Disrupting the Econocracy? Thaler's Prize

The mutual admiration event of the Econocracy's year is the award of the 'Nobel Memorial Prize in Economic Science', which is announced at about the same time and in the same sort of way as the real Nobel prizes. But this prize was funded by Scandinavian banks, many decades after the original Nobel benefaction; before the absolute triumph of the 'rational expectations' dogma but well into the era when Economics had been captured by the neo-Keynesians who were about to show the dangerous impact of their views as applied [on their advice] by governments when the inflation that was the inevitable result of the flawed dogma began to bite into individuals' welfare and to undermine government strategies. Through the later nineteen sixties and into the 'seventies a back-catalogue of economic writers from the previous forty years were rewarded with the new prize, which was often split between two or more winners [thus quickly building-up the list of 'Laureates'] . After that the prize has been awarded to a mix of writers who have [in general] more or less closely subscribed to the increasingly tight dogmatic requirements of the Econocracy as they have tightened their control of the standard syllabus in Economics for students [as explained in the text Econocracy, frequently mentioned in the blog and created by the Post-Crash Economics Society at Manchester].

There have been occasional exceptions to this command of the prize by the dominant faction of Economics grandees, achievable because the electors' view of the world from the expanses of Scandinavia is broader than from Chicago, Princeton, the LSE or Cambridge; and thus other points of view have had a look-in from time to time. But those individuals have deferred, in general, to the overriding assertions of 'scientific' rigour, purity and authority that has been claimed by the Econocrats.

Thus this year's prize has been hailed as a novelty, a breakthrough; maybe as the gateway to a new era. This is the award of the prize to the hugely respected Richard Thaler, best known as the advocate of the 'Nudge Theory': a psychological insight that can be said directly to contradict the assumptions about humans' behaviour that lie at the heart of Econocratic dogma. Thaler has drawn on psychology to suggest that people do not behave as Alfred Marshall assumed in his Principles of Economics [1890] and which subsequent authoritative figures have built up constantly as the core of current theory. The critics have been delighted to welcome this award to Thaler as evidence that even the committee awarding the pseudo-Nobel Prize are open to the view that homo economicus - 'economic man' - is not a true or fair representation of real, living and breathing human beings.

The entire modus operandi of the Econocracy is based on the assertion that people will act 'rationally' if they have enough access to the facts on which they should reach economic decisions. Individuals will allocate their scarce resources to those purchases that will maximise their welfare over their lifetimes; thus dividing their spending between present needs and the demands of the future [such as providing for pensions and medical care in old age]. Recognising that resources are scarce, economic man will always buy what will do him most good and and least harm: always assuming that sufficient evidence of potential outcomes is available to him.

A few minutes' observation of real humans gives the lie to this daft assumption. Stand in any street and watch the obese people waddle laboriously along, eating something from a packet. Look at the flashy cars that young men can only afford to hire-purchase at the cost of making no provision for the future [and often not insuring the vehicles]. Look at the drunk, drugged young women in the gutters in any major city at weekend. Read the data on early deaths and completely burnt-out people still in their twenties.

Since real people behave so irrationally, it cannot be expected that whole communities whose coalmine or steelworks is closed down on the basis of fake data by a Thatcherite government [whose real objective is to eradicate the trade union that is embedded in the 'redundant' plant] will abandon their community, their homes and their connections, and migrate as individual families to places where there may or may not be new jobs for them. How do five hundred redundant miners assess such a situation? They can't: and anyway even a Thatcherite government is subject to the 'irrational' need to win the next election: so they maintain the denizens of the pit villages in situ with social security payments, early access to pensions and other means by which no 'rational' economic decisions need to be taken by the population. Hence both people and their political systems can be seen to be 'irrational' every day.

Thaler does not approach the issue as I do in this comment; but he suggests means by which people can be 'nudged' more constructively to react to the situations in which they find themselves. In doing this he has performed a major service: not just to 'economic science' but potentially to humanity. But this does not rescue Economics from its guilty hold on the essentials of human interaction: Thaler has cast light, and proved that his theories have traction in reality: which is great. But much more is needed to smash the Econonocracy; who can choose to teach their students that real people can be nudged to behave more like homo economicus: which would be the worst outcome of all.

Implausible and Impossible Prime Ministers

It remains unfashionable, especially in Tory circles, to suggest that the financial crash of 2007-8 was an inevitable outcome of 'Thatcherism'; but it was. It is obvious, in all but tightly Tory circles, to recognise the Grenfell Tower disaster as an outcome of 'Thatcherism'. The stubborn stupidity of the leader of Kensington and Chelsea Council is typical of the Thatcherite brood, three generations on from the real thing.

The parenthetic use of the lady's name is to emphasise that, in my view, she did not know what she was doing. Thanks to Sir Keith Joseph she was one of the first politicians to be introduced to the ideas that were just becoming significant in Economics. This was in the middle nineteen-seventies, when she became leader of the Conservative party amid the chaos that followed the bizarre misapplication of Keynes's theories by the self-styled 'Neo-Keynesians' who set up the inflationary chaos that make the economy unmanageable and the state virtually ungovernable by 1975. The new theory of 'rational markets' that has now become the impenetrable dogma of the Econocracy [as explained in earlier blogs] was the intellectual justification for the rush to deregulation, denationalisation and diminution of government which became central to her politics. That there was a powerful and developing academic community supporting her actions was enough for the Iron Lady, who was not herself an intellectual giant. She had tremendous qualities of drive, determination and sheer willpower, which she imposed on a largely-uncomprehending and spectacularly supine Cabinet.

Deregulation and cheeseparing in government, assisted by a cynical recognition among people like many of the Tories of Kensington that the largely-migrant population of the tower blocks were not keen to attract the interest of the authorities, are the direct causes of the Grenfell tragedy. Thus it can be seen as a direct outcome of the Thatcherite implementation of the daft dogma that also gave us the crash and the systematic weakening of the bonds of British society through the implementation of Osbornian 'austerity' in combination with the mania for 'deregulation' and cheapness in public services and amenities.

This disaster has come on Mrs May's watch, and her failure to comprehend it has been seen by the entire nation. The at-least-equally comprehensive failure by the Borough Council has been less prominently noticed by the media because of the ability to blame the government, and - above all - its head. Even if Mrs May displayed any comprehension of the risks that attach to Brexit, her failure for several days to face up to the Grenfell Tower situation has shown her unfit for office. As this tragedy has even driven the Brexit talks off the front pages for several days it has made it ever more inevitable that the intellectual and empathic resources in Downing Street are not up to scratch.

So now the search is on for a new Prime Minister. In Tory minds, it has to be a Tory: the party dare not face an election. Boris, as the papers say in setting him aside as 'too risky', "is Boris". Philip Hammond, a dull fish if ever there was one, seems to be emerging as the favourite; but he could turn out OK.

Anthony Eden was seen as a golden boy in the nineteen-thirties, and was Conservative 'heir apparent' to Churchill from 1940 for over a dozen years before he finally became a disastrous Prime Minister who was carted off to the Caribbean after a 'breakdown'. The Earl of Home was almost competent, when the nation faced  Macmillan's choice of a successor. John Major was constantly harassed; but he won a general election convincingly and was later chosen chosen by the royal family to serve as Trustee for the inheritance of Princess Diana's sons: probably the biggest vote of confidence a Prime Minister can get. Major was a success; May is a failure.For four decades Thatcher been seen [at least, on her own side] as a success: how bizarre is that? We are just beginning to realise.

So whether the Tories next opt for Hammond or Gove or Rudd or Johnson [or any of the others who are mentioned in today's papers], the fitness of that person for the office will only become apparent in the event.