Sunday 21 March 2021

The Modern Liberal Economy

Looking at economics I have noticed that the economy that we are told we live under is not the same thing as the economy that we actually live under. We are told that we live under a Liberal economy, one that prizes free enterprise. Often it is portrayed as if we live under a Laisse-Faire economy, except that there are a few minor rules that must be followed. But that is not the case at all. Instead we live under a hybrid economic system, a combination of Socialism, Keynesian Economics and Monetary Policy. 

Lets briefly look at each in turn.

Socialism is the idea that the economy should be controlled or managed at some level. While it shares many attributes with Communism, the difference is that Socialist normally believe that Socialism can exist whatever the form of government. The second major idea is that wealth should not be concentrated but should instead be redistributed so that there are no extremes of wealth or poverty.  

Keynesian Economics was started by John Maynard Keynes in the 1930's and it was supposed to be the answer to the great depression of that decade. It said that the government should create demand when the private sector was either unable or unwilling to provide demand. Demand meaning economic activity. Without demand, unemployment would rise with all it's attendant social and economic costs. 

Monetary Policy has been around a long time but it only really became influential from the 1960's onward. The basic idea is that the government controls the supply of money so it can borrow or print what it requires and it should do exactly that. Modern Western economies can avoid the old problem of inflation because they have so many checks and balances. These checks and balances mean that debt needs to be so extreme that the entire country would need to default for the policy to fail, Before that happens any number of measures can be made to stop it from happening.

It's hard for many people to accept that we have a Socialist economy, however hardly any government does not try to control the economy and in fact many people insist that the economy be controlled by the government. Hardly any of these people would think of themselves as Socialists. Hardly any of us want old age pensions or unemployment benefits to end, we approve of the redistribution of wealth. But we have mixed feelings about the growth of the government. Keynesian economics was designed in large part to create full employment. Joining Socialism with Keynesianism helped to create and spread big government. In time it came to see  full employment as too hard a task. So that was quietly abandoned and in it's place emerged mass unemployment, which satisfied demand. To administrate the unemployed required a large number of government workers. Most of whom were middle class, they required education up to University and that created more well paying jobs for the middle class. The unemployed existed to create government jobs, that was also true of all other social programs. 

But Socialism also existed in Business and what I call World Socialism, which were related. Business Socialism was there to look after business. The dirty secret of business is that it claims to love competition but in reality it hated competition, it wants to have a stead income that is protected. That could be and was provided, primarily for big business. Regulations were used to protect big business from competition. Sure they had top pay a price but it was a price that they were always prepared to pay. 

The third leg of this Socialism was World Socialism, which was a part, a big part, of the Globalism push. Fifty years ago China and the Chinese were poor. Poverty in China was a given. Today we find it hard to think of poverty existing in China, it does of course, but most of China is no longer poor. Only the United States has more millionaires, which makes sense as it's economy is also the second largest. This is a massive transfer of wealth, an important part of Socialism. A transfer from poor people in rich countries to rich people in poor countries. Through the transfer of factories, expertise and intellectual properties. 

Democracy survives by bribing us with our own money. This transfer was no different, we got to buy cheaper goods and services. Cheap in the short term, but extremely expensive in the long term and all fuelled by debt. From the 1980's Monetary policy became a big part of the economy. Economic activity would be advanced through easy credit, credit cards, loans, both private and public. Debt would provide the lubrication to stop friction from developing within the economy. Debt meant that no one had to miss out.

It also meant that when the Global Financial Crisis hit in 2007 that Keynesian economics could only be paid for by printing money. Governments around the world created stimulus packages under one name or another, all designed to create demand and to keep the economy floating. Monetary policy kept debt high, inflation and interest rates low and the money printers in overdrive. Today more than a decade on we have a quiet inflation at work. It is not very apparent in everyday prices. Unless you want to buy a house or shares or anything that is connected to the financial economy, then you find that everything looks risky. Increasingly it is becoming harder to trust any investment class, everything is doing well. Which is both suspicious and dangerous. 

In the past few decades those in charge have managed to pull rabbit after rabbit out of a hat, how many rabbits are still in that hat?

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  1. The dirty secret of business is that it claims to love competition but in reality it hated competition

    Yes. If there's one thing the business sector hates it's free markets. Ideally they like to control and manipulate the markets themselves but having the government do the job for them is the next big thing.

    Actually there is one thing the business sector hates even more than free markets. They hate the idea of having to pay for their own incompetence and bad decisions. They firmly believe that it's the taxpayer's job to pay for their mistakes.

    The economic system we have at present is certainly not socialism but it's certainly not liberal free-market capitalism either. Actually it bears a fairly close resemblance to fascism. I mean fascism in the sense of classical 1930s-style fascism.

    That might explain why the political establishment is so keen to smear its enemies with accusations of fascism - they know that they are in fact following a lot of the principles of fascism but they don't want us to notice that.

    1. Why aren't you publishing on your blog?

    2. Why aren't you publishing on your blog?

      That's a good question. I'm having a rethink about my blog.

      I'm finding that my ideas about what is possible politically, and what is desirable politically, have changed. The political climate has also changed and I'm having to reconsider where I now stand.

      I'm still just as critical of the neo-liberal political establishment as ever but I'm increasingly uncomfortable with the far right, especially the American far right. The only political blogs I still read regularly are yours and also Oz Conservative.

      I'm also a bit burnt out at the moment as far as politics is concerned.

  2. I think this is a very good summary but additionally one could add for a few more of what I regard as important salient points as follows. Firstly both Adam Smith (wealth of Nations) and Keynes were on the one had moral philosophers or in Keynes situation ethically inclined to aim at improved fairer outcomes for society at large. Smith rallied against the rather obvious immorality of the mercantilists who exercised monopolies, whilst Keynes incorporated both monetary and fiscal policy to alleviate the inevitable excesses in the trade cycle, not properly provided for by Smith and others. In other words the invisible hand of the economy cannot be relied upon as governments need to take responsibility for full employment and opportunities to be maintained for its citizens.
    Monetary Policy was an equally important aspect to Keynes to be used in conjunction with fiscal policy. They have to be used on conjunction with each other he argued. The reason Monetary Policy took hold almost exclusively in the sixties (the monetarists gained sway) was due to the oil crisis and ensuing rapid inflation which led to the belief you couldn't use fiscal policy. That is the abandonment of stimulus measures when needed. Rather, it was argued its use would only make inflation worse. The lack of imagination and any counter measure as in the idea of an accord (wages and employer agreement) that could have refined Keynesian
    Economics, led governments to rely exclusively on excessive monetary policy. This was a cop out on the the role envisaged correctly by Keynes.
    It is always the case you need government control over an economy if you are to continuously build upon a fairer society.