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Journal writing is your private record of what you knowEconomics without Mystery

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By John Stephen Veitch


Serving the Master

Economics pretends to be a hard science, but it's a corrupt practice, intended to sustain the power and choice of the ruling elite.  The heart of economics is politics, but economist have pretended that some pure science not political power was the key to economics. 

I don't say that lightly, it's a conclusion I come to reluctantly.  I came to this conclusion slowly and after many struggles.  I know what it's like to have a vague notion that something is wrong and not be able to say what it is.  I'm a student of economics and I've love to believe that the nice neat models we make up were relevant in the real world.  The economists free market model is used by people who have no regard for "freedom" and no interest in fair play or anyone else's law.  Their purpose is to make pillage and environmental rape easy.  Those who ignore the rules and choose to cheat get away with it time after time, often with full politcal support, sometimes with a political tut-tut, but seldom stopped.  Economic promises are used to pacify the losers, with promises of riches tomorrow.  Economics is a religion for people like me who don't believe in God.  Now after 40 years of being a believer, I no longer believe in standard economic ideas.  Maybe I do I have a problem.  Can I point to an understanding?  I see no solution, but understanding would be good. 

The Invisible Hand of the Free Market

Economists have this lovely idea that the real pressures of resources and demand and comparative advantage will encourage each participant in the economy to do something that helps.  But powerful forces are acting against the desired result.  Those with money and property have powerful reasons to be deeply involved in politics.  They use this involvement to create an economic climate that favours themselves and protects their property and their interests.  In every country this is the case.  The free market is imposed on labour and on small businesses and on farmers, while those with enough political muscle, get orders, guarantees and subsidies from the government.  On top of that there is favourable regulatory and legal treatment.  

Where is the evidence for what I'm saying?  In fact it's everywhere, but we are conditioned not to see it.  What we see seems "normal" and the news media don't usually highlight the activities I refer too.  The news media itself is an insider here.  Look at the political leaders in your country.  I'll bet peanuts to dollars that they are either in business themselves, or they come from land owning and business families.  In some countries family members are also in the military forces.  Look at the awarding of government contracts, the sale of public assets to private interests, and the resale of private assets back to the government.  Look at the legal protection afforded to businesses, and the marked reluctance to prosecute business managers for corporate crime.  What we see is an "old boys club" that protects it's own.  The stories change all the time, here are some links.

Corporate Watch Global Village or Pillage
Common Dreams Media Lens David Edwards
The Guardian Newspaper (UK) Fair Media Beat

The information is often available, but we find it hard to believe, we feel threatened by it, we don't want to "know" that institutions we rely on, depend on, might be faulty at the core.  What is clear to me at least, is that the Internet has changed my ability to know about how wide-spread the abuse is.  Spotlights on corruption have a cleansing effect.  Following on from that, things are probably getting better. 

Political Power Corrupts Markets
  -  The Pattern of Wealth Capture

The most obvious thing is that the middle class and the poor are taxed and monitored, but those with the most wealth and power and the greatest incomes are generally able to avoid taxes.  This avoidance of taxation is perfectly legal in most cases.  Effective rules to enforce taxation against the powerful are always avoided.  Offshore tax havens are the most obvious abuse. 

Frequently, the power to give credit and to restrain credit, and to set budgets is used to capture resources.  Here is the typical pattern.  Public money is used to develop a resource, dams, hospitals, schools or public housing for instance.  Then rules or financial controls are imposed that cripple the development.  Funding is run down, the publicity about this "public good" is entirely negative, the resource is not only run down, but forced down.  Then political pressure for "private sale" is generated.  The asset is sold, to "private enterprise" often at a heavily discounted price. 

The restrictions that may have existed for the public servants running this enterprise are now gone.  The property is now used to generate cash.  It may be broken up, re-organized and refinanced.  Somehow the cash is stripped out of it, and the future risk is transferred to other people.  There are many ways of doing that, but in principle the asset is undervalued at purchase.  After purchase the asset is revalued, possibly switching it into a different use.  Then it's on sold, preferably back to the government at a profit.  This pattern seen in every country is the use of local politics to capture public funds to benefit private pockets.  It's corruption, but those who do it plead that their motives are efficiency or economic development or some other fairy story. 

Excessive Focus on Money

You will appreciate the concept of moderation in all things as a rule for life.  But in economics we tell ourselves that maximization is the objective, more turnover, more consumption, more profits are the solution to economic problems.  Competition on a level playing field is seen to be desirable.  In all modern economies a large section of the business community want to see smaller government and less regulation, on the theory that taxes can be reduced still further. 

Businessmen like to forget that it takes strong and neutral government, good law and effective impartial legal system to create a level playing field.  Rather they seek to influence and manipulate the government, to tilt the playing field in their own favour.  We call it politics.  This is complicated by the need for the government to fund it's activities.  Governments become captured by the people who fund them.

Do you realize that we've had income tax for only 100 years.  The president of the United States attended a conference where he was amazed to hear that people known as accountants said they could accurately calculate someone's income.  (Be quite sure they can't, not then and not now.) That promise of the ability to measure income gave accountants an assured and protected place in our community and the government a new source of income. 

In the last 100 years focus on the money has transformed our society.  Governments used income tax to educate people and to provide social welfare.  Then they encouraged women into the work force as paid labour.  (Women had always worked.) The effect was to increase household incomes, to increase government revenue, and to increase house prices.  We are all working trying to maximize our income, but are we creating better lives for ourselves, and are we creating a better society?  I think not.  It's not that working for money is wrong, but when too many of us including the government are excessively focused on maximizing the cash flow we start to do things that are harmful and tell ourselves that there is no harm being done. 

What we've done is turn the time of voluntary workers into paid work time.  Economists think that's a huge benefit.  The economy grows, taxation increases, there is more "wealth" for everyone.  But is there?  Ignore the money for a moment because money is a red herring in this story.  The question is, what are the people doing that's productive.  Mother gave up caring for the home and family to work in a shop.  She has less time to make things at home so her costs go up.  Higher gross incomes increase borrowing power so house prices go up.  The children are more likely to get into trouble, and government costs go up.  At every turn the economist says "better, better, better".  But the economist is only counting the cash, he can't measure the social change.  His theory says that shop work (cash producing) is much more important than caring for children (non-cash producing).  Any person with knowledge of how families work knows that working in the shop when family members need care cannot be appropriate behaviour and it can't be good real economics either.  What work people do is critical, and Local Filethe payment of money does not always indicate the appropriate thing to do.  For most of us, Local Filethe main satisfaction of our lives comes from family life, and we give up too much of that for "work".

So the theory of economics is not what it pretends to be.  The theory breaks down because it assumes that everything people need can be purchased for cash.  Our society may have always been corrupt.  We know for instance what the Victorians said they did and how they really behaved, were two different things.  I'd like to think that we can see ourselves and our own behaviour more clearly today, that we are less corrupt, but I wonder.  Excessive focus on money has increased corruption, that seems clear.  My Scottish ancestors wouldn't even buy a raffle ticket.  Today the NZ government is openly encouraging gambling in many forms, claiming that it creates employment.  It creates taxable income for government.  It creates considerable community harm.  We've got our values mixed up I think.  The NZ Government has given approval to the idea of "love for sale" so we are about to take the next logical step and open shops for kids offering "mothers love for sale"? 

In New Zealand the government approved of casino gambling 12 years ago, then they approved several more casinos because "there must be a level playing field".  In recent years the evidence of community harm because of gambling has become widespread.  Public opposition to gambling is very strong.  The government promised to act, but when the legislation was finally passed some last minute amendments removed the restrictions that were in the original bill.  Asked why, the minister made all sorts of excuses blaming the smaller parties voting tactics, but several times he let the real reason slip.  Government is dependent on the taxation from the gambling dollar and they didn't want the funds flow to be reduced. 

So I conclude that our economic theory is faulty.  It's taken more than 20 years for me to see even vaguely what's wrong.  We have a theory of free markets and economic efficiency and it looks on the surface to be values free.  How blind we are.  (Maybe it's just me that's blind, I shouldn't without knowing, tar you with that brush.)  Economic theory preserves and protects the economic and political power of the already wealthy, it's designed to sustain the power of the ruling elite.  We need a theory designed to release the initiative and energy of the people who want to improve their homes and their communities.  I don't have a simple answer.  It's hard enough for me to even see the problem clearly.  But that's a start.  I teach myself in small steps.  If by writing here I can find a fellow traveller or two, we might be able to make better progress. 

John Stephen Veitch