we go to buy something, ie: clothing, furniture, tools, appliances, electronics, etc, chances are the item is not made in Canada.

This means negative trade balance, and money (wealth) pouring out of Canada.

At some point won't we become destitute?

Is this the root of the issue?

The Mound of Sound said...

Dobbins isn't quite right. Economics is a social science which is why so little consensus exists among its practitioners. Economics, political science, psychology, sociology are leading forms of social science and they're all focused on ideologies akin to religions that are relatively fluid and tend to shift periodically. John Ralston Saul writes that economic models, ideologies, tend to have a shelf life of between thirty and fifty years. On that time scale, neoliberalism and its economic flagship, globalism, have long since run their course. The societal ills Dobbins catalogues are the evidence of this failed ideology, the most recent.

Where Dobbins really falls down is in attempting to list specific policies to rectify the void left by neoliberalism. This can't be done on an ad hoc basis of the sort formulated by Dobbins. It needs the adoption of principles, precepts that seem to echo the progressive movement in early 20th century America. A lot of these principles are embodied in T. Roosevelt's "Square Deal" speech.

Earlier this week, the Christian Science Monitor ran an essay by Sandra Waddock of Boston College describing a project to replace neoliberalism that I find more helpful than Dobbins' prescription. Champions of "steady state" economics contend that new models must reflect a paradigm shift based on our real world conditions - overconsumption, overpopulation, climate change and such. What Waddock seems to advocate is a new approach that blends the basic principles of progressivism with a shift to a steady state economy. I can think of nothing more sensible, even imperative.

Owen Gray said...

If we don't produce a good portion of what we consume, Hugh, we're going to have a balance of payments problem.

Owen Gray said...

Perhaps they refuse to enter the game because they know the deck is stacked against them, Lulymay. On the other hand, they have the power to change things -- if they choose to use it.

Owen Gray said...

The notion of "steady state" policies is intriguing, Mound. I must admit this is the first time I've heard of the idea. I think Dobbins was referring to the attempt by some to turn economics in to a "hard" --physical science -- something which relied on higher mathematical models.

The problem is that higher math can easily become divorced from the real world.

The Mound of Sound said...

Neoclassical economics, actually forged in the wake of WWII, has been given an elevated status as a hard science based on immutable laws but, given how it profitably comports with the interests of a small but powerful establishment and the corporate sector, it's hardly surprising they would imbue it with such "carved on tablets" orthodoxy. I suspect we're seeing how inflated neoliberalism has become in how long it has soldiered on long after it so miserably failed. Justin Trudeau is not capable of challenging it. He lacks the vision to ride the next wave. We'll catch that on the trough.

As for "steady state" economics, Wiki has a decent synopsis. If you want to delve deeper I'd recommend Herman Daly's "Beyond Growth," the reformed Paul Craig Roberts, "The Failure of Laissez Fair Capitalism," or the compendium of essays by Prugh, Costanza, Cumberland and Norgaard in "Natural Capital and Human Economic Survival." The easiest read is the Roberts book.

Anonymous said...

Have we reached a state with over population and uncontrolled environmental degradation that all of the above is now meaningless?
Have we reached the point of no return that neither economics or science can save us?
Across the WWW the argument circles around who will get what; not what do we do to make it work.
Left vs right dynamics! never ending one upmanship.


Owen Gray said...

The true measure of any society has always been how well all its members prosper, Anon. But there has always been a counter argument: Success is individual. Margaret Thatcher took that argument to the extreme. There is no such thing as society, she said. And we have reaped what she -- and others -- have sown.

Owen Gray said...

Thanks for the reading list, Mound. I need some updating.