Stumbling and Mumbling

Author: chris dillow   |   Latest post: Tue, 29 Sep 2020, 4:14 PM


Against one-trick ponies

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Those of you who believe that bourgeois economics is mere ideology have had two data points of corroboration recently.

First, Stephen Moore, Art Laffer and Steve Forbes said: "don't expand welfare and other income redistribution benefits like paid leave and unemployment benefits that will inhibit growth and discourage work."

This contain layers of nonsense. For one thing, during the current public health crisis we want to discourage people from working so they don't infect others. But even in normal times. Their statement would be wrong. In one survey of the evidence Abhijit Banerjee and Esther Duflo conclude that "there is no evidence that cash transfers make people work less." (Good Economics for Hard Times, p289). One reason for this is suggested by the fact that the unemployed are much unhappier (pdf) than a lack of income alone would predict: work is a source of meaning and identity.

The second piece comes from ECB council member Robert Holzmann who claimed that the virus might "release positive cleaning forces."

It is true that some recessions (pdf) can sometimes have this effect. If aggregate demand falls, people are likely to cut spending on the goods and services that offer worse value, which are likely to come from the worst-managed firms. And capital scrapping can raise aggregate profits and so spur future investment. But it's obvious that this recession is not one of these cases. The hardest-hit firms will be those most hurt by lockdowns such as pubs and restaurants. These are not necessarily the least efficient or profitable ones. Pony

What we have here, then, are two especially egregious examples of an error which Dani Rodrik warned us against (pdf): we must not impose the same model upon every problem. Instead, we must have a variety of models or theories and apply the right one in the right place. Economists cannot be one-trick ponies - especially when as in Laffer's case, that trick is a lousy one.

In this sense, there's a big difference between these rightists and we Marxists. As I've said, many of us are unideological about many matters (such as the impact of minimum wages) because we've no dog in those fights.

This is true of crises. Although Marx held the ideological (and correct) view that capitalism was inherently prone to crises, he saw that these would take many different forms. As one of the earlier and better of his commentators put it:

Crises are extraordinarily complicated phenomena. They are shaped to a greater or less extent by a wide variety of economic forces...the actual economy [is] so much more complicated than the model systems which were analysed in Capital (Paul Sweezy, The Theory of Capitalist Development, p133)

It should be obvious to anyone who isn't an ideologue that a public health crisis, and the attendant economic crisis, requires a greater degree of state intervention than would be appropriate in normal times. Just as there are no atheists in foxholes, nor are there any intelligent libertarians.

The smarter people on the right get this. "Treating this event as a normal market adjustment seems perverse" says Ryan Bourne. He says the aim of policy should be to

mitigate distress among vulnerable households and businesses, preventing business failures or mass layoffs in viable firms, or severe hardship for those without significant savings or employer benefits.

"Paying people not to work", he says, "becomes, for the time being, a virtue."

He would put far more stress on those words "for the time being" than many of us on the left would, who favour more redistribution and automatic stabilizers even in normal times. This, however, should be a debate for another time. The fact is that what's appropriate in a crisis might not be appropriate in normal times*. Today, the distinction is not between left and right, but between those who get this and those who don't.

* This is true in another sense. A universal basic income and/or helicopter money are, I suspect, good ideas for the future, but not so appropriate today.

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