‘Told You So’ Is Bitter Sweet

‘After I wrote the first edition of The ABCs of Political Economy in 2002 came the “rush” of vindication:

I warned about the dangerous downside potentials of liberalising the financial system. But did anyone listen? No. And sure enough the world suffered the worst financial crisis in five generations five years later.

I explained why insisting on fiscal and monetary austerity in exchange for IMF bailout loans for stricken third world economies only worsened their plight. Only to have the European Commission and European Central Bank impose even more draconian austerity on Portugal, Ireland, Greece, and Spain – the infamous PIGS – driving the Southern European economies into a full blown depression, and the miring the entire Eurozone in a double dip recession, poised to dip once again.

I explained why the sensible response to a recessionary slide is expansionary fiscal policy. Only to see the Obama administration change the subject from fiscal stimulus to deficit reduction in the winter of 2010, killing any hope of an early recovery in the US.

The simple “corn model” in chapter 3 explained clearly why increasing inequality is the predictable result if wage rates in labor markets, and interest rates in credit markets, are determined by the laws of supply and demand. Only to see center left as well as center right governments in every advanced economy push financial liberalization and labor market “flexibility.”

I devised a simple “public good game” to explain the inescapable logic of why actors will predictably fail to voluntarily contribute sufficiently to public good provision. But did anyone apply this logic to international climate negotiations to conclude that voluntary greenhouse gas emission reductions would be woefully insufficient, and only mutually agreed to, mandatory reductions could possibly prevent unacceptable climate change? No. Instead in Copenhagen in 2009 the Obama administration scuttled progress toward mandatory reductions made in the Kyoto protocol, setting international climate negotiations back twenty years just when scientists were telling us that the “climate problem” was much more immanent and acute than they previously believed.

In short, writing a new edition of The ABCs of Political Economy in 2014 was not very difficult because the theory and models in the 2002 edition were precisely what one needed to know why our economies were becoming more unstable and unfair, and why the measures governments were taking aggravate rather than ameliorate problems.

But unfortunately my rush of vindication as an author was short lived, and was soon replaced by dismay, followed by anger, followed by despair. Bad economics continued to create new accidents waiting to happen. Bad economics responded to crises with counterproductive policies. Bad economics threatens not only the economic wellbeing of the vast majority, but the health of the planet as well. As the carnage kept mounting the “I told you so” rush of vindication did not feel good for long.

In 2014 the problem is not a lack of good economics to replace bad economics. I’m happy to have been able to publish a second edition of The ABCs which applies “good economics” to understand major economic disasters that have befallen us over the past dozen years. But quite honestly I do not believe writing more “good economics” is what will change things. Of course there are plenty of people who remain thoroughly confused; plenty who still believe in myths perpetrated by mainstream economists, the mainstream media, and politicians in traditional political parties; plenty who vote contrary to their own interests as well as the interests of humanity at large. Confusion among ordinary people remains part of the problem because bad economics continues to have a much bigger and louder megaphone than good economics. So there is still plenty of “educational work” to be done. But the counterproductive policies we are getting are much worse than what we would get if popular opinion held sway.

Poll after poll demonstrate solid majority support for policies that reduce unemployment, policies that subject the financial sector to competent regulation, policies that would make the wealthy pay more taxes, policies that reduce greenhouse gas emissions and stimulate renewable energy production and energy conservation. The problem is that despite all of the damage bad economics has done over the past seven years, and despite all the “minds and hearts” we have won over, nowhere in the advanced economies are traditional political parties and governments abandoning failed bad economics to practice good economics instead. Nowhere are economic advisors who said there was nothing to worry about, and who then doubled-downed with advice that only made matters worse, being summarily dismissed and replaced by economists with track records of foreseeing problems and championing solutions that work.

Why is the same bad economics still ruling the roost? Why are economists whose predictions proved erroneous promoted to ever more influential positions while economists vindicated by events are shunned? Don’t get me wrong, I’m not talking about myself. While I am proud of my track record warning of potential problems, and predicting what policies would work, and what policies would not, I am best known as an economist who long ago called for people to abandon the economics of competition and greed altogether, and embrace a wholly different economic system based on equitable cooperation. I am primarily known for my work helping flesh out a concrete alternative to capitalism in the libertarian socialist tradition, which goes beyond rosy rhetoric and vague prescriptions. So I am not asking why I, personally, have not been asked to clean up the economic mess discredited neoliberal economic policies have made out of twenty-first century capitalism. I’m asking why Nobel laureates like Paul Krugman and Joseph Stiglitz, who do not look beyond capitalism but who have been vindicated over and over again regarding what will make matters worse as well as what will improve outcomes, are still left sitting on the sidelines; while people like Laurence Summers and Stanley Fisher, who have been proven wrong at every turn, keep being recycled into influential policy making positions.

It took a while for the answer to become apparent. For a few years it appeared that popular confusion, ignorance on the part of politicians, and loss of historical memory about the last great financial crisis and depression, was a plausible explanation. But as bad economics persisted it slowly became apparent that bad economics is not bad for everyone. Bad neoliberal economics is not bad for the Wall Street banks whose socially irresponsible, greedy behavior triggered the crisis in the first place. Bad neoliberal economics is not bad for the top 1% who continue to see their wealth and income soar as incomes and economic prospects shrink for the rest of us. Ignoring the necessity of an aggressive, collective international response to climate change is not bad for the fossil fuel companies who have long controlled global energy policy. In short, what eventually became apparent was that neoliberal economics is only bad for the overwhelming majority and the health of the planet; it is not bad for powerful elites able to veto policies that threatened their narrow interests, no matter how crucial those policies might be for the general good.

And this is where things now stand. Despite the worst economic performance in five generations, despite a looming climate crisis that threatens life as we know it, despite polls that show a majority support “good economics,” politics in the advanced economies remains responsive only to the interests of powerful elites even when this is clearly contrary to the interests of the vast majority, and has put us on course for a planetary disaster.

Vindication… dismay… anger… despair. That is certainly not a satisfying emotional trajectory! Is there no hope?

Slowly over the past half dozen years popular reactions against political intransigence emerged. Center-right and center-left governments, who despite different rhetorical styles all persisted in pointless austerity, were voted out of office in one country after another. “New” or “future” economy initiatives sprang up in the ashes of the “old” economy as it increasingly failed us. New popular movements like Uncut, Occupy, and los Indignados, with fresh ideas and fresh faces, erupted. And new, anti-neoliberal political parties such as Syriza and Podemos are slowly emerging from fringe status.

But as encouraging as all this has been, it has not been enough to change policy. It has not been nearly enough to set us on a forward course. And unlike all previous struggles for human progress where the price of delay has always simply been more human suffering than necessary, this time if we do not progress much faster than we have been we will soon do irreparable harm to the planet. While Naomi Klein is largely clueless about what must actually be done to prevent climate change, she is right about one thing: The task before us is to combine a host of social justice and environmental organizations into a giant, global, social movement that is much greater than the sum of its parts, and therefore will be powerful enough to compel reluctant governments to implement policies that are necessary to prevent cataclysmic climate change fairly before it is too late.’


Robin Hahnel is Professor Emeritus of Economics at American University in Washington DC. He is author of Economic Justice and Democracy (2005), Green Economics (2011), and Of the People, By the People: The Case for a Participatory Economy(2012).

To order a copy of The ABCs of Political Economy before publication on the 20th November, at a special price of £12, and with Pluto goodies thrown in, visit the book’s page.

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