I posted this as a Twitter thread this morning:
I was asked recently to explain the fundamental differences between the economics of the right, centre-ground and left of politics. That seemed to be an invitation to do a thread, so here goes……
The big difference between the political right, centre-ground and left in economic terms comes down to how they think markets work. They are either true believers, naive optimists or non-believers. That's all you really need to remember.
The true believers are on the right wing of politics. In their opinion the only reason people exist is to function within markets. Everything else in life is secondary as far as they are concerned.
They also think that markets send out signals to all who engage in them (by which they mean everyone) that tell people how much they are worth and what options they have with regard to spending and so what they can buy and sell.
The right-wing think that this market information is readily available, free, and always enough for anyone to make all the decisions that they need to make. They think that the market needs to be kept pure and uncluttered by interference so that it sends out the right data.
Just so there is no doubt as to what I mean by being ‘kept pure and uncluttered by interference', that means there should be minimal government action and minimal taxation, because both interfere with the supposed purity of the market and its data .
However, the most important thing about the right is how they think markets work. They believe that markets work instantly. So long as we all have the information that market pricing delivers because we have no other priorities in life we supposedly react to it instantly.
Right-wing economists do, in effect, believe that if the market says jump we all do, instantly. The result is that government need never intervene in any issue because if reaction was required it has already happened. And if there has been no reaction, then none was needed.
The trouble with this position is that it would appear to conflict with reality, almost always. But for the right-wing economist that does not mean their theory is wrong. Instead, it means they can say there has been too much impurity introduced into the market by the government.
So for the right-wing economist the answer to every failure is not that the market got anything wrong, or failed, but that the government intervened to prevent the market getting things right. So less regulation, less government and less tax is always their cure.
There is, of course, no evidence that this will work. No one knows how to get rid of regulation, government or taxation for the benefit of society - but this is to the great advantage of the right wing economist. They can keep promoting solutions that can never be proved to work.
They do that because although they must know that the condition required for their ideas that to work - which is no effective government - will never occur, demanding that that we must move in that direction suits their sponsors very well.
The resulting low tax, low government, light regulation agenda has let wealth flood upward for forty years supported by an economic theory so out of touch with reality that it is absurd that anyone still teaches it, and yet it dominates university economics agendas.
What of the middle ground economist - the naive optimists? These people are most commonly called neo-Keynesians, although I makeclear that Keynes would have no more recognised these people as followers of his ideas than Jesus might have recognised some Christians for following his.
These people accept that markets work. They have their roots in all the same stuff as the market fundamentalists. They even think that if only there was a long period of economic stability then markets would deliver an optimal outcome for society - equilibrium as they call it.
They are, however, realistic enough to recognise two problems. The first is that people aren't pure economic automatons; they've some other priorities in life. And second, what they realise is that people take time to react to data. They realise that change is not instantaneous.
So whilst deep down these economists hanker for the purity of the free-market models they were taught as students what they realise is that during the delay whilst people react to those free-market signals the government might have a role in helping the required transition along.
What you get as a result is the muddled thinking of most governments in the supposed neoliberal era. The politics these economists support promotes market solutions, but with a string of half-hearted measures added to the mix to soften the continual blows of market failure.
Those half-hearted measures are always offered subject to time limit. If a train company fails it is nationalised, but only temporarily. If wages are too low then support is provided, but not for long. The message is clear: help is there until we got used to our market fate.
The overwhelming message from these politicians is clear. They think that the market is the source of all economic wisdom. They believe it does deliver correct signals. They think they must heed them. Their only role is to assist people to adjust to those signals.
The outcome is all too obvious. An imperfect market, rigged against the interests of most people with all the votes (measured by wealth) held by a few is supported by governments intent on delivering what that rigged market wants. The resulting rise in inequality is inevitable.
Then there is the third group of economists. They are the non-believers in the market, or rather, in the signals that it supplies.
I stress that many of these economists will be entirely relaxed about there being markets and private enterprise. They will readily accept their role in the economy. What they don't believe is that markets deliver signals that indicate the real priorities of society.
Economists who do not believe in market signals do not think markets fail because of government interference. They do instead think markets fail because as those markets now are in practice they are inherently flawed.
These economists know that the votes within markets are distributed on the basis of income and wealth, and that as a result the interests of those in possession of them are overweighted when it comes to the signals that are sent.
Economists who do not believe in market signals also know that markets are not innocent. They can be abused to send incorrect information. Advertising invariably does that. So too do things like accounts - which deliberately suppress data on the impact of companies on society.
And they know that markets manufacture wants and then deny responsibility for the resulting debt oppression and climate change and straightforward waste, as well as the waste of human lives lived in pursuit of false dreams.
Worse, markets do not behave as both groups of market apologists suggest. Many (maybe most) are not now driven by companies driven by a desire to make profit from meeting customer need in competition with a host of rival suppliers, facing risk of failure if they don't succeed.
Instead large companies now actively suppress competition. Very often they supply products unavailable from anyone else. What large companies seek to do is to exploit brands to extract maximum income from people. This is rentier capitalism.
Rentier capitalism is not about profit. It's literally about rents. Some is that rent is from housing, which we are familiar with. But now we rent software, music and cars too. And those renting to us want to make sure we are hooked in, and can go nowhere else.
The aim is to defeat the signals markets supposedly send and which are suggested by market apologists to be the reason why we must heed what markets have to say. Rentier capitalism wants you to stay, even when the signal might say move. They are overruling the market signals.
What the market non-believers have realised is that much of the so-called market we now have is nothing like a market. That's because there is massive interference in it. But that interference does not come from the government. It comes from the players in the market.
That's why the non-believers in the supremacy of markets send out very different messages from both those groups who apologise for markets. This group says markets can't deliver the signals those other economists say we should rely on. They say we must look for something else.
These economists rarely say we should get rid of privately owned business. Almost no one does that now unless, that is, private ownership results in inefficiency, confusion and rent extraction, as it does in the case of natural monopolies like electricity, gas, water and rail.
Instead what they say is that because it is apparent that markets fail to deliver correct indications of priorities and do not, as a matter of fact as a result appropriately meet need or wants without significant consequences arising, they must be regulated.
We know this, of course. From health and safety, to protecting employee rights, to environmental regulation to proving proper accounts, regulation already (but insufficiently) addresses the market failure we know exists but which many economists refuse to acknowledge.
I should add that non-market believing economists do not think we could do away with this regulation if only we gave markets enough time to address the problems within them. The non-market believers know that market failure is hard-wired into modern markets. That's a fact.
What this means though is that these economists have to look elsewhere for their indicators of priority, because markets, market pricing and market driven income and wealth distributions do not deliver data on what is desirable for society as a whole.
This is why these economists want better democracy. It is why they promote better governance and accountability. It is why they favour consultation and proactive participation in it. It is why plurality in the media is their concern.
That's because what these non-market believers do is think that democracy, and the interests of all people, are what should drive policy within society. There is nothing more to this than the principle that drives our democracy, which is that each person counts, whoever they are.
In pursuit of this people-focussed concern what these non-believers in the supremacy of markets have done is to stand back and appraise the evidence.
As a result what they can see is that markets are not working because they are very obviously not delivering for everyone.
They also note that all the economics based on the assumption that markets work - whether from the right-wing or the neo-Keynesian centre-ground - assumes something that is not true, which is that left alone markets can put their own failure right. They very obviously can't.
So based on evidence, rather than myth, these economists suggest that governments must intervene in the economy if we are to have the best possible outcomes for all. That's because that is what the evidence suggests.
More than that, at present there is no evidence for a counter-argument. And yet the false claims of right-wing and centre-ground economists who are apologists for the market hold sway across much of the political spectrum.
No wonder people are disillusioned with politics. Politicians under the spell of an economic delusion have little appeal. Nor can their policies inspire confidence.
But right now due to the overwhelming majority of professional economists being market apologists we face this political bankruptcy daily.
We need not do that. But to break free we have to stop believing that markets tell us anything more useful than the actual fact that the rich are getting wealthier as a result of government policy. And then we need policy to tackle market failure.
Until then another way to look at the fundamental differences between economists is that most exist to increase inequality, and a few don't. And that's what has to change.
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Great stuff!
I was looking at a site, Canary or London Economic, last night praising a “barnstorming’ speech by a young activist calling for a ‘tax the rich’ policy to pay for more state spending. The accompanying write up suggested that matching revenue and expenditure, while borrowing only for investment, “could have been out of the Conservative manifesto”. That’s probably true but I think that was also in the Corbyn manifesto in 2019.
Almost every Labour website now is overwhelmed with anti Starmer posts by people who seem to prefer another term of Conservative government to a centre left one. Their policy seems to be the old fashioned socialism of government ownership or direction of the economy.
Labour’s fiscal rules might have looked responsible and reasonable in the 1980s. I am sure that is the impression he is trying to put across as he knows that going to the country with a ‘socialist’ program which enthuses many of the party, will fall flat with the rest of the electorate. Labour seem to be at risk of self destruction.
I have no idea where the Liberal Democrats stand on economic theory. I suspect market reformers, the middle group in your post.
The present needs some radical ideas as you say. But who is is speaking about them.
This is a vital debate and your insights are excellent.
However…..your classification perhaps requires adjustment.
Libertarians mainly inspired by Ludwig Mises (Hayek etc) actually do not accept the concept of markets as imagined by orthodox/conventional economists. They see society as comprising individuals taking action to remove discomfort from their lives. The key to this process is prices which allow individuals to make rational decisions. Prices emerge as the result of a natural spontaneous order. Libertarians therefore reject administrative intervention to eliminate price or undermine its role. In other words, state action in the economy is always bad.
This should not be seen as right-wing. It’s a form of radical classical liberalism that can be reconciled with left-wing anarchism, reactionary conservatism and almost everything in between.
This set of ideas can only be addressed by reference to its fundamental principles. For Mises, this is the assertion (synthetic, a priori) that every individual is driven by the ceaseless operation of his/her ego. The problem is that the ego, which is the foundation of libertarianism, is a fiction invented by Sigmund Freud (a rough contemporary of both Mises and Hayek and, like them, a student/teacher at the University of Vienna before 1914). Libertarianism can be right-wing and left-wing. But it’s always junk.
Almost all professional economists accept the argument published in 1890 (note the coincidence with Mises who was born in Galicia in 1881) by Cambridge University’s first economics professor Alfred Marshall that an ideal equilibrium — that can logically distilled but is imaginary — can be delivered by the free interaction of supply and demand (note the key factor is S & D, not price). Supply and demand constitute markets in all instances.
Subsequent economists influenced by Marshall (including Keynes who was taught by him) built on the concept of the market to develop theories to explain why they sometimes/often didn’t work. This was sensible, since the real world before and after the First World War didn’t look stable or ideal.
Marshall’s theory of price setting through the free interaction of supply and demand in markets was critical for the development in the UK of Fabianism (Fabian Society was founded in 1884).
It provided the intellectual foundations for government reform measures to make “markets” work more efficiently. Most original Fabians were Liberals who found Gladstonian Liberalism’s focus on sound money and reluctance to intervene inadequate to address the vast poverty in British cities (quantified in London by Charles Booth’s poverty 1888-90 maps).
Fabianism was also — and arguably more importantly — an intellectual counter to those that argued the economic system would inevitably deliver poverty, inequality and exploitation. These included those influenced by Malthus, reactionary Liberals and (critically) Marx (first volume of Capital was translated into English and published in 1887). Fabianism was at least partly an anti-revolutionary movement.
Economists trained in Marshallian/neoclassical principles include those who believe market failure is extensive and therefore requires large-scale government intervention (including Corbyn and McDonnell) as well as others who believe that market failure is relatively uncommon and where it does exist can be addressed through market-friendly regulation (most mainstream post-1945 Conservative thinkers).
Those who accept the concept of the market can be radical Keynesians. They can also be highly conservative. But from Mises/Libertarians perspective, they are all essentially socialist since they champion state power.
There is a third category. These are people who follow the Mises/radical classical line of thinking that there is no logical validity to the neoclassical/neoliberal/orthodox economics concept of the market. But they argue that there is overwhelming empirical evidence that all value in human society (at work, at home, in the community) is the product of constructive social interaction.
This outlook is simultaneously conservative (since it always defers to the eternal human compulsion freely to seek social engagement) and radical (the physical and social infrastructure should be constantly renewed to meet human need).
I’ve attempted to set this out in my book End of the Market which is in an reform here http://edmundosullivan.com/economics2030/about/
Arguing that the market not only doesn’t work but actually doesn’t exist is the equivalent of telling the Pope in the 17th century that the earth rotated around the sun, not the other way round.
For that, Galileo was convicted of heresy, forced to recant and effectively imprisoned for the rest of his life.
That is where we are now. Critics of the theory of the market and the market-clearing price — like you — are being scorned and silenced.
But the time will come when the truth will be universally acknowledged.
But not yet. And not soon.
Best wishes
You are over thinking a piece intended to address what is happening in the mainstream narrative
I’ve been charged in the past with overwriting.
But never with overthinking!
The “Left” has been as obsessed with the market as the ‘Right”
Neoclassical economics was originally developed by the reformist British Left.
Neoliberalism owed as much to post-Stalinist reforms in E Europe introduced by ruling Communist Parties and subsequently in W Europe by Eurocommunists as it did to Margaret Thatcher.
Market-based theories are illogical and invalid regardless whether it’s Rachel Reeves or John McDonnell who voices them.
Translated into policies they must as a consequence ultimately and inevitably fail, clearing the way for a real Right-Wing reaction which will be (and already is) xenophobic, anti-democratic and probably authoritarian.
The “Left” needs a radical rethink and the contemporary equivalent of Galileo.
I agree your conclusion
Thanks
Well, I’ll say it: there is no such thing as a market as an abstract entity, separate from the living tapestry of men and women trying to buy and sell things under mutually agreed rules.
Trying to explain the real world using the toy models of classical or neoclassical economics with their ridiculous oversimplifications – and without including that ubiquitous and mercurial element, people – is like trying to explain how electronics work without quantum mechanics. You get so far and then it all breaks down.
All models are wrong, but some are useful. And some aren’t.
🙂
I think most people would be familiar with the market. The market is a area in the centre of town where people meet to buy and sell goods on a particular day. Where customers can browser every stall checking the prices and quality of every goods at every stall before making a decision on what goods to buy. The market is in the middle of town so that all members of town can travel freely and easily to the market. Any member of the town can decide if he wants to be a buy or seller.
The town and therefore the market is surrounded by a wall that is guarded. People can enter the town on market day but are checked at the gate to make sure they are not bringing in forbidden items. That they are not planning to steel, defraud either the buys or sellers. So once you are in the market, you know that the people you are dealing with are being regulated. Also people going in and out might have to pay a fee to pay for the town services, that without them would mean no market.
Most economists would agree that these are the principles of a market. The term market is an allegory. It comes with a bunch of historical assumptions.
What people have a hard time understanding is that a market economy based on a 18th century town, no longer fits what happens between buyers and sellers of today.
Useful. One for the wiki, perhaps?
I should do that….
This comment is somewhat beside the point, but I hope in the midst of supply problems (and its psychological implications – no small matter); its importance will not be lost, as the petrol queues lengthen (and the neoliberal media strain to ignore the deep irony of the predicament).
I wish simply to present two facts (drawn from quantitative trends by Statista or RAC):
Number of UK vehicles: 27.2m (2000) to 38.6m (2021). +42%.
Number of UK petrol stations: 13.1k (2000) to 8.4k (2020). – 36%.
What does this trend of sharply reduced available energy stocks held on the roadside, when the number of vehicles has risen sharply? It means that neoliberal convention has stripped ‘redundancy’ (the capacity to handle crises) out of supply networks in order not to tie down capital on stocks that are considered excessive when there is an (illusory) equilibrium ‘steady state’. Crises, however represent the nature of reality; need I recite recent examples?.
Neoliberalism is an abstract ideology; it does not account for reality. It expects the State to ‘bail out’ neoliberalism – for nothing (‘free markets’ actually means ‘free of market risk’ to the market participant), whenever the need arises to save neoliberalism – time after time, after time: at huge cost to everyone.
I like the idea that the response to minister’s pleas not to panic buy should be: “but there is no such thing as panic buying. Consumers are simply making a rational decision based on the signals presented to them by the market”.
🙂
Of course. It is akin to the tragedy of the commons. Each person receiving information that there are some local shortages due to problems of distribution, and concerned about their own need and the risk that supply may not be sufficient, acting rationally in their self interest to protect themselves, resulting in shortages for everyone. This is what happens when the invisible hand over-reacts.
It took several weeks for the rush on pasta and toilet rolls etc. to work through the system last March, and I have every expectation that we will be facing queues at the garages for some time to come. It does no good to say there is plenty of fuel stockpiled at the refineries if the distribution system can’t keep up with demand. Just as grain in the granary does not keep people from starving, if we can’t get the grain to the mills, then the flour to the bakers, and distribute the bread to the hungry.
Agreed
The abstract nature of money lets people believe things about the economy that are simply not true.
Labor cannot be stored yet people believe that money is a store of value because that is how money behaves.
What people do is work more today, so they have to work less tomorrow. They save the surplus in monetary terms thinking that it also stores their unconsumed labor. This thinking only worked by accident with young populations whose children have to consume without producing themselves. Any surplus was simply used to give birth to children who then supply fresh new labor in the future as if it had been stored.
Now that people have less children, the need for work has lessened as well but it also means there will be less people around to take care of the old. There are now lots of people who work more than they demand work themselves. If these people simply worked less, then there would be earning opportunities for those who actually need them the most.
Meanwhile the prevailing argument, “trickle down” economics, is about the extreme opposite of this. If one person did “all” the work then others would have to work less while completely ignoring that it also means that employment and income concentrates on this person. These wealthy individuals then get to distribute their money through philanthropy, in other words, trickle down refers to the final act of charity before the wealthy person is dead. No wonder people want a UBI and wealth redistribution. They can’t wait that long! They need food on the table today.
After a lot of thinking I am not sure what economics is. Maybe it’s the science of justifying wealth and inequality. Market obsession appears to be little more than just an appeal to nature. Markets are just tools like hammers. Economists are worshiping hammers without even talking what kind of hammer they want, instead, they keep insisting that there is an ideal and natural hammer that can be crafted by … simply doing nothing? If such a hammer truly existed then it would take a skilled craftsman to make it.
Do right wing economists actually believe all that free market bull?
I think not. I think that they know exactly how it all works but the myth of the “market” gives them a smokescreen whilst they cash in big time
There are three sorts of economist.
Those that believe in slavery (imperialism, the dominance of large corporate monopolies) and authority.
Those that fear and respect the slaves , many having been sons and daughters of slaves. They know enough to know that the structures of authority we live within are man made and subject to change and reform.
And those that know that economics is a sham that seeks to cast a bamboozling shadow over our lives. Some become anarchists , others seek refuge in anticipation of storms to come.
This is not to deny the animal spirits of greed and acquisitiveness and the genuine satisfaction from creativity and labour, but these are all false gods.
An oversimplified life is not going to deliver in the end.
Hmmmm….I think there is more to it than that
Richard, your description of right-wing economists sounds similar to how I imagine you would describe neoliberal economists. What are the differences between how you would describe right-wing economists and neoliberal economists?
Neoliberalism has only been around since the 1970s and there were right-wing economists before then so neoliberalism must have added to or changed right-wing economics in some way. So either modern right-wing and neoliberal economists, while overlapping, have key differences, or they are essentially the same, which must mean the dividing line is between right-wing economists before and after neoliberalism was formed.
So if you think modern right-wing economists and neoliberal economists have some key differences then in what ways do you think they are different, and if you think they are essentially the same then what do you see as the difference between right-wing economists pre- and post- 1970s neoliberalism?
Fundamentally I am treating them as one
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