The Blarney Of Economics And Such




I don't do a great job preparing my learners for the economics portion of the GED Social Studies test. Apparently, this is not remarkable. There was a Globe and Mail op-ed piece highlighted on NALD the other day declaring "Schools have failed on the financial literacy front." It was written by Tom Hamza and Paul Bates of the Investor Education Fund, and claimed "our education system is not providing the essential skills necessary for Canadians to understand money management." That might be true. Certainly, schools fail to teach just about everything else above the level of bullying, blaming and bribery. On the other hand, who's to say those things aren't where real economic theory needs to begin.

Given the hastening collapse of the global economy - "global" meaning "over all" but not "all over" since there are still small local economies chugging along nicely - it's tempting to complain that schools have been mismanaging economic literacy for some decades now. Apparently, for example, most bank and investment house CEOs missed out on key lessons having to do with long term budgeting or the value of saving plans. Were they sick that week? Did the schools fail to adequately test and track their learning in economics? Were they victims of social promotion?

Of course, this is untrue. These guys and gals know what they're doing. They got very rich very fast, and will stay relatively wealthy long after the rest of us are back on the breadline (supposing they allow such things).

So, what happened to the economy if not financial illiteracy? Well, mostly, some smart, big time gamblers and deal makers took over the government and defrauded the public by creating a make-believe financial world. The deals are collapsing, because their greed outpaced the real economy and the ability of the rest of us to shear sheep and buy socks. In a short while, they will also fatally outpace the planet's ability to fit expressed carbon and related greenhouse gasses into our current climate, and then there will be real trouble.

I had better confess here that I have only a passing understanding of liberal economics. During a misspent youth I plowed through enough Adam Smith type economic theory to understand that it was about as reliable as the weatherman. But it is unreliable for a different reason. Weather forecasting fails because it can't match the complexity of the real world. Economics 101 fails us because much of it was made up to fine tune and then obscure the various mechanisms which remove wealth from the commons or, later, the poor, and give it to the rich.

Consider a simple concept like "value added" - economists always say it backwards like that, eschewing the more sensible phrase "added value" in order to sound scientific. It could be used to explain how the English got wealthy by buying wool from the Irish and selling them woolen goods. The English (or perhaps their Welsh subjects) applied weaving knowledge and practice to add value to the wool, which meant they could sell it back to the Irish at a profit. The clever, hardworking English got richer, while the fun loving, musical Irish got poorer.

The problem, of course, is that this story leaves out the English laws and troops of 1699 that prohibited the system from working the other way round.* In fact, they passed an act "prohibiting the Irish from exporting either wool or woollen goods to any ports in the world except Liverpool, Milford, Chester, and some ports on the Bristol Channel" (Library Ireland):
This was the most disastrous of all the restrictions on Irish trade. It accomplished all that the English merchants looked for: it ruined the Irish wool trade. It is stated that 40,000 of the Irish Protestants were immediately reduced to poverty by it; and 20,000 Puritans left Ireland for New England. Then began the emigration, from want of employment, that continues to this day. But the English parliament professed to encourage the linen trade; for this could do no harm to English manufacture.

... In subsequent times the parliament interfered with almost every branch of Irish trade and manufacture:--beer, malt, hats, cotton, silk, gunpowder, iron and ironware, &c. And the embargo in the time of the American war... ruined the trade in salted beef and other such commodities.
Add to that the English theft of the Irish land on which Irish sheep and cattle grazed and, well.... Let's just say we post-marxist dependency-theory historian types have a whole different take on economics and St. Patrick's Day. I'm tempted to say we have a bigger view - but maybe not. Maybe we're just incurably uneconomic.






I listen to Doug Henwood's economic and socio-political show Behind The News (KPFA, Berkeley and archived here). Each show begins with his weekly economic overview and prognosis. Despite his leftist leanings, he never strays far from liberal orthodoxy, and is often dismissive of people who do. Witness, for example, his disregard for Naomi Klein's book on "disaster capitalism" (her link), or his impatience with people who opposed using tax dollars to bail out mortgage companies.

In true weatherman fashion, he often mispredicts. On Feb 21 he told me "while things are still deteriorating, they're no longer deteriorating at an accelerating rate." Okay. The rate at which things are going bad is slowing. That's good news, right? Not so fast. The next week he reversed himself: "... we're not really bottoming out yet. If we were approaching a bottom, you might expect a rate of decline to be slowing... but it's not." Ah... bad news indeed.

But my trouble with Mr. Henwood isn't in his predictions; it's in his talking about them as if they mattered, as if they were real.

Look, that same show (the 28th) he added, of the new President's approach to global warming, "it's good to see some serious actions on greenhouse gas emissions, though I'd far prefer a carbon tax to a cap and trade system.":

Parenthetical, this is a rare instance where I come down on the side of economists on an issue. Economists argue that carbon taxes produce much more stable predictable paths for energy prices over the long term, while cap and trade systems... tend to to produce a great deal of price volatility.

I'm not sure what Mr. Henwood means by "the long term." Global warming, which will become irreversible in the next six to ten years unless we make drastic changes, portends several million deaths to malnutrition and related violence (possibly nuclear), mass migration from a tropics hit with long-term drought, flooding and intense storms, and a large shift in which plants and animals are "native" to a given region. Framing this story in a way that worries about price volatility is.... Well, that whole missing the forest for the trees thing comes up. Moreover, the notion that President Obama's plans represent "serious action" suggests a willful lack of sobriety about global warming. But these are the kind of blinders economists wear when they talk conventional economic theory.

I don't say this to dis Mr. Henwood. As I've said, I'm a faithful listener. He's one of the best economic interpreters I've found on the web and I value his insights. I only want to say that, by and large, conventional economic talk is short-sighted mumbo-jumbo. If it seems like it doesn't make sense, it's because it doesn't. Sometimes, this is because it's based on mistaken assumptions. Sometimes, this is because it's not supposed to make sense.

Which is why I can't find it in me to get very concerned about the underschooling of financial literacy. On the likely eve of a burning planet and massive migration-related violence, I'd rather see schools devote real time to the skills of growing one's own food, the local manufacture of simple carbon-free technologies, and strategies for getting along with people from other lands. Then, if there's room to spare, they might tell a few true stories about the Irish, the English, America, and how the creation and control of wealth got us to where we are today.



~~~~~

* Neoliberal economists claim that rich countries got that way by removing their barriers to trade. Nothing could be further from the truth. As Ha-Joon Chang shows in his book Kicking Away the Ladder, Britain discovered its enthusiasm for free trade only after it had achieved economic dominance. The industrial revolution was built on protectionism: in 1699, for example, we banned the import of Irish woollens; in 1700 we banned cotton cloth from India. To protect and develop our infant industries, we imposed ferocious tariffs (trade taxes) on almost all manufactured goods.


For more fun and games, read Philip Delves Broughton's The Sunday Times piece "Harvard’s masters of the apocalypse"(March 1, 2009; link)

No comments: