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Why we will not see growth in SA with Mboweni and Kganyago at the helm

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Classical economics will not revive the economy
Classical economics will not revive the economy

In the late summer of 2009, a year after the global economic crisis, I was speaking to a Wits University post-graduate economics lecturer, Seeraj Mohamed.

A dark cloud had gathered over the university’s school of economics, with Seeraj voicing the frustration of many economists and lecturers.

There was a clear need for economics textbooks to be rewritten and an even greater need to remodel the business school’s curriculum.

Everyone was fully aware that the profession had got our economics completely wrong and something fundamental had to be done to save the economics field.

Of course, that feeling did not last, textbooks were never rewritten, business schools continued as if nothing had happened, many people reset to the original settings and classical economists picked up from where they had left off.

After governments across the world had pumped trillions of dollars into the banking system, and more trillions to save the insurance and auto industries, the economic crisis had finally bottomed out and tentatively rebounded.

Global trade had unfrozen, erstwhile market players were cautiously coming back to the markets, banks were starting to lend again and, for good measure, CEOs were congratulating themselves with millions of tax dollars in bonuses.

It feels like one is once again stuck in that precrisis time warp of classical economists, reading Minister of Finance Tito Mboweni’s presentation at the national executive committee meeting, a summary of his economic document released a month earlier.

It’s the same feeling I get when I listen to Reserve Bank Governor Lesetja Kganyago explaining his version of economic fundamentals. I sometimes wonder whether, for this Fukuyama generation, history did end in the nineties.

History, of course, did not end, but it gave us valuable lessons and hoped we would change.

Unfortunately, with an economics profession that was vested so deeply in the continuation of classical economics, with international economics professors like Harvard University’s Nicholas Gregory Mankiw sitting at the helm of classical economics as its propagandist in chief, having indoctrinated generations of university students across the world, there would be no turning back from their messianic mission.

Unfortunately, the global economy did not really move on. Since 2008, no country has had real and significant economic growth, except China, and the reason is simple.

People had lost everything in the classical economics-led economic crisis, they had lost their businesses, their investments, their savings; unlike classical economists they were not willing to just pick up from where they left off, only to wake up with another loss of lifetime savings and a never-ending nightmare.

People had realised that something was fundamentally wrong with the purely market-led economy and were just not willing to put all their stakes in a Ponzi scheme they clearly did not understand.

That was 10 years ago and, despite a global economy that has been limping for over a decade, the nihilism continues and the classical economists have duped us to forget the crisis of their profession and are back to their worn out dogmas – “markets are our hope and, as long as government does what markets want and stays out of their way, our march to the new Jerusalem is inevitable”.

What?

Why do we allow classical economists to insult our intelligence and ruin our lives in this way? Why do we think the very people who caused our problems would be the ones to solve them?
Yonela Diko

Why do we allow classical economists to insult our intelligence and ruin our lives in this way?

Why do we think the very people who caused our problems would be the ones to solve them?

Why do we think owners of a Ponzi scheme would blame themselves and take some responsibility?

How did we lose our towering intellectuals who sat in various schools of economics around the world and argued for days on end on the global economic models needed during various epochs in history?

Have we lost our economists to the largess of corporate capture and malfeasance?

We have been here before, however. In 1933, unemployment in the US was at 24.9% and in England at 14%, and this was considered a severe global meltdown.

Our unemployment is 29% and, despite our ability to limp forward, we are in a severe economic crisis.

Like in the thirties, the classical economic theory that had prevailed at the time, championed by economists such as Friedrich von Hayek, collapsed in its failure to both diagnose the problem and come up with solutions.

According to Von Hayek, people were unemployed because they lacked skills the markets needed, because businesses could not afford wages workers demanded (through their unions) and, of course, governments were standing in the way of good business with their stifling policies.

Sound familiar?

Today, Mboweni is also telling us that the lack of skills the market needs; cost of doing business, including cost of labour; government red tape; and other neoclassical factors are responsible for our current economic stagnation.

Unfortunately, today, alternative economic thinking has been wiped out through worldwide university indoctrination and corporate capture of academics so we have very little chance of exposing this neoclassical nonsense.

In the thirties, more sober economists, such as John Maynard Keynes, emerged and correctly pointed out that such a severe economic crisis would not be solved by such fiddling on the supply side of the economy.

As was the case then, so it is now; we are having a demand-side crisis.

Investors and consumers will not return to the market just because policy is made certain, workers are given skills, the cost of doing business is lowered or corruption is fought.

People don’t have the capital to participate in the economy and they are not willing to gamble with the little they do have in the crisis-prone markets.

Many have decided to sit on their cash.

What was needed then to get the economy out of a severe economic crisis is what is needed today, which is for government to become the “primary shopper in the land”, to plug the gap in the demand.

The Chinese government replaced the missing private investors and became extremely efficient at it.

China has always understood that classical economics is a theory developed by owners of financial capital, industrialists, land owners, the academic intelligentsia and, to a lesser extent, the middle class.

Only after this group would have made a royal mess of their economy would they remember the importance of the state in the economy.

Given the crisis-prone nature of the markets, its champions have realised that in order for state assistance to be guaranteed (because the markets will always come knocking on government’s door to be saved), classical economists need to have their own people in government treasury departments.

Once that is secured, it matters not who is in the Union Buildings or Luthuli House.

Finance Minister Tito Mboweni

Classical economics will never be of service to the poor, because the poor have nothing to bargain with in the market.

If capital owners and businesses come knocking at government’s door when they have pushed themselves into a fix, why can’t the government get into business and be the bargaining chip the poor need to be able to participate, instead of servicing the selfish and greedy private businesses that are leeching people’s taxes on every self-induced economic meltdown.

This is how state capitalism has emerged, and it has been the engine of global growth since 2008.

So, Mboweni’s document is 20 years late and, more accurately, it is 90 years discredited and abandoned.

Of course, as with Von Hayek, although he was abandoned in the thirties in favour of Keynes’ government-led growth, once growth had returned and countries become successful again, Von Hayek was dusted off by Margaret Thatcher and Ronald Reagan, selling off state assets, deregulating, lowering taxes and reducing the size of government to a skeleton incapable of standing up to private investors.

Then it all came down.

There is no time in history when classical economics ever revived an economy as severely challenged as ours.

As long as Mboweni and Kganyago are at the helm, we will never see growth in this country.

Diko is a media strategist and political commentator


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