Saturday, April 25, 2009

Yes We Ought

If the past twelve months have been bad for free marketers, the next twelve months are going to be terrible for the Left. The historical promise of the Left has been: "give us the reins of power and we will make things better from the bottom up". Historical evidence to the contrary, of course.

Making things better rapidly defaults into: increased taxes, increased spending (and/or borrowing), and favouring the public provision of services over private provision. To be fair, there have been islands of near achievement in this regard (geographically as well as historically), but they usually ended badly for the same reason: the Left can't say NO.

As Stephen Horwitz observes, the Left are trapped in a world in which 'ought implies can':
One of the most common objections to free markets is that they ignore ethical considerations. In particular, critics argue that there are many things we “ought” to do that they believe will make people’s lives better off. We ought to “redistribute” income to the poor, they say. We ought to make health care a right. We ought to fix the economy by bailing out the financial industry.

The problem with all these “oughts” is that they eventually confront the principle ought implies can. Can the desired end (improving the welfare of the poor, for example) be achieved by the chosen means (income “redistribution”)? If not, then what does the “ought” really mean? “Oughts” without “cans”–ethical pronouncements without economics–are likely to lead to disastrous public policies.

The converse also applies: just because you can do something doesn't necessarily mean that you ought to do it. But what has this got to do with the crisis facing the Left over the next twelve months? Quite simply, it looks like we are going to have an undreamt off expansion of the state and of government spending in most major economies, but with little in the way of demonstrable benefits for normally left-leaning constituencies, especially lower income workers. Indeed, the rapid collapse in the private sectors in countries like the UK and Germany will mean that the state will soon (if not already) account for the greater part of economic output.

Add to that the de facto and de jure nationalisation of banks in many parts of the world (including the United States and Ireland) and it all might look like the achievement of Marx's call for the "centralization of credit in the banks of the state": now supported by many thoroughly pro-market economists, as noted in this month's Foreign Policy. And yet, and yet ... the Left does not appear to be benefiting from such developments. A recent FT article by John Lloyd discusses the failure of the Left across Europe to capitalise on the so-called 'crisis of neoliberalism', and quotes Olaf Cramme, director of the UK-based Policy Network, a centre-left global policy forum as believing that:

... “despite the scale of the crisis of neo-liberalism, leftwing proposals about how to remake capitalism aren’t being received well. The centre left finds it difficult to offer a credible alternative to how to ensure wealth and security. In fact, in many countries, the conservative parties have been less enthusiastic about the growth of finance capitalism and tougher on regulating the financial sector than the left”.

And there's the rub: most Leftwing parties such as Labour in the UK (and Fianna Fáil during its "we're all socialists too" phase), happily rode the waves of neoliberal, global financial capitalism during the boom, simply plucking a few feathers by way of taxes to fund their favourite boondoggles. But now that the hyper-leveraged ponzi scheme that hijacked the global financial sector has collapsed, the Left are dusting off their copies of Keyne's General Theory in order to figure out how to maintain their favourite boondoggles even as the goose has started to hiss loudly.

The problem is that they should have been reading their Keynes (and better still, their Hayek) during the boom. Keynes would not have approved of the grossly pro-cyclical bloating of the public sector during the boom years that we witnessed in Ireland and elsewhere. But now the finance ministers and chancellors are quoting Keynes in their defence in order to assuage the anxiety of the international bond markets they so depend on. But as Willem Buiter points out (he's one of those pro-market/pro-nationalisation economists referred to in the Foreign Policy piece):

To be an effective Keynesian in a slump, you have to possess a reputation as a fiscal conservative.

A label you would most definitely not apply to our current Taoiseach when he held the finance reins.

All of this means that the Left are painted into a corner mainly of their own making. They supported the "no pain/all gain" expansion of the state during the boom on the back of unsustainable tax flows. And now they are desparately trying to sustain an inflated state even as the real economy is deflating. It can't go on, and it won't.

They are learning the hard way that ought doesn't actually mean can: they will learn how to say 'No' after they figure that 'taxing the rich' is a mere prelude to 'taxing the working poor'. Hopefully they will quickly learn that Big Government cannot be Redistributive Government. I really hope so, for all our sakes. Because history tells us that the failure of the Left doesn't necessarily mean the restoration of healthy, free market principles. Rather it can lead to something much, much worse than well-intentioned Leftwing utopianism: namely to a resurgent fascism, fuelled by xenophobia and ethnic hatreds.

From ought to nought in a few too-easy steps.

(Image from Ads of the World)


  1. This post seems to want to blame "the left" for the policies of Fianna Fail before unraveling into "reds under the bed" scaremongering. Are you really suggesting that allowing the current left wing parties into power puts us on a road to fascism?

    In any event, as you know, at the heart of our trouble was the nexus of crony capitalism and theft perpetuated on the Irish people by FF, certain people in the banks and certain members of the construction industry. Did the left inflate a massive property bubble and enslave thousands to decades of crushing debt and negative equity? Nope, the right did.

    The problem in Ireland cannot be reduced to a bloated public service- its contested to what extent that is even true. The public sector did not cause this crisis not will slash and burn policies deliver us from it. Name me a country that has ever deflated its way out of a recession?

  2. Oddly enough I seem to recall the previous Taoiseach, Bertie Ahern, describing himself as "one of the last socialists left in Irish politics". I think I even heard Charlie McCreevy say the same once in a radio interview: but that could just have been a bad dream ...

    My concerns for the future of the Left are not of the 'reds under the bed' variety (such old fashioned certainties are now gone, alas) but more about what happens when attempts at public spending led recovery fail to deliver. As they have in Japan (though admittedly they've got a whole load of uniquely Japanese things going on regarding their lost decade).

    My concerns are not that the Left will succeed (whatever that would mean) but rather that they will fail and the forces unleashed (unwittingly) by their failure will be way nastier than a gentle left-of-centre/right-of-centre debate.

  3. You are quite right that Bertie described himself as "one of the lat socialists in the Dail". Bertie said lots of things including various fairy stories to the Mahon Tribunal. Point being, saying you are something doesnt make it so. Indeed, even at them time,nost people fell off their chairs with laughter when he said it.

    Lets get one thing straight though. Neoliberalism sprinkled with gombeen man Irish corruption caused this crisis. The left had nothing to do with it. The right are utterly discredited.

    In sucha n environemnt, isnt it time that the forces of the left/social democracy are given a shot? Surely,they couldnt do anyworse than the clowns we have.

  4. This is a desperate misappropriation of the word left. The General Theory was not 'left' but a marginalist interpretation of marx himself - as Keynes admitted himself. However, Keynes did not disagree with the market - he proposed an alternative to keep it safeguarded from generalised contractions in demand. (Which neoclassical economics simply does not recognise as a possibility due the operation of Say's Law).
    Sadly, discourse has shifted so far to the right that Keynes is now looked on as a left-wing economist!
    Besides there is not a single Keynesian thesis but a variety - like most people he varied his opinions over time.
    Keynesian pump-priming is not necessarily left. I would tend to agree that pump-priming is not going to work in the UK, cannot be deployed in Ireland but may be successful in the USA - given their ability to print money at will without immediate inflation.
    What I would also say, though, in the latter case is that there is a coming massive devaluation in the dollar value the other side of the depression (understood in its traditional economic sense) and this will cause a brief inflationary boom followed by an even greater period of crisis where the dollar itself may be lost as international currency of last resort.


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