Economics: The King is Dead, Long Live the King

 

Funny, isn’t it, how some world leaders can seemingly go from being utterly impregnable, iron fisted strong dictators to straw men almost overnight.  Remember the various popular revolts across North Africa and the Middle East over the last few years and the fall of the likes of Mubarak and Gadaffi –  and, perhaps, also Assad.

 

Economics, or rather the prevailing dogmas and sacred cows of current free market economic orthodoxy, are apparently undergoing something rather similar.  Economics as a science may not yet be quite a dead idea –  but it appears to be in an irreversible terminal decline.  Many people will be rather glad that such a reductionist approach to understanding and then guiding ( or in some cases, coercing) human socio-economic behaviour is being left behind.  Adam Smith, were he alive today, would probably be one of them.  Right of centre politicians and economists generally regard him as  the philosophical (or perhaps, by some, the  theological)  justification  for a view which states that human activity is driven by purely hard nosed  rational judgements; all of which are aimed at accumulating as much resources as possible (often labelled selfish greed).  Keep reading his work (The Wealth of Nations or The Theory of Moral Sentiments) and a very different Smith quickly emerges –  one who states explicitly that humans are not primarily motivated by greed and ‘rational self interest’, and nor does he wish that they were.

 

Equality, or a lack of,  within societies is an issue which has become mainstream in any discussion of economics – or ‘political economy’ to give it the title Smith, Marx and Keynes knew it by.The French economist, Thomas Piketty’s book Capital in the Twenty First Century is the latest addition to a growing body of research considering the corrosive influence inequality has on societies.

 

Much hyperbole (both for and against) is being written about the book and its central thesis that mainstream free market economic ideas have failed and that we have a system which is adept at generating ever increasing levels of inequality  rather than one which generates growth and rewards diligence, effort and ingenuity.  An increase in levels of inequality is not criticised per se –  but rather that if it becomes extreme then that is very bad for economic vitality.  Driving an economy blithely forward on such a  trajectory will lead to Dickensian levels of inequality  which in turn creates a system where there are profound disincentives to effort and hard work as most of the rewards are enjoyed by holders of capital and established wealth.  Now, you might think that this is  music to the ears of the centre-left political viewpoint. Except that Picketty also contends that his theory shows that they have a misplaced faith in the power of globalisation, skills training and mild re-distribution to promote socio-economic justice.

 

Serious and profoundly important questions are raised by this and other books (ie The Spirit Level); questions that may well prove somewhat uncomfortable to both right and left. Students on undergraduate economics courses could well be forgiven for thinking that it is no longer the ‘dull science’.