The Problem with Economics

By Thomas Knight

If there is one thing that the ongoing financial crisis has given us, it is irrefutable evidence that economics is a discipline that nobody understands. The so-called experts have been completely incapable of charting a way to growth, the mechanisms used by a government apparently committed to slashing the deficit have made it worse, and even the systems used to describe our economic worth seem meaningless. From libor rates to credit ratings, seemingly impartial measures have proven to mean practically nothing in the wider economic world – or worse, seem to be actively misleading.

This may be a blessing in disguise. There is nothing more dangerous than someone working from a faulty premise. Ever since the days of Thatcher, neo-liberal thinking has held that economics is a science, that government just needs to let the markets get on with what they need to do, and everything will follow set formulas. It is an attractive proposition because it places control directly in the hands of government. The vaunted Free Market, ensuring that all roads lead to paradise.

In reality, years of ideology driven deregulation ensured that when the crisis hit, we were woefully unprepared. Instead, we wound up with a system that glorifies the worst elements of corporatism, giving all the profits to a tiny elite, whilst socializing the risk.

Economics had begun to occupy a privileged position in society, where a needlessly complex language of buzzwords and jargon ensured that nobody outside of those circles even began to understand the reasoning behind decisions. It has now come to light that these individuals were engaging in borderline criminal behaviour in order to line their own pockets – and those of wealthy investors.

In ancient times, debt was understood to be a weapon. Interest ensures that money paid forward into debt does not achieve productive ends for society. This is a crucial point which seems to be missed by most commentators today. World debt has reached such a point that even if all physical money in existence was gathered, it would pay off a tiny fraction of the amount of debt (estimates place it at around 10 per cent). This means that if we, as a species, decided to put every penny in circulation towards debt, we would pay off approximately 1/10th of the money we owe ourselves.

The only people that attempting to pay off this money helps are the debtors. This is why trying to cut our debt during a period of economic collapse is a misguided move – the debtors are largely foreign powers, banks and private elites who do not spur growth, but instead tend to stagnate their investment during slow times. This is also the reason why losing our AAA credit rating does not mean anything at all in terms of our likely economic outlook. The UK is still one of the highest rated countries in the world, and crucially, our ability – or willingness – to pay back our debt does not necessarily indicate anything about the strength of our economy.

As the economic outlook continues to worsen, and the inability of so-called experts to predict anything at all about what will happen next continues to mount, it becomes more likely that people will begin to question the assumptions that all major political parties seem to be operating under. Labor continues to fear being seen as the ‘anti-business’ party, but this won’t last forever. There’s already growing scepticism about the ability, or desire, of these institutions to represent the interests of the British public.

People are starting to take an interest in economics, and what they are discovering is that ideological notions and the theories which have dominated our way of life for the past thirty years do not provide any assistance in making sense of this situation. The foolhardy idea that we can continue to do the same things over and over, that we can just try to bullishly shoulder our way through this crisis whilst muttering platitudes about hard choices and everyone being all in it together, will hopefully perish along with it. Who knows? Eventually, we might even be able to leave behind the idea that government budgets are like household budgets.

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