The way forward for progressives is to argue against the self-serving neoliberal ideology of the fatcat and for prudent and sensible management of the markets, writes Dr Geoff Davies.
Opposition leader Bill Shorten says Labor needs new policies.
He’s not wrong there.
For three decades, while Labor has focussed on being merely a slightly paler imitation of the Coalition, its membership has plummeted, inequality has risen, it has repeatedly capitulated to wealthy bullies and, it seems, there is no policy too degrading for it to adopt as it races the Coalition into the depths of fear and negativity.
Labor ought to be whipping the unpopular rabble of incompetents, extremists and the wilfully ignorant that is the Abbott Government. To do so, it needs to remember why it was founded.
It was founded to stand up for ordinary people. It cannot recover its purpose unless and until it recognises its strategic error, which was to swallow the neoliberal mantra of free-market fundamentalism.
Not only does the neoliberal ideology promote division, inequality, and social and environmental degradation, it is based on a nonsense theory and it has led to the biggest economic malfunction since the Great Depression.
The core idea of neoliberalism is that free markets are best. This idea has, by now, become the ocean in which we swim and therefore don’t even see. A whole generation has grown up enveloped by this memetic ocean. Our oblivion concedes, by default, Margaret Thatcher’s infamous TINA proclamation: There Is No Alternative.
Well hogwash and horse feathers!
TAWAA: there always was an alternative. There still is and still can be.
No, I don’t mean socialism. I mean simply that free markets, unfettered markets, markets left to themselves, are not automatically best.
Markets are like wild horses: powerful, but there is no reason to expect them to deliver a desirable or beneficial result, or to deliver it efficiently.
Markets can do good things, but they are just as likely to do bad things, especially if we are naive enough to allow rich and powerful people to dominate and manipulate them. It is up to us to manage markets so they deliver what we want.
It is up to us to decide what we want.
Neoliberalism did not triumph because it was founded on a compelling truth. It was, in fact, built on the sands of a preposterous theory and sordid self interest.
The preposterous theory is what economists know as the neoclassical theory.
This theory concludes that free markets will bring about a general equilibrium, in which all supplies balance all demands. Even better, it purports to prove the general equilibrium is the most efficient conceivable economy.
That is a grand claim; an absolute claim, a seductive claim — and it is horse manure.
The neoclassical theory is preposterous nonsense because it is built on preposterous assumptions.
We are all supposed to be able to foresee all future contingencies and their probabilities. We are supposed to rationally calculate our optimal life course. We are not supposed to be influenced by fads or fashions, nor by altruism or compassion. There should be no economies of scale beyond some ill-defined point of diminishing returns — just pretend Henry Ford and Bill Gates never existed.
The neoclassical theory’s central prediction, the general equilibrium, is also preposterous.
During a financial crash, the markets are far from equilibrium. New technologies emerge all the time, upsetting any possible equilibrium of market sectors. The rich getting rich is an instability. The need for perpetual growth reflects an underlying instability. Modern market economies do not gently oscillate around a balance point like a rocking horse. They are cauldrons of change — dynamic and far from equilibrium, much more like wild horses.
Such systems are well understood in other fields of knowledge, where they are called self-organising systems. There can be no pretence, in such systems, of an optimal general equilibrium.
It follows there can be no assurance that free markets are best.
Free markets are best only in an abstract fantasy world. There is no general conclusion we can reach about free markets in a real modern economy; they may be efficient, or not, and they may be beneficial, or not.
As one pillar of neoliberalism crumbles, the other is exposed for what it is — the blatant self-interest of the rich.
The neoclassical theorists told the rich the best thing they can do is make money as fast as they can. Naturally, the fat cats loved this message and rewarded the messengers with money and influence. But the real message of neoliberalism is the age-old message of the powerful ― we know what's best and you’re here to serve us.
The way forward for progressives is to recognise that markets can and should be managed for the general benefit.
We already have the tools to manage markets ― incentives and disincentives. Just eliminating many perverse incentives, such as subsidising polluters, would already make us better off. Judiciously promoting beneficial activities will be far more effective than retroactive penalties for bad behaviour.
We can re-assert the pre-eminence of society over the economy; we can choose the kind of society we want to be and tailor the economy to support that aspiration. Democracy can prevail over the subversive rich.
In a sensibly run economy, there will be no conflict between 'the economy' and social welfare, nor will there be any conflict with 'the environment', because a healthy society and a healthy planet are essential for healthy and fulfilling lives.
This path is not left or right ― it transcends the old left-right divide.
We can leave behind the clumsiness and abuses of an economy run by giant government bureaucracies. We can leave behind the clumsiness and abuses of an economy run by giant corporations. We can achieve the social justice goals of the old left by different and more effective means.
We can cultivate the initiative and self-reliance cherished by conservatives, but not at the expense of others, and we can do it with smaller, more effective government.
Dr. Geoff Davies is a scientist and commentator who has spent fifteen years delving into economics. He is the author of Sack the Economists (BWM Books, Nov 2013, http://sacktheeconomists.com).
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