The Naked P{rophets

THE NAKED PROPHETS

By Tom Schimmeck

[This article published in the German union journal Gegenblende Jan 9, 2012 is translated from the German on the Internet, . Tom Schimmeck, 51, co-founder of taz, former editor of taz, Tempo, Spiegel, profil and Woche is a free author in the areas of politics, society and science.]

Everything has been said about economics. Its reputation is battered. Economics’ sharpest critics regard it as an auxiliary science of astrology, a sect that sings its same little song in fervent ideological unison since the 1980s: about the holy market and the salvation-bringing unleashing of its powers through deregulation, liberalization, stripping of state power and privatization. At that time the great turn occurred from John Maynard Keynes to Friedrich August von Hayek. Margaret Thatcher always carried Hayek’s work “The Constitution of Liberty” in her handbag. For a long while, The “Economic wise men” were stylized as prophets. Hardly any one still hears them today when they proclaim their conventional market truths.

However we should try to be balanced. Not every lawyer advances to a cynical power politician. Economists are not all of the same beat. To be sure, old mainstream economists exist, that phalanx of the so-called law-and-order school that dominates the institutes and universities, think tanks and talk show hosts of the nation for years. The “fresh water economists” flee. Paul Krugman, one of the most eloquent critics and a Nobel Prize winner for economics, raised the question of questions in 2009 in The New York Times: Why were they all so wrong and blind? “How Did Economists Get It So Wrong?”

How? Is this a pseudo-science miles away from all world reality like a sect clinging to its prayers? Did its spokespersons inure themselves in their windowless ivory tower? Do they calculate instead of think? With the “Homo oeconomicus,” do they pay homage to a simple and dreary view of the person? As Hans-Werner Sinn (Bild: “Germany’s best economic professor”) once formulated: “The market economy is a system that doesn’t need good persons. The market economy functions with the person as he is: an egoistic profit-addicted individual who wants to maximize his consumption.” How pathetic!

Since the crisis, the economy has stood rather naked. Why get excited about Mr. Sinn? What about the other brave knights of neoclassical doctrine, all the neat professors who commodify themselves as givers of keywords and “ambassadors of the industry-financed “Initiative of the New Social Market Economy”? Economics is changing. The long scorned dissenters are heard increasingly. Heiner Flassbeck, chief economist of UNCTAD, decries the “incapacity” of his guild “to properly interpret the world.” Joseph E. Stiglitz, former chief advisor of Bill Clinton, pillories the “rightwing of economists.” Classic authors are finally rediscovered, thinkers like John Kenneth Galbraith who wrote about “private affluence and public poverty” in 1958 long before the neoliberal crusade.

That was the last straw for th3e economics’ press. When 190 German professors ranted and raved against an expansion of the Euro bailout umbrella with the usual arguments in February 2011, the Financial Times of Germany groaned “Economists blame themselves in Working for the Euro Bailout Fund.”

In Uni-Spiegel, Miriam Olbrisch and Michaela Schiessel recently described the mad cosmos of German economic theory. The young Henrik wanted to understand the world and wrote as a student of economics in Heidelberrg:

“Outside the time-honored walls, the markets seemed mad, driven by the greed and panic of investors. Inside students learned that “the invisible hand “ of the market according to Adam Smith, pope of economists, always leads to a balance. The markets are efficient, the professors told them, perfectly balanced by competition, supply and demand. The stude3nts studied hard through neoclassical mathematical models in which only rational actors exist. Welcome to the world of the Homo oeconomicus.”

Some cannot endure this anymore. That is why the “post-autistic economy” has arrived in Germany. “Post-autists” is the self-ironic term of a movement of economists who resist the enormous conformity pressure of their discipline. They stand up to empty theory and seek to anchor their perspectives in society. They understand the economy as a social science and the human subject as more than a robot programmed for selfishness.

This movement arose ten years ago at the Sorbonne. Since 2000, its organ, the real-world economics review, has been published and is read by over 17,000 interested persons in over 150 countries. Since then, it has grown, fueled by the crisis and the hunger for plurality, new thinking and wiser explanations. In 2011 the new “World Economics Association” arose. 3600 economists from 110 countries joined within ten days of its creation. The explicit goal of economics should be “better serving society.” This requires more competence, relevance and openness to other social fields. It is high time for alternative economics. The macro-economy of the last 30 years, Paul Krugman concludes, has been “at best spectacularly useless and at worst absolutely harmful.”

Post-autists are not alone. In 2009 the Institute for New Economic Thinking (INET) was founded with funds from George Soros. In Germany, the “sustainable economy network” (“Netzwerk Nachhaltige Okonomie”) decried the blindness against every religious preacher of the market who sees himself as a manager of a supposedly objective reality. Their showmanship is not a sign of intellectual greatness. As John Maynard Keynes explained, “practitioners who believe they are not subject to any intellectual influences are usually slaves of a long dead economist.” Even Hayek recognized: “One who only wants to be an economist cannot be a good economist.”

What must happen now? Wolfgang Streeck, managing director of the Max Planck Institute for Social Research wrote a pointed essay that should be required reading. “Exactness is impossible. The coming generation, particularly the part studying economics, should be protected fr5om the mono-cultural brainwashing pursued at the universities with standard economic rational- and market models.”

The text is a wise accounting with the distortions of the standard economy and its forecast mania… Streeck recalled the grandiosely wrong predictions of the great German economic research institutes for 2009. The narrow horizon of conventional economists long courted by politics is far more important to him. “The worldview that must be part of the critical debate should have been set more passionately long before the present financial crisis is the worldview of the standard economy with its machine model of a social world that automatically becomes the best of all worlds driven by the rational egoism of autistic calculating automatons if politics only left everything to the so-called free play of market forcers.”

Streeck goes back to the old Keynes who 75 years ago explained why the economy cannot predict anything. Streeck concluded: “One c cannot know anything about the world as long as the economy – and that also meant with Keynes the society – is treated as nature and the science of the economy is pursued as a search for natural laws. By their natured, systems of actions referring to one another are too complex – that is too living, too reactive and too historical – to be calculable according to general unchangeable laws external to them.”

We should ask ourselves why we always listen to the forecasts of think tanks.

On January 12, 2012, Jurgen Karl wrote: For a long while, “economic wise men” were regarded as prophets. Hardly anyone listens to them today when they proclaim their conventional market truths.

The opposite seems true when one sees the German chancellor ac ting in the present Euro crisis. Merkel or Merkozy stringently follow their neoliberal agenda with debt brakes and demolish the public budgets, especially what is left of all the welfare state posts.

Yesterday Merkel praised Italy for its radical austerity course with the usual ingredients like raising the initial pension age, cutting pensions and increasing the value-added tax. This corresponds to one of the main neoliberal goals, starving the state and the public sector with the final goal of carrying out a policy of deregulation, privatization and social cuts.

In an interview with Germany radio, the president of the Frankfurt School of Finance and Management, Udo Steffens and representative of the neoliberal mainstream addressed the question whether an intensified austerity course did not portend the danger of a recession.

“That could be blamed for a recession… Still one must argue whether that can finally clean up our social systems.”

Unfortunately the neoliberal ideology seems more alive than ever to me.

On January 12, 2012, Sebastian J. wrote:

“I can understand the frustration that arises whenever someone moves the old slogans to the front. Your article certainly speaks from the soul to an alternate economist.

Naming names like Flassbeck, Stiglitz and Krugman is almost symptomatic. I am reminded that one swallow does not make a summer.

It is wonderful the media are increasingly taking up alternative voices. It is also nice that there are new movements (like the post-autists). However individual action groups or “institutes” do not change anything in the muddled situation at German universities. I would recommend studying the job ads in the realm of economics.

Although a generational change is on the horizon, the substantive continuity of professorships is sometimes shocking. In short, I share the criticism of the author but I do not see a real summer despite different swallows…

Interest groups, employers and employees are supported by politics and use the nascent system for their interests. Politics tolerates this since the unemployment percentage is falling. No jobs policy is effective with simultaneous spending cuts of several sectors within a self-contained economy (the EU-17 has no balance of payments surpluses or deficits toward the rest of the world).

This is common sense, not a pseudo-science. It is disgusting when the protagonists of the existing apartheid system including unions, politics and academics like Mr. Streeck act as though there were no apartheid or exclusion of the long-term unemployed… Science was not only used for sinister goals under Stalinism and National Socialism.

ORLANDO PASCHEIT (EDITOR OF http://www.nachdenkseiten.de) ON “THE NAKED PROPHETS”

Holger Rogall gives a good survey on the deficiencies of dominant economics. How gratifying that such essays gradually find their way into daily newspapers like the Stuttgarter Zeitung. As the title and introduction suggest, the radical market fundamentalism of the neoliberal mainstream has little to do with Adam Smith. I presume the editors can be blamed who wanted to pep up the essay. In criticizing economics, the baby should not be thrown out with the bathwater and condemned with its progenitors. The text is devoted above all to neoclassicism and its model whi9ch is not viable. Neoliberalism ignores the premises of the model, for example the assumption of complete information of the market actors and elevates the model to an economic-political or social-political recommendation. The “invisible hand” through which the goal of one’s “own interest” is promoted as the “public interest” points to the ordering power of the market in Smith’s main work “The Wealth of Nations” (1776) on a theoretical plane. In his second main work “The Theory of Ethical Feelings” (1779), Smith explicitly separates himself from persons only acting in self-interest. Adam Smith never rose to the neoliberal Walter Eucken’s statement: “Social justice comes about through creation of a functioning macro-order where income development is subject to the strict rules of competition, risk and liability.” Today wed know the “invisible hand” failed with incomplete competition (market power), external effects like pollution of the environment and income distribution and necessitates state regulation. Smith knew the phenomenon of market failure. Smith supported regulations for the banking- and money industry. The dislocations of the Scottish banking system through the bankruptcy of the Scottish Ayr Bank are not comparable with the present crisis. His advocacy of a legally fixed highest interest rate against usury sounds good. Borrowed money is wasted and destroyed and is not taken from sober people or given to prodigals and projectors (squanders and speculators) who would be ready to pay the high interest (Book II, Chapter IV).

One could also understand Smith’s phrase as an ironic joke. In his time, this metaphor was used in the religious context, for example as the invisible hand of providence. But in the context of Book IV, Chapter 11 and other passages, his picture of the invisible hand for the first time in the history of economic thought like decentr4alized knowledge throu9gh the market mechanism leads to a result that no individual could have realized or planned, a discovery of great range but with limits. Whoever is interested in a dissenting heterodox economy will appreciate the text by Tom Schimmeck, “The Naked Prophets.”.. Food is more expensive than ever,

RELATED LINKS:

Rogall, Holger, “The Invisible Hand Doesn’t Help Any More,” December 2011
http://portland.indymedia.org/en/2012/02/413901.shtml

Ulrich, Peter, “Justice Before Efficiency,” January 2012
http://portland.indymedia.org/en/2012/01/413580.shtml