Saturday, 14 February 2009

Economic Theory For The Day


As there are a lot of theories being brought into play to explain what has been happening, it is time to develop some new, well, nearly new, thinking on issues of political economy. In the 1950’s the hot money academically was on Keynes ideas versus Marxism-Leninism, both of which gave me problems then as a Late Victorian Radical. Marxism-Leninism could not and it was found, did not work, and it all ended in a collection of ruthless oligarchs. Keynsian ideas sounded nice, and they were intellectually. The trouble was the real world and especially politicians. To operate his ideas you needed to make the right decisions; however politically difficult, and at the right time. You also needed reliable statistics, and as we know politicians in government hate the statistics they have to deal with to be reliable or to be unwelcome.

So I have developed my Flying Pig theory of economic history. The German name, Das Fliegen-Schwein is to make it sound more convincing academically and to the unlettered media. It suggests that is in each generation or historical period a government has it most cherished prestige, aggressive, or politically popular ideas that it sells hard, builds its policies and structures around, and they intend to last forever. There are far too many to list. In the UK we have had our share, notably the British Empire. In Europe Napoleon did his best but ran out of men. In Germany the Third Reich was supposed to be good for a thousand years. There was a Holy Roman Empire, and an Ottoman Empire, all gone. More recently there used to be The American Dream. In the Middle Ages if a war lord gave all his loot to the church then he went to heaven. In 1425 the Chinese Emperor cut off contact from the rest of the world in order for his power to be absolute for all time. That did not last too long either.

In financial terms the UK started off in 1945 a fixed exchange rate, based on the 1926 figures, in order to maintain its position as a world power (using American money). That failed almost within months, so the fixed rate went to a lower figure. This lasted until 1966 doing untold economic damage until we crashed out to a lower figure. That then held until the mid 1970’s when at last that Flying Pig was grounded, and in the 1980’s Mrs. Thatcher managed to persuade people that another Flying Pig, subsidising defunct 19th Century industries at the expense of everything else was no longer feasible. Unluckily the cure for this, associated with similar ideas in the United States of America, eventually launched a flock of Flying Pigs.

Amongst these flights of fancy in the UK, was the notion of trusting money merchants, who as non-tax paying “Non Doms” and High Net Worth Individuals with their wealth, albeit sent away to tax havens, most of which were linked to the UK to create a huge financial services sector that was the equivalent of taking in each others washing. This propped up a London property market which deformed the economy and created a national bubble, exported world wide. But the government were never in control of this, so it fell to ground in its own good time, and it will not be a soft landing. There was debt creation, churning the Gross Domestic Product figures higher and higher with government and personal debt. To keep the employment figures respectable public expenditure was vastly expanded beyond income. Another Flying Pig is the pension entitlements of public sector workers that can only be maintained if the other Flying Pigs remain airborne.

To return to the 1950’s there were other branches of economic theory on offer related to this or that. One was a disregarded attachment to classical economics that morphed in America to monetarism. There was the Austrian school, now showing a welcome return. Another was corporatism, a hangover from the early communitarian/temperance movements, and another was Welfare Economics. This was not as its name may suggest. It required a hard analysis of what exactly we were doing and what it was supposed to be for in real terms rather than money or other terms. It was a difficult area, and also relied less on mathematics than a real appreciation of what was happening on the ground. This seems now to be running in another form in the Eco movement. But the idea of trying to establish what living in the real world nvolved and how to stay stable was anathema to the politicians and the media.

If you want to try your hand at some proto Welfare Economics try Shopping Trolley analysis when idling your time away at the check-outs. How many of the goods in peoples trolleys do they actually ”need”, not want, not marketed, or the rest, but need in the strictest sense of the word? For example, some essential unpackaged foods, and not much else.

Another is the motorway test. If you want to increase economic growth simply persuade people to make lots of unnecessary journeys around motorways rather than saving, and build huge centres for them to visit that are full of useless tat for them to spend money that has been borrowed to buy it, so creating additional monetary flows in interest payments.

Such an idea would be absolutely crazy wouldn’t it? But it one of the Flying Pigs we have been worshipping for the last couple of decades, and now it is dead, the only solution the Government can think of is to try to resuscitate it, and try to catapult it airborne before the next election.

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