Having a jobs policy is not necessarily synonymous with creating jobs
The Ptolemaic system of astronomy, which had the planets waltzing around the Earth in “compounded circles,” predicted celestial positions — sort of — for centuries. As time went on, however, the refinements needed to keep the system semi-functional turned it into a conceptual monster.
His heliocentric system, in which the Earth was just one of a number of orbiting planets, represented one of the great “paradigm shifts” — to use the term coined by Thomas Kuhn — in the history of science. The Darwinian theory of evolution by natural selection was another. In current times, “official” climate science is trying to ignore/fight off the Sun’s return to the central role in climate change.
What these two established — and one prospective — shifts have in common is that they all dented, or threaten to dent, man’s sense of his significance. Copernicus moved humanity from the centre of the universe to a planet circling a minor star in an unimaginably huge cosmos. Darwin further injured man’s self-esteem by pointing out that he was an evolved creature, albeit with the dubious gift of limited self-awareness. Solar theory not merely threatens to explode the notion that human carbon dioxide emissions are driving the climate, it comes linked to the rejection of the even greater conceit that climate control is possible via economic policy.
This latter may, in turn, be part of a broader, and long-overdue, paradigm shift in economics, related to the current global crisis of the managerial Megastate, which is seen most sharply in the Eurozone and the United States. Ironically, Adam Smith might be considered economics’ Copernicus, but he was followed by a two-hundred-year political counterattack that attempted to prove that the market Sun goes round the government Earth after all. Certainly, government may not be able to halt the tides or move the heavens, but it can slow or stop the market economy.
The Keynesian economic paradigm is that free economic markets are profoundly and fundamentally flawed, and that government regulation, redistribution and macromanagement create both a more fair society and more stable growth. The great rival theory is that of the Austrian School, conceived by Ludwig von Mises and Friedrich Hayek. This maintains — returning to a Smithian perspective — that the market is a naturally evolving institution, and that far from evening out cycles or promoting growth, government macromanagement and monetary manipulation in fact create and exaggerate fluctuations, thus retarding job and wealth creation.
Just as carbon-dioxide theory dominates “official” climate science, so Keynesian theory dominates “official” economic policy. These theories are fiercely defended for the same reason that the geocentric universe and biblical creation were supported by “the authorities;” without them, their authority and power would disappear.
Economic paradigms are complicated and muddled because people have no intuitive understanding of economics. What understanding they do have tends to be polluted by moral assumptions, which are fondly cultivated by politicians.
The reason that Austrian economics has traditionally been rejected by governments is that it gives them less scope for action. One leading question is how it has been possible for Keynesianism to have held sway if it does not correspond with the way the world works. The simple answer goes back to the fact that people have no natural economic understanding, and are inclined to subscribe to theories of powerful personal or institutional agency: Obama/the EU/the IMF/the G20/central bankers will save us. All it requires is leadership, “bold” action, and political will.
This view of economics is analogous to certain ancient civilizations’ belief that the return of crops/seasons required human sacrifice. How could you doubt the efficacy of such policies? Didn’t the seasons return after the virgins were sacrificed? Bad crop? Not enough virgins! Similarly, some leading authorities maintain that if Keynesian stimulus hasn’t worked, it’s because there wasn’t enough of it. Nobel economist Paul Krugman says that stimulus would have worked if it had been twice as big. Not enough virgins.
The bottom line is that having a “jobs policy” is not necessarily synonymous with creating jobs, any more than having a global economic dictatorship (or virgin sacrifice) is a viable — let alone desirable — means of controlling the weather.
The error of believing that the Sun goes round the Earth did not have very many ramifications for most ordinary people for a long time (although it eventually led to major practical problems with navigation and calendars). The great French economist Jean Baptiste Say pointed out that people are also inevitably confused about the government’s role in wealth creation because of state propaganda. Hence the notion that governments should “do nothing” is considered laughable. But government inaction does not mean that private economic actors “do nothing.” They constantly respond to opportunities and price signals. Governments’ attempts to command the economic heavens create uncertainty, jam the signals, prevent adjustment, and destroy jobs and wealth.
The global crisis should lead to a paradigm shift that recognizes the impotence of much of current public policy. Otherwise the global economy may continue to spiral out of control. Unfortunately, paradigms are slow to shift, and the shift will be subject to massive resistance, especially if the private sector continues to produce its economic crop.