The Liberal Democrats should be applauded for focusing on business in their new policy paper, Enterprise in a fair society. In the context of the current economic crisis, the document reminds us that businesses produce the wealth that not only raises living standards, but also funds health, education and so on – a lesson arguably ignored by New Labour as they burdened firms with more and more taxation and red tape.
There are some excellent ideas. Of particular note is a proposal to incorporate a sunset clause into each new business regulation so that it is time limited. This could be an effective measure to rein back new rules that often prove costly and counterproductive.
Yet there is a problem here – that the majority of new regulation in the UK comes from Brussels. In this context the commitment to end the ‘gold plating’ of legislation from the EU is very welcome. Nevertheless, it is difficult to see how the sunset clause could be applied to directives set at supranational level. And while greater influence is sought over European policies, the experience of the current europhile government does not augur well in terms of the ability to prevent highly damaging EU initiatives.
The aim of cutting red tape is also rather undermined by a series of proposals to increase government intervention in the affairs of businesses. For example, there is the proposal to restore a public interest test to takeovers and mergers; the requirement for firms to produce a social responsibility report; a strengthening of planning laws (which are already among the strictest in the developed world and the strengthening of which will be a further impediment to competition in the supermarket sector); and far-reaching regulation of the banking sector. The approach to deregulation is therefore patchy and inconsistent.
More positively, there is a strong emphasis in the paper on reducing the budget deficit and bringing stability to the public finances. Indeed, it is stated that the emphasis should be on controlling spending rather than on increasing taxes – welcome recognition that raising taxes from already high levels would be counterproductive in the medium term.
When it comes to discussing concrete figures the document is divorced from reality, however. The £15 billion of savings identified are a drop in the ocean compared with an annual deficit of close to £170 billion. If the Lib Dems are to cultivate a reputation for honesty, they should be far more candid about the scale of reductions needed to balance the books. Unless economic growth over the next few years proves to be unexpectedly robust, severe cuts will be needed to the major areas of government spending – health, education and welfare.
The document also implies that cuts will be delayed until economic recovery becomes estabilished. It therefore appears to accept the Keynesian dogma that governments can spend their way out of recession. In fact every pound the government spends must be taken from the private sector through either taxation or borrowing. Worse still, the government spends this money inefficiently and public spending distorts the economy, making recovery more difficult.
Indeed, the emphasis on ‘picking winners’, whether through ‘balancing’ the economy away from the City of London or subsidising green businesses, is one of the most regrettable aspects of this policy paper. Clearly the Lib Dem leadership has still to learn that the best way governments can help businesses is by leaving them alone.
* Dr Richard Wellings is Deputy Editorial Director at the Institute of Economic Affairs and editor of the IEA Blog.
The Independent View‘ is a slot on Lib Dem Voice which allows those from beyond the party to contribute to debates we believe are of interest to LDV’s readers. Please email [email protected] if you are interested in contributing.
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49 Comments
Citation needed.
It is true that up to 2007 the Liberal Democrats were becoming more supportive of deregulation.
Then of course we saw how irresponsible the private sector can be when you enage in “light-touch regulation” in the city of London, and now everyone agrees – apart from free market fundamentalists like the IEA – that actually we need far better regulation – and regulation enforcement – if we are to stop unsustainable bubbles that will wreck the economy in the future.
It was actually free market dogma persued by Blair, Brown, Greenspan and Bush that lead the economy into the dire state it is in today – just as in the 1930s – and it is what the author quantly calls “Keynsian dogma”, ie the kind of economics that Vince Cable advocates on the behalf of the Liberal Democrats, that stopped the economy falling off the edge of the cliff. we coulod instead have copied the economic policies of the Republic of Ireland, of big public spending cuts at a time of recession, but look at what a disaster that turned out to be. Putting the economy into an even deeper recession makes it even harder to pay of the debt.
As far as deregulation is concerned we should approach this matter with great care and learn from the mistakes made by those who followed the advice of the IEA.
In order to clamp down on market irresponsibility we should regulate at a European level, and ideally further afield from that as well if possible. We know for example that you cannot introduce the Tobin tax in one country along, but we need something like the Tobin tax to slow down markets and to repay the taxpayer for bailing out the financial sector in the first place.
We should certainly invest in the Green economy. The IEA does not seem to be the least bit interested in protecting the environment because it does not fit into it’s blinkered vision of perfect free markets.
It is not a case of “picking winners”. We have no choice but to do everything we can to make the environment a winner, otherwise we all lose. It is seriously alarming that eminant scientists like James Lovelock reckon the game is up already and it is too late to do anything now.
It is absolutely outrageous and grossly irresponsible of the IEA to deny or downplay the damage we are doing to the environment. What is at stake is our survival on this planet, and we should listen instead to scientific opinion and not so-called “liberal” economic ideologues.
It is good that the IEA do not like what the Liberal Democrats are saying, because the Liberal Democrats are broadly correct, and if we listened instead to the IEA we would be making a very big mistake.
A more pertinent question would be to ask whether the IEA is liberal.
In the IEA’s reductionist universe, ‘freedom’ is defined in purely economic terms but there is more to life than buying and selling. For most people, once their basic needs of food and shelter are met, the most important things in life are human relationships, appreciation of beauty and the arts, enjoyment of the natural environment, and hobbies and intellectual pursuits. The IEA’s economistic perspective has little or nothing to offer in this regard.
For Liberals, the key political question is the distribution of power, specifically ‘agency’, the ability to make meaningful choices about our lives and to influence the world around us. The IEA presumably believes that markets can deliver agency more effectively than democratic politics. But with the best will in the world, the capacity of markets to do this is limited. The result when one tries to replace democratic politics with markets is that people find a bewildering array of choice when they shop online or visit a large supermarket, but find they have less control over the neighbourhoods where they live. For all the ‘choice’ that markets offer, people feel that nothing they say or do makes any difference.
If one tries to live a more satisfying life by following the IEA’s route – which basically means reducing all one’s human bonds to economic relationships, and seeking fulfilment primarily through the acquisition of consumer goods – society gradually disintegrates and people feel more lonely, insecure and disaffected.
It’s time we got things back in proportion. The market is nothing more than a useful mechanism for the exchange of goods and services. The market should never be an object of religious veneration. It is not sacrosanct. It is not the be-all and end-all of life. It is not an end in itself. It is not a value. It does not trump other ethical beliefs such as morality, justice, fairness, empathy, nobility or love.
The IEA represents people who know the price of everything and the value of nothing. It is a morally bankrupt worldview. And since the IEA’s economic dogma brought us to the brink of disaster, it’s economically bankrupt too.
So having advocated an ideology that, in Adair Turner’s words, is “a fairly complete train wreck of a predominant theory of economics and finance”, the IEA has a sheer nerve coming here and lecturing us about liberalism.
Andrew Suffield – Fair point on the need for a citation. Unfortunately I have yet to find a definitive study on the issue, so there is little alternative but to make rough estimates. In hindsight I should have used the phrase “a significant proportion” rather than “the majority” to reflect this uncertainty. Nevertheless, the policy document itself acknowledges the important role of the EU in regulation when it mentions “gold plating” and the importance of more influence in Brussels.
Geoffrey Payne – I don’t think it’s credible to claim that Bush, Blair and Brown pursued “free-market dogma”. They all vastly increased the role of the state. It is also simplistic to blame the financial crisis on free markets. In fact, loose monetary policy, government intervention in the US mortgage market, counterproductive banking regulations and so on, played major parts in the meltdown. I would recommend our recent book, “Verdict on the Crash” (available as a free download), if you are interested in learning more about these aspects of the crisis.
Simon Titley – I thought this characterisation was very unfair. Classical liberalism is not the same as consumerism; neither is it an ‘economistic’ perspective.
@Richard Wellings – The financial crisis was a product of market fundamentalist ideology; classical liberalism reinvented by the Chicago School and Washington Consensus in the form of ‘neoliberalism’. It has been the dominant ideology for the past thirty years or so, and the IEA has been amongst its biggest cheerleaders. And now this ideology has crashed in flames.
Neoliberalism is not only a demonstrable failure in economic terms; it is also a moral failure because it is economistic. By this, I mean that it is a form of economic reductionism, which insists that all social facts must be reduced to economic dimensions and that the forces of supply and demand trump all other considerations.
Thankfully, the Liberal Democrats recognise this weakness, which is why we are a social liberal party that believes in positive freedoms and not just negative ones. This view is clearly expressed in the preamble to the party’s constitution, the first sentence of which reads: “The Liberal Democrats exist to build and safeguard a fair, free and open society, in which we seek to balance the fundamental values of liberty, equality and community, and in which no-one shall be enslaved by poverty, ignorance or conformity.”
Therefore, the Liberal Democrats do not believe that liberalism is essentially about laissez-faire economics. There’s more to life than buying and selling. The economy is there to serve us, not the other way round.
Simon Titley – I disagree that market fundamentalism has dominated over the last thirty years. The growth of the state has continued, particularly over the last decade in the US and UK. Thatcher and Reagan arguably only managed to postpone this trend for a few years.
Moreover, I wouldn’t call Chicago School monetarists market fundamentalists. For example, they generally support state/central bank control over interest rates to manage growth in the money supply – arguably a form of central planning. The failed implementation of this approach was clearly a major contributor to the financial crisis, although some leading monetarists did warn the central banks that they were allowing the money supply to rise too quickly leading to an asset price bubble. Indeed, IEA publications actually criticised the flawed monetary policies that led to the boom and bust (for example, “Money and Asset Prices in Boom and Bust” (2005)).
It should also be remembered that other free-market schools, particularly Austrian economics, have been vindicated by the current crisis. The IEA has played a key role in developing the Austrian school by publishing such classics as “Denationalisation of Money” by F. A. Hayek and “How Markets Work” by Israel Kirzner. The Chicago School has been just one element of our output over the last fifty years.
The free-market argument is not that economic considerations trump all others. It is up to individuals which goals they pursue. Charities, community groups and so on, are entirely compatible with a market economy.
Finally, I found the preamble to the party constitution vague and confused. In practice, liberty is probably incompatible with equality of outcome.
@Richard Wellings – You find the Liberal Democrats’ preamble “confused”? That is because you see liberty only in negative terms, i.e. the absence of obstacle, barriers or restraints. You do not recognise positive liberty, the ability to act in such a way as to take control of one’s life and realise one’s fundamental purposes, which cannot happen when one is “enslaved by poverty, ignorance and conformity”.
You argue that, “it is up to individuals which goals they pursue.” Yes, the market can provide some freedom but, with the best will in the world, it cannot deliver all or even most of the agency that people need to make meaningful choices about their lives. The perfect market can never exist and, even if it did, it simply isn’t relevant to many important aspects of our lives, notably human relationships.
Liberal Democrats tend to take a pragmatic view of the market. It is often a useful mechanism for exchanging goods and services but that is all it is – a tool. It should not be the primary governing value of society. As Paddy Ashdown often said, the market is “a good slave but a poor master”.
You are entitled to your views but they are not those of the Liberal Democrats and you have no business lecturing us about purity of our faith.
An interesting article, but I generally agree with the points raised by the posters here. Markets are a tool – that’s all. A tool to enable quicker and more efficient exchange of goods & services. In the same way that cars are just a tool to get us around quicker, so there is a constant danger that the tool becomes the master of our destiny. In the 60’s and 70’s, organisations like the IEA were demanding the demolition of swathes of our historic cities to allow for urban dual-carriageways in order to free up cars. In recent years we have seen the analogue in markets too.
Richard ruins the article in my view by saying: Worse still, the government spends this money inefficiently and public spending distorts the economy, making recovery more difficult. The idea that govt always spends more inefficiently than the private sector is just dogma, that’s all. And to attack the govt for finally pointing the economy towards a sustainable future and away from the current orgy of materialist consumption shows that the posters above are right in saying that the IEA still doesn’t get it yet.
It’s rather ironic that, in a time when people are constantly complaining that the main political parties are indistinguishable, when Dr Wellings is confronted by a fundamental philosophical difference, he appears utterly bemused. Perhaps he is beginning to realise that the choice facing the electorate is not merely between who can best manage a market economy.
“Clearly the Lib Dem leadership has still to learn that the best way governments can help businesses is by leaving them alone.”
Clearly Richard Wellings has still to learn that the economies that have followed his particular dogma to its furthest extent (the US and the UK) have been among the ones hardest hit by the current crisis and the most destabilised by its results.
The problem with the free-market jihadists is that their theories are not borne out by reality. The most successful economies with the happiest populations e.g. Denmark, the Netherlands are often ones where the state has a very active and large presence in the economy. But they never let nasty inconvenient things like evidence get in the way of a cherished theory, did they?
The main function of such anti-state rhetoricians remains that of the ideological fig leaf of the greedy and the rich.
Enough with this canard. “Health, education and so on” aren’t nice optional extras that we can afford to pay for because someone else is “producing wealth” – health, education and “so on” (is this a euphemism for the arts, perhaps?) are forms of wealth themselves. The only reason for not considering them to be so is that (in this country and most of Europe, anyway) the state is the main provider of them, and it wouldn’t do to let the state be seen as a creator of wealth, would it?
“Clearly Richard Wellings has still to learn that the economies that have followed his particular dogma to its furthest extent (the US and the UK) have been among the ones hardest hit by the current crisis and the most destabilised by its results.”
The UK under New Labour can hardly be described as a bastion of free-market thought, can it? Complete tosh because so plainly false. I guess it’s not just ‘free-market jihadists’ who are liberal with their evidence…
@ Sara Scarlett
“The UK under New Labour can hardly be described as a bastion of free-market thought, can it?”
Well, yes, it can actually.
Privatised public transport √
Privatised utilities√
Free rein for foreign companies to buy what they like√
Substantial private involvement in healthcare and education√
Deregulated banking sector allowed to run out of control√
Privately run prisons√
Privatisation of major public investment projects√
You must be completely out of touch if you think that New Labour hasn’t consistently genuflected to the mythology of “private good, public bad”. Take a look at the East Coast mainline. If they get back into power, they are even prepared to re-privatise that again, despite its miserable record under private ownership.
Only when they have been faced with manifest, abject complete and utter failure on the part of the private sector have they been willing to step in as a last resort and sometimes, as with the railways, not even then.
@ Sara
Oh, and I forgot to add that Labour have also followed, until the last year or so, the free market doctrine of not having any kind of industrial policy.
It was slavish adherence to the doctrine of “no limits to the market” that got us into this crisis in the first place.
@Robert C
I think you may be confusing (as many do) “free market” with “private sector”. Much of the problem with privatisation of utilities, for example, is that the market is no freer than it ever was, but accountability and control have become much more blurred than they were when utilities were in public ownership, and the chief beneficiaries are the shareholders in the new private companies. I don’t think many libertarians (of whom I’m not one) would have supported the way most of the things you mention were done. It’s not a simple either/or. (Well, there’s a surprising thing for a Lib Dem to say 😉 …)
@ Malcolm Todd.
You are right in making the distinction and since I have an economics degree from Cambridge, I am thoroughly aware of it, but as far as the free market right are concerned, it all comes as part of the same policy prescriptive package. They want neither public ownership nor public control and ascribe all the ills of the economy to either one or the other, which is an utterly absurd position to take.
From original piece: “Yet there is a problem here – that the majority of new regulation in the UK comes from Brussels.”
And from Richard Wellings in comments: “Andrew Suffield – Fair point on the need for a citation. Unfortunately I have yet to find a definitive study on the issue, so there is little alternative but to make rough estimates.”
A study here from the European Movement (an organisation which incidentally the IEA Director General worked for several years) puts the figure for the UK in the 8-10% range. http://www.euromove.org.uk/index.php?id=9479
From original article: “Nevertheless, it is difficult to see how the sunset clause could be applied to directives set at supranational level.”
It is not difficult at all to see this – Liberal Democrats have argued for, voted for and achieved sunset clauses on EU business legislation for many years – I recall that Chris Huhne was a particular champion of this in the EP at one point.
The comment betrays the author’s mindset that the EU is something “over there” that other people do to us, not something that we can engage in, and set the direction and legislation of, as much as anyone else.
“t should also be remembered that other free-market schools, particularly Austrian economics, have been vindicated by the current crisis”
A joke surely ?
“Thatcher and Reagan arguably only managed to postpone this trend (growth of the state) for a few years”
Uh, no they failed even on their own terms.
“In fact every pound the government spends must be taken from the private sector through either taxation or borrowing. Worse still, the government spends this money inefficiently and public spending distorts the economy,”
Wrong again, governments create wealth, eduction being an example, what if businesses had to pay back the benefit they got form an educated work force or tax credits or state pensions
Most people spend money “inefficently” – ever paid a plumber to £100 to change a tap washer ? Ever brought a second hand car which doesn’t work ? Ever brought some clothes you never wear again? Ever not spend hours searching for the cheapest item but just had a guess at what is good value ? Every been taken in by a supermarket promotion ? Ever had to have your own item, even though sharing a public one would have been cheaper?
“competition in the supermarket sector”
Not really much competiton is there? You can’t set up Tescos from scratch. YOu can’t compete with Tesco from scratch.
An interesting discussion, which is drawing a distinction between neo-liberalism/conservatism in the original sense (i.e. what it means) and not in the childish insult thrown around like flour-bags in an end-of-term rammy.
I would gladly vote for an upper-case Liberal party, but one of my main disagreements with the LibDems is the number of neo-puritans and goons bound together by the bizarre belief that they’re lower-case liberals (those people brimming with sugar and spice and all-things-nice, unlike those baby eating neo-cons).
Fortunately, with an upper-case Liberal candidate at the GE, that’s where my vote is going.
@Jeremy Hargreaves – I am aware of the European Movement study you link to. There are also much higher estimates from other think tanks/campaign groups, although there are clearly significant methodological difficulties involved in making such a calculation. More important than the proportion of regulation emanating from Brussels is the cost of the rules imposed on businesses and consumers (though once again it is problematic to measure this exactly). As I stated in a previous comment, the policy document itself recognises the importance of the EU as a source of new regulations, so the argument stands. I would also be interested to know of concrete examples of sunset clauses in EU regulations that the Lib Dems have managed to obtain.
@Robert C – I agree with Sara that it is simply false that the UK and USA have adopted free-market approaches to policy in recent years. Both countries are highly taxed and heavily regulated economies where the role of the state has increased hugely over the last century. Indeed, this partly explains their rapid rate of relative economic decline. And yes, long-term empirical evidence on economic development supports the free-market perspective (Hong Kong is quite a good example of a (relatively) free economy succeeding). The fact that some heavily regulated semi-socialist economies such as Denmark and Holland may be a bit richer than another heavily regulated semi-socialist economy (i.e. the UK) tells us very little.
@ Richard Wellings
“The fact that some heavily regulated semi-socialist economies such as Denmark and Holland may be a bit richer than another heavily regulated semi-socialist economy (i.e. the UK) tells us very little.”
Typical of doctrinaire free marketeers. When the evidence contradicts what you believe, you just ignore it. What about Sweden, Germany, Norway? These are not just isolated examples.
“And yes, long-term empirical evidence on economic development supports the free-market perspective”.
I doubt it very much. The only empirical evidence I have seen about levels of social and economic development shows that it is precisely the economies like those in Scandinavia that consistently produce the best outcomes. Best schools in the world? The totally comprehensive, state run system in Finland. Happiest population? Denmark.
These are the countries that we should be looking to emulate, not some fictional neo-liberal paradise.
@ Dr Richard Wellings.
I presume you are an economics graduate. From which university? The IEA website says nothing about your background and I am curious to know.
The financial crisis was the direct result of state intervention in the economy for political, electoral reasons – even Eddie George explained that to the Treasury Select Committee in February 2007.
As the dot.com boom was deflating, both UK and US authorities deliberately maintained a loose money policy. For Gordon Brown in particular, it was essential that the first term of a Labour government that had largely only been able to be elected because of their gaining the confidence of the City should not come to an end in a recession – they would have been caned in the 2001 elections.
The result of this policy has been absolutely disastrous – the loose money disappeared into land speculation, meaning that countless thousands/millions of ordinary folk have had to pay over the odds for the basics of life – shelter, on the way up, and the same people are going to be fleeced to pay for the bailouts in the future.
Bankers work to state signals – bankers work hand in hand with the state – just as bankers and the state collaborated to create the disastrous system of central banking when Woodrow Wilson agreed to establish the Federal Reserve as a reward for the electoral support of Rockerfeller and Morgan in 1913. When the state keeps interest rates low, bankers know that is the signal to extend borrowing which keeps credit flowing into the economy in this case to ensure no recessionary fall-out from dot.com.
Busts are the necessary ends of a boom in malinvestments.
It is the state that creates the sort of privilege that keeps so much inequity in society. Liberals should work to eradicate that privilege, not entrench and increase it my allowing it to remain while tinkering with trying to address its dreadful consequences.
Richard – bravo for trying to introduce some rationality! But you see what you/we are up against!
Jock said:
“When the state keeps interest rates low, bankers know that is the signal to extend borrowing ”
So the credit squeeze that businesses and first-time buyers are complaining about, while the state-set interest rate is just 0.5%, must have been made up by the media? Or what have I missed here?
@Jock
“The financial crisis was the direct result of state intervention in the economy for political, electoral reasons”
Totally ahistorical and lacking in evidence. The history of this is that there have always been booms and busts and financial crises and that is the nature of the free market economy. To say that economic and financial crises, which have occurred throughout history, from 1720 the South Sea Bubble and even before, are due to the government is completely deluded.
Have you ever bothered reading Keynes? He had a thing or two to say about irrational behaviour in markets. A particular one I like is: “The market can stay irrational longer than you can stay solvent.” How true.
“Richard – bravo for trying to introduce some rationality! But you see what you/we are up against!”
Rationality? What kind of rationality would you be talking about? A rationality that deliberately makes up false and contorted explanations and ignores vast tracts of economic history?
The IEA has a much wider agenda here. It is behind an ideological drive to delegitimise state involvement in the economy and to promote a neo-liberal doctrine and interpretation of events. Unfortunately, like the Jehovah’s Witnesses or the Moonies, they do manage to snare some vulnerable individuals into their web.
Fortunately, there are enough people with a grasp on actual empirical economic evidence and history to act as an antidote to their teachings.
Vince Cable proposed nationalising Northern Rock before even Labour got round to doing it. And he proposes that it stay nationialised for many years until economic conditions ensure that it is sensible to restructure and privatise them.
He has also been critical of the “light-touch” regulation of the City that cause this market irresponsibility in the first place.
So where have the howls of indignation, the avalanch of emergency motions been from the libertarians to put this right been?
Hardly a word has been said.
Lib Dem libertarians are plentiful on the internet, but at party conference they are a tiny fringe.
Which is ironic really. The internet was invented by state run universities instead of the private sector. At least the state is good at something.
“More important than the proportion of regulation emanating from Brussels is the cost of the rules imposed on businesses and consumers (though once again it is problematic to measure this exactly).”
The assumption being that all these regulations and costs are inherently unjustifable and that in their absence, there would be no alternative regulations. That should be self-evidently absurd to most people.
Completely agree, Mouse.
So-called estimates of the “costs” of regulation by right wing organisations are usually skewed by including things like the costs of paying the minimum wage (which we were by the way assured would result in the loss of millions of jobs).
However, I have to agree that too much complicated legislation is a burden on business. The right balance has to be struck. e.g. maternity laws where the employee is not obliged to say whether she intends to come back to work or not are utterly impossible and a huge personnel nightmare for those running a business or a department, particularly a small one. But saying government legislation is the cause of all the UK economy’s problems is blatant nonsense.
In fact, if you look at reputable surveys of how good a place Britain is to do business (and also surveys of business owners themselves), over regulation is the least of our worries. What does come up is poor infrastructure, educational problems and financial instability. The free marketeers are pretty unconvincing when it comes to solutions to these problems.
Malcolm:
“So the credit squeeze that businesses and first-time buyers are complaining about, while the state-set interest rate is just 0.5%, must have been made up by the media? Or what have I missed here?”
You have missed John Redwood’s speech in the budget debate – it was easy to do, the bumbling Stuart Bell would have made many with more sense switch off. If you render it next to impossible to lend by demanding at the same time that they rebuild their balance sheets and so on, lending will not happen even if rates say they should be giving away money. As Redwood pointed out, notwithstanding printing unprecedented amounts of new money and having rates kept low (well – if you are giving money away through QE it would be difficult to charge others for lending it terribly much) the banks’ balance sheets – just the two that “we” substantially own – contracted by several times the volume of QE and by more than the size of the entire economy.
A gray-haired bloke with funny eyebrows can stand at the foot of Ludgate Hill and yel “Lend, damn you” all he likes, but if he has taken away the ability to do so even from banks which his cronies effectively control there ain’t much they’re going to be able to do.
Robert C:
“Totally ahistorical and lacking in evidence. The history of this is that there have always been booms and busts and financial crises and that is the nature of the free market economy. To say that economic and financial crises, which have occurred throughout history, from 1720 the South Sea Bubble and even before, are due to the government is completely deluded.”
If you are going to criticise what I said, do so, but don’t build a straw man first. That must be your Cambridge training!
I said all busts begin with booms. I don’t know what sort of economics they teach in the fens, but that much seems to be a simple statement of the business cycle. I said that *this boom* was created by specific, political and electorally oriented, government intervention to keep money flowing instead of allowing the malinvestments of the dot.com boom to be corrected.
I don’t need to be greatly schooled in economics to know that. The governor of the Bank of England at the time explained it to a group of people who should have then flagged it up but dropped the ball, the Treasury Select Committee. Of course it has been convenient that they dropped that particular ball, because they can carry on in ignorance simply blaming “unregulated” (sic!) financial markets instead of the true culprits who even now are getting ready to ask us to let them rule over us and the economy again. It’s sick!
And how on earth you think that the examples you gave are anything to do with “free markets” I do not know. They represent a corporatisation of the state – Fascism as it used to be called. They have about as much to do with “free markets” as properly understood by the originators of the term “laissez-faire” (who were of course radical left-wing liberals) as the building of Dreadnaughts had to do with maintaining “peace”.
I accept that modern academic economics may largely deal with some kind of post-Keynsian consensus but really, I’d have thought that such basic definitions as “free markets” and “laissez-faire” would at least be understood in their true, historical context.
And…
“So-called estimates of the “costs” of regulation by right wing organisations are usually skewed by including things like the costs of paying the minimum wage (which we were by the way assured would result in the loss of millions of jobs).”
That would include right wing organisations such as the Federation of Small Businesses then – who recently found that 83% of all SMEs in Oxfordshire put “keeping up with regulation” top in the list of problems impacting on their businesses?
Even if you can show that figures in things like the IEA’s latest publication “Tax and Red Tape” that suggest that the burden of business regulation costs, proportionately, sixteen times more for a micro-business as for a large enterprise are exaggerated, even if it costs only double, that is a significant disadvantage for small businesses against large businesses. Maybe you prefer big businesses. But that’s not what I would call an efficient “free market”.
For all those who seem to utterly misunderstand the libertarian and anarchist understanding of “free market” and think that it is something tried by Maggie and perhaps perpetuated since 1979 in all aspects of government business, you should have a read of this which explains roughly what I and libertarians since the early c19th have understood of as the “free-markets” to which we aspire. The difference could hardly be more stark.
@Richard Wellings Thanks for responding. I certainly accept that identifying what proportion of regulation in the UK comes from EU legislation is difficult, and it’s the definitional questions which are the issue. Your amendment to “a significant proportion” is right – it’s somewhere between “negligible” and “the overwhelming majority”!
On the EU/EP and sunset clauses I’m afraid I don’t have details readily available – if interested in pursuing this I would suggest you be in touch with Chris Huhne about this – though I’d imagine that you’d be more likely to get a reply after May 6 🙂
I do feel very strongly that the point about EU legislation being something we participate in creating, and can certainly affect (especially since Lisbon), and not just something imposed on us externally, is correct and important. The former is the almost-universal attitude of the UK political class (including within the Liberal Democrats) and it’s quite wrong – with lots of counter-examples – just try asking the press offices of any of the three major UK political groupings in the EP for examples. Does every British person always see the outcome they’d like on every piece of European legislation? Of course not – but the same is obviously true of UK-initiated legislation.
I fully agree with Simon Titley and Geoff Payne, among others:
“The financial crisis was a product of market fundamentalist ideology; classical liberalism reinvented by the Chicago School and Washington Consensus in the form of ‘neoliberalism’”
“Neoliberalism is not only a demonstrable failure in economic terms; it is also a moral failure because it is economistic.”
“the Liberal Democrats do not believe that liberalism is essentially about laissez-faire economics. There’s more to life than buying and selling.”
Despite what some have done with it -not least the Friedmanites and others- liberalism should NOT be used as an IDEOLOGY, but as a set of thoughts, principles and mechanisms, adaptable to realities, yet not at all costs: “When the facts change I change my mind,” said Keynes. This is also about being a liberal.
Not only the facts have changed, but capitalism has -and is not the SAME as it was.
That’s why progressive liberalism is the best answer today, and not conservative liberalism or new or old labour forms of socialism.
I tried to address the “Sins of Capitalism” in my (self-published) book, from which you can read excerpts on http://www.mikeconomics.net.
Coming to this party a bit late. Sorry.
Geoffrey Payne: “how irresponsible the private sector can be when you enage in “light-touch regulation” in the city of London”
Financial regulations run to over a million paragraphs of text. The FSA employs 4,000 regulators in addition to those working in the Bank of England and the Treasury. If that is light touch, I would like to know how you would define intrusive.
Simon Titley: “In the IEA’s reductionist universe, ‘freedom’ is defined in purely economic terms but there is more to life than buying and selling… The IEA’s economistic perspective has little or nothing to offer in this regard.”
Erm… It is the Institute of Economic Affairs. You might as well criticise the Institue of Physics for not looking beyond the physical sciences! The suggestion that “the IEA’s route …basically means reducing all one’s human bonds to economic relationships, and seeking fulfilment primarily through the acquisition of consumer goods…” is just nonsense. Indeed, many of the leading classical liberal economists explicitly contradicted this in their writings (incluidng Friedman, Mises and Rothbard).
Your comments on neo-liberalism are (depending on how it is defined) is correct. Neoliberalism shares with classical liberalism an opposition to governmental intervention at the level of individuals, prices and production, but defends government intervention in the supply of money. This invariably leads to credit bubbles, as we saw in the years to 2007, as governments too often keep interest rates too low so as to stimulate temporary, vote-winning booms.
Richard Wellings: “The growth of the state has continued…Thatcher …arguably only managed to postpone this trend for a few years.”
That’s one way of putting it. The proportion of GDP taken by government was roughly the same in 1989 as it was in 1979, unemployment was at a similar level and inflation was still at 10%. The myth (perpetuated by both conservatives and social democrats) that Thatcher went about shrinking the state is utter garbage. She simply shifted spending to different areas. Similarly, while she did denationalise some industries, what remained in the public sector was ruthlessly centralised. I have never understood the ideolising of Margaret Thatcher.
Okay. Time to go home. And I’ve only read the first half-dozen comments. I’ll bet this turned into a right royal row (as ever)!
A distant view from a foreigner: highy regulated economies like Greece and Italy have taken the hardest hit from the recession. Despite high taxation, Sweden, Finland and Denmark always run among the first ten places in the Index of Economic Freedom. There is a question of relative decline. When the state started to expand inexorably and the public sector reached 70% of the Swedish GNP, Sweden started to decline too and had the worst performance of OECD countries in the ’70s and ’80s. Then different governments /social democrat and conservative) slashed public spending by more than 15% of GNP and the economy grew up again. Sweden has always been in modern times a very rich country /like Switzerland): wealth has not been created by Social Democratic interventionism but rather it has been destroyed by it.
Obviously economic liberals recognize that markets are not perfect, liberals believe that men are nor perfect and that we all are prisoner of a veil of ignorance and learn by trial and error. The fact is that markets ain’t to be perfect to work better than governments.
I too agree, again from my distant peninsula, that Liberal Democrats are not free-marketeers and I believe it is a useless effort to convince their leadership to beome the equivalent of Thatcherite Tories: they will never be. Parties are subject to the laws of path dependance as anyone else.
If we are interested in being “free-marketeers” the last thing we would want to emulate would be “Thatcherite Tories”. All she did was start the move from the socialism we had been nearly broken by previously (oops – did someone say busts were caused by capitalism? – wrong again chaps!) to the fascism we have become. Her generation have done more to set back “free markets” than anyone else I’d suggest, by co-opting and corrupting the very name such that these statists do not even recognise a free-marketeer when one tries to explain it to them.
Free markets are the radical left of yesteryear and hopefully of tomorrow. Only true free-marketeers seem to understand what privilege and interest have done to out society at the hands of governments.
Oh, well yes. In Italy we have a saying “never try to be too pure because you”ll find someone more pure who will purge you (in Italian “purge” sounds like “epure” which explains the rhyme)”. Sure, Whigs were the Left and they were the free-marketeers of the time. Thatcherite Tories didn’t practice 100% (or even 90%) classic liberalism purism. But the meaning of the assertion is quite clear. Lib Dems have not been, are not and are very likely not to be free-market, small governement types. This might happen, according to the Laws of Politics only if there is a void to be filled up, that is only if the Tories go too much towards the dirigiste side. Even in this case, British Politics has a distinctive feature that is euroskepticism, so that a complete exchange of roles remains very difficult.
Yes, Cameron is already a mild Christian Democrat, not an economic libertarian, but still…
The role and size of the state is clearly a huge area of debate and one that we should be having right now. It is sad that a rational examination of this question is not more widespread at a time when the Conservatives are claiming to talk about ‘getting big government of people’s backs’. The question is: what exactly do they mean?
I think we can dismiss some of the more barmy ideas from the market anarchists. Without irony, they argue for privatised armies and police forces. I think they have tried that in Sicily (Mafia) and Afghanistan (warlords), with obvious consequences.
There seem to be a number of posters here who are confusing the Liberal Democrats with the 19th century Liberals, ignoring over a century of history and learning (ever heard of the Yellow Book anyone?). Basically, we agree with the idea of positive freedoms (i.e. giving people the resources to be able to do things and fulfil their human potential), not just negative freedoms.
What I would like to hear from these small state advocates is where their empirical evidence is that the policies they advocate result in better outcomes in terms of social development and human wellbeing. All the evidence that I have seen is that these are best served in societies where there is strong state intervention. What matters is how efficient that intervention is and how well it is directed.
@ Jock
As for the most immediate question of who is to blame for the credit crunch, I would say a very big proportion of the blame goes to the destabilising deregulatory activities of the Tories in the 1986 Building Societies Act, which allowed them to demutualise. Senior Tories have admitted it was a huge mistake. Without it, there almost certainly would not have been the Northern Rock debacle nor the aggressive expansion of consumer debt. A large number of the worst affected organisations were these ex building societies, which were allowed to go on the rampage. The interest rate was only one reason why there was such a boom in debt. Ignoring the supply side as you do is to distort the debate entirely. The fact is that the culture of our financial sector was changed dramatically, and one of the prime causes of that change was the deregulation of which the Tories were the greatest advocates.
alessandro:
We have a similar but conflicting one here – “don’t let the best be the enemy of the good” and it is quite appropriate here because I reckon it is probably exactly that mindset that ruled the Tory approach. They thought that “steps in the right direction” were going to be “better than nothing” and that allowed them to pick and choose which “steps” with the result that vested interests steered them toward those “steps” that would most benefit their interests. And, of course, those interests were crucial to the politicians as even if they wanted to take further steps in their ran scheme of things, to do so they had to be maintained in power. The result in political consciousness here is clear in this thread – most people appear to believe that “whatever Thatcher and Reagan did” in the name of “free markets”, “economic liberalism” and “laissez faire”, i.e. selected the “steps”, rather than the “whole ideology”, actually define what those terms now mean.
But for anyone who understands the much longer history of those terms that actually turns them completely on their head. The point is well illustrated by the Mutualist contemporary political-economist, Kevin Carson, when he says that:
…and more recently has led to an online spat between, largely, the soi-dissant “libertarian left” (market-anarchists, mutualists – amongst whom I count myself – etc) and the Austrians, Rothbardian anarcho-capitalists etc, over whether we should actually dump terms like “capitalism” since they are so badly tainted by the neo-liberal recent past (let’s not forget either that there is no love lost between such libertarians, left or right, and that “Keynsian monetarist” Milton Friedman) that it is impossible to convey what we mean with them without getting bogged down in arguments on semantics before we actually get to the main part of our arguments in favour of (our definition of) “capitalism”, say. And though the same arguments apply to these other labels, particularly “free market” (which, contrary to the rather snide remarks above, are not fetishised, but merely seen for what they are, tools to facilitate economic interaction between free individuals) it is much harder to think of a way of describing what we mean by “free markets” without using the words themselves – though one alternative I have seen recently is simply to make it “freed markets”.
I’d suggest that of all the “privatisations” and so on there was in fact only one that was truly in tune with purist “free market” theory – that being the mutualisation of the Tower Colliery. That should hardly be surprising I suppose, since it was the work of one of the few proper libertarians within the party, then or now, I’d suggest, John Redwood, before he was in parliament. He says he was keen to prove to Thatcher that there was another way than just going head to head over pit closures, and that workers’ co-ops could provide that (classically Rothbard’s suggestion for the proper divestment of state enterprises), but that Tower was the only one she would allow to be tried out.
Oh, I understood the assertion, but disagree with it. Or rather disagree that it is out of the question. The Tories, however, will always be the party of “interests”, however hard they may try to portray otherwise, or however many little groups spring up within their “broad church” that want to push the party toward economic liberalism. Indeed, we can now say that the “Labservatives” are together the party of “interests”. We, on the other hand, still have, faintly lingering, sometimes so faint as to be all but invisible, an anti-establishment heart, a belief that it is indeed “the system” that creates many inequities. The Liberal Party post war platform of Land Value Tax, Ownership for All and the like was closer to what “real” freed market advocates believe than was the post-79 neo-liberalism.
It is a case of rediscovering some of that. There are plenty of people within the party who say they are “sympathetic” to Land Value Tax, for sure. But the fact that it is not really party policy (except in replacement of business rates – though we’re yet to see whether that even makes it into the manifesto) shows that they do not really understand it, or what it represents. Same goes for monetary reform. It is through understanding the real effects of rent and interest, as important today if not more so than 150 years ago, and the enormous inequity that both exert to the huge advantage of the “haves” and the huge disadvantage of the “have nots”, and understanding the pivotal role the state itself plays in protecting that advantage, that we can discover that in fact, freeing markets, getting state interference out of the business of protecting some participants at the expense of others, is, and always was, aimed at destroying entrenched privilege and raising up the least well able to compete in those skewed markets.
And, to bring this back tenuously to the subject of the thread, we must also recognise that most state imposed regulation skews the market further in favour of the crony, privileged capitalism that is able to lobby to have it written to suit them, and against the very small businesses that we ought to want to succeed and be able to compete with these corporate behemoths on a level playing field. And that this is a self-feeding cycle. The more big capital is facilitated and its competition hampered, the more people will end up working for those behemoths, which are “inhuman” in scale and this tends to lead to calls for further regulation to protect the more anonymous employee which again will tend to skew the market further in the direction of big capital. Whereas of course, left to themselves, you are far more likely to find treated with more mutual respect in those small businesses where the boss has to face his employees every day and is not so isolated from them as to be able to take £90m a year in benefits whilst being able to say that his business is too big to be able to be in touch with the harsh realities of working for him.
And if that is not a liberal aspiration, I don’t know what is.
Now, Robert C:
We probably also need to distinguish here between the “state” and “government”. For example, Cameron’s “Big Society” idea may sound as if in the long run it offers the prospect of reducing the size and reach of “big government”, what it really appears to do is to inveigle millions of ordinary folk into the running of a “big state”. Indeed if you look at the (somehow) independent “Big Society Network” they are suggesting that will be a “co-operative” with fifteen million members by 2020. My blog is currently down while I move servers, but as I said, Cameron could just as well have said “everything within the state, nothing outside the state, nothing against the state” as “ask not what your country can do for you…” A fifteen million strong body, in other words something to which one in every three adults in the country belongs, and which exerts an influence on how every community in the land acts is not a “small state” venture. Operating properly, no doubt it is intended to be able to “nudge” every last one of us in whatever direction whoever really controls it (I refuse to believe that you can have a truly co-operative non-hierarchical venture of fifteen million members).
Patronising much, and clearly devoid of any understanding as to why or with what purported benefits such things are proposed. And to suggest that the two “examples” you give bear any resemblance to market-anarchist ideas is just nonsense. Apart from anything else, you will have to admit that these two sets of violent groups grew up within a “state” – so not even the precious state, with its supposed monopoly of violence, could prevent them – what use it that? But this is hardly the place to go into great detail on the notion of “privatised armies and police forces” except to say that a. anarchists would not have an “army” in the conventional sense at least, which implies the projection of power abroad, but “defensive forces” and there appears to be plenty of evidence of the effectiveness of non-state defence forces, and b. it is not so much “privatised” police forces, but “competing” – it is the monopolistic nature of “state law and enforcement” that is the problem.
But I am happy to debate this for as long as you like elsewhere. It was only on understanding how such a free market in law, protection and arbitration could maintain very effective “social order” without coercion, aggression that I was able to embrace fully a “non-state” position. Don’t we abhor monopoly? As liberals? Wouldn’t it *always* be better if we could find a way of dealing with issues *without* a monopoly? In this case, the monopoly of arbitration and enforcement we grant to the “state” is the very seed from which tyranny can grow. It is that monopoly that enables it to pick and choose what it is going to enforce and how, even to make new laws to enforce, and to charge for it, by force, through taxation. And need we remind ourselves that under our current so wonderful democratic system, that monopoly is effectively controlled by a group of people who only had the support of 22% of the population last time around.
You’re good with these straw men aren’t you. We don’t ignore a century of history. We may lament it. But I could just as well argue that everyone else is ignoring a hundred years of insights that if we embraced them fully again today would enable us to produce these so called “positive freedoms” much more effectively. Lloyd-George understood them, Asquith understood them. Lloyd-George was very explicit when he said, for example (I paraphrase as I can’t find the exact quote without my blog up and running), that it was all very well producing “housing of the working classes” acts and such supposedly redistributive or positive liberty type measures, but we will *never* have a lasting effect until we have eradicated the land monopoly.
And so it is with my argument against most of the “social liberal” tendency. They appear to have concluded, also historically, that we can achieve our agreeable aims of reducing inequity and increasing opportunity (mutually agreeable – I cannot stress this enough – social liberals seem to think we have fundamentally different aims) by allowing (though they don’t think of it in these terms) disparities of wealth to occur, and then try and find ever more imaginative ways of grabbing some of it to redistribute. We do not look at how it is so often the state, both its previous actions in previous eras and now, that enables these great disparities to occur in the first place.
Look, libertarians and anarchists believe quite fundamentally in property rights. But we always say “justly acquired” property. And we would largely say that most of the great “fortunes” even in the contemporary world are not “justly acquired”. But we argue that they are not “justly acquired” largely because of state intervention to favour one group’s accumulation over another’s. And what we want you to embrace is the notion that we cannot in reality see what needs to be done by way of promoting “positive liberties” until we have eradicated the many and usually state created barriers that prevent people becoming more financially independent.
Furthermore, redistribution can only go so far. And the time is coming, technologies emerging, that notwithstanding the efforts to get a global regime on things like tax havens (and we liberals *should* be worried about a global regime on anything – just as we should of the Tories’ apparent plans to have “tax bots” able to access our bank accounts and take what they like!), that such an approach as post-hoc redistribution will be unaffordable and unenforceable. So actually it is those whose heads are stuck in the socialist redistributive past who I think are longer term ignoring the better, more liberal, way of achieving our aims.
Again, you can’t read it at the moment with my blog down, but this is what I have been calling “rigorous liberalism”: that ha first instinct of a liberal when presented by a social problem ought to be not “how can we rig the outcome to get a better result?” but “did the state create the conditions in which this problem could happen?” and if the answer to the latter is yes, then the proper, liberal course should be to eradicate whatever it was the state did to create the problem. That reduces the state on the one hand, and even if it does not produce a perfect distribution of outcomes, it produces a more “just” distribution and *then* and only *then* should we start trying to persuade people that the state needs to take some of their more justly acquired property to relieve such and such a problem. In fact, even in this last case, if there is sufficient of an inequity left when the state has pulled out of whatever was causing it in the first place. as liberals, we should also try and seek non-state, non-coercive ways even of post-hoc “intervention” whenever possible.
First, I don’t think we do need to to show that it would produce “better outcomes” so much as that it would likely not be “worse”. And if you don’t understand why, then I don’t see how you can call yourself a liberal: it should be axiomatic to liberals that less state intervention for the same outcome is better than more state intervening, wherever possible; it should be axiomatic that we are in favour of equity but against privilege, most often caused by the state; and we surely realise that whatever “goods” it produces in one sphere of state action or another, the state solution also produces a lot of “bads” in so doing – war, enforcing its will by aggressive force, putting a few people, however appointed or elected, in control of many aspects of everyone else’s lives and so on.
If by “empirical evidence” you are obliquely referring to things like “The Spirit Level” which seems to have become an object of almost divine adulation for some hereabouts, I confess I have not read it. If they wanted to be persuasive to the widest audience they should have done what people like the IEA do and made it available online for free as well as in dead tree version. However, I have been right through their website and so have read some of their conclusions. And I have to say, that though it seems clear that the authors are in favour of an activist state in achieving equality, they do not in fact conclude that only an activist state can produce greater equality.
Indeed, from all I have said above, it should be clear that I believe that the current way of thinking (by all parties but most egregiously on the part of those who call themselves inheritors of the liberal tradition) actually creates and entrenches inequities in society and that radically excising many o the ways in which the state creates privilege and thence inequality would be a better approach.
And, incidentally, when you say “What matters is how efficient that intervention is” my anarchist word association mind sees “What matters is how *ruthless* that intervention is”.
…and finally to address this little bit:
Actually, if you really believe that the Building Societies Act was to blame for the crash, in a way you are agreeing with me. The real effect of that act was to admit a whole load of new players into the cosy arrangement of chosen favourite businesses who could do the state’s bidding of counterfeiting money via the fractional reserve system which was the fundamental difference between the Building Societies and the Banks – where they could source their funds. It was not, per se, a direct factor, anything nearly as much as state monetary policy as I said in my previous post. It simply created a larger market which, when the date did fire the starting gun by manipulating low interest rates, lending could increase faster, because there were more people doing it.
This should be apparent from the fact that formerly mutual institutions like Northern Rock and Bradford & Bingley (whose collapses, let’s face it, were miniscule compared with the overall crunch – another reason why the BSA was hardly decisive – it created some new minnows – with the exception of Halifax which had of course already been subsumed within a mainstream bank anyway) were not particularly irresponsible, overstretched lenders until much more recently. It was only after Adam Applegarth took over at NR that they adopted the less traditional, less secure, and wholly in appropriate for an institution of that size, practices that allowed the to stretch their lending to breaking point.
What is of more interest to me actually is the idea that long term interest rates have seen a marked change since the late seventies. Since then they have been consistently higher, and have often been above what can reasonably be expected as a return on capital. I can’t find it at the moment, but so a search for a recent essay by Ann Pettifor introducing an Islamic Finance conference in Edinburgh shortly about interest and usury. And don’t forget, when you read it, that what most libertarians advocate and have done since Proudhon, is a radical reformation of the money system because the monopolistic credit markets cause credit and investment to cost more for ordinary people, making them less able to take up entrepreneurial opportunities, and that the fractional reserve, state centred fiat money system has been responsible for catastrophic erosion of our wealth in the past hundred years to the detriment, most, of the poor who are generally the payers of interest not the receivers.
Phew – that was a marathon. But I did it because I think it is extremely important that people try to understand that for most of us who call ourselves libertarians, anarchists or economic liberals, it has got nothing to do with what so many of you call “neo-liberalism”, that that does not represent what most real libertarians have believed and said for 200 years, and that what we do propose is that by removing the state’s power to create privileged players in markets, something it has proven itself utterly incapable of doing (so why think now that it can?) markets can do a much better job of properly rewarding labour, enabling more people to access the capital to work for themselves, and to reduce the costs of living, and that before you think of state intervention with its associated enforcement, you must look at what the state can stop doing that might cause the problem in the first place, before you can see whether there will remain a problem to be solved by some form of “welfare”.
Robert C – just read Hayek’s Constitution of Liberty – and then hopefully you look at Hume, Burke, the entire oeuvre of Austrian economics, understand it, and then you’ll realise why Jock is basically correct and your views and the views of statists are entirely erroneous for both moral and practical reasons. You’ll note as you do so that the term you’re using ‘market-anarchists’ is entirely inapt! Well done Jock and Richard Wellings for trying, I salute you. Oh except Jock you’re not entirely correct about Dreadnoughts but we’ll let that one slide!
Whig:
…down the slipway of life no doubt!
I had to do a search to see what I had written about it, but I distinctly remember at the time fishing for an analogy and thinking that that one was not perhaps as appropriate as it sounded as I wrote it. I think I was trying to find an example of the state intervening in a way that was actually diametrically opposed to the “problem” they were hoping to solve – hence an “arms race” in order to maintain “peace” was supposed to be the idea.
@ Whig.
Having read widely as part of my degree in economics at Cambridge (where was your economics degree from, then?), I can tell you I was utterly unpersuaded by the arguments of the right.
Jock is not “basically correct” and I resent your casual assumption that just reading more of the same is going to convince me.
By the way, have you ever bothered reading Keynes? You should try. Then maybe the scales would fall from YOUR eyes.
@ Whig
“Just read Hayek’s Constitution of Liberty – and then hopefully you look at Hume, Burke, the entire oeuvre of Austrian economics, understand it, and then you’ll realise why Jock is basically correct and your views and the views of statists are entirely erroneous for both moral and practical reasons.”
I have just re-read this and I am stupefied by the pomposity of this statement. The idea that the business cycle is solely to do with the actions of the monetary authorities and nothing to do with the inherent instability of the capitalist system itself is completely confounded by reality and economic history.
The “entire oeuvre of Austrian economics” is just a masking ideology used by the deluded serfs of rich people to justify why their masters get to walk off with the swag and other people get robbed blind. “It’s OK, that’s how the market works. It’s natural,” is their refrain.
Why don’t you just go off to some site for rightwing ideologues and stop bothering the sane folk on this site?
Thanks Jock – and a sense of humour as well! The examples of the state interfering in one way, then creating a different problem unforeseen, then having to intervene again to ‘solve’ that problem are manifest in every single area of state action. The problems of arms races are more paradoxical – si vis pacem para bellum – so it’s not really a good analogy even, if you’ll permit me to say.
Robert C – oh I’m so sorry! I didn’t realise you had a degree in Economics from Cambridge. I’m terribly sorry, of course that makes you correct in all you say and everyone else utterly wrong. Where and how I was educated is of no relevance, and nor is your education, merely your arguments which are flimsy in the extreme. You might also consider the possibility of auto-didacticism and critical thinking, instead of accepting the words of the all mighty Lord Keynes whole and undigested. Amongst many other flaws, Keynes had no understanding of price theory – try Hazlitt’s demolition of him. Naturally I’ve read Keynes, and I’ve also read the critiques of Keynes, and I’ve read the neo-Keynesians, and the neo-Classicists and much else besides. Having read and considered all that I have been able to I have found the Austrian school to have by far the most convincing, in fact the only convicing economic and philosophical approach to these any other issues. My own view is that anyone else who has genuinely done so and reached a different conclusion must be either a bigot or stupid or have some vested interest in denying the evident fallacy of the whole Keynesian and neo-Classical approaches to economics. But then I’ve met too many people with all three of those ‘qualities’ to really be surprised!
Robert C:
Which was not what was being claimed and nor is it what Austrians claim. Merely that that business cycle, or rather the propensity for making malinvesttments that need to be unwound in the inevitably resulting bust is far greater if “cheap” money has been pumped into the system as well. But if you persist in using an almost meaningless phrase as “the capitalist system” in a way that simply doesn’t reflect what that means – all of human economic growth is effectively a “capitalist” system, since if you don’t build some capital you will always only ever be able to subsist and we would not have emerged from caves – it’s not terribly easy to argue cogently with you.
This academic willy waving is really quite unseemly. When I tried and failed to get into Oxford the best part of a quarter of a century ago (to do English) I for one would never have even considered reading PPE since both politics and economics were the sort of O and A levels that the bottom set took 🙂 And that’s not even starting down the road of suggesting that all the intellectuals of political economy, especially in a state funded higher education system are most interested in promoting the prevailing statist paradigm on the basis that he who pays the piper…
Hazlitt was just a journalist, not a trained economist, never studied it at university and clearly misunderstood what Keynes was trying to say. You clearly fall into a similar camp, never having had your ideas contested and not being able to evaluate opposing ideas on the same issue.
Try re-reading Keynes’s General Theory and you will understand that his precise point was that in adjusting prices downwards (and there was considerable price deflation in the 1930s), the ceteris paribus (all things remaining equal) assumption is broken. As a result, the market fails to clear because real buying power of consumers falls and depression occurs. Going on about “market rigidities” just shows how he failed to understand Keynes’s central idea and demonstrates what a weak intellect Hazlitt had.
Your idolatry of the market as perfect and denigration of all other forms of economic organisation that makes up your case (“go and live in North Korea”) is utterly deranged.
Most of the commenters here would be a perfect fit in a Marxist/Communist party. Class warfare, hatred of capitalism, utopianism and a disdain for boring, hard-working people- classic Marxism. There is no ‘Liberal’ in LibDem, judging by you lot.