False Promises: The Failure of Conservative Economics.
Consider the record. In the US, the conservative economists empowered by Reagan promised that tax cuts would generate enormous budget surpluses because of the prosperity they were certain to bring; following the logic of the mystical Laffer Curve contributed instead, however, to an enormous deficit. Those conservative economists promised, too, that US savings (identified as inadequate) would respond sensitively to increases in the real rate of return. Nevertheless, savings rates went down -- despite rising real interest rates and all those tax cuts which went to the rich.
Everything they touched turned to shit. Conservative economists preached about the growth effects of inequality and regressive tax cuts, about deregulation and removing the heavy hand of the state in order to unleash the entrepreneur -- and what do we see? Poverty, unemployment, increased inequality, the abandonment of cities and infrastructure, unprecedented government deficits resulting from the tax cuts and a lack of growth, the savings and loan debacle, and the transformation of the US into the world's greatest debtor nation.
Nor is it only the US results that conservative economists can view with a great sense of accomplishment. The shock therapy performed upon the ex-stalinist economies (producing shock, chaos and misery but little therapy) was unthinkable in the absence of their blithe (and infectious) belief in that panacea of private ownership and the market. And it's the same story when we look at the misery and decline in developing countries as the result of the IMF "structural adjustment programs" imposed upon them. It is a story of masses of people sacrificed in accordance with conservative economic theory (a theory impervious to the relative success of South Korea and Taiwan precisely because they got the theory wrong).
Now, to point out this record of failure is not particularly radical. It is standard fare among the liberal and post-keynesian economists writing about the debacle of the Reagan-Bush years in the US magazine, Challenge. For "Nobel Prize" winners like Kenneth Arrow, James Tobin, Robert Solow and Paul Samuelson (along with other supporters of the Clinton campaign), it was 12 years of ill-founded economic analysis and ill-chosen economic policy. Samuelson, hardly the voice of a new society, has proposed awarding anti-Nobel Prizes in Economics -- topping his list with Milton Friedman, doyen of the conservative revolution in economics.
Responding to conservative arguments
And yet, it sounds so radical to talk about the failure of conservative economics -- in Canada no less than elsewhere. False Promises brings together ten economists (mainly associated with the University of British Columbia) for 15 essays on aspects of conservative economics in Canada. Although broader than the book to which this is a sequel (Restraining the Economy: Social Credit Economic Policies for B.C. in the Eighties), there is still a special emphasis upon B.C. And that is a weakness of False Promises. Its account of the effect of conservative economics in Canada would have gained much from essays analyzing other provinces (e.g., Manitoba, Saskatchewan, etc.) and from a detailed look at some specific federal policies and their effects.
Nevertheless, the more comprehensive treatment would not significantly alter the picture. From Clarence Barber's look at government monetary and fiscal policies to Lars Osberg's account of the way conservative economic policies generated growing unemployment, inequality, poverty and social strains, to the demons by Allen and Rosenbluth that Socred restraint programs meant that B.C. did worse than Canada as a whole, the story is the same. In Osberg's words, it has been "long-term pain for a majority of Canadians and long-term gain for the already affluent." In short, conservative economics failed here as elsewhere.
False Promises, however, does more than trace the effects of conservative governments. Its essays range broadly over topics such as the effects of unregulated urban growth, the lessons of communism, the "mistake" of FTA and the experience of women in the labour force since 1911. Insofar as there is a unified theme, it is one of the importance of responding to conservative arguments.
In this respect, Allen's essay on the fall of communism and the future of socialism -- at first sight the most surprising entry in a book with this title -- fits well as a response to conservative criticisms of the Stalinist model. Noting both strengths and weaknesses of that model, the essay surveys the available data and cautions that high levels of inequality may be the result of removing the state from economic life. The failure of communism, Allen stresses, does not prove that capitalism or unregulated markets are superior to "some form of socialism," and he concludes that "socialists must still make their own future."
What kind of future?
But what kind of future? When it comes to the "vision thing," there's not much happening in this volume. Tim Hazledine's "new direction for macroeconomic policy" is a call for a New Keynesian Economics in which the policy focus is upon fighting unemployment and using price controls to deal with any inflationary problems. Similarly, in describing the conservative revolution in economic policy, Robert Allen looks back favourably upon "the liberal/progressive era" of the postwar period when "liberal and progressive" governments cared about unemployment, social services and equality. Ultimately, the alternative suggested here is capitalism with a human face -- a capitalism with less unemployment, poverty, inequality.
Partly because of specific policy proposals but also because of the way the authors appear to understand the problems they are addressing (especially apparent in Brian Cropland's account of FTA and NAFTA), the sense one gets is that the crisis around us is a crisis recalling Paul Sweezy's comment about Keynes) not of the system but rather, a "crisis of intelligence." Yet, this focus on bad policies rather than capitalism fits well with the object of False Promises, which is oriented toward weaning governments away from conservative economics and, especially, changing the policies of NDP governments.
After all, if conservative economics has been a failure as economics, it nevertheless has been a spectacular success as ideology and politics (which is why talk of the failure of conservative economics sounds so radical). Nowhere is this ideological triumph clearer than with respect to the behaviour of NDP governments and, in particular, their single-minded focus upon fiscal restraint.
As Lars Osberg argues (with a striking analogy to environmental concerns in his "Sustainable Social Development"), insofar as the social environment is allowed to deteriorate as the result of a one-dimensional emphasis upon a fiscal deficit, we run a "social deficit" and develop a growing debt of social problems whose cost of repair will be far higher than is anticipated. However, as Gideon Rosenbluth points out in an essay (familiar to CD readers) which powerfully debunks "deficit-phobia," those who expected that the newly-elected NDP governments would move away from policies burdening future generations due to underinvestment in physical and human capital, unemployment and underspending on social services and education "were in for a surprise."
Despite many years of promising an alternative to capital's agenda and advancing the needs of people as a priority, once elected the NDP governments appear to have absorbed the arguments of the conservative economists. Having veered dramatically to the right, they and their apologists view those who continue to assert the traditional NDP positions as left deviationists. For advancing the same arguments against the NDP government as he made previously against the Socred governments, Rosenbluth was removed as the chair of the BCNDP Economic Policy Committee. More false promises.
Mike Lebowitz is a long-time member of the BCNDP Economic Policy Committee.