The Econocracy is a book well worth reading
This is a fascinating book – in parts revelatory – which discusses the current state of economics in this country. The nation spends a huge amount of time talking and discussing economic issues yet the state of economic thinking is clearly unsatisfactory. A key argument is that the post 1979 reforms ushered in by Mrs Thatcher and the Conservatives with the belief in the supremacy of markets, privatisation and the small state, combined with deregulation has left the country in a poor state and contributed to the near banking failure almost a decade ago.
The authors argue that the Econocracy of economists and economic institutions is not fit for purpose. Economic thinking has been based largely on classical theory which has been shown to be wanting. It failed to predict the events of 2008 and failed to warn of the fragile nature of the banking industry: indeed economic experts contributed to the crisis itself. The financial crisis has ‘spawned a crisis in economics itself’. They make the point that this is not the first time, pointing to the catastrophic policy errors which led to the Depression. Then we had Keynes to help weld together a means to come out of the crisis. This time round … well we had George Osborne.
Much of economics, apart from being based on doubtful theory, is strongly mathematically based. There is also a belief in modelling. All this takes place with very little contact with other parts of society which leaves the profession somewhat disengaged with real life. The authors have looked at all the university curricula and find the same rather narrow approach to the subject. Alternative approaches are frozen out and it is difficult for those who do not agree with the received view to get a hearing or to get published.
Yet the country is largely being run on these flakey ideas. Despite notable failures, economists are regularly interviewed on the media and their opinions received as though they are holy writ.
In political terms the economy and how it is managed is supremely important in the electoral process. Being seen as sound on the economy is crucial to success and the Conservatives have enjoyed an apparent advantage over several decades. Yet the book makes clear this was not always the case and the economy as a definite term did not really begin to feature in manifestos until the ’50s.
Missing from the argument has been the citizen. They are supposed to listen to the wisdom of the economists who speak to them in a language not everyone understands. Surveys have shown that large sections of the public do not know what the ‘deficit’ actually means, one survey showed 43% able to define it. Only 39% could defined GDP. This ignorance was manifest in the Brexit debate.
These issues are of interest to Compass followers because the economy is such a large part of what happens on the political stage. The effects of the mistaken policy to take money out of the economy at a time when it was struggling can still be seen today. The belief in free markets and its effects on the huge and growing imbalances in our society is still a feature of Conservative policy. Mrs May will struggle to do anything to help the ‘just about managings’ who’s plight is going to get worse.
Student loans are in the spotlight with IFS showing that a typical student is amassing a debt of over £50,000 on graduation with only a slender chance of repaying it. Many of these policies have their roots in faulty economic thinking. Reading Lord Adonis today trying to argue his way out to the student loan fiasco is a delight. Here is someone for whom the simplicity of markets was a guiding principle and seems baffled by the response of the university sector to his policy. Jo Johnson was also interviewed on Newsnight on the same subject and is still writing in defence of it. Both reveal a naïve belief in markets for something markets are not really designed to do and where the unforeseen effects seem to leave them baffled.
This book is highly recommended.
The Econocracy, the perils of leaving economics to the experts, 2017, Earls Jo, Moran Cahal, Ward-Perkins, Zach. Manchester University Press