As times goes by, it is becoming more evident that the negative trends were not a secret at all. There were those that had been warning of turbulent times to come, but the voice of reason fell on deaf ears as the speculative bonanza continued to roll on. So why didn’t mainstream economists notice the trouble then? Why didn’t they prevent the cheap-credit frenzy? Were they blind to the obvious? Or simply silent about it?
My response would start with a point that neither common people nor economists discuss these days. This failure to foresee the crisis is partially due to the separation of modern economics from the needs of the society. The connection of economic studies with social studies seems to have been lost. Economics is defined by the Merriam-Webster Online Dictionary as “a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services”. But what it has become is not in line with this definition. Economics is more and more about mathematical modeling, which distances itself from human relations and behavior. Instead of handling economic developments for the sake of an entire society (including evolution of economic models), economics has turned into speculative theorizing intended to “talk up” the economy for the benefit of the elite.
Money is constantly presented as wealth while in fact these two are separate and distinct things. The real wealth is people, their abilities and skills, their cultures and values, their lands and natural resources, forests, valleys, mountains, etc. Money on the other hand is an artificial equivalent needed for exchanging wealth. Wealth is WORTH because it takes years and decades to develop (it has ESSENCE to it), while modern electronic money only takes a couple of seconds to be created digitally out of thin air. The mere abundance of money does not imply wealth. Inflation shows it pretty clearly – everybody may be billionaires, but their billions are hardly WORTH a rotten carrot.
Modern-day economic activity seems but ECONOMIC HUSTLE based on overpricing valueless stuff while inflating bubbles is publicly presented as economic growth. Economics no longer concerns itself with provision for the material needs of a society. In fact, this speculative corporate “bubblonomics”, as I call it jokingly, is no longer interested in the society at all. The society itself becomes a resource to be tapped into, while in fact it should be the ultimate “employer” that “hires” economists to provide economy-related services for the benefit of the entire society. Since the elite has the means to employ economists and sponsor specific types of economic studies that meet its needs, it is not difficult to guess whose interests end up being taken care of.
Economists are paid to find ways to boost their masters’ profits. The economic effectiveness of a society is not in their sphere of interest. It is no wonder that they overlook the fact that overall economic effectiveness of a society is quite often unrelated to economic effectiveness (or profitability) of market players in it. Corporate profits are equated to the well-being of an economy. In other words, companies may be enjoying hefty profits while the economy, its social aspect undoubtedly being its integral part, may be in serious trouble. Outsourcing serves as a perfect example of it. Corporations cut costs and make profits while a national economy loses jobs and relies on debt to preserve existing consumption levels, which leads to new crises.
This misconception goes all the way back to Adam Smith, who believed that what is good for one market player is good for the entire market. Since boosting profits is good for an average company, he reasoned, it will be beneficial to the entire economy if all companies should boost their profits. Adam Smith lived in the times of unrestricted capitalist competition, which had developed within small locally-defined unassociated community markets. But we do not live in that economic environment any more. In this day and age, global transnational oligopolies find it very profitable to continue convincing everybody that free market still exists. The mainstream neoclassical “market theology” is not accidental – it is deliberate because it encourages smaller markets throughout the world to open up to the economic giants.
Thus, certain economic theories have been deliberately simplified, taken out of context and given prominence in academic circles and political speeches to justify dangerous economic practices. Economics now serves as a powerful propaganda tool to promote interests of transnational capital under the slogan "PROFIT AT ANY COST" while economists remain silent about the actual developments that shape our economic reality.
Free market and other neoclassical concepts are applicable within specific historical conditions but students are trained to believe that those concepts can work in any country any time. They become convinced that their economic paradigm is universal. As a result, they fail to pay attention to the fundamental evolution of economic models, which can be seen from the standpoint of political economy rather than neoclasical economics. The shift in economic models ends up being noticed when it is too late.
Those with money and power are the ones to determine what economic paradigm is officially followed and studied because they are the ones who ultimately hand economists their paychecks. It is the elite that form public opinion on economic issues through media and college books. They are the ones who determine official statistical indicators, and they are those who publicly interpret them. They tend to convince their people that the economic model that keeps the current elite in power will never change because it is universal. That happened in ancient Rome, in feudal Europe, in Communist Russia – the same thing is happening now. They are convincing us that getting deeper in debt will stabilize the economy, that up to 80% of GDP represented by the service sector alone is good for job creation in the private sector, that outsourcing will make consumer products more affordable by reducing production costs, that global transnational corporations do not interfere with the market mechanism but in fact promote private business initiative worldwide, that globalization provides equal opportunities for all countries, etc. But the funny thing is that all these economic principles have in fact nothing to do with economics. Those are all about politics and preserving the power of the elite.
Boris L. Anisimov