Economics is in Disarray: Time to Rethink

 The Guardian View

When Labour’s Gordon Brown embraced “post neo-classical endogenous growth theory” in 1994, he was ridiculed by his opponents. This said more about his critics than Mr Brown. His speech reflected an engagement with academic debates as well as a worldview and diagnosis distinct from Tory narratives. He judged education to be key, as growth depended on human capital. By contrast, today Labour’s top team struggles to say exactly what they believe will drive growth and how they will achieve it.

Part of the reason is that mainstream economics is proving incapable of giving sensible answers to important questions. Whether it is the financial crash, the pandemic or inflation shocks, the response is that spending cuts are needed as public debt threatens to bankrupt the nation. Many economists are questioning their discipline’s worth. Last month, the Nobel laureate Angus Deaton blogged that economics was in “disarray” and had “largely stopped thinking about ethics”. Jeremy Rudd of the US Federal Reserve writes scornfully in his latest book, A Practical Guide to Macroeconomics, that economists’ role today is to justify “what elite interests want to do anyway: deregulate, pay fewer taxes, keep wages as low as possible”.

One school of thought attempting to rewrite the textbooks is called modern monetary theory, whose face is Stephanie Kelton, a former economic adviser to Bernie Sanders. She argues that there is no financial constraint on government spending; money can be created and invested so long as there is capacity in the economy to absorb the cash. If not, inflation will follow. This shouldn’t be controversial. John Maynard Keynes said as much in his 1940 book, How to Pay for the War. The theory is not just about deficits: a strong exporting nation should pursue fiscal surpluses – an insight attributed to Prof Kelton’s tutor and ex-Treasury adviser Wynne Godley.

Her work made headlines during Covid-19, when governments spent big without asking first where the money would come from. Prof Kelton’s book The Deficit Myth became a bestseller. Next month, a movie, Finding the Money, hits US screens. The film looks at why politicians hide behind economic “myths” rather than explain to voters the trade-offs required to help them. Prof Kelton’s positions are often counterintuitive, which makes them interesting. Her current argument that rising US interest rates might be inflationary finds her agreeing with her sharpest critic, Larry Summers. Such challenges should be welcome in Britain. The US debates have produced an industrial policy powered by government deficits – and the world’s fastest growing advanced economy.

Mr Brown’s successor Rachel Reeves prefers a deadening consensus, sacrificing policies to placate business while committing to Tory spending now that is “paid for” by austerity later. Both major parties say deregulation would crowd in private investment and the state could capture the ensuing productivity gains. The Tories would use the proceeds for tax cuts whereas Labour would spend them on public services. This strategy has failed since 2010. Why would it work now? One of Ms Reeves’ predecessors said that “the history of British policymaking in the last hundred years has taught us that on all the other occasions when major economic misjudgments were made, broad-based political, media, financial and popular opinion was in favour of the decision at the time, and the dissenting voices of economists were silenced or ignored”. Ed Balls’ 2011 speech is as relevant today as it was then.

Powerful lobbyists and fawning ministers are corroding society

The lack of regulation and legislation for which wealthy lobbyists press is mostly a form of welfare for big business

• 
• • Will Hutton
  • The Observer, Saturday 11 January 2014 19.07 GMT

The UK drinks industry lobbied vigorously against a minimum price. Photograph: Johnny Green/PA

It was a classic exchange. Neil Goulden, chair of the Association of British Bookmakers, did his best to defend the indefensible. We must place the problem of addictive fixed-odds betting machines in context, he told Radio 4's Today programme last week. They constitute only a small part of the industry's total revenues; there are very few problem gamblers. Britain has the best regulated and most socially responsible gaming industry in the world. Obviously voluntary efforts, which had already achieved much, needed to go further. But there was no need for more intervention.

Later, in the House of Commons, the prime minister, keenly aware that Ed Miliband has thrived when combining the cost of living crisis with example after example of predatory capitalism, was not going to allow himself to be painted as the friend of the betting and casino industries. But equally, he had to keep alive his deep conviction that regulation, always " burdensome", should be avoided as a matter of principle and, if conceded, kept as minimal as possible.

Yes, he understood the leader of the opposition's concern that ordinary high-street betting shops were being turned into mini-casinos via these machines and were proliferating in some of the most deprived parts of the country. But a "review", he claimed, of unspecified provenance was under way. There was no need to support the Labour party's proposals. The issue was kicked into the long grass.

Last week witnessed a procession of examples where successive industries demonstrated their unnerving and effective capacity to block efforts at making them work more in the social and public interest. The British Medical Journal revealed in a powerful article that the UK drinks industry had enjoyed no fewer than 130 meetings with ministers in the run-up to last July's abandonment of the commitment to set a minimum price of 40p for an unit of alcohol. The evidence from Sheffield University's alcohol research department is unambiguous: the higher the price, the less is consumed, lowering crime and death rates alike.

Yet purposeful intervention even for these high stakes is not what Conservative ministers or rightwing thinktanks believe in. Better a world of voluntary codes of practice and forums promoting responsibility than anything with teeth that might "burden" business or – shedding crocodile tears – "penalise the poor". Indeed, it was in precisely those terms that the health secretary, Jeremy Hunt, discussed minimum alcohol pricing with Asda chief executive, Andy Clarke. In case we were in any doubt, the public health minister, Jane Ellison, spelled out the Conservative position, preferring a " collaborative approach on public health" in a "voluntary way" in which business is a "partner".

Collaboration, voluntary, partnership and social responsibility are good words. Regulation, legislation, quotas and tax are bad words, for, it is alleged, these are just the sort of things to raise prices and disadvantage hard-pressed consumers. Thus already the sugar industry, confronting the newly created Action on Sugar Campaign to lower the sugar content in food, is reaching for the same Goulden armament. British housebuilders, fighting off proposals to landscape new developments so that rainwater runs off naturally, plead that house prices will rise as a result, and thus four years after the 2010 Flood Defence Act, requiring such development to improve our much-depleted flood defences, there is still no agreement.

Part of the problem is that in the indiscriminate drive to create a smaller government, the Department of the Environment, reeling from cuts, has not the manpower to follow through on legislation. But the problem is made worse because the environment secretary, Owen Paterson, believes, like Jeremy Hunt at health and many other colleagues, that essentially their job is to do whatever business says.

Obviously in a capitalist economy, private business is a principal driver of growth. Great entrepreneurship in action is fabulous, but crucially it never emerges from private action alone. There is always some pubic agency involved in, and often leading, the risk-taking. Yet the fiction of our times is that all business is entrepreneurial, all business aims to behave well, all business accepts that it should pay the social costs of its activities and that any effort to shape business activity is counterproductive. These are the propositions that underpin the stance of the business lobbyist – and of the minister welcoming him or her. The public, if it only knew, would surely despair.

The lack of regulation and legislation for which the business lobbyists press is rarely to support entrepreneurship; in most instances, it is a sophisticated form of corporate welfare. It will not be British bookmakers who pick up the costs of addictive gambling in welfare bills and housing benefit; no drinks company will foot the NHS's bill for alcohol-related illness or police bill for crime; no sugar company the bill for obesity. Housebuilders will cheerfully direct rainwater cheaply into the sewerage system and the water companies will then raise water charges and expect state guarantees for improving the system.

The deal is clear: pass on the maximum cost to the state, minimise one's own obligations including tax payments, and insist anything else will cost jobs and penalise consumers. Corporate welfare works. Bookmaker William Hill, for example, declares £293m profit on a turnover of £1.3bn, and pays a mere £48m in tax. Drinks multinational Diageo pays £66m of UK tax on its £1.75 bn of UK turnover. Executive pay is stunning; indeed, it even provoked a shareholder revolt at William Hill last year.

The low regulation lobby is in effect creating high-return, low-risk business fiefdoms largely free of social and public obligations. Worse, shareholders and investors set these returns against what they might expect investing in frontier technologies and innovation. Why do that when you can make more certain and higher profits in pay-day lending, bookmaking or the drinks business? The Cameron-Osborne-Hunt-Paterson mantra leads straight to a low innovation economy and a high-stress, low-wellbeing society, while offering unnecessarily high returns to those at the top.

Reality is very different. Business is part of the society in which it trades. Regulation and legislation, far from burdens, are crucial grit in the capitalist oyster. They are proposed in our democracy because they will reduce public and social costs that otherwise society has to bear. By obliging business to accept the costs it creates, it raises genuine innovation. It is time to call time. We don't want ministers acting as surrogate corporate lobbyists. We need them to fashion a new compact between business and society.

This media is corrupt – we need a Hippocratic oath for journalists

Our job is to hold power to account. Instead, most of the profession simply ventriloquises the concerns of the elite

• 
• • George Monbiot
  • guardian.co.uk, Monday 11 July 2011 21.30 BST
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Is Murdoch now finished in the UK? As the pursuit of Gordon Brown by the Sunday Times and the Sun blows the hacking scandal into new corners of the old man's empire, this story begins to feel like the crumbling of the Berlin Wall. The naked attempt to destroy Brown by any means, including hacking the medical files of his sick baby son, means that there is no obvious limit to the story's ramifications. Illustration by Daniel Pudles The scandal radically changes public perceptions of how politics works, the danger corporate power presents to democracy, and the extent to which it has compromised and corrupted the Metropolitan police, who have now been dragged in so deep they are beginning to look like Murdoch's private army. It has electrified a dozy parliament and subjected the least accountable and most corrupt profession in Britain – journalism – to belated public scrutiny. The cracks are appearing in the most unexpected places. Look at the remarkable admission by the rightwing columnist Janet Daley in this week's Sunday Telegraph. "British political journalism is basically a club to which politicians and journalists both belong," she wrote. "It is this familiarity, this intimacy, this set of shared assumptions … which is the real corruptor of political life. The self-limiting spectrum of what can and cannot be said … the self-reinforcing cowardice which takes for granted that certain vested interests are too powerful to be worth confronting. All of these things are constant dangers in the political life of any democracy." Most national journalists are embedded, immersed in the society, beliefs and culture of the people they are meant to hold to account. They are fascinated by power struggles among the elite but have little interest in the conflict between the elite and those they dominate. They celebrate those with agency and ignore those without. But this is just part of the problem. Daley stopped short of naming the most persuasive force: the interests of the owner and the corporate class to which he belongs. The proprietor appoints editors in his own image – who impress their views on their staff. Murdoch's editors, like those who work for the other proprietors, insist that they think and act independently. It's a lie exposed by the concurrence of their views (did all 247 News Corp editors just happen to support the invasion of Iraq?), and blown out of the water by Andrew Neil's explosive testimony in 2008 before the Lords select committee on communications. The papers cannot announce that their purpose is to ventriloquise the concerns of multimillionaires; they must present themselves as the voice of the people. The Sun, the Mail and the Express claim to represent the interests of the working man and woman. These interests turn out to be identical to those of the men who own the papers. So the rightwing papers run endless exposures of benefit cheats, yet say scarcely a word about the corporate tax cheats. They savage the trade unions and excoriate the BBC. They lambast the regulations that restrain corporate power. They school us in the extrinsic values – the worship of power, money, image and fame – which advertisers love but which make this a shallower, more selfish country. Most of them deceive their readers about the causes of climate change. These are not the obsessions of working people. They are the obsessions thrust upon them by the multimillionaires who own these papers. The corporate media is a gigantic astroturfing operation: a fake grassroots crusade serving elite interests. In this respect the media companies resemble the Tea Party movement, which claims to be a spontaneous rising of blue-collar Americans against the elite but was founded with the help of the billionaire Koch brothers and promoted by Murdoch's Fox News. Journalism's primary purpose is to hold power to account. This purpose has been perfectly inverted. Columnists and bloggers are employed as the enforcers of corporate power, denouncing people who criticise its interests, stamping on new ideas, bullying the powerless. The press barons allowed governments occasionally to promote the interests of the poor, but never to hamper the interests of the rich. They also sought to discipline the rest of the media. The BBC, over the last 30 years, became a shadow of the gutsy broadcaster it was, and now treats big business with cringing deference. Every morning at 6.15, the Today programme's business report grants executives the kind of unchallenged access otherwise reserved for God on Thought for the Day. The rest of the programme seeks out controversy and sets up discussions between opponents, but these people are not confronted by their critics. So what can be done? Because of the peculiar threat they present to democracy there's a case to be made for breaking up all majority interests in media companies, and for a board of governors, appointed perhaps by Commons committee, to act as a counterweight to the shareholders' business interests. But even if that's a workable idea, it's a long way off. For now, the best hope might be to mobilise readers to demand that journalists answer to them, not just their proprietors. One means of doing this is to lobby journalists to commit themselves to a kind of Hippocratic oath. Here's a rough stab at a first draft. I hope others can improve it. Ideally, I'd like to see the National Union of Journalists building on it and encouraging its members to sign. 'Our primary task is to hold power to account. We will prioritise those stories and issues which expose the interests of power. We will be wary of the relationships we form with the rich and powerful, and ensure that we don't become embedded in their society. We will not curry favour with politicians, businesses or other dominant groups by withholding scrutiny of their affairs, or twisting a story to suit their interests. "We will stand up to the interests of the businesses we work for, and the advertisers which fund them. We will never take money for promulgating a particular opinion, and we will resist attempts to oblige us to adopt one. "We will recognise and understand the power we wield and how it originates. We will challenge ourselves and our perception of the world as much as we challenge other people. When we turn out to be wrong, we will say so." I accept that this doesn't directly address the power relations that govern the papers. But it might help journalists to assert a measure of independence, and readers to hold them to it. Just as voters should lobby their MPs to represent them and not just the whips, readers should seek to drag journalists away from the demands of their editors. The oath is one possible tool that could enhance reader power. If you don't like it, suggest a better idea. Something has to change: never again should a half a dozen oligarchs be allowed to dominate and corrupt the life of this country.