Time for a New Economics - Lost in a Maze of Economic Gibberish

Ever wondered why the lexicon of global finance seems so complicated? Why so much of what passes for economic debate seems impenetrable? Do your eyes glaze over as commentators wander into discursive mazes comprised of derivatives, subprime lenders, credit default swaps, and toxic assets? Does talk of liquidity, quantitative easing, or collaterised debt obligations send you reaching for the remote control or the off-switch? Is it possible we are just too economically illiterate to understand anything about the world of global finance?

Not having a head for economics – I got a D at pass Leaving Cert level – I generally ignored that which I couldn’t understand. In the language of global finance, I spoke pidgin. I opted to leave such matters to the ‘experts’ and got on with my life. But events have seen my silence rewarded with a life sentence of personal debt and financial distress. As time goes by I feel less and less confident that the ‘dismal science’ is best left to those who speak the language of economics. I’ve even come to suspect that many of the commentariat are not as economically fluent as their confident palaver might suggest.

In the past year I made a concerted effort to grapple with the vocabulary of this strange language. I trudged dutifully to and from my local library armed with an array of weighty tomes purporting to provide linguistic tool-kits for translating the mechanics of global trade and finance into something resembling a syntax for everyday conversation.

Despite my best efforts, however, I failed in my mission. I remain unable to string a meaningful sentence together with this alien terminology. Not only has my linguistic ability failed to improve, but I’ve come to doubt my capacity to talk using simple terms that I thought I already understood. For example, I thought that money was just a promise to pay, a means to enable trade and commerce and of avoiding the need to lumber around with vast quantities of whatever product or service was being exchanged.

But it’s not that simple. It seems that money can simultaneously be a medium of exchange, a form of credit, and a means of circulating debt. Just as I’d think I was getting to grips with an economic or financial concept its definition would slip away, like waking up from a dream as the logic of its narrative fades into meaninglessness.

All of this suggests a number of possibilities. The first is that I am just too thick to comprehend the vernacular of this language. The second, and more palatable explanation from my point of view, is that a lot of those speaking this language don’t really understand it either, or they have engaged in a lot of obfuscation. At the very least they have proven unable to effectively communicate with the rest of us through this medium. If the medium truly is the message, then I am doomed to eternal economic illiteracy. A third interpretation is that the business of global finance has become so convoluted that nobody, or perhaps only a very small cabal, really knows what’s happening. If this is indeed the case, why is it so?

Deliberate Obfuscation?
In so far as I can ascertain, it seems that advances in information technology and the internet enabled the rapid and easy movement of wealth around the globe and facilitated the development of ever-more sophisticated financial products. These changes along with the opening up of new markets saw global trade grow exponentially. The resulting rapid pace of change has proven bewildering to all but a select few. And they either can’t or won’t decipher the jargon for those of us less linguistically endowed in this field. I’m inclined towards the view that this failure to communicate is effectively designed to be exclusionary.

I’m not a scientist, but I believe that I have a better understanding of quantum physics than I have of global finance. Nor am I given to conspiracy theories, but I suspect that unless some dramatic change occurs economics will remain lost in translation, and this failure to communicate will not be to my or most other people’s benefit.

My default position when dealing with matters economic is to attempt to translate them into terms that I can understand. For example, when Finance Ministers and others speak of the need to restore consumer confidence I interpret that simply as their encouraging us to buy more stuff. A problem occurs, however, when I examine the implications of this restoration of confidence. It is implicit in these exhortations that if we consumers don’t get busy buying stuff that we perhaps don’t really need then the economy will stagnate or even collapse altogether. If this is true then surely there is something intrinsically wrong with our economic system.

The Mirage of Continuous Economic Growth
Another trope in almost all economic conversations, whether from the left or the right, is the need for continuous economic growth. This is promoted without question as being desirable. The obsession with growth statistics and economic indicators does not easily allow for a critical examination of the premise that economic growth is always a good thing. We only have to look at the rapid growth of the Chinese economy to see that this premise is at least problematical. Strains are already beginning to show in the global consumption of Earth’s finite resources. Moreover, the Chinese ’economic miracle’ is also dependant on us Westerners continuing to buy more stuff.

As more emerging economies develop, the ideal of perpetual growth will, I believe, increasingly reveal itself to be a mirage. We in the ‘developed’ nations have tended to think in terms of less developed countries coming up to our standard. In reality, this is nonsense. If the populations of China and India, for example, were to consume at the same rate as we do in the West the current economic game would be over. There simply would not be enough resources to go around. The inevitable conclusion is that if everyone can’t enjoy such levels of consumption, then we cannot be entitled to do so. Our high-consumption lifestyle is effectively dependent on billions of others doing without many of the things we take for granted.
The pursuit of continuous growth is dependent on maintaining consumerism. Some of the consequences are totally irrational, with products being designed not to last. Many big-spend items like, for example, cars and some household appliances have built-in obsolescence. That is, they are designed to last for a particular length of time and to be replaced by new ones once that period has expired. It is possible to make these products sturdy enough to last a lifetime, but the dynamics of a consumer-driven economy demand that we continually buy more stuff, and the production ethos of disposability ensures that this will be the case.

Competition is Good?
Perhaps the most unquestioned value underlying modern economic thinking is that competition is good. We can all think of cases where competition has improved services and prices to the benefit of consumers. But let us not forget the potential negative consequences of the competition-is-good motif. If several producers compete in a market with a finite number of consumers the inevitable result is waste. Not all producers will be successful. This can cause perfectly good products to be scrapped, resulting in the waste of human effort and material resources in fruitless replication. Alternatively, in attempting to minimise losses these surplus products can end up being sold cheaply in emerging economies thereby undercutting and depleting sales of locally produced equivalents.

In some less developed countries where labour laws and environmental regulations are less robust the competitive drive to produce cheaper goods can lead to the development of sweatshops and other forms of human exploitation as well as environmental abuse. The headlong rush to privatisation is also driven by this commitment to the increasingly stringent demands of the competitive urge. The ultimate expression of human competition is war, and there have been many wars in history driven by economic factors. You don’t need a crystal ball to identify potential sources of future conflict stemming from economic competition between nations. Surely co-operation is a more desirable motif for humankind.

Globalised Madness
The growth in global trade itself reveals aspects of its workings that can only be described as insane. For example, how is it possible that beef imported from South America can be cheaper in Ireland than that produced by a farmer in Co. Meath? Or that apples from New Zealand can match or even out-do the price of locally produced ones? Something is terribly wrong in a global economic system where such lunacy is possible.

Another feature in this globalised economy is that nation states are effectively subservient to international corporations. The reluctance, perhaps fear is a better word, of the Irish Government to raise corporate tax by a miniscule percentage is an example of this subservience. The ease with which money, goods and services can be moved around the world and the apparent ability of large corporations to relocate easily, combined with competition between states to attract investment, has seen these mega-companies make enormous profits and pay ridiculously low rates of tax. While some may benefit, many communities around the globe suffer under this regime as global corporations hold workers and governments to ransom or simply up-sticks and leave to exploit cheap labour in less regulated environments.

The dynamic of competitive economics combined with cheaper labour costs, more attractive corporate tax regimes or other financial incentives, is the dynamic driving boardroom decisions that can devastate communities. The only loyalty of board members is to their shareholders or to the bottom line. Maximising profits is the accepted imperative. And short-term success is inevitably the focus of CEOs paid exorbitant annual bonuses. Human considerations take second place to profit in such a myopic system. This in itself surely merits a rethinking of the ethos governing global business.

Restricting Human Mobility
A somewhat contradictory corollary to the ease with which money, goods and services move around the world, is the increased difficulty faced by people, especially the poor, to do likewise. This has resulted in increased irregular migration from regions of poverty to zones of wealth as people make the rational choice to follow the money. It is almost hard to believe that a system which so disregards human beings was designed, and is presided over, by the same species. The growing disparities in wealth, income and lifestyle, both within and between many countries, clearly demonstrate that the current system of global economics is not working to the benefit of most of the planet’s population. And it’s simply not good enough for the poverty stricken to be dependent on the vagaries of the charitable impulses of mega-rich elites.

We Need a New Economics
It is incumbent on all progressive thinking people to provide a vision of a better world that does not depend upon mantras calling for continuous economic growth which is simply unattainable. The issue is not how to create more wealth, but how to ensure that wealth is more evenly distributed both nationally and internationally.

In order for this to happen, I believe an essential starting point involves dismantling the current debilitating dialect that deliberately precludes public participation in discussion on global finance, and the development of an economic Esperanto enabling the silent majority to engage with what is one of the more urgent debates of our time.

Guest Writer: Pat Guerin

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