Saturday, 31 December 2022
Friday, 30 December 2022
Suppose the elite- the guys with power in a country who recognize each other as having power and who start to act cohesively- dedicate themselves to 'value creation' will their country succeed or fail? Casas and Cozzi developed the annual Elite Quality Index (EQx), which purports to measure and rank the value that national elites create for a country, in the belief that this will tell us something about which development states will prove viable and which will fail. Sadly, they are as stupid as shit. It is obvious that a country can have a super-smart elite dedicated to 'value creation' and still fail. Ghani was of the International development elite. He was an expert in 'failed states'. Then his state failed. There are purely geographical reasons why Afghanistan is always going to have problems. By contrast, a country may be ruled by inbred cretins and still do very well. Thus the Casas & Cozzi index is useless, if not mischievous. In their recent paper they quote Kaushik Basu- who, after Sen's death, will hold the title of the most useless Economist in the world. He says
Whether one likes it or not, elites play a big role in a nation’s success or failure.
Leadership matters because the choices that leaders make can have dramatic consequences. But, even if the elite produces leaders, those leaders may take diametrically opposed positions. Indeed, 'product differentiation' within the 'monopolistic competition' that characterizes elite activity. Thus, members of an elite tend to cancel each other out as noise. Thus, over all, elites play no role. They are too small and have to spend most of their time treading water to stay in the elite pool. The economic condition of a nation depends on what the non-elite do. If the masses are doing value-creation, well and good. But, the population may prefer to do stupid shit. Elites can preside over either outcome. It is a different matter, that a bunch of gangsters could enslave the population and make it economically productive or a threat to its neighbors. But gangsters may have no 'elite' characteristics whatsoever and may spend a lot of time killing each other.
India's Civil Service was certainly elite. But it could preside over either increasing poverty or increasing prosperity. True, if it faced invasion or bankruptcy, it might do sensible things and this was also the case if the threat of a beating or the promise of a bribe helped matters along.
What was true of India was also true of other polities- e.g. France- where competitive exams had created a cohesive elite. But that elite could fuck up like nobody's business. The Chinese mandarin class may have had very refined literary tastes but they held China back.
England may be said to have had a Public School elite. But if you had money you could buy yourself as many Oxbridge educated barristers and Eton educated Cabinet Ministers as you liked. Post-War America, with its Military-Industrial complex, could be said to have had a 'power elite'. But Vietnam was its graveyard.
They can promote all-round well-being;
so can sending good thoughts into the Universe
but they can also be exploitative, stalling the nation’s overall progress.
as can gangsters or Trade Unions or gangsters who run Trade Unions
The newly created Elite Quality Index (EQx), under the academic leadership of the University of St.Gallen, is an exciting experiment in
junk social science
scoring and ranking the quality of elites in different nations.
on the basis of ignorance and prejudice
This work can potentially play a role in helping nations reform their leadership, thereby contributing to overall social welfare.”
No it can't. Voters don't bother with this shite.
In the case of India, which saw no change in elite composition during COVID, Casas and Cozzi nevertheless find a change in 'value creation'-
The EQx2022 offers quite contrasting results for Indian elites compared to the EQx2021.
Which proves the index is useless. It is not 'robust'.
India still belongs to the category of middle-quality elites even though the country’s overall ranking has improved by 21 places (rank # 97), and its overall score by 2.5 points.
Even though nothing had changed. It's just that these two ignorant nutters decided to give it higher marks for an arbitrary reason.
The Political and Economic Power exerted by elites (rank # 73 and # 22, respectively) is far in excess of their performance in terms of Political and Economic Value (rank # 100 and # 137, respectively). The results therefore suggest that value extraction remains central to the core functioning of Indian elites that are mainly driven by a lack of desire to create value.
Meaningless jibber-jabber. If you are doing 'value extraction' you want to maximize value creation in the sector vulnerable to extraction- viz. the organized sector. But the reform process has stalled in India.
On the bright side, the success in the COVID-19 vaccination rate (VAX, iii.7, rank # 61) attests to an excellent pharmaceutical business elite typified by the Serum Institute of India (SII) and Bharat Biotech, which fully vaccinated 60% of the Indian population in less than a year.
It attests to India's economies of scope and scale in this area and to past I.P legislation re. generic medicines. There was no change in the quality of the management. An opportunity arose and one particular entrepreneur rose best to the challenge.
This incredible achievement, given the size of the population, allowed the COVID-19 fatality rate, age-adjusted (COF, iii.7, rank # 68) and COVID-19 mortality rate, age-adjusted (COM, iii.7, rank # 63) to drop faster than expected. These companies also exported jabs to poorer countries. Unfortunately, SII did not go all the way in its efforts to vaccinate Africa, a move that would have helped defeat the world pandemic.
Nonsense! Delivery systems were the bottleneck. In any case, the real story here is about herd immunity.
In December 2021, it unexpectedly decided to halve production for financial reasons. As was the case with Big Pharma companies in the West, unregulated monopolies prioritized their private profits over wider social benefits. The Indian government could have gained a more prominent world leadership role in combatting the pandemic by putting more pressure on SII to replicate India’s vaccination miracle in Africa.
It looked like that would have been a waste of money.
Unfortunately, they decided not to leverage India’s excellent Political globalization (PGL, i.1, rank # 18) to challenge China on the African continent.
Because that's an even more foolish index. Africans know China has a lot of money. India is Mr. Nice Guy but it has its own problems.
India is the world’s biggest democracy and should become more aware of its potentially unlimited international influence.
It shouldn't listen to its own voters. It should listen to these two shitheads.
Following months of riots by farmers, three laws deregulating agricultural markets were repealed in January 2021 because they excessively favored extractive elites.
No. The laws threatened the politically influential arthiyas or middle-men. Anyway, the legislation was merely permissive. States will have to subsidize their own farmers as the PDS diversifies purchasing.
This attempt to liberalize the agricultural market could have succeeded if elites had been more inclusive and guaranteed a price floor for small farmer crops.
No. That would have made no difference. The farmers got what they wanted- viz. higher prices now and a the psychological sense of victory. Then, the bania Kejriwal won Punjab by a landslide. The farmers had just fucked themselves in the ass.
Instead, this failure illustrated that overly extractive elites can cause harm to themselves.
This is a stupider sentence than any even a JNU Professor could write. There was no extractive elite involved. Modi was showing that he was the only person who could do reform but that he was smart enough to back down if challenged. This made him seem sensitive and responsive to the masses because he himself comes from a very poor family. His own treasure is his Mummy. Indians know these lines from the film Deewar
Amitabh Bachchan: "Aaj mere paas building hai, property hai, bank balance hai, bangla hai, gaadi hai..kya hai kya hai tumhare pass?" (today I have wealth and power. What do you have?)
Shashi Kapoor: "Mere paas maa hai." ( I have mother!)
Suppose, instead of Salim/Javed, Cassas/Cozzi had written the dialogue. Then it would be
Bacchan- 'Today I have extractive elite power! I'm creating value for myself like crazy! What do you have?'
Shashi Kapoor- Your elite power is overly extractive! Our Mummy is crying her eyes out due to decline in India's Elite Quality index! Mend your ways, bro!
For Theists, all creatures are chosen by the Creator to be as they are and to become what they can become. I suppose, in the West, we might also choose to speak of certain peoples as 'chosen'. The Greeks were chosen to open our eyes to Science and Mathematics and the advisability of having statues of naked dudes all over the place, while the Romans were chosen to bring Law & Civilization to Celtic and Teutonic tribes and to endow the Near East with aqueducts and crucified dudes. But, for more than half of humanity, it was the Jews- who created the template for Christianity and Islam- who were God's original chosen people.
As an Indian, I must admit that I consider devotional piety to be God's gift to those He chooses. However, European wars of the seventeenth century changed the fitness landscape. Piety might be a handicap. God, it turned out, was on the side of- not the big battalions necessarily- but the battalions with the better guns. General intelligence- more particularly such as could be applied to mathematics, science- but also the law, commerce or even the world of entertainment- became increasingly important. There could now be an 'intelligentsia' which might flatter itself that it had a 'formula' that applied to not just the choices Societies make but the sort of Society its Science's 'chosen' people might want to erect. One such formula was C-M-C (Commodity-Money-Commodity) turning into M-C-M (Money-Commodity-Money). This became the foundation of a great Secular Religion whose Prophet was Karl Marx.
In 1985, one third of the world's people lived under Marxist rule. Add in avowedly Socialist regimes, like that of India, and the figure would have risen to half. Clearly the type of Society Marx chose as the ideal had affected billions of lives. Why did Marx choose as he did? The answer has to do with David Ricardo- a Sephardic Jew who converted to Unitarianism- who might be considered the first modern economist (Adam Smith was a moral philosopher) who identified social classes with factors of production. The aristocrat owned the land. The merchants (burghers or bourgeoisie) owned financial Capital and acted as entrepreneurs. The proletariat served the State by producing babies who were doomed to provide labor at subsistence wages. Ricardo wanted the 'Capitalists' to take power from the Aristocracy who got richer by being able to extract more and more rent without doing anything productive. Malthus, however, suggested that the thriftless nobleman was necessary to avert an under-consumption crisis. Marx's solution was to firstly predict that Capitalist competition would drive the profit rate down to zero- the bourgeoise was digging its own grave- and that once a 'final crisis' brought down the market system, the proletariat would rise up and establish a dictatorship which, by some magic, would turn into a Utopia where there was no scarcity. People would produce goods and services because they felt like it and just give stuff away to whoever needed it.
The fly in the ointment, when it comes to choosing what type of Society we should establish, is that Societies have to compete with each other for territory and resources. If they can't defend themselves, they may be conquered. Smaller countries may become protectorates or join a particular alliance. But this, by itself, may constrain what type of socio-economic regime they can have. But similar considerations arose even absent any existential threat. Almost as bad as being defeated in battle, is being considered uncouth or uncool. Thus, Tardean mimetics prevails such that what is chosen converges irrespective of heterogeneity in preferences and endowments. Back in the Sixties and early Seventies, there was a 'convergence' thesis which predicted that the Soviet Union and the USA would become more and more alike. They would be run by technocrats on the basis of complicated computer programs which embodied the mathematical models of either Samuelson or Kantorovich. Capitalism would have 'market prices'. Communism would have 'shadow prices'. But substance and shadow would be the same. This was a benign version of the crazy anti-Semitic notion that the Jews controlled both Wall Street and the Kremlin. Things didn't work out that way. A mathematical economist who advised Gorbachev helped tank the Soviet Union. Meanwhile Arrow-Debreu securities- once described as 'weapons of financial mass destruction'- precipitated the 'final crisis' only of bien pensant 'ordoliberalism'.
There is a different sort of Social Choice which has to do with committees deciding what to spend money on. Under 'Corporatism', industrial unrest is avoided by decisions being made by committees which include capitalists, trade unionists, and representatives of civil society. Here there is preference diversity and some sort of calculus whereby weights are assigned to different types of identifiable costs and benefits. But such committees soon become corrupt. 'Transferable utility'- bribes of various sorts- not some sophisticated mathematical calculus is what prevails. Rent seeking, not some topological quest for the 'Pareto frontier' obtains.
The Ashkenazi Jews of Poland and Lithuania were subject to the misrule arising from the 'Golden Liberties' of the Polish aristocracy. But their own Rabbis were guilty of an equally anarchic indulgence in a hypertrophy of 'halachic' rules. Solomon Maimon, escaping the shtetl and pursuing European Enlightenment, is a representative figure of what may be called the lumpen Askhenazi Aufklarung. He stands at the opposite pole from Moses Mendelhsonn who is the towering figure of a bourgeois, reformed, assimilationist, Nationalist and Liberal, Judaism which however was buried once and for all by the rise of Hitler. Theodor Herzl's Zionism was one alternative and Israel did become a reality- but it was poor and vulnerable. Communism was an alternative and Bolshevik Jews did play a big role in Poland till the end of the Sixties when many were exiled. Hungarian Jews, perhaps because they were considered loyal by the Magyars, were less vulnerable to infantile Leftism. Michael Polanyi is a case in point- though, I suppose, his idiot younger brother cancels him out. Britain, finding the Atlee's administration perfectly dull and respectable, was turning to the Left- at least in the Academy- because the Welfare State, as Julian Le Grand pointed out, subsidized the middle class 'clerisy'.
In America, however, there were anti-communist Jews- Barry Goldwater, though losing the Presidential election, is credited with sparking off a conservative revolution- some of whom incorporated mathematical ideas of a Hayekian stripe. In this context, Arrow's impossibility theorem- published by the RAND Corp- was a useful counterblast to Samuelson's left-liberal Social Welfare Function. Arrow had simply rejigged a voting paradox to show that the thing was not democratic. Arrow was wrong. It was obvious that if voters can 'transfer utility'- i.e. cut deals- then no paradox obtains. In any case, 'transitivity' is not a desirable property for preferences over the means to producing utility rather than utility itself.
Voting theory would, in any case, have been important because proportional representation had obvious flaws. It could help extreme parties when it wasn't just the tool of a corrupt coalition. But 'first past the post' posed a problem where there were significant ethnic or religious fault lines. There was a 'mechanism design' problem whereby Democratic aspirations were reconciled with economic and geopolitical imperatives to preserve national integrity and existing treaty commitments. But this was a purely political problem of an ideographic type.
By the Sixties, the Americans had a useful theory of rent seeking and a game theoretic analysis of coalition stability. The problem of 'preference revelation' too could be tackled by the 'reverse game theory' of mechanism design. This meant that academics need not talk virtue signaling nonsense. They could recast ideographic information in nomothetic terms. But this merely meant that Professors were in the same game, not that they were truly playing catch-up, with cigar chomping operators who decided things in smoke filled rooms. In America, in the early Seventies, 'the Fink', found a way to 'unbundle' issues of concern to the money-bags by inventing the Political Action Committee. This meant that Political Parties could be disintermediated. The PAC concentrated on getting its servants elected regardless of party. This put an end to the notion that 'government by discussion' would be a feature of democratic politics. It didn't matter what the eggheads in a particular party agreed on, policy would be decided by those paying for campaign.
Jews lost interest in Social Choice Theory because Israel had turned into a success story simply through hard work and sacrifice regardless of its shambolic politics. In America, the Evangelicals had become more Zionist than the Jews. There was some scope for self-hating Jewish virtue signaling but it wasn't fooling anybody. I recall telling one such lady the sorry tale of how I lost my mother at Belsen. Apparently she had sloped off to the gift shop. Anyway, that's why I feel it important to say 'Never again!' when some bleeding heart tries to bite my ear off about the rising threat of Fascism as represented by Modi or BoJo or whatever.
The fact that Social Choice theory is shit is amply demonstrated by the fact that India's chosen people- chosen for us to despise- Bengali mathematical economists chose to devote themselves to it. Having been kicked out of East Bengal, people like Sen, quite naturally, wanted to make India unlivable for Hindus. They failed. Sad.
Sunday, 25 December 2022
At one time, if only by poets, the Sun was conceived of as an indefatigable traveler who grows stronger and then weaker through the day and the seasons. Perhaps men too were bound to a wheel of birth and death just as the Sun was yoked to a like Duty or stern Necessity. At a later point, a more mechanistic viewpoint prevailed. Diodorus Seculus suggested that Hyperion- 'he who walks on high'- was the first human being to understand the motions of the Heavenly bodies. However, by the end of the eighteenth century, it seemed that Humanistic Enlightenment had been but a diabolical dazzlement. Cartesian truth was but, by translatio imperii, Racine's machine of Terror. Death was the remorseless Sun whose noontide none could survive save in the shelter of the heart's broken shadows. Holderlin's Hyperion, losing his beloved in a vain attempt to liberate Greece from the Caliphate, sings of Fate as the futility of existence in a storm tossed world. Yet, the continued advancement of utilitarian science and commerce was making Greece's liberation a certainty at just about this time. Destiny itself wielded no shears of eternal doom but had to cut its coat according to its cloth.
Still, to journey, to search, to transact- in a word, to change- is to diminish by reason of the opportunity cost incurred by exercising choice. The loss of an option, even if the outcome is wholly salutary, nevertheless seems irreversible.
Change, it is believed, is denoted by the Proto-Indo-European 'mei' which also has the meaning 'small'. In every exchange, there is friction, or entropy, a diminishment of what was possible and, for one party or the other to any exchange, a smaller or unfairer share.
Where there are transactions, there is a need for
1) memory of a particular type which may involve witnesses or tokens
2) prudence or access to good counsel
3) an unique- if only arbitrarily so- account of transactions
The Roman Goddess, Juno Moneta, at whose temple coins were minted and from whose name our word 'money' ultimately derived, was variously considered to remind, warn, counsel or represent either Memory or Uniqueness.
Keats, in 'the fall of Hyperion'- which like Blake's visionary poetry denies the possibility of 'natural' religion and has no truck with any notion of 'the general Good'- has Moneta, personifying Memory, stand as the sole priestess of Saturn's vanished cult- a wraith of wretchedness with
Not pin'd by human sorrows, but bright blanch'd
By an immortal sickness which kills not;
It works a constant change,
Saturn- emasculated by his son Zeus- has a Moneta who presides over desolation just as Juno Moneta presided over the burgeoning of the Roman Empire. Keats and Blake were Cockneys- native to a City whose Empire would dwarf that of Rome or the Golden Horde. The Moneta of this child of the City of London could be maternal
My power, which to me is still a curse,
'Shall be to thee a wonder; for the scenes
'Still swooning vivid through my globed brain
'With an electral changing misery
'Thou shalt with those dull mortal eyes behold,
'Free from all pain, if wonder pain thee not.'
As near as an immortal's sphered words
Could to a mother's soften, were these last
The reign of Saturn was one where the common man exulted in a primal stupidity which however was never undersupplied with good things to eat and drink or lips ripe for kissing. An utilitarian enlightenment might- like the Alchemist's 'reign of Saturn transmuted into an Age of Gold'- turn the lead of ophelimity- the profit motive- into the lost lilies of Romantic Idealism's Ophelia to but gild what goes with the wind or, more to the point, inscribe Ozymandias's name on water.
Keats' Saturn, felled upon sodden sand, seems listening yet, 'to the Earth, His ancient mother, for some comfort'- which, sadly, like many Mums whose son's testicles have been ripped off by a querulous grandkid, she was loath to supply. 'Serves you right for eating your babies!' tends to be the bruit we impute to her gravamen.
Keats turns from Moneta as Mnemosyne, Memory- mother of the Muses- to Thea, that which endows gold with value. But even could she, by no means would she, wake Saturn to but bootless, unbollockled, woe- which, I suppose, is good to know. Sadly, Saturn does wake up only to mightily whine. His big complaint is that death isn't doing its job. But, it turned out, death could settle Keats's hash in a prompt enough manner. That's all the theodicy Eng Lit can afford this Iyer who was forced to memorize 'La Belle damn sans mercy' in Eighth Standard at St. Columba's back in 1974. Fuck you Keats! Fuck you very much!
Friday, 23 December 2022
Normative economics means deciding which value judgments are better than others. Positive economics is about what is, not what ought to be. One way to build a bridge between values and facts is to say that every rational being would prefer such and such value judgment provided it also promotes the survival and burgeoning of Society. Thus we should focus on bringing about those factual states of the world which best embody or exemplify the best values compatible with the continued existence of Society. An example would be uncorrelated asymmetries dictating bourgeois strategies which are eusocial. This is stuff like forcing debtors to scale back their spending by refusing to lend to them. The debtor may say ‘how come financially prudent people get to borrow whereas I, who really need the money to pay for drugs and prostitutes, get nothing?’. The answer is there is an uncorrelated asymmetry featuring a public signal that this debtor can’t pay his debts. That is why his credit has dried up. This may seem cruel but it is ‘eusocial’- i.e. Society is better off if financial improvidence is punished in this way.
To uphold conventional morality and private property and the rule of law is perfectly reasonable. It is also reasonable to provide things that everybody really wants or needs. The problem is that some people pretend that everybody values something which nobody actually does. Thus, there was a time, when everybody pretended that masturbation was really bad. It should be punished or cured. But people were being hypocritical. Wanking does no great harm. One just doesn't want to admit that one's hobby isn't really rock-climbing or wind-surfing. It is actually playing with yourself.
At one time some progressive academics used to pretend that what voters really want is economic equality. Also everybody lurves furriners. People want World Government. This was true only to the extent that the World Federation could put us in flying saucers and send us to explore distant Galaxies where we'd end up having sex with hot aliens with green skin. I suppose that's what Shashi Tharoor was hoping for when he joined the UN. But the place was boring and useless.
Ten years ago, at around the time the EU got a Nobel prize for being as shite as Amartya Sen, the latter wrote an article for the New Republic on the European financial crisis- more particularly the predicament of Greece, Portugal, Italy, Ireland and Spain which had gone into the Euro overvalued and then borrowed too much because of the lower real interest rate they now faced. The other factor was the sub-prime crisis and the bursting of speculative bubbles of various sorts.
What is remarkable about Sen's article is its vacuity. He is neither saying that Brussels should bail out the PIIGS nor that they should go back to having their own currencies which would allow them to devalue and thus get export led growth. He doesn't even propose some method of shielding the poorest from a 'haircut' or entitlement collapse. He pretends instead that the Europeans, like the Hindu Indians, had wanted political unification not economic integration. But Hindu India, like Muslim Pakistan and Buddhist Burma, had an Army and a national language and a strong center. Europe had nothing similar. There had been an Esperanto movement- i.e. the creation of a universal language, but it wasn't confined to Europe. There was also talk of a European Federation- but one where colonial Empires would be retained as 'Commonwealths'- which would slot into some sort of World Government. But talk was all it was.
Europe did move towards greater pooling of sovereignty and an elected European Parliament. But national sovereignty remained. Countries were welcome to leave the Union. America has 'dual sovereignty' but it fought a Civil War to prevent secession. The European Union didn't have even 'dual sovereignty'. There was only national sovereignty subject to some, wholly revocable, pooling of sovereignty under a multi-lateral treaty.
All this was as obvious ten years ago as it is now. Thus Sen's article is mainly of interest in that it shows how normative economics can become wholly mischievous if it falsely asserts that there is a widespread preference for something which nobody actually wants at all.Sen asks-
What Happened to Europe?
Democracy and the decisions of bankers.
ABOUT FIFTY YEARS AGO, in 1961, Jean-Paul Sartre complained about the state of Europe. “Europe is springing leaks everywhere,” he wrote. He went on to remark that “it simply is that in the past we made history and now history is being made of us.”
There is indeed a long-run historical contrast to which Sartre could have pointed. For centuries preceding World War II, a lot of world history was actually made in Europe.
There is, of course, nothing particularly remarkable—or lamentable—in the changing role of the different regions of the world. This has happened again and again. What is really striking is not the historical re-balancing of the different parts of the world, but the mess that Europe has managed to get into in the last decade or so, particularly over the last couple of years.
SO WHAT HAS GONE WRONG in Europe in recent years?
The unification of Europe is an old dream. It is not quite as ancient as it is sometimes suggested—the dream is not of classical antiquity.
But it was the terrible sequence of the two World Wars in the twentieth century, with its floods of European blood, which firmly established the urgent need for political unity in Europe.
In the nightmare of the dark
All the dogs of Europe bark,
And the living nations wait,
Each sequestered in its hate.
The events that followed only confirmed the poet’s worst expectations. The terrible fear of a repeat of what European countries had seen in the World Wars continued to haunt a great many Europeans.
The birth of the European federalist movement was motivated strongly by wanting a political unity free from selfdestructive wars, as the content both of the Ventotene Manifesto in 1941 and the Milan declaration of 1943 brings out very clearly.
One point is particularly important to note in this historical context, especially since it is often missed.
There is nothing particularly surprising about the problems of balance of payments and other economic adversities that many of the European countries––Greece, Spain, Portugal—have faced, given the inflexibility of the euro zone restrictions on exchange rate adjustment and monetary policies.
The often-invoked “analogy” with German sacrifices to achieve the unification of East and West Germany clouds at least some European thinking, and is thoroughly misleading.
The costs of failed economic policies
I TURN NOW TO DEMOCRACY. The founders of European unity whose ideas led the European movement wanted a “united democratic Europe.”
Some of the policies that were chosen by the financial leaders and economic powers of Europe were certainly mistimed, if not downright mistaken; but even if the policy decisions taken by the financial experts were exactly correct and rightly timed, an important question of democratic process would have remained.
If democracy has been one of the strong commitments with which Europe emerged in the 1940s,
Quite aside from the question of democratic legitimacy,
Public reasoning is not only crucial for democratic legitimacy,
AND WHAT ABOUT the soundness of Europe’s economic policy-making?
In the absence of exchange rate adjustments,
HOW EFFECTIVE is austerity, or drastically cutting public expenditures, in steering the countries in difficulty out of their immediate problem of excessive deficits and huge debts?
The policy package demanded by the financial leadership of Europe has been, despite its rhetoric, severely anti-growth.
There is plenty of evidence in the history of the world that indicates that the most effective way of cutting deficits is to resist recession and to combine deficit reduction with rapid economic growth.
That austerity is a counterproductive economic policy in a situation of economic recession can be seen, rightly, as a “Keynesian critique.”
But I would also argue that the unsuitability of the policy of austerity is only partly due to Keynesian reasons.
THERE IS A CENTRAL ISSUE of social justice involved here—that of reducing rather than enhancing injustice.
In order to understand the inadequacy of Keynes as a guide to solving the European economic crisis, we have to ask: what kind of an economist was Keynes in terms of his vision of a good society?
Keynes showed little concern about economic inequality, and was extraordinarily reticent on the horrors of poverty and deprivation.
All of which is perfectly amenable to Marshallian analysis- though Sidgwick introduced the concept. Pigou's interest in Welfare Econ arose out of his support for Free Trade. The Tariff Reformers wanted to promote 'Imperial Preference' by linking it to 'Socialist' policies- on the German pattern. Pigou hoped to refute such arguments. The problem was that Marshallian analysis was dependent on diminishing returns. It couldn't deal with 'non-convexities'. Furthermore, unilateral Free Trade is inferior to negotiated trade treaties. Even if Free Trade is always best, spreading its practice by negotiation is better than walking the path of virtue by yourself.
So the need to question current financial policies in Europe arises for economic reasons that go well beyond Keynes (while incorporating some important ideas of Keynes), in addition to the political and social reasons to which I have also tried to point.
If we add to this economic argument the long-term concern in Europe about some form of social justice
The guiding principle has to be, rather, what Adam Smith specified with clarity in The Wealth of Nations: how to work for a good functioning of the economy to be able to provide the public services that people agree are needed.
Finally, and very importantly, the cause of necessary economic reforms has not been served by confounding that necessity with the policy of austerity.
Europe has been extraordinarily important for the world, which has learned so much from it.