Red Alert

The cult of National Party economics

Posted by on September 12th, 2012

“Economics” is a term which is often misused, most particularly by those on the right-wing of politics.

“Economics” is not a religion. “Economics” does not sit on a throne and dictate how humans must arrange their lives. Economics is only lots of models and measures which different people in different contexts have applied to things they were studying.

A good/useful economist behaves like a scientist. They adapt their models and add new measures and methods in a never-ending drive to improve their understanding. The good economist recognises there is no final truth in economics.

Bad/useless economists behave differently. They use meaningless phrases like “economics says”.  They nod at each other and quote Margaret Thatcher: “There is no other way”. They prioritise the imperfect economic tools over the perfectly-human people who use tools.

In the 1970s a group of economists at the University of Chicago reworked a few of the classical economic models – and ignored the rest – and decided they had hit on a new truth about the role of government in the economy (or, more accurately, a belief that government has no role in the economy). Effectively the “Chicago School” economists founded a religion.

This might have been just academic if it weren’t for the likes of Thatcher in the UK, Ronald Reagan in the USA – and Roger Douglas and Ruth Richardson and certain Treasury officials right here in New Zealand in the 1980s and 1990s.

Those politicians became true disciples. But, just like the Chicago School, they only picked and chose those small bits from the economics field which matched their existing prejudices. To use an economics analogy they loved Adam Smith’s The Wealth of Nations but never made the time to read The Theory of Moral Sentiments – let alone Keynes’ General Theory or John Rawls’ A Theory of Justice.

Today The Herald carried an excellent piece from Peter Lyons. Peter teaches economics and he’s been following the often dramatic changes in New Zealand’s economy for more than 30 years. He clearly understands the Chicago religion, but he’s weighed up the evidence and – quite properly my opinion – he doesn’t buy into it.

Unfortunately for ordinary New Zealand families the ministers who are driving economic and finance policies in the National Government do.

In the dogmatic world of John Key, Bill English and Steven Joyce there are no lessons to be learned from the Global Financial Crisis. They appear not to care that their obviously failed policies have seen thousands upon thousands of New Zealanders lose their jobs, their livelihoods and their hope of making a future in New Zealand. They maintain their ‘not my responsibility’ passive government approach when the soaring and over-speculated dollar is killing manufacturing, killing exports, killing the regions and killing hope. It seems it doesn’t even matter to them that Kiwi children are going to school without food because their parents can’t afford to provide it.

While the USA, the UK and the New Zealand people have moved on, all the National Government does is preach failed ideologies.

Read Peter Lyons’ story. Then join the Labour Party. Get involved and help us with our clean, green, clever and evidence-based economic plan, please.

Because, for New Zealand’s sake, we must get rid of this ideological and destructive National government as soon as we can.


22 Responses to “The cult of National Party economics”

  1. Louise says:

    So reassuring to see that my concerns eloquently expressed, and all the more frustrating!!!! I have joined Labour and I have joined the asset sales petition collectors, and spend time commenting pro Labour comments to Dom Post, letter in the Dom Post about celebrity politics and need for social cohesion and another suggesting that people watch parliament tv etc……..feeling very redundant generally as I get the sense that a state of homeostasis has been reached and I don’t know what has to happen to destabilise it.Tony Benn commented that 2 things stop people voting, fear ( shut up and do as you are told syndrome) and despondency.How can we call those people to vote next election?

  2. jackryan says:

    Nothing like wandering the desert, or the planet, to see the promised land. I’ve enjoyed your posts lots of interesting, but similar ideas. However most are as ideological as those you are hanging out, but that’s politics. You have thrown lots of ideas out there during your tour and talking to a specific group of theoretical economists. Would be great to actually see what YOUR plans are when you are able to make the decisions which matter.
    What specifically are you going to do.

  3. Tim G says:

    @jackryan – you might be thinking of David Parker.

    And you might be jumping the gun just a little to suggest that while he remains abroad the Labour Party will have finalised its economic policy for 2014, don’t you think?

    Good post from DC – always find myself nodding my head as I read. Interesting observations in Lyons’ piece as well.

  4. @Louise: I agree that the public mood seems to be at a point of stasis – and it is reflected in the polling. But not so much stasis as a ‘cusp’: people are increasingly unhappy with the current government, but not yet sure “where to land” in terms of alternatives. Hence all the wobble in third party votes. It is up to us to provide that alternative.

  5. @jackryan: There is a great deal happening in our economic policy development sapce. Ket me name three components:
    – you can see from Red Alert that my colleague David Parker has had some detailed and seminal discussions with leading economists and has summarised those in his recent posts. You can bet that those ideas will be refleced in the next phase of macroeconomic policy.

    In the microeconomic sphere, I also had some useful input from my recent visit to Scandinavia, and that is feeding into the development of our economic development and manufactuing policies. You can expect to read and hear more about that in the near future.

    Across both area the NZLP has an excellent and committed Economic Policy Comittee that is working hard on an overarching policy platform. It will go to our conference this year and help to set a very clear direction.

    Many other colleagues are also working very hard to bring new and positive ideas forward in their portfolios.

    You and other readers can have every confidence that Labour will not only hold this government to account, but will bring forward a suite of new, positive ideas to build a better country.

  6. Jeremy says:

    On those who treat economics as a religion. Apart from Dr Cullen as far back as Muldoon our finance ministers have been Lawyers by trade, Lange even had a famous quote to the effect that economists were only useful up to a point and then could be put to a wall and shot. Given who was in charge of the RB one can only have sympathy for this view. But Lawyers as you describe (Thatcher/Douglas/Caygill/Richardson/English) are trained to defend or prosecute a view. Ie they take sides and promote the first point of view (or client) who walks through their door. They are deadly effective at shutting down opposing views, great for a politician, not so much for the economist as a social scientist. Accountants like Muldoon also are vital, but suffer from siloed thinking on the economy, approaching each problem from the POV of their clients enrichment/safety. Yet they provide almost all the advice to the public/farmers/small business (ie their clients)

    The big question is why for so long our economy has not been controlled by those whos job & training is studying the economy and the wider effects on society?

  7. Olwyn says:

    I am a member of the Labour Party, and I have not relinquished my membership, although I have been tempted to hand in my badge many times in recent years.

    I do not see Chicago economics as a religion, but as the rationalisation for a system of wholesale predation, going all the way down. I do not think its inventors saw it that way, but that has been its role in practical life. “A Theory of Justice” is of no great use to a project of economic predation, since it offers nothing that would come in handy to such a project, and much that would run counter to it.

    I will happily put pamphlets in letterboxes and knock on doors for Labour prior to the next election if I see policy that would genuinely thwart the downward squeeze that is part of this policy of predation, which has already destroyed much of our industry and left us with a housing bubble and grinding poverty as its replacement. But I will not go so far as to even vote Labour if I see policy that amounts to business as usual with a few cheap concessions, along with emotional appeals to this or that sector.

  8. Jack Ramaka says:

    You are right we need to get rid of this National Government b4 it destroys this country.

    [rest deleted - racist - chris]

  9. David Cunliffe says:

    Olwyn. A passionate post. We will deliver

  10. SJW says:

    Mr Parker and Mr Cunliffe’s activities are most appreciated from this quarter.

    It is like you both are actually thinking about how things could be improved for New Zealanders in response to the GFC crisis.

    Nice to see such from our politicians, thank you.

  11. Rob S says:

    It’s interesting that you refer to national as ‘ideological’ like it is a slur, whilst at the same time delivering a sermon, essentially asking people to back you against the evil. That has some pretty ideological, almost religious undertones…

    Again I note like yesterdays post, that there is no actual policy. I could be wrong, but this may be why only the nodding dogs are nodding, not the wider population.

    Having said that there is at least a promise of a policy in the not too distant future, so that is one up from yesterday, and I look forward to David Parker’s release (although if everything he agrees with on his recent trip goes in it could be a strange looking policy…).

  12. Draco T Bastard says:

    The big question is why for so long our economy has not been controlled by those whos job & training is studying the economy and the wider effects on society?

    You mean all those economists out there who failed to predict the GFC?

    Most economists are working with a failed theory and treating it as gospel. I can assure you, you do not want these people anywhere near the control of the economy. The problem is that’s where they’ve been for the last 30+years.

    I do not see Chicago economics as a religion, but as the rationalisation for a system of wholesale predation, going all the way down.

    Considering that they refuse to see all the evidence that proves their theory wrong then I believe that dogma is the correct term. And it certainly is nothing but the justification of the theft of the commons now. It can not be considered anything even close economics now as the whole profit drive must result in the scarce resources actually being used up rather than rather than rationally distributed and conserved.

  13. Jack Ramaka says:

    National’s policy of selling State Assets is merely a wealth transfer to the wealthy Government cronies who operate on the fringe of Government waiting for the next slice of the pie to be cut off.

    If you look through the NZ Rich List a number of the participants have been the primary beneficaries of the privatisation of State Assets or cosy arrangements with Government Officials in Wellington.

    New Zealand is not the squeaky clean little country we all like to think it is.

  14. Jack Ramaka says:

    These Energy Companies John Key has the 4 Sale Signs on, are great little cash cow companies, BLUE CHIP with guaranteed revenue streams.

    Unfortunately the average New Zealander does not have the spare cash to invest in these companies as they are struggling to feed, cloth, educate and house their families.

  15. KJT says:

    David. I would be much more inclined to believe Labour had finally come to their senses, abandoning the Neo-liberal dogma that has caused so much damage around the world, if, Labour did not come up with policies like raising the super age.
    Still believing the neo-liberal meme of “we cannot afford welfare”. In fact we can if the wealthy paid their fair share.

    http://kjt-kt.blogspot.co.nz/2012/06/on-new-zealands-retirement-income.html

    “In fact the idea that State super is unaffordable is crap from the same people that cry TINA and reckon that all social insurance is unaffordable.

    If they win with super, they will just start on other social wages.

    In reality it is much more affordable than the finance company bailouts, which would be necessary with private super.”
    .
    http://norightturn.blogspot.co.nz/2012/06/what-superannuation-crisis.html
    “So, in 2050, we’re projected to be paying only 1% of GDP more in superannuation than we were paying in 1990. Quelle horreur! This is not a difference to be terrified of, and it is easily manageable with a modest increase in taxation, either now or in the future (though that perhaps is exactly what those pushing for change are frightened of: higher taxes)”.

  16. Quoth the Raven says:

    The notion that National are free market ideologues is laughable. From banning over the counter sales of cold medicine, to the abrogation of property rights in Christchurch, to bailing out finance companies, and banning synthetic cannabis, this National government has shown they are unfortunately not in holding with anything remotely approaching a liberal laissez faire stance.

    I am sure that many economists would argue that the idea of distinct schools of economic thought today is mistaken. However, such nuance and ambiguity would be lost on David who projects a ‘them and us’ attitude.

    If someone were to read Lord Keyens’ General Theory I would hope they would take the time to realise that much of Keynesianism qua Keynes has not survived to today even among Keynesians and if someone were to suffer through reading the vague effusions of John Rawl’s I should certainly hope they take the time read at least some of his legion of liberal critics.

  17. John W says:

    Nact is about making opportunity for the few who are in a position of wealth to subscribe to the organising of gathering more. Their ideology results in embedded class difference and widening disparity in the community.

    Economists of various shades operate in a narrow tunnel view of the world.

    A wider and more important view is not unknown nor un-researched, but ignored by politicians and particularly neocons who litter our Nact benches.

    Deliberate neglect of our natural world, that sustains us, has brought us to a position where consequences of the worse kind can be expected.

    In spite of ignored warnings to acted globally some 15 – 20 years ago, we face a diminished prospect which steadily worsens as politicians chase economic growth and fail to act for a future.

    http://www.csiro.au/Portals/Multimedia/CSIROpod/Growth-Limits.aspx

    http://www.theoildrum.com/node/6094

    For a basic handle on LTG this page will help you through it.

    http://elmhcx9.elmhurst.edu/~chm/onlcourse/chm110/labs/limits.html

  18. Rob S says:

    All based on computer or mathematical models, much of which hasn’t actually happened.

    Ironic, considering much of the content above is critical of economists who use mathematical models.

    I know something else that is entirely driven off maths models too, Climate Change.

    Also interesting that one of the biggest effects in the graphs is from everybody ‘realising they should only have 2 children’…

  19. John W says:

    While population growth has overshot sustainable resources, it is not the only consideration albeit a major one.

    The LTG model has been reviewed by several reputable scientific organisations over the years and the predictions are largely on track. The last review was done in 2009 by the Government body CIRSO.

    If your comment has grounding better than the Australian CIRSO then I would be pleased to know of it. MIT is not a fanciful institution either.

    The denier industry does mankind no favours.

    Any position taken that slows human response to effectively changing our path towards effectively managing the cascading effects of human activity; is a dangerous position.

    Population peak, depletion of soil, shortage of food and water, fossil fuels and climate change, depletion of natural resources, loss of species, loss of wilderness and forestation, industrialisation and pollution; all present challenges to the conservative mind which naturally rejects intrusion into sacred realm of business as usual.

    What evidence do you need!

  20. John W says:

    Rob S

    The economic models you mention that attract some criticism are narrow and based on assumptions many of which are made out of convenience. They do not cover many things more important than money, the market and trade.

    A few points you raise are covered here.

    http://www.csiro.au/en/Organisation-Structure/Divisions/Ecosystem-Sciences/The-Limits-To-Growth.aspx

    The reduction of consumption does not mean an economic crash but may mean a fundamental change in how we look at the world and reorganisation of how we live.

    If that looks too hard then comprehension of the consequences of carrying on on the present path are not understood.

  21. John W says:

    PS To John Key et al

    Nature does not do Bail Outs

    OSTRICHISM is more than gritty eyes or cataracts of fiscal spin.

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