On the morning of Tuesday 27th September 2022 the Financial Times reported experienced professional economists referring to Kwasi Kwarteng’s (UK Chancellor of the Exchequer) understanding of economics as being “A-level”. In other words, his understanding involved a superficial or populist comprehension (of economic relationships) which, interestingly, is something to be expected of school children (‘why?’).
Apparently oblivious to the potential damage his actions, and those of his Prime Minister, Liz Truss, could have, the Kwasi Chancellorship initiated a chain of events (in historic proportions) leading the Bank of England, on Wednesday 28th September, to act perversely to its own policy and purpose (by buying gilt-edged government bonds when it job is to sell them). The latter emergency purchasing strategy was aimed at saving UK (defined benefit) pension funds and the economy, more generally, from the actions of the UK peoples’ own government!
Despite all the ideology and rhetoric (fine words) bound up in claims to ‘free market economics’ – that governments should ‘leave well alone’ and can do so by reducing their own income – the tale is clearly one of a government intervention that impoverished (quite rapidly) the country. Truss and Kwarteng wanted the market to decide, and it was soon spooked by their actions and ‘decided’ to sell UK government debt, forcing up interest rates, not just for the government but everyone in the UK and specifically those seeking mortgages. What happens ‘next’ remains to be seen at time of writing (Kwarteng has just been fired). Can the government now convince the market (in finance and investment) that its ‘plan for growth’ can be ‘stabilised’? Analysts on programmes such as BBC2’s Newsnight (Wednesday 28th) were at pains to point out that even if Truss (and her new Chancellor, Hunt) now manage to do so, the resultant ‘options’ would still be 3rd and 4th best outcomes compared to having left things ‘alone’.
Though my interest in writing this piece is not simply about current economic policy. Rather, it is about economic education and the idea that, somehow, children (high school students) – and indeed the general public (the ‘commoners’) – are and should be ‘lied’ to.
This takes the form that provision of education in economics entails a Russian Doll or Onion Peel experience, namely, stripping away layers of bigger ‘lies’ to reveal ever smaller ones (that is, there is a reasoned movement from larger to smaller ‘generalisations’ and/or conceptual ‘errors’) until ‘the truth’ is finally revealed at the ‘highest’ expert-level of ‘postgraduate’ economics, where the margins for error between theory and reality are somehow, or should be, smallest. Based on the Financial Times’ reference to ‘A-level economics’ being part of the problem, this onion peeling process appears to sum-up our current ‘system’ of education in economics!
By way of contrast, the Scottish Enlightenment philosopher Thomas Reid set out to save the so-called ‘expert’ philosophy of his day (Descartes / Berkeley / Kant / Hume) from its ‘ridiculousness’ in asking questions such as: ‘how do I know I am here?’ Reid’s point was that the ‘common’ person in the street knows the answer to this question – quite simply and without the angst. As a Scottish ‘common sense’ philosopher, Reid’s concern was that some questions cannot and should not be left, nor limited, to experts. Essentially, discussion must be broadened out to encompass the community.
Should this not be the case with modern ‘economic’ decision-making? But, how can this democratic goal be achieved if our economic education system perpetuates the ‘dumbing down’ model described above? It is akin to saying that the non-experts will remain ‘stupid’ until they have picked up a PhD – something Kwasi Kwarteng has.
The alternative, of course, is to tell foundation level students in economics, whether ‘school age’ or adult returners to education, and, to wit, the great unwashed public ‘mob’, what is currently known about economic relationships. In other words, what is wrong with starting by covering the cutting-edge state-of-human-knowledge, or what post-graduate students and professional economists actually know, understand, or argue? In a similar vein, Kate Raworth (Doughnut Economics) asks a pertinent question about why we still teach economics as if it’s 1948 (i.e. by using Paul Samuleson’s graph-based formulations)? This just doesn’t happen in physics, biology or chemistry. Now we know there are 8 planets in our solar system (when it was understood there were 9 when I was a child), we don’t tell contemporary school children there are 9 planets only to reveal to them later on, in university, that there are, in fact, 8.
One immediate (establishment) answer is that such economic thinking and perspectives are ‘too advanced’ for the ordinary citizen (and, by implication, child), not least because to ‘make sense’ the acquirer of such ‘knowledge’ should be conversant with complex mathematics, equations, formulae, and/or deep statistical modelling.
Indeed, was it not the absence of such understanding, data, and information from Kwarteng’s ‘mini-budget’ which spooked the markets? He presented a political ideal – less taxation for all – but decided not to provide any evidence as to how his proposed tax cuts would be ‘paid for’ via reductions in state expenditure. Since data was available from the Office for Budget Responsibility (OBR), though perhaps not ‘immediately’, people had to ask the question if Kwarteng was either in a rush (to do something before a party conference), did not want the existing information to come out, or did not understand or like what the data had to say. Despite his lack of data, Kwarteng (and Truss) forged ahead on the basis of “A-level” economic comprehension – using the overly-simplified assertion that lower taxation produces greater economic growth.
It’s a simple enough mantra, one the ‘commoners’ it was presumed would ‘get’, but also ignores basic, and simply understood, historical facts. As Robert C. Allen notes in his Global Economic History: A Very Short Introduction, a work aimed at ‘beginners’, between 1920 and 1940 the fastest growing economy in the world was that of the Soviet Union, where the ‘communist’ state utilised forced expropriation (i.e. a very ‘high’ form of taxation) to achieve rapid social change, ‘advancement’, and so-called ‘social progress’ (whilst the ‘liberal’ low-tax economies of the US and UK languished in a Great Depression).
The Kwasi mantra also overlooked the possibility of a simple ‘theoretical’ reversal of cause and effect, namely, that it is the fastest growing economies which (just happen to) have the lowest rates of taxation! Consequently, it is not because the army is small that the economy grows (Kwarteng’s assumption), but because the economy is growing that it can afford its army (what is required) at a much lower proportional rate of taxation (or size of state to economy)! Such oversight distracts from studying possible ‘alternate causes’ of lower economic growth (or lack of rising productivity), such as a tendency for the rate of return on capital to fall (aka a crisis of over-accumulation). The latter is the core conclusion of Thomas Piketty’s book Capital in the 21st Century.
This is not to say that Kwarteng’s position has no intellectual merit. In The Wealth of Nations, Adam Smith provides the example, in Book 5, of a state maintaining an army (actually, he refers to the British navy and its size following the 7 year war with France) above the size required in peace time. Smith makes it clear that whilst the Admiralty has a vested interest in sustaining the navy at 100,000 sailors (because a larger navy means more power and social status for the Admirals) the general or national economy has no such ‘interest’. Though Smith’s underlying question is ‘how should such interests, the national interest, be decided?’
Smith thinks it should not be left to the Admirals (who represented the top 5% of his society – the ruling class elite). In the ensuing peace, the retained sailors continue to consume national food and clothing stocks (and much else) without adding anything to the growth of those material stocks via rising output (productivity). Things were different during the war, when their activities were ‘valued’ and central to advancing the supply of food and clothing by securing trade routes. Following Smith’s conceptual outline and analysis from Book 2 (on capital accumulation), where he draws the distinction between productive and unproductive labour, the sailors are being retained in roles which are ‘unproductive’ of new output – the sailors fall into a category of the population which Smith highlights in his ‘Plan of the Work’ (the first few pages of The Wealth of Nations) as ‘consumers’ of national stock rather than ‘producers’ of it.
Subsequently, Smith advocates release (or liberation) of the sailors from their state-imposed marshal deployment so they can find work best suited to their personal aptitudes and capacities via the labour market, and where the marketplace more generally (or ‘society’ expressed in its trading actions) decides where they are most needed.
However, there is no guarantee that the transfer or transition of sailors into ‘civilian’ life will, indeed, make them any more productive – not if they end up ‘unemployed’ and reliant on Poor Relief, nor if they end up having to work as domestic servants, nor as adjuncts to specific ‘masters’ (those who can monopolise trade in various ways, legislate for state subsidies of their own business, and implement all the abuses of the market Smith has highlighted in Book 4 of the Wealth of Nations). Therefore, what Smith is advocating in Book 5 is not a simple and thoughtless ‘reduction in taxation’, but a root and branch transformation of the Mercantilist system where taxation was being used to promote the interests’ of the few over the many. The latter is so easily forgotten in ‘adherence’ to Smithian liberal economics.
Truss’ and Kwarteng’s priorities appear to be growing the economy in the interests of some (a few) over others with reference to trickle-down economics, on the basis that ‘some’ have a greater impact on the promotion of growth (productivity) than others. The latter theory, of course, has been thoroughly disproved after 50 years, with the London School of Economics (LSE) having undertaken a review of all the occasions where ‘trickle-down’ policy has been invoked by politicians. The result? All trickle-down has ever produced, in practice, is greater inequality (or ‘dribble-up’) – something IMF economists were at pains to point out following Truss and Kwarteng’s mini-budget.
Returning to Reid and the traditions of Scottish Common Sense Philosophy, the moral of the tale relates to the how the interface between ‘expertise’ and democratic discussion should be constructed. If “A-level” economics are responsible for Kwarteng’s policies then, obviously, something needs to be done about “A-level” economics! There should be no presumption that the commons are ‘too thick’ to understand what is going on, nor that a ‘proper’ understanding of economic relationships requires a degree in mathematics. Experts in economics should, like their brethren in physics or biology, be able to communicate the ‘latest’ advances in their field to their non-expert fellow citizens, who ultimately play a ‘role’ in keeping the ‘experts’ from becoming ‘ridiculous’.
One problem in our existing society is that expertise in economics is not (always or even typically) used to advance the wider social good but advance private (corporate and commercial) interests. In that ‘sense’ the role of expert knowledge is skewed – it gears itself towards guarding the mysteries of priesthood, and generating an aura of mystique, rather than allowing its claims, assertions, and ‘models’ to be exposed to general, public evaluation. And when it comes to developing (and shaping) the curricula of economic education the ‘demand’ to produce ‘more people like us’ over-rides any attempt to open up the ‘foundation’ years of study to alternate approaches (to the graph-based microeconomic and econometric orthodoxy).
Socialising Sense 