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The Silence of Economists

by Tarik Ahmia Friday, Dec. 17, 2010 at 3:27 PM

In 1936 Keynes was the first established economist who explained how a free enterprise system in no way realized a state of balance by itself. The state must take an active role in crisis times to prevent an economic downswing ending in a catastrophe.


The Neoliberal Guild is Helpless and Clueless about the Way Forward

By Tarik Ahmia

[This article published in: Die Tagesanzeiger 12/19/2008 is translated from the German on the Internet, http://www.taz.de.]

For months the term “economic program” seemed to be on the blacklist of the German government. Its hesitation and half-hearted impulses for an economic-political intervention show it is frightened by active economic policy. This is clear in the guild of economists advising the government. For years guild spokespersons preached to the public: growth can only be assured if the state keeps away from the economy, social benefits are cut, labor markets deregulated and businesses relieved. However these market liberals have become strangely silent in the wake of the global crisis.

Tarik Ahmia was born in Algiers in 1966 and is editor of the economics and environment section of taz. As an economist, he has a critical view of economic researchers who think they have an objective doctrine.

Their problem is that they have no practical prescriptions against the worldwide economic collapse that are consistent with their worldview. For the moment, they can only offer empty protests. “Some time or other the crisis will end. We only do not know when and how,” the “economic wise man of the German government, Wolfgang Franz, proclaimed in the media all over the country.

As the sloganeer of the German government, the mainstream of German economists just won’t learn. The mainstream is stuck in an ideological crisis as to state support of economic development. That the German government after long hesitation now follows the global trend to active economic policy is a sacrilege in their eyes. For want of an alternative, their lips are sealed. They remain silent or warn, like Franz, of state incursions and “short-term straw fires or flashes in the pan.”

The helplessness of the economic wise men has a system. Franz and his neoclassical colleagues are caught in their own intellectual systems. The world of neoclassical economics peculiarly uncoupled from reality has dominated the economics mainstream in Germany for years. It tries to grasp the real processes of a national economy in an extremely abstract and reduced economic model. The result may shine through the elegance of formal-mathematical unity. However it suffers in that it systematically fades out fundamental factors of economic reality. The original goal of describing real economic actions of people almost inevitably falls by the wayside. At the same time this paradigm can be interpreted so that crucial political-economic questions like optimal social redistribution cannot be answered.

This model claims to be “free of any value judgments” and socio-politically neutral. It can only explain in what way scarce resources can be used most efficiently. However the economy of neoclassicism is a world where all plans of economic subjects are known and there is no uncertainty about the future. This ultimately does not correspond to any real market form any more and fades out all forms of social reality and human stories. No expectations of market actors can influence the economic course. In this perfect world of “total competition,” the4 market economy is more stable the more freely one can act.

This is also the reason why neoclassicists generally regard state interventions as breaches of a taboo because in their worldview they falsify or slow down market developments. The economist Eberhard Feess-Doer describes this method as follows: “Neoclassical theory consciously assumes counter-factual assumptions to come to a politically desired result demonstrating the optimality of an unregulated market economy.”

As an economic theory, neoclassicism is a classic example that lay persons should counter all economic theory that operates with absolutist advice and fades out social reality with skepticism. One should not overlook whose picture of society implicitly undergirds an economic theory. The history of the economy is full of examples in which supposedly independent researchers acted as intellectual smooth talkers of their respective ruling class whose “economic theories” were no longer corroborated by the prevailing conditions. Thus the French Physiocrats in their economic theory in the second half of the 18th century granted an indispensable role to the feudal lords of their time as classe distributive. The English philosopher Edmund Burke gave a central role to the “ruling class” in his theory of society because it promoted the general well-being “through the wisdom of their exercise of political power.” Therefore this historical and social function of neoclassicism does not go beyond a justification of capitalism. The literal interpretation of this theory proved tragic. During the first worldwide economic crisis of 1929, its spokespersons had to declare their intellectual bankruptcy. At that time none of their models would explain what happened or how the economic collapse could be stopped.

The intellectual Big Bang of the British economist John Maynard Keynes was needed. In 1936 Keynes was the first established economist who plausibly explained how a free enterprise system in no way realizes a state of balance by itself. He explained how the state must take an active role in crisis times to prevent an economic downswing ending in a catastrophe. With his findings, Keynes was the Galileo of economics. Economic policy held in the tight corset of the neoclassical school is like the attempt to pursue physics today on the assumption that the earth is a disc.

Nevertheless neoclassical thinking survives. Economic-political pragmatism is emphasized. The German government must be freed from its worldview, the strait-jacket of neoclassicism, and accept the international common sense of the economy. Therefore it is encouraging when Merkel & Co. now promotes a real economic package. To be effective, 40 billion Euros must be made available for public investments and not consist mainly of bubble accounting as in the first “economic package.” … Other alternatives for countering the spreading economic crisis are not in sight.

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