When it comes down to it this blog is all about political economy.
Political economy is related to economics, of course, but it is a much more useful field of study for two fundamental reasons. One is that it adds money into the normal field of study when most theoretical macroeconomics and quite a lot of microeconomics simply ignores it. Second, it does that because it realises that money is a symbol of power, and political economy is all about how power influences the allocation of resources in society, which is a subject that a great deal of economics (and almost all that which undergraduates will remember) ignores that vital issue.
Why mention this today? Because the RMT is leading strike action this week and sometime soon I suspect many more in the state sector, from teachers, to junior doctors, will join them in doing so.
The case of those RMT members who are striking is a relatively simple one. Their claim is that for over a decade they have systematically had their pay and conditions of employment eroded and they have had enough.
Market economists and Tory politicians would say they should just go and get another job in that case. But that's just naive because what it assumes is that there is no cost to transitioning between jobs for either employees or employers when that is very obviously not the case. As a result, what they also do is massively undervalue human capital. Much of Grant Shapps' rhetoric around this issue certainly suggests that he has no awareness at all of the importance of people within the railway industry.
However, for me there is a bigger issue at play here. Those on strike have effectively been public sector employees for a long time, despite privatisation. The fact that they are under-valued is not by chance. It is by design. And the design used was austerity, which among other things drive down rail subsidies from the government, which is what in turn forced down rail worker wages.
The bigger issue in that case is whether or not society in the UK now wishes to change the balance of reward within our economy. We already know that we face the most fundamental economic changes because of climate change. This will challenge the allocation of many rewards within society, but that will also be happening within the context of a society that for decades has been moved from productive added value work to unproductive speculation, and from meeting need (housing, education, health and social care, transport, etc.) into the pointless and economically reckless production of artificial wants that only advertising can stimulate demand for (excess consumption, ever more complicated mobile phones and cars, most of whom features we never use but which we own to project our own perception of our status in society, etc) that in turn trash the environment.
The challenge from public sector workers is not to be condemned, as Grant Shapps says Labour should do. Instead, it should be treated as a sign that society has its values wrong and that we need to reappraise what is important.
We are a long way from having that debate. I could add it to the list of things Labour should be talking about.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Do you mean “politics” instead of “money” in the sentence quoted below? If not, how do macro& microeconomics ignore money?
“One is that it adds money into the normal field of study when most theoretical macroeconomics and quite a lot of microeconomics simply ignores it.”
I really do mean they ignore money
Read Steve Keen
Economics has long ignored ‘money’ altogether in economic theory. Really. Read Samuelson’s text book, that taught generations of economists; that is merely an illustration of the problem.
Now come on John – let’s have the full reference please to Samuelson and then we can all get up to speed can’t we?
The whole of macro in it, near as damn it, and everything about general equilibrium theory, which is total BS
Paul A Samuelson, “Economics”. There have been perhaps ten editions.
I see, so John is exhorting us to read these books to get a grasp of the faulty thinking behind them and out current woes.
Understood.
First published in 1948 and my copy is the 1976 International Student Edition. It was translated into Russian and used as the 1st Year economics text book in the Soviet Union, so they could ‘learn about the enemy’. The chapters start with little quotes. Chapter 10 has this classic: “The time has come, the Walrus said, to talk of many things: Of shoes – and ships – and sealing wax – of cabbages – and kings”. In the Russian edition it had Walras* and a footnote: Walras, L, bourgeois French Economist 1834 – 1910. I believe Samuelson became a millionaire from the royalties. At the University of Cape Town it was 600 copies every year since we had quite a large 1st year. Cost me £8 for mine as the price sticker is still in it, which was a lot in 1979. I can guarantee it is the only copy to have been autographed by Richard, Warren Mosler and Bill Mitchell. 🙂
🙂
I still have the 1970, 8th edition; studied it while doing an MBA; I never felt it made sense, and I recall walking out of one class, when I felt the economist defending one of its themes made no sense at all (I confess I do not remember which issue snapped my tolerance; I also confess at the time my opinion was a minority one, and I wasn’t sure I could be right because it was treated as gospel, and I knew precisely nothing about Minsky, or the tradition he represented: as they say in the East coast of Scotland – ‘ye ken noo’).
I was taught from Richard Lipsey.
The same twaddle
I was in despair after a term presuming university would address questions my A level did not. Instead we went backwards
An acquaintance of mine who teaches economics describes money as “a veil over barter”. What I take this to mean is that fundamentally we have a barter economy and money is simply a convenience that allows the barter to proceed more smoothly. On this reading it would be a mistake to study the veil as it obscures your view of the barter economy that lies under it.
He’s been retired for over 20 years but still teaches some economics courses for U3A.
Wrong
We do not have a barter economy or anything close to it
Economics is simply wrong
As I said, read Samuelson. Economics has been peddling this guff for generations. Economists do not study money, they try to explain it away so they can talk about the subject they invented instead because ‘money’ was too esoteric and difficult to understand; a subject which they have invented … um, out of thin air. Unfortunately, unlike money the ideas of economists havr largely remained in the realms of ‘thin air’…… a quasi-religion: hence they have no mechanism to make reliable predictions, or establish genuine, robust tests of theory …. so their “science” is basically useless to anyone but an academic economist looking for tenure.
Agreed
An argument I keep hearing, not least from the governor of the bank of England last February, is that if we give in to wage increases it will stoke inflation, is there any truth in this? A Tory voter used it as a defence in a discussion I had yesterday and I was flummoxed on how to adequately respond.
When pay increases are running way behind inflation they can’t be fuelling it. That’s just not possible. It is only when wages are running ahead of price increases over time that this is likely to be true. It really is that straightforward
There was a useful insight into the cynical, politicised folly in which we aengulfed, on BBC Radio Scotland News today. An owner of a NEE Scotland company with several hospitaity businesses was interviewed about the RMT rail strike. He pointed out the damaging effect on his business, and the loss of bookings; but went on to pillory the failings of the Scottish Government. The interviewer gently pointed out that the RMT stike had nothing to do with the Scottish Government, which has no role in the solution (reserved matter, UK Government). The interviewee ignored the facts, waited for the questioner to move on, before seizing the opportunity in a closing peroration to attack the Scottish Government again. That is the standard of economic debate to which we are reduced. Unionism in Scotland is spolling for a fight, about almost anything.
I may add that the same busness owner rehearsed yet again the hoary old tale of the urgent need “business” has for “certainty” in order to function. Of course I agree with him. The problem is, that it is indeed a fact, endlessly repeated because it is what business owners both see and earnestly believe.
The problem is that the need for, and endless call by the business community for “certainty” merely reminds us that most markets are not “certain,; they are not robust, and they lack real substantive resilience. They cannot survive long without a specially prepared environment. So-called ‘free markets’ are fragile flowers; like orchids, requiring high protection from the real conditions of the world, and endless support of their special protected environment from the rough winds of the real world (most of the required support supplied unseen, un-noticed by the public and unremarked by the owners – leaving an impression of market robustness they do not, and cannot possess) save within the oscillation around narrow parameters the economists risibly refer to as ‘equilibrium’. For ‘equilibrium’, read ‘instability’. Read Minsky, or just look up, and observe the real, globalisedl world.
Much to agree with!
Mr Warren!
Full references please!
Which Minsky?
Thank you!
Financial Instability Hypothesis! Go from there. I really didn’t think you would need a reference, it was his central thesis!
Hyman Minsky and his Financial Instability Hypothesis. Argues that contrary to equilibrium theory, systems are intrinsically unstable. Which having seen the City close up is intuitively obvious. And is why government keeps having to intervene and bail out when markets fail as they regularly do.
Not popular with most economists!
Thank you John.
It has taken me decades to come to the same conclusions about “Free Markets” but I have never managed to state it as clearly, succinctly or persuasively as you in your last paragraph.
I will make a note.
You describe payments to the railways as subsidy, BUT what about roads?
Because its a closed system we have a pretty good idea what the rail network costs but as a for example, last time I looked an accidental death was estimated to cost £1 million, and with about 1300 a year on the roads thats a lot of money but costs fall on the Police, Fire, Health, Courts, Prisons, Social security etc not against a single operation.
Perhaps some of your accounting skills might give us an insight into how much public money gets spent on road transport as well and how good a deal we get for it.
It would also help answer the question of what the railway workforce is worth
I think the comparison between road and rail (and other forms of public transport) is really interesting. We ‘invest’ in our road network, but buses/trains receive ‘subsidies’. Our road network is free at the point of use, whereas buses/trains have really complicated price structures.
As a though experiment, I wonder what the consequences of operating our road network under ‘free market’ principles would be? Toll roads everywhere. Advance booking before you travel by car. Driving at 3am to save a bit of money. Unprofitable roads with crater-sized potholes.
Yes…
But surely ensuring that you are able to earn a wage that does not rely on benefit top ups and keeps pace with inflation is at the very heart of the levelling up agenda?
An extensive toll road network was developed in Britain during the early 19th century by private companies through private acts of Parliament privatising free public highways previously maintained by parishes and funded by the rates. Competition from the railways bankrupted the toll road companies and the road network was eventually nationalised. With the advent of the motor vehicle the nationalised road network in the 20th century soon out competed the railways and tramways which became uneconomic and the railways had to be nationalised in 1948. In the interest of the construction industry, oil companies and motor manufacturers sucessive governments under invested in the railways which were hopelessly antiquated by the end of the century. Road use pricing could be justified on environmental grounds incentivising rail use but investment in the railway and tramway infrastructure to cope with the transferred traffic would be essential. It’s all a story of how governments choose to deploy public investment in competing public goods for private benefit instead of optimising investment in the interests of the public.
Agreed
“it realises that money is a symbol of power, and political economy is all about how power influences the allocation of resources in society” – another crucial insight from you. I knew this but had never phrased it so well. This is a sentence to steal !
Thanks
Now I have read the whole article – it’s a brilliant summary of our current condition.
Thank you to John & Robin.
All I would add is that is wise on this blog to encourage people to read if we are trying to get them to think differently and not swallow the crap that is out there wholesale.
It makes the challenge to orthodoxy more convincing, grounded and more confident if we can quote from what we read.
That’s all.
We have all arrived here by some route or other.
As a place claiming and extolling the virtues of heterodoxy that can be acknowledged.
My route is from being made redundant more than once in my early twenties. And just watching things go down the toilet from Nottingham, Sheffield, Chesterfield, Derby, Doncaster, Manchester, Birmingham and eventually, London.
Reading a speech given to Cardiff Law School by John Kenneth Galbraith in the 1990’s just after I was made redundant the second time which I got free from the Guardian.
Then before Uni, reading ‘The State We’re In’ by Will Hutton.
Reading the economics text book by Begg, Dormund and Fischer we were issued with in my housing degree and thinking ‘Ermm………..I don’t think so’.
Then discovering a book called ‘Economics: An Anti-text’ edited Francis Green and Peter Nore (1977) in the same university library.
But the big one for me was Steve Keen’s ‘Debunking Economics’: The Naked Emperor Dethroned’ (Zed Books, 2011).
That book was the icing on the cake for me. That’s how I got here anyway.
And Steve is still at it