Simon Duffy

Thoughts, Bemusements & Arguments

Tag: Smith

Gangster Economics

Economics emerged as a moral science, an attempt to understand how to advance justice and the wellbeing of all. The word comes from the combination of two important Greek words:

  • Oikos – which means family, family property or the family house
  • Nomos – which means law, order or justice

Today economics is treated as merely a social science, and as with all social sciences, the assumption that there is a moral order and that justice is a fundamental reality has faded. This is very much to the disadvantage of the science. Without moral imagination economics becomes lost in its own self-made world of artificial principles and models. It tries to predict rather than to guide us towards what is right. It becomes a servant of the powerful and of economic power in particular, rather than an advocate for economic justice.

It is striking that one of the founders of economics, Adam Smith, was a moral philosopher and that, his original vision was certainly very moral. For instance, Smith wrote:

“This disposition to admire, and to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean conditions… is the great and most universal cause of the corruption of our moral sentiments.”

Smith is responsible for helping to found the most powerful and well known of economic theories, economic liberalism; and while there have been some other important innovations in thinking and practice over the years, this approach – which stresses the importance of individual free choice in promoting good outcomes – has been resilient. Most economic theory is merely a footnote to liberalism.

It is a sad irony that the ideas of a man who often stressed the rights and freedoms of the poorest is now often cited to support the policies that harm them. In the UK, Government’s of both Left and Right, have turned justice on its head and acted as if we exist to serve the market, not the other way around. Advocates of justice often use the term liberalism, or its variant, neoliberalism to define the nature of their moral error.

This marks a decline in the meaning of the world liberalism that is also bitterly ironic. Originally being liberal meant to be free or to be lavishly generous. There is nothing liberal about the meritocratic, mean-spirited elites who rule our country today.

In fact I think that when we criticise the current Conservative Government, or the previous Coalition or New Labour Governments, as ‘liberal’ or ‘neoliberal’ we are in danger of flattering them. There is nothing liberal in their policies – in either sense. They do not enable more people to be free and independent, they do not encourage generous giving or secure welfare. They are illiberal, reducing freedom and increasing inequality and poverty.

How then should we characterise their economic policies if they should not be called liberal? I’ve been thinking about this for a while and I think I’ve come up with the right name. We are living through an era of Gangster Economics, where the purpose of economic policy is to reinforce the power and wealth of a small group by exploiting the poorest and bribing the powerful.

Think how gangsterism works. First you must exploit the poorest, using fear and violence, while ensuring that no powerful forces of resistance can arise from within the exploited communities. Compare this to a range of current Government policies:

  • Benefit cuts, sanctions and workfare brutalise the poorest
  • Regressive tax increases (poorest 10% now pay 50% of their income in taxes) milk them
  • Legal aid, trade union rights and the right of charities to protest have all been weakened
  • Asylum seekers, immigrants, disabled people and the poorest are stigmatised and insulted

The second phase of gangsterism is to protect the gangster’s field of operation, to ensure that nobody will come to the aid of the poorest. In 1920s America this was achieved by bribing the police, the mayor and by threatening jurors. In the UK today such bribery and pandering takes a somewhat subtler forms.

  • Tax and benefit policy is designed to benefit swing voters, to keep the elite in power
  • Honours and contracts are distributed to political donors, charities and commercial interests
  • The commercial media is courted, the independent media is undermined

For instance, during the Coalition Government taxes and benefits were both changed so that the poorest 10% were hit more harshly than any other decile. Their income, which was already only £40 per week after tax, was reduced by a staggering by 9%. At the same time the incomes of some middle income groups were even increased. If the Government’s objective had really been to reduce the deficit then logically it should have targeted the well-off and middle income groups. If you’re looking for money, don’t go to the poor. This policy reveal that current economic policy is an exercise in power – not in accounting.

The third stage of gangsterism is to get the whole economy dependent upon some substance over which you have monopolistic control and from which you can then cream enormous profit. Twentieth century gangsters used alcohol and then, when that was legalised, drugs. In Gangster Economics the drug on which we’ve all been hooked is debt.

  • Government has allowed banks to create more money, by creating debt.
  • Banks then profit from this new power by taking a slice of their Government granted monopoly
  • Politicians then discover the joy of the housing boom, as interest rates drop house prices grow, along with all the associated debt.
  • Home owners are happy (a ‘popular’ policy in the UK and US with high levels of home ownership) because their house is ‘worth more’ and they vote for the Government.
  • Banks are happy because they can cream off yet more money from higher levels of debt.
  • Banks then discover that they can manufacture new forms of debt, junk bonds, CDOs, synthetics from which they can cream further profits.

I would like to say that, eventually this all came crashing down; but it hasn’t. After a small wobble, the world economy is still doing its crazy debt-ridden dance. The Government keeps it going with Quantitive Easing and, now, 0.25% interest rates. Banks are the drug pushers, government is their backer and protector.

Historically debt has always been the means necessary to create slavery. Debt keeps us obedient and makes us run for protection to the government. Government reassures us and tells us that they will solve the problem, a problem they say that was the fault of the poor, the disabled and the immigrants. It beggars belief that we believe them, but believe them we do.

It is encouraging to see organisations like Positive Money emerge to challenge this nonsense, for social justice will require more than a restored welfare state, it will require new forms of economic policy. I think this will happen, eventually; the current system is just too crazy to survive and, as Adam Smith also said:

“Avarice and injustice are always short-sighted”

Adam Smith on Welfare Reform

The patrimony of a poor man lies in the strength and dexterity of his hands… and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour, is a plain violation of this most sacred property.

Adam Smith gets to the heart of what is wrong with imposing the highest marginal tax rates on the poor.

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