Demystifying the economy
It is clear to everyone that our economy is broken. We see the growing gap between the richest in society and everyone else. Demystifying the economy is how we fix our broken economic system.
We see and maybe even feel the daily struggle to make ends meet. At the same time, we see such huge excess and waste from a tiny percentage of the people on this planet.
I graduated from Dundee University in 1996. I didn’t pay tuition fees and qualified for a basic student grant.
So I left with only a few thousand pounds of debt. Today a graduate from the same university up the road will leave with over 14,000 in debt. (1). This is 3 times less than the average student in England. (2). The government you elect makes a difference.
A graduate will want to pay back the debt as quickly as possible. Their dent will likely affect the type of job they take. Many will follow the money into financial services, accountancy and law, professions which do little to add to the country’s productive capacity.
As well as an empty bank account, a student from Dundee University may have had to fill an empty stomach by visiting the food bank in the student union up the road.
Neither that level of debt nor the food bank existed in 1996.
Since then, Scotland’s GDP has doubled. (3). Had we not had such a poorly performing economy after the financial crash in 2008, we would have been on the way to that doubling again by the middle of the next decade. So why are we all not twice as wealthy? Or twice as happy?
Neoliberalism, this peculiar form of capitalism we have had since the late 70s is a crafty bugger.
It is glacial in pace but monumental in impact. A slowly boiled frog does not feel the heat until too late. I wonder if we even notice that we are like those frogs in the pot!
We are often too busy to stop and question why our economy is how it is. We need space to question why. We must also consider the more important question: what can we do about it?
If only there were one simple answer! But the best way to improve our economy is to understand it.
You do that first by understanding that the economy is not a machine.
Neoclassical economists think you can pull a policy lever here, and a desired outcome pops out the other end. Their economy is a simple system.
We believe that the economy is a complex, dynamic living system that reacts in completely unpredictable ways.
Individuals and firms, or economics agents, as economists call them, are heavily influenced by the actions of others, in fact, this may be one of the systems defining features. But that feature is completely missing from the mainstream models that guide our policymakers.
The economy is a subsystem of the planetary ecosystem.
It relies on energy and resources to function. Without those, there is no economy. Understanding this also sets a maximum size for an economy. If you don’t grow into a void, there must be a maximum size.
But neoclassical economists see the economy as a stand-alone independent closed system able to magic up resources and make waste disappear. That can grow forever.
Seeing the economy as a complex subsystem of the ecosystem is as obvious as it is profound. It can open up a new perspective on the economy.
What do economists tell us about the economy
Let’s first hear the views of two English economists.
Paul Ormerod, the author of Butterfly Economics, said:
“Economists are notorious among social scientists for their intellectual imperialism”
His book provides evidence that most neoclassical models’ predictive power is no better than random guesses.
John Meynard Keynes yearned for the days when:
“Economists could manage to get themselves thought of as humble, competent people on a level with dentists”, ” that would be splendid”
Another economist, Australian Steve Keen, calls most economists:
And blames them for the ensuing climate crisis.
Demystifying the Scottish and UK economy
So if we shouldn’t listen to economists and can’t predict the economy, why do we do what we do in covering economics on our blog, Patreon site, Youtube show, podcast and our economics festival?
Another English Economist. Joan Robinson sums it up for us. She once said:
“the purpose of studying economics is not to acquire a set of ready-made answers to economic questions but to learn how to avoid being deceived by economists”
You avoid being deceived by starting to demystify economics.
- Audit Scotland. https://www.audit-scotland.gov.uk/uploads/docs/report/2020/briefing_200121_student_loans.pdf
- Statista. https://www.statista.com/statistics/376423/uk-student-loan-debt/#:~:text=Average%20student%20loan%20debt%20in%20the%20UK%202000%2D2022&text=In%202021%2C%20students%20graduating%20from,15.2%20thousand%20pounds%20in%20Scotland.
- Statista. https://www.statista.com/statistics/348324/gdp-of-scotland-annually/
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