Sam Leith writes an excellent piece in the Telegraph today essentially saying that Arts Graduates know nothing about how the economy works because it is unknowable. That’s a good point. On that basis, the present sorry government must be Arts Graduates of the highest calibre because the Prime Minister and his Chancellor demonstrate how much they don’t know about the economy on a daily basis. Leith gives credit to those who work in the City and assumes they must be great experts in the economy. There I must disagree. The mistake, which I think a lot of people make, is to confuse what drives the City with what drives the economy. There couldn’t be a greater gulf between the two even though the City has a great impact on the economy as a whole.
Those who succeed in the City, and many do in spectacular style, do so not because they know how the economy works, but because they know how the City works. That should not be a subtle distinction. The reputation of the City has taken a pounding recently, and probably deservedly so, because everything to do with the economy is causing great concern to ordinary people whose daily lives are blighted by miscalculations, misjudgment, or just plain mischief.
That concern was enough to give the Labour government its worst electoral defeat in living memory. The Crewe bye-election will be another opportunity to give them another black-eye. Over in America, things are hardly any better. They have a presidential election taking place right now which provides an insight into some of their concerns. One such is the NAFTA trade agreement which came under fire recently as the cause of American jobs being ‘exported’ to Mexico. We have a similar problem here, but does anyone seriously believe that jobs are going to India or China because wage rates in the third world are so much lower than they are here? Only an Arts Graduate could believe that. The reason jobs are being exported is because City bosses earn huge bonuses from exporting them. If they didn’t earn such bonuses, those jobs would not be exported. Of course I use the word ‘earn’ in the loosest possible sense, in the sense of an athlete who ‘earns’ a gold medal by taking steroids or a mugger who ‘earns’ money by waving a knife in someone’s face. They are merely working the system.
And that’s the root of the problem. It is a system. A system of rules and regulations, of treaties and trade agreements that provide endless opportunities for smart operators to work it to their personal advantage. In what possible way, for example, can it be good for the American economy that an investor can buy into Yahoo! after it had turned down a takeover bid from Microsoft, and then sue the board for rejecting it? He had no involvement in the business beforehand, no concern for the nature of the business, or the interests of its customers or suppliers, but now he can hope to have the bid reopened and see his share-holding soar in value as a consequence. All perfectly legal and proper so far as Wall Street is concerned, of course, but absurd that a market can be manipulated in this way. Plainly Wall Street, and the City, do not facilitate the economy, they distort it. Likewise NAFTA and all the myriad of similar treaties do not create free trade, they interfere with it.
Someone who did know about the economy, and knew it very well, was Adam Smith. When he extolled the virtues of a ‘free market’ he wasn’t writing about a market that was closely regulated to somehow make it ‘free’, he wasn’t writing about states that had treaties to ensure ‘free’ trade between them. ‘Free’ to him meant free from all such interferences in the first place. It would be the invisible hand of self-interest that would drive free trade and ensure it stayed free. He would be astounded by an economy that barred imports that competed with local produce, intervened to buy up surplus stocks to maintain an artificially high price, dumped that surplus stock on third world countries, and in consequence ruined those markets for their local farmers and producers. Such is the EU vision of an economy. He would be equally astounded by an economy that enabled exotic fruit and vegetables to be flown half way around the world, at significant cost to the environment, to be sold at rock-bottom prices, while at the same time fuel prices are soaring and motorists are penalised to reduce their so-called carbon foot-print. This is not an economy that is capable of being understood.
We need reform. In Arts Graduate terms, economics has become like the Turner Prize, devoid of all social worth and intellectual merit. It is ripe for those with no understanding of the real world to exploit and manipulate to their own ends, the people who should matter are shut out. So we need reform across the board, from the City to farming as well as manufacturing, but most of all, we need reform of our government. Capitalism, for that is what is at stake, is as unworkable now as communism was, and look what became of that.