Monday 24 March 2014

The great fantasy of defunct economics

"Practical men, who believe themselves to be quite exempt from any intellectual influences," said the great economist John Maynard Keynes, "are usually the slaves of some defunct economist."

He meant, of course, the English who are about as bone-headed when it comes to economics as it is possible to be.  And sometimes, I must admit, the blindest of the blind when it comes to economics can often be Keynes' fellow party members, the Liberals.

I've been wondering about this in parallel to another problem.  Because I believe it may also be an explanation for the peculiar parallel between the business of how to feed the planet, and the business of how to put roofs over our heads in the UK?

In both cases, the chattering classes and the BBC - often one and the same - believe the only possible answer worth discussing is to produce more food and build more homes.

The idea that there might be other forces at work than simple scarcity seems not to occur to them, and - if it does occur - it is very rapidly dismissed as a rather over-intellectual, over-complicated explanation.  The English are clearly, as Keynes saw, practical men one and all.

This is not to suggest that more houses and more food would have no impact on the situation.  Of course they would.

The question here is whether they would tackle the causes of the problem, whether they might solve looming shortages of food or homes, because they very definitely wouldn't.

In both cases, something else is going on.

In the case of food, the reason we appear not to have enough food in the right places is not that we don't produce enough.  It is because of the way we allow speculators on the global markets to push up the prices, and because we allow just three companies (DuPont, Syngenta and Monsanto) to control half the world's seeds - and just five companies to control 95 per cent of the seeds sold in the EU.

We also allow ourselves to be deluded by measuring systems that count only the predominant crop in any area in developing countries, deliberately blinding ourselves to the power of diverse local production.

The answer in this case is not to produce more on the failed model; it is to break up the oligopoly and to stop the speculative money flowing in.

In the case of homes, the reason we appear not to have enough houses in the right places is not that we don't build enough (though we don't).  It is because we sell the homes we do build to speculators in the Far East and we allow too much money to flood into the mortgage market - the classic recipe for inflation.

The answer in this case is not to build more on the failed model; it is to reduce the money flooding into the mortgage market and stop the speculative money flowing in.

Building more, producing more, is the practical man solution.  It isn't that it would have no effect on the basic problem, but it provides us with no long-term solution.

Anyone who has read my book Broke will know that I think ratcheting property prices down slowly in the UK is the way to save civilisation, so for goodness sake don't let me spell that out again.

In any case, behind both mistakes lies one big error.  It is the idea that global prices somehow represent one eternal, God-given standard of objective truth.

As if somehow the price of tulip bulbs at the height of the great Dutch tulip bubble represented something real and meaningful.

That was the terrible, destructive fantasy of the years of the Howe and Lawson chancellorship (far more influential than the hazy phantasm called 'Thatcherism').

I am as convinced about the critical importance of free and open markets, and the creative power of enterprise, as anyone else.  But if you really think that prices will always be real, then you are a fundamentalist, and fundamentalism and civilisation can't live happily side by side.

Subscribe to this blog on email; send me a message with the word subscribe to When you want to stop, you can email me the word unsubscribe.

No comments: