Wednesday, 3 August 2011

Whatever happened to rational self-interest?

When New Zealand adopted the package of free-market economic reforms known as Rogernomics (after the then Finance Minister, Roger Douglas) in the 1980s, making itself the test-bed for the economics of the Chicago School, Noam Chomsky expressed his utter disbelief that an advanced liberal economy was in effect volunteering for membership of the Third World.

Chomky's disbelief has come powerfully to mind over the past few days while watching developments in the US default crisis.  It's not so much the bad economics that astound (although it's difficult to see how any informed observer can see the outcome of the measures signed into law by President Obama as anything other than catastrophic for millions of Americans) as the politics.

It's quite difficult to get one's head around the enormity of it - an apparent victory for a Tea Party movement bankrolled by billionaires whose aim appears to have been to get people to campaign directly against their economic interests in the name of liberty and the American way, using economic arguments that have been shown elsewhere simply to be false.

And it appears to have worked.

A Budget deal has been agreed that is nothing less than a cash grab by a tiny, vastly wealthy minority at the expense of almost every other American.  And it's being hailed as a victory - as the saying goes, you couldn't make this one up.

Where does this fit with the economic theory I learned as a student?  That theory posited a world - or perhaps more accurately a market - inhabited by rational, knowledgeable individuals making rationally self-interested decisions that collectively operated in the public good.  I suppose if you tried hard enough you could rationalise the decisions of Tea Party activists in terms of the value they place on certain outcomes.  Perhaps they are, in the title of Robert Tressel's classic book, simply ragged-trousered philanthropists who see their best interests in making the rich richer at their own expense.

But somehow it seems more plausible that in the face of a carefully-managed and narrow political and economic discoursed, they've been seduced by ideology into screwing themselves.

The lesson I learn from the story of this crisis is that the political always trumps the economic.  The US default crisis is a political construct, the product of an explicitly political (and certainly ideological) debt ceiling law, with an outcome that clearly favours the elite minority who happen to control the media (in that word's broadest sense - I mean academia as much as Fox News) through which political and economic discourse are managed.

Forget the disreputable economics.  The US budget deal is ideology, pure and simpe.

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