Abstract
This interesting, even iconoclastic, book is part of the trend since the 2008 global crisis of questioning and criticizing the actors and theorists of capitalism who failed to foresee the crisis and the factors that contributed to it. The main focus is the principles that underpin mainstream economics and the economists who are its flag bearers.
It starts by questioning how much highly reputed mainstream economists really know; this is a valid question following the global financial and economic crisis that hit in 2008 and whose consequences are still devastating. Weeks argues that ‘fakeconomists’, as he calls them, understand little and muddle almost everything else, misrepresenting markets and systematically marketing falsehoods, using myths and blatant lies to mislead policy-makers, with disastrous social, economic and political results. Their sole motivation, he argues, is to protect and promote the interests of the 1 per cent rich minority at the expense of the rest of the population – the vast majority – notably in the advanced economies.
He reviews these misrepresentations, offering alternative evidence and arguments for improving the understanding of economics and the policies that it inspires, while enhancing the well-being of the ‘99 per cent’. This is to be done essentially by combating the social and economic inequalities that have drastically widened since 2008. In this exercise he calls into question the basic tenets of a wide range of conservative mainstream ‘political economists’ of the late 18th and mid-19th centuries, and of their successors, rebranded plain ‘economists’ from the late 19th century onwards. He considers that they are actually not ‘economists’ at all, but rather ‘the alchemists of the social sciences – “econfakers”, whose fantasy world is ‘a state of grace of “perfect competition”, where all buying and selling occurs with full knowledge of the future, and with the absence of market power of any type, and full employment of all resources. Their modus vivendi is mathematics’ (p. xix). They are supported by an uncritical and credulous media. The approach fostered by these mainstream economists pushes the doctrine of ‘choice’ in all spheres of life, narrowed down to the supposed alternatives of public and private options, in relation to schools, health care and social security, among other things, based on the assumption that people have access to the necessary information and knowledge and understanding of complex alternatives and the market risks associated with each (notably in pensions schemes).
Interestingly, similar criticisms are increasingly being voiced in ‘mainstream’ journals, notably the Financial Times, which commented in a recent editorial (26 September 2014) on criticisms made by students at Oxford University of the economics they were being taught which, they claimed, had too little connection with reality, as a result of which the famous university has changed its curriculum. The editorial notes that ‘the fundamental point made by the critics is right. For a subject so engaged with studying worldly behaviour, there is too much timeless abstraction and too little scrutiny of real world events’, and concludes that ‘[i]n the aftermath of the financial crisis … Those who champion the discipline must remember that, at its core, it is about human behaviour, with all the messiness and disorder that this implies.’ This editorial was followed by an avalanche of letters from economics professors, mostly supporting the students’ arguments. The FT has published several news items and analyses, voicing concern about growing income inequalities – resulting, among other things, from the stagnation of low and mid-level wages – which harbours serious risks to social cohesion and economic growth (see, for example, Martin Wolf, ‘Why inequality is such a drag on economics’, FT, Comment, 1 October 2014).
The author of this book acknowledges that, beyond the promoters of the ‘invisible (and I would add “divisible” or even divisive) hand’, since the mid-19th century there have been numerous progressive heterodox economists – to whom this book is devoted – including Karl Marx, John Maynard Keynes, Thorstein Veblen, Michal Kalecki, Gunnar Myrdal, Joan Robinson, John K Galbraith, Ha-Joon Chang and Paul Prebisch. But they are little listened to by policy-makers and tend to be ignored by the all-powerful media.
Weeks sets out to show why the building blocks of the free market dogma promoted by mainstream economists are false, notably the ideas that ‘market competition’ is benign and offers opportunities for enrichment to all, and that ‘free trade’ among countries provides cheap commodities and jobs, while public intervention in markets (via ‘oppressive’ regulation and taxes) is bad. These concepts have been promoted and followed by many governments in the advanced economies, despite their political, economic and social shortcomings and the recurrent crises that they have caused in the past five decades, accompanied by bursting bubbles (technology companies, banks, mortgage lending, public, business and household debts and so on), persistent and rising unemployment, income and wealth disparities and poverty. However, the author insists that this book is not an anti-market polemic. It attempts to show that capitalism can be reinvented by using common sense and remaining committed to a decent society. He sets out to defend markets as effective social mechanisms, but ones that can function properly only if they are regulated democratically for the collective good.
The book consists of an Introduction, devoted to ‘Economic Ignorance’, followed by 10 chapters, each with evocative or provocative titles. Chapter 1, on ‘Fakeconomics and Economics’, develops arguments that underpin the author’s criticisms of what he qualifies as pseudoscience, notably the idolatry of competition, versus the way markets really operate. Chapter 2, on ‘Market Worship’, explains what competition really is, why markets fail and how ‘fakeconomists’ look at the ‘labour market’, including the fact that they blame workers for being unemployed. Chapter 3 on ‘Finance and Criminality’, looks at the rationale of the financial sector and the cost of the financial crisis: spelling out the characteristics of financial markets, he maintains that they ‘do not in themselves cause a problem in any country. The weak and inappropriate rules and constraints on markets cause the problem’ (p. 53).
In the following chapters Weeks successively presents his criticisms of the market myths that ‘fakeconomics’ propounds, their rationale and how they distort reality. They are designed to deceive, masking reality by arguing that resources are scarce, and that supply and demand are the main or only determinants of the prices of goods and services. In ‘real world production, distribution and exchange are subject to manipulation through market power by both buyer and sellers’, as clearly demonstrated by the monopoly-administrated oil prices that determine how much will be bought and the quantity that will be produced (pp. 64–65). Looking at the fakeconomists’ concerns about labour scarcity, based on the assumption that a 4.5 per cent unemployment rate is ‘full employment’, he notes that such an average conceals a high incidence of unemployment. Turning to the ‘Nonsense of Consumer “Choice”’, he quotes Franklin D Roosevelt’s Second Bill of Rights, according to which ‘true individual freedom cannot exist without economic security and independence’ and ‘People that are hungry and out of a job are the stuff of which dictatorships are made’ (p. 76) (Chapter 4).
Other myths dealt with in the book include the propositions that everyone is a ‘sovereign’ consumer and that anyone can become rich, and that everyone gains from free trade. Weeks contests these propositions by pointing to the growing income inequality, especially in the United States and the United Kingdom, which is accompanied by educational inequality and declining intergenerational mobility. The limits of ‘consumer sovereignty’ are illustrated in the area of health care provision, among others. As for free trade, he cites the World Bank’s findings that ‘trade liberalization is negatively correlated with income growth among the poorest 40 per cent of the population, but positively correlated with income growth among higher income groups’ (p. 98) (Chapter 5).
Turning to ‘lies about government’, they start with the ‘econfakers’’ conviction that public regulation of private economic activity results in inefficiency, which acts against the well-being that such regulation purports to promote, involving ‘excessive’ public expenditure, such as ‘unaffordable’ social welfare, which is wasteful and increases the tax burden. Weeks contests this affordability fallacy by referring to empirical evidence on public sector pensions and health care provision which proves that they are lower cost and provide broader coverage than private sector provisions (Chapter 6). The resulting ‘Deficit Disorders and Debt Delirium’ are in turn analysed and equated with ‘peddling nonsense’, because debt used to finance (real capital) investment has a balancing asset; deficits result from decline in revenues due to recession (and low and stagnating pay) (Chapter 7). He questions the relevance of ‘fakeconomics’’ professed concern that governments cause inflation, given the current very real worries about deflation, as well as government’s role in monetary policy (Chapter 8).
All these misconceptions find expression in the ‘fakeconomists’’ balanced-budget ideology, which counsels the imposition of austerity to deal with the supposedly ‘excessive’ public expenditure that is purported to underlie public deficits. This logic claims that public expenditure tends to crowd out private investment. This might be so if the economy always operated to its full potential, but of course this is rarely the case, especially recently. On the contrary, government spending constituted the counter-cyclical ‘automatic stabilizers’ that stemmed the ‘tsunami’ unleashed by the global financial collapse of 2008. In fact, he notes that US public spending and taxes are well below almost all other high-income countries, and even below most middle-income countries. The chapter concludes with a severe criticism of the diagnostic errors of the problems faced by eurozone members in the post-2008 crisis and of the austerity measures imposed, purportedly to address them, noting that ‘the crisis-hit countries did not have excessive social protection or high social expenditure … If social expenditure explained the fiscal deficits in the Eurozone countries, German public finances would be on life support’ (p. 176). He adds that ‘The power of finance changed the low probability into a near certainty. Complementary to the speculation-driven crisis in Europe, the Great Recession created fiscal deficits in both Europe and North America. Financial capital had redesigned the political landscape in its own image …’ (p. 183) (Chapter 9).
This leads Weeks to warn that increasing disparities in wealth accumulation diminish democracy, to counter which he delineates an economics of the 99 per cent that would foster a decent society. Its fundamental premise is that resources are lying idle (including unemployed workers) and that economics must explain it and propose public policies to end the waste of human skill and productive wealth. The public sector should function as the social institution that maintains full employment across the economy by increasing aggregate spending to a level that reduces unemployment to its practical minimum, scaling back such spending as the economy recovers. It must also design and implement policies for an equitable distribution of income, with no person or household remaining below the poverty line. Indeed, successful poverty reduction schemes enhance earning capacity and protect people from falling into poverty again. This approach requires equal access to the benefits of economic prosperity, outlawing discrimination and ending implicit divisions between insiders and outsiders, as well as improving education. The latter may contribute substantially to poverty reduction in a society that provides health care for all, ensures a living wage and adequately supports workers when they fall into unemployment. An economy run in accordance with such a vision would mean a bright future for the majority, resulting in a society that would be able to dispense with ‘safety nets’ because economic institutions would provide income, health care and education for all (Chapter 10).
This is a stimulating and thought-provoking book, which is particularly timely in shaking a number of unjustified ‘certitudes’ that have hindered countries from getting out of recession and resuming economic growth that benefits the majority of the population.