Values and Anti-Values in Contemporary Economic Policymaking

Values and Anti-values in Contemporary Economic Policymaking Dimitris Psarrakis1 Executive Summary Applied economics is all about who takes what and how much out of the distribution mechanisms of markets and governments. In economic cycles, every turn has winners and losers. The very fact that economies face cyclical fluctuations proves that markets are not divine. Markets fail, and this failure can be manifested in many ways: oligopolies, monopolies, information asymmetries that lead to moral hazard, and externalities that have socially and environmentally costly outcomes. These economic inconsistencies create moral arguments about who pays what and how much. Thus economic morality arises from market failure. Market failure requires social corrections and government interventions. However, these corrections are not always welcome, particularly among economic actors who enjoy a privileged position in the top distribution of income. They are the advocates of the ‘protected value’ of the free market, not because they are liberals, but because they are allowed to exploit their unfair advantage in the current market structures. The same people will welcome aggressive, big-government intervention in the economy to bail them out and allow them to protect their advantages, especially if bailouts are made with taxpayers’ money. The ‘politics’ of economic policies is concentrated where the money is concentrated. This is not ‘free market’ economic governance. It is not ‘free’ because it allows the 1 The views and opinions expressed in this publication are those of the original author(s) and do not necessarily represent or reflect the views and opinions of the Dialogue of Civilizations Research Institute, its co-founders, or its staff members. 2 concentration of income and the exploitation of the unfair advantages of certain elites to endure, thus deepening social inequality and economic dependencies. It is also not ‘market’, because the solution is provided by strict, conservative fiscal measures of austerity and taxpayers’ contributions, and because decisions as to which industry or firm is to be saved is not determined by objective economic criteria, but is made behind closed doors. Entire countries are treated similarly. This is neither liberalism nor neoliberalism; this is the narrative of a reactionary, activist, aggressive, ‘old- school’ conservatism. Therefore this paper argues that it is important to revisit old narratives and re- establish a consensus about the true values of liberal thinking, which was designed to emancipate the people and not to lead them to serfdom, dependency, and poverty traps. The author suggests a return to what the Ordoliberals proposed: a society that combines freedom with responsibility. Policy Recommendations: The return to Ordoliberalism could be based on the following principles of good economic governance: deliberately designing optimal market structures; institutional capacity-building that enables markets to function efficiently; building human capital; taking a moderate view when considering re-distribution policies and addressing inequality issues; understanding of the limitations of ‘full employment’ policies; allowing monetary policy to dictate fiscal policy; re-regulating the financial sector in order to transform it from a lab of regulatory arbitrage back into a profit-and-loss industry. Keywords: moral anarchy; market failure; liberalism; freedom with responsibility; economic emancipation; reregulation 3 Our desires are limitless, whereas our means and resources are constrained. The field of social enquiry that studies the way people use their limited means so as to achieve as many of their desires as possible is called economics. Economics is not the science of money; it is the science of decision-making. In the context of economic decision-making, values are highly instrumental. They are abstract objects necessary for defining the degree of significance of an idea or priority.2 They are used as a vehicle for the exploration of certain economic actions and the evaluation of economic alternatives. Thus, the role of economic values is to deal with economic deontology and economic axiology. 1. Economic Morality Arises from Market Failure The cardinal moral argument of classical liberal economic theory derives from the Adam Smith’s metaphor of the ‘invisible hand’. The invisible hand is a moral argument because it links the egoistic self-interest of individuals with the well-being of society. By establishing this moral link, Smith pulled Western intellectual history out of the Hobbesian trap of homo homini lupus. With the ‘invention’ of classical economics, Smith led us to the ideal of homo homini homo (Gauthier, 1986: 1–20). The ideal market is the playground for the achievement of a human society. In an ideal market, if individuals’ endless endeavour to maximise their interest is the only way to benefit society as a whole, then the intervention of the sovereign will undermine this effort; thus it is immoral. The ideal market is ideally built upon the philosophical thought-experiment of ‘moral anarchy’ (ibid., 84). It is worth noting that the very concept of economic decision-making in the classical liberal studies of the late eighteenth and early nineteenth centuries goes 2 For a more thorough analysis on the research program of human values, see Rokeach, 2000. 4 hand-in-hand with morality. The term ‘economist’ was born much later. Adam Smith, David Ricardo, John Stuart Mill, and many others had a clear view of the link between wealth creation and the well-being of a society. Their books were not titled with the term ‘economics’ but rather ‘political economy’, and they were calling themselves not ‘economists’ but rather ‘moral theorists’ (see Ricardo, 1817; Malthus, 1820; Mill, 1848; Jevons, 1862). However, the field changed its orientation as early as 1838, when Antoine Agustin Cournot published his Researches on the Mathematical Principles of the Theory of Wealth. With this study, Cournot established a mathematical argument for the workings of the economy and claimed that market harmony exists not because of the ‘metaphysical power’ of the invisible hand, but because of the ‘mathematical generosity’ that allows the direction of egoistic self- interest towards collectively profitable outcomes. Thirty-six years later (1874), Leon Warlas set the formal framework of modern economics by deriving the concept of market equilibrium from the First Law of Thermodynamics (Warlas, 2003; for some unexplained reason, he and all his successors ignored the second law; see Kümmel, 2011), as if it were possible to apply physics to social interaction. In the view of this new tradition, the market can be described in the same elegant way as professors present mathematical models. Mathematics are perfect, so markets can be perfect. In practice, however, the ideal market does not exist. To be honest, it never existed in history. Markets are not natural. They should be structured. The perfectly rational homo œconomicus does not exist either. He should be educated to act as economically as possible. The market, in order to function, needs governments to define and enforce rules. The market is part of our civilisation. The main element that distinguishes the jungle from civilisation is a consensus on well-elaborated rules that work for everybody (Reich, 2016: 1–10). And whenever the imperfect market fails, we 5 need social corrections and government interventions. If the limit of moral anarchy is the limit of the ideal market, then economic morality arises from market failure. In the first century of the Industrial Revolution, it was apparent to everybody that capitalism and free markets create unprecedented wealth and standards of living, but they also create negative social outcomes on a massive scale. Marx and Engels prematurely hailed the death of capitalism, but we now know, both from the social research program that followed and from historical progress, that a free market economy is the worst system, except for all the other economic systems. Capitalism was the best possible alternative, but somebody had to save it from the capitalists.3 In 1936, John Maynard Keynes published his General Theory (Keynes, 1998). In this book, Keynes claimed that it is necessary to tame the power of capitalism and make it work for society. The best way of doing so is to expand the government’s economic responsibilities so as to correct the short-term imbalances caused by the business cycle. The government would have to intervene in the economy with short- and mid-term fiscal measures so as to boost spending, accelerate recovery, and ensure full employment. Keynes believed that, indeed, markets can correct themselves in the long run, but, as he pointed out, ‘in the long run we are all dead’. Thus, government has to intervene and correct the markets immediately.4 It is beyond the scope of this paper to critique Keynesian macroeconomic recipes. What government interventionists failed to understand is that, in times of economic disaster, the Keynesian description of ‘death’ does not come ‘in the long run’. When economic crisis hits, the long run is now. The Keynesian revolution 3 On the critique of capitalism and the need for a balanced view in the management of market economics and the global economy, see Keynes, 2009. 4 The most enlightening example of government intervention in the economy, based on the Keynesian tradition, can be found in the very important work of Minsky, 1986. For a similar type of Keynesian

Load more