Austerity or how to screw both the economy and the poor



While discussing with (economically) right-wing people, some of them confess to me that free-market capitalism without any State intervention can be quite detrimental to the life standards of the lower classes.

I commented on a tragic consequence of this which happened in Britain not long ago.

But they then go on saying that the alternative (the State stepping in to protect the welfare of people) is practically impossible because it allegedly leads to a collapse or a significant weakening of the economy. And this in turn would naturally also have dire repercussions on these poor people.

They then argue that laissez-faire capitalism is the best system for allowing mankind to flourish because any stronger regulations inevitably undermine the financial health of the country.

In spite of their natural selfishness and rapacity, business people are led by an invisible hand and thus without intending it, advance the interest of the society
Adam Smith: self-interest takes care of everything.

So according to this doctrine, an “invisible hand” emerging out of the actions of numerous selfish agents ends up producing the most optimal world given human nature.

Self-interest + competition = invisible hand
The Invisible hand at work.

That sounds really great (albeit saddening) in theory.

But how does that work out in practice?

British Chancellor of Exchequer George Osborne provides us with a nice counter-example.

We're going to continue to squeeze public spending well into the future, with cut after cut, even if we do meet our deficit.  Austerity for ever!
Austerity according to Osborne (or his detractors).

Comparisons with his more interventionist predecessors don’t look too flattering.

George Osborne has created more debt in four years than every single government in history combined...So why do so many people still rate the Tories as the most economically trustworthy party?
Osborne overcoming the debt?

I personally strongly doubt that Wild Capitalism (the economy takes care of everything) prevails because it is the best system for us all.

I think that it dominates our world because it creates the best conditions for a SMALL wealthy minority which holds humanity in its grip through oligarchical structures and an efficient manipulation of public opinion.

In a previous post, I have laid out the bases of Christian socialism. Regardless of your own worldview, if you sincerely care for justice and alleviating human suffering, I think you should start thinking more critically on the moral virtues of a world driven by the callous forces of stock market.

The fact that former communist dictatorships have atrociously failed  gives us absolutely no reason to think that people would not be much better off with a moderate Capitalism where the State intervenes to protect the well-being of defenseless people whenever they are threatened by the impersonal forces of trade.

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8 thoughts on “Austerity or how to screw both the economy and the poor

  1. I’m not sure you’re targeting the right problem. Who says that socialist countries cannot also have concentrated power structures? Indeed, I think the problem is concentrated power, whether it be via playing the money game well, the politics game well, or the birth lottery well. Here’s what the empirical evidence seems to say, according to Bent Flyvbjerg’s Rationality and Power: Democracy in Practice:

    Rationalization presented as rationality is shown to be a principle strategy in the exercise of power. Kant said that the possession of power unavoidably spoils the free use of reason. We will see that the possession of more power soils reason even more, that the greater the power, the less the rationality. The empirical study is summed up in a number of propositions about the relationship between rationality and power, concluding that power has a rationality that rationality does not know, whereas rationality does not have a power that power does not know. I will argue that this asymmetry between rationality and power forms a basic weakness of modernity and of modern democracy, a weakness that needs to be reassessed in light of the context-dependent nature of rationality, taking a point of departure in thinkers like Machiavelli, Nietzsche, and Foucault.[2]

    The idea that a strong government is an antidote to strong corporations seems to be playing the game of power, as if that actually works. Does it? I can see how it would work in the short term: people get fired up about injustice and push for good change and that change can happen. But what happens when the masses lose their passion and start caring about more local matters? It strikes me that power starts to aggregate again, and that the level of injustice grows so slowly that one gets a repeat of the old injustice, perhaps in new garb.

    It seems to me that the only true solution is the democratization of power. For power to be truly democratized, people have to be informed. This would mean that they could boycott corporations which do not match their values. But this would be a way to fight the evils which capitalism enables! I’m not sure one can achieve the desired good result in a stable manner without the democratization of power.

    Have I erred in my analysis? Among other things, it is predicated upon the idea that people who are good at politics aren’t necessarily more moral than those who are good at business. I think this is a valid premise.

    • There is a lot of wisdom in what you’ve written here.

      Since I’m neither an economist nor a social scientist, I should always refrain from advising a precise course of actions.

      That said, all evidence I’m aware of shows me that UNRESTRICTED free-market creates a loathsome monster which is plunging countless lives into misery and oftentimes even death.

      Yes, more left-oriented governments can also be tempted to seek power more than justice or welfare.

      But the alternative is far worse. We get lots of people starving because private donations don’t suffice for taking care of them, average humans (including myself) being as they are.

      • That said, all evidence I’m aware of shows me that UNRESTRICTED free-market creates a loathsome monster which is plunging countless lives into misery and oftentimes even death.

        Always, or in certain circumstances? For example, I recall a pretty unrestricted free market working pretty well in the US, up until around the time of the Robber Barons. de Tocqueville starts off his Democracy in America with “Amongst the novel objects that attracted my attention during my stay in the United States, nothing struck me more forcibly than the general equality of conditions.” Note: “equality of conditions”.

        I’ll bet that “equality of conditions” roughly correlates with democratization of power. When that was the case, a pretty unrestricted free market may have been optimal. After all, restricting it requires a centralization of power which brings all the problems one gets with power disparity. Think, for example, of the tremendous number of tax breaks in the US’s Byzantine tax code. That kind of regulation isn’t necessarily better than “equality of conditions”.

        Now, we’re nowhere near “equality of conditions”. The top 1% will apparently own half the world’s wealth soon. I think the best course of action is to push toward “equality of conditions”, not toward ‘better’ centralized power. After all, the people in the government aren’t better than “average humans (including myself) being as they are”. Indeed, a lot of politicians in the US seem worse than your average human.

        The route back to “equality of conditions”, if it is possible, will likely go through government regulation. However, I am very worried about seeing regulation as the ultimate salvation. I think we need to change the human condition, in a direction opposite to what Jacques Ellul observed in 1965:

        This attitude of man toward the state is even more apparent if one considers that man’s intentions and desires have changed.[3] He is much less sensitive and receptive to the many problems (over which he could try to exercise some influence); rather he demands the total and complete guarantee of his private existence. He demands assured income and assured consumption. He insists on an existence of complete security, refusing to take any responsibility for himself. But all this, as he well knows, can be assured only by the state organization. (The Political Illusion, 78)

  2. Adam Smiths invisible hand was (arguably) God and the argument behind non-interference was both religious and economic. Imperial Britain was warned several times it’s politics in Ireland risked massive famine. Even when the predicted famines did occur (for there were a series of famines spread over a decade) they did not intervene in the protestant run economic polices that saw food exported from the country and the majority catholic population reliant upon a single crop. The famine was viewed as God punishment to the errant Catholics.

    The 19th century was the high point of laissez-faire capitalism and it witnessed brutal colonialism, repression of native populations and sowed the seeds for the world wars and the communism of the 20th as well as the acts of Islamic terrorism we are witnessing today. It’s no surprise most laissez-faire supporters are American who lack the historical memory of it’s brutality.

    Trust I think is an important issue here. People who lack trust in their government and communities tend to prefer laissez-faire systems.

  3. Thanks for your interesting historical reminder.

    Adam Smith himself was an atheist but he might have been unconsciously influenced by the prevailing religious notions of his time.

    Cheers from Lancashire.

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