Sunday, 15 February 2009

The Transition in Reverse

The economic theory of markets in which markets are competitive, the hayekian notion that markets are based on the division of knowledge, on a need-to-know status, so that there is nobody who has to know everything and plan, holds; markets that are self-regulated in the interests of all contractors who will avoid excesses by disciplining themselves, markets complete in the sense that they span dated commodities over any period, so that if current goods are not bought future goods will be demanded activating their production today, and complete in the sense that future commodities can be traded always, as well as contingent commodities, at different prices according to the state of the world, is a model. All models are invalidated by reality. Though a world of tranquility will avoid the inefficiencies of imperfect competition, the disruptions of uncertainty and risk, expectations that can be wrong or self-fulfilling, the instability of fluctuations and panic, it must be acknowledged that reality rarely conforms to models, or prescriptions based on them.

Current reality in England is unprecedented and cannot be analysed by any standard economic model. Despite comparisons with the great depression of the early 20th century the truth is that no society has been in the condition of bankruptcy of all major financial institutions and near complete unavailability of credit. The current social calm hides the capacity for a great outburst of violence when the numbers of unemployed rise high enough - new unemployed, that is, not those lost client souls who eke out their lives on a modest state income and think it clever.

Hayek's belief that the division of knowledge is as crucial as the division of labour for causing an economy to work without a central role for the state and to underpin democracy is a political and moral assertion, as well as part of the modelling of the economic theory of markets. And the crisis we are living through is a political and moral crisis. Economic and financial breakdown is merely the manifestation of antidemocratic and politically immoral stances effected and driven by the New Labour regime.

Far worse than attempting to shore up debt with more debt in response to the economic and financial manifestations of our collapse, is the pushing of state interference further and further into the arena of market decision-taking and the assertion of the role of the omniscient planner.

We are on a terrible journey back to the past. Not the past of the great Depression of 1929 but the past of centrally planned economies and 'realised socialism' - and not the realised ideals of socialism but the really existing grey horrors of eastern Europe from 1945 to 1989.


Caronte said...

Are we reallu "on a terrible journey back to the past", to pre-1989 East-European "realised" socialism?

Since the early 1980s USA hyper-liberalism overshot the market economy ideal, and so did West European capitalism monkeying the American Model. What is going on in the economy now is not a reverse transition to central planning but the taking back by the state of its normal and proper functions. True, this has been accompanied by parallel unpleasant developments in politics, but only in the UK.

TBR said...

I fear you may be right. Nice post -- once again.

hatfield girl said...

Only the UK really counts, C. At least for Angels. And as you write:

'the taking back by the state of its normal and proper functions. ....has been accompanied by parallel unpleasant developments in politics...'

English people are faced with East German life conditions as well as German 'Democratic' Republic political and moral attitudes. Watch 'The Lives of Others' again. That is what the Brownian New Labour regime is installing under the guise of responding to 'the global financial threat that started in America'.

hatfield girl said...

Very kind TBR. I find it difficult to say complex stuff briefly (and resist larking about).

There's a huge stand-off going on about bossing us around dressed up in morally superior arguments about helping the disadvantaged and outright poor.

Anonymous said...

@Caronte: "...the taking back by the state of its normal and proper functions..."

Such as, running the banks?

If you think that is part of the normal and proper functions of the state, then you are part of the problem.

Excellent post, Hats; perceptive as ever.

Caronte said...

Well Anon, I would also be much happier if banks were run by bankers rather than by the state.

But if bad banks must be bailed out by the taxpayer I am happier with temporary state control on the public funds poured into bad banks, rather than simply funding bad bankers' outrageous bonuses with a blank cheque.

wv: curewife ???