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Dead Economists’ Society: Ideas Biding their Time

This week on Street Talking in NEXT, I wonder aloud what credible alternatives to battered but not knocked out Wall Street-style capitalism are out there waiting for their day in the sun to come.

In the Preface to his classic text, Capitalism and Freedom, the late Milton Friedman, winner of the Nobel Prize in economics and unapologetic free market apostle, explained the purpose of his book. ‘[We need] to keep options open until circumstances make change necessary. . . Only a crisis produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.’ His subversive ambition of sowing these ideological landmines in the paddy fields of economics department common rooms, out-of-office politicians’ camps,  and conservative think tanks, has borne more fruit that he could ever have imagined when he first set forth his revolutionary ideas in 1962. Espionage novel buffs would immediately see the similarity between Friedman’s ‘ideas lying around’ metaphor and images of  ‘sleeper spies’ who penetrate target countries but lie fallow until the call up from a handler activates them.

Thinking about this, one realizes that every triumphant idea has its opposite lying fallow somewhere, waiting for an opportune moment to boot up. My current interest is with the prevalent thinking that has teleguided investor expectations for the past three decades, namely that stock prices must always be going up, costs must always be coming down, profits always rising, dividends always higher each year and businesses becoming ever more efficient. In reality, these views, sometimes jeered as anglo-Saxon in origin, are offshoots of a certain idea of markets. It has become so pervasive that we hardly notice it, going so far as to ascribe immoral qualities to business leaders who fail to deliver them and venerate those who do. In contrast to these views, what ideas are lying around?

At the time, Friedman wrote his famous book, Keynesian economics reigned supreme. While Friedman held Maynard Keynes in high esteem, he was revolted by the hypotheses set forth in The General Theory of Employment, Interest and Money. When runaway inflation, labour strikes and the oil shock paralysed developed economies in the late seventies, Friedman’s ideas became a handy alternative to the babysitting State and socialist experiments. Margaret Thatcher, Ronald Reagan, Augusto Pinochet’s Chicago Boys and a newly assertive International Monetary Fund became his most fervent disciples. Their rallying cry was ‘give us free markets or give us death.’

The Chicago School would knock Keynesianism, which had lost its transformative social vigour, off its perch by the middle of the 1980s and kick east European socialism and its mongrel Third World versions down along the way.  In fact, the success of Friedman’s ideas was so thorough that when Francis Fukuyama, the political economist, published The End of History and The Last Man, his ode to liberal hegemony it was taken as settled that ideology, as preached by the Left, was dead. Capitalism, free market economics and its political structures had triumphed over every other idea in history. Grafting a pseudo-Hegelian, mock-Marxian dialectic to buttress his thesis, Fukuyama argued that Capitalist Man was the acme of the species. But nothing is ever settled in history as the Roman and British empires have since learnt.

The question then is this: are there coherent and competing alternatives to the view that companies must always provide investors with all the things they currently expect? How much farther will the tyranny of markets go? When companies fear making new investments because they do not want to miss earnings estimates, executives announce decisions just to give the share price a nudge or two northwards and boards consent to decisions that they know damage the long-term future of companies because they want to pay a bigger dividend? The very risk of being branded a heretic for questioning these practices confirms that we have all become ideologues for this style of capitalism that masquerades as scientific facts without even recognizing it.

As Friedman rightly noted, a crisis is needed for the counter-ideology to become activated. This theme of crisis as the jump off to change was exhaustively examined by Naomi Klein in Shock Doctrine: The Rise of Disaster Capitalism, her iconoclastic take on the Chicago School’s legacy. Since the osmosis of ideas can take years to penetrate the membrane of old worldviews, I cannot help thinking that the alternative to our accepted view of markets and what companies should owe us as investors will change radically in coming years. Do not get me wrong. Capitalism is not broken. But it has stretched to the point when its elasticity could snap if pulled further. I am prepared to wager that after the crisis in global markets of the past three years when things eventually return to ‘normal,’ however that state would look, things will not remain the same. In the time being, I will keep on scratching the ground, searching for ideas lying around. One never knows what one might find but I feel it is nearer the surface and closer to us than we know.

The original article can be read here on the NEXT website.

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