Twenty five years ago Guy Routh published a book entitled ‘Economics: An Alternative Text’, proposing the outrageous idea that economic theory should be based on observation and an understanding of how things work. He quotes Richard Jones “if you want to find out how the world works, you must look and see.” This approach was, and is, completely outrageous; that’s not how economic theory works. And it is economic theory by which we are all ruled. Orthodox theory is based on the statement of axioms, ‘plucked from the air’, from which logical, usually mathematically calculable, deductions are made. The fact they bear no relation to the real world is of little importance to the ‘madmen in their ivory towers’.
The dilemmas facing the new British government, though not them alone, in dealing with the biggest ever peace-time indebtedness, are how much of public expenditure to cut, what to cut and how to cut it and above all when to start. Do too little too late and “the markets” won’t like it and that would bring untold disasters. Do too much too soon and we’ll be in for a double dip recession. And then “the markets” would forsake us for good and all. We need to reduce short term indebtedness before its costs bring the recovery to a shuddering halt. That mustn’t be allowed to happen since its only a recovered economy that will eventually repay the long term debt and finally get us out of this mess.
Well, where are the very clever economists who invented all this jargon about double dip recessions and “the markets”? It’s exactly the sort of conundrum their sophisticated mathematical models should be able to solve. They have the computational power at their disposal; why are they not doing their sums and coming up with the answers?
Media commentators are continually condemning politicians of all parties for not being straight up with us, telling us the bad news about what they intend to cut. But, till now, politicians have probably been 100% honest on this score if nothing else. The simple fact was they didn’t know what they were going to cut. Because the economists hadn’t come up with any coherent suggestions. Because they didn’t know either. Because their fancy mathematical models didn’t work any better on that, than they did on credit default swaps, or eliminating the risk on sub prime mortgages, etc etc etc.
Maybe it’s time for people controlling the real world – who Keynes referred to as ‘the madmen in authority’ – to ignore theoretical economists, and apply the lessons of experience and common sense instead.
The announcement of around 1400 job losses at the Bombardier rail works in Derby signals the beginning of the end-of-life stage for another great British manufacturing industry, resulting more or less entirely from the incompetence and stupidity of the ‘madmen in authority’. Their latest incarnation, Transport Secretary Philip Hammond, was interviewed this morning on BBC Radio 4’s Today programme to explain why it was ‘correct’ to award the £1.4 billion Thameslink contract to the German company, Siemens, rather than to Bombardier, UK’s last rail producer. His explanation was based on his belief in ‘free trade and open markets’, although, to do him credit, he had noticed that ‘the Germans award contracts for trains to German builders’, and ‘the French routinely award contracts for trains to French train builders’. He described their approach as looking ‘more strategically at the support of the domestic supply chain’. Well what does he think the British government’s role is supposed to be? Is it to be looking after strategic British interests, or to promote an outmoded ideology that has proved time and again to be disastrous, in particular, to British manufacturing? Well, he and Vince Cable have written a letter about it to the Prime Minister! Good for them!
Continue reading The Bombardier Fiasco