We need a Reformation in Economics – The salutary story of Semmelweiss

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First posted on Think Left as ‘Like heterodox economists, Semmelweis was ignored…’ 29th April 2013

 

In 1844, Ignaz Philipp Semmelweis graduated as a doctor, and was appointed assistant at the obstetric clinic in Vienna.  At the time, the great scourge of new mothers was ‘childbed’ or puerperal fever.  It was thought that the deaths were unpreventable… the result variously of overcrowding, poor ventilation, the onset of lactation or a dreaded ‘miasma’.

However, Semmelweis oversaw two maternity wards and couldn’t help but notice that the puerperal death rate was two or three times in one, to what it was in the other. In fact, the pregnant women were only too aware because they would go to all sorts of lengths, pleading to be booked in on the lower mortality ward.

The two divisions were apparently identical except that the first, with the higher mortality, was used for teaching student doctors, whilst the second was staffed with just midwives.  Semmelweis noted that the student doctors were coming to the maternity ward directly from the dissecting room, having just completed autopsies on women who had died from puerperal fever…. he suspected that somehow (at that time no-one knew about bacteria or viruses) that the students might be carrying the infection to healthy mothers on the ward.

As an experiment, he ordered the staff to wash their hands in chlorinated lime water before each examination, and within the week, the mortality rate dropped from 18% to 1%.  Furthermore, no women died on his wards between March and August 1848.

So with such an immediate, dramatic drop in the death rate, why was there no corresponding immediate and widespread acceptance of the practice of hand-washing?

Why did the editor of the Wiener Medizinische Wochenschrift write that it was time to stop the nonsense about the chlorine hand wash?  Why did pregnant women have to wait over 25y for the importance of hygiene to be accepted; with Joseph Lister being credited as ‘the father of modern antisepsis’ instead of Semmelweis?

The reasons are still relevant not only in medicine but also in politics and economics …

Despite various publications of results where hand-washing reduced mortality to below 1%, Semmelweis’s observations conflicted with the established scientific and medical opinions of the time and his ideas were rejected by the medical community… Semmelweis’s practice earned widespread acceptance only years after his death, when Louis Pasteur confirmed the germ theory and Joseph Lister, acting on the French microbiologist‘s research, practiced and operated, using hygienic methods, with great success.

http://en.wikipedia.org/wiki/Semmelweiss

In other words, Semmelweis’s findings required a ‘paradigm shift’ but the old-guard ‘power elite’ were ‘invested’ in maintaining the status quo in spite of all the statistical evidence of the efficacy of hand-washing.  The weight of authority stood against Semmelweis’s prophylactic practice.

Exactly the same is true of the ‘austerity’ which is being inflicted on the UK and across the Eurozone. The tenets of neo-classical economics are daily shown to be completely wrong, contradictory and ill-conceived.  Furthermore, the policies (just like puerperal fever) are inflicting enormous damage on the most vulnerable in our populations.  Nevertheless, our politicians and our media go on spouting the same mythologies and neglecting to see the obvious.

… the Tory/LD coalition government is borrowing £245bn more than expected in 2010 and the economy has grown by just 1.1 per cent, 4.9 per cent less than expected …

Sticking with TINA (monetarism) is clearly a madness akin to the rejecting of hand-washing on the labour wards of the 1850s.

There is an alternative!

However, just as the medical professors had not wanted to relinquish their status or their paradigm of miasmas, the 0.1% have too much to gain from pursuing the current paradigm.  In this, they have been ably aided and abetted by the embedded assumptions of the so-called ‘free press’ and MSM which are owned and dominated by the ‘oligarchs’.

Mainstream economist Paul Krugman writes in the NY times:

… the average American is somewhat worried about budget deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face. And how should the budget deficit be brought down? The wealthy favor cutting federal spending on health care and Social Security — that is, “entitlements” — while the public at large actually wants to see spending on those programs rise.

You get the idea: The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do.

 

 The ‘Deficit’ is the new ‘miasma’ analogous to the flawed theories of puerperal fever causation.

But the deficit is just a reflection of the state of the economy.  In a sovereign country like the UK with its own currency, it is not a cause of anything.  If there is no problem of excess demand, there is no ‘deficit problem’ regardless of the magnitudes, short term or long term The methodology of its calculation is wide open to dispute and in any event, one agent’s deficit is another’s surplus.   As Professor Bill Mitchell writes

Structural deficits – the great con job!

 

Similarly, with the so-called ‘debt’ problem …

but my intention is not to discuss economics but to show that disastrously ‘wrong thinking’ and manipulation can persist to our detriment and against all the evidence for extended periods of time… particularly when there is wealth and power to be gained.

As Paul Krugman concludes:

.. the years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers. The 1 percent may not actually want a weak economy, but they’re doing well enough to indulge their prejudices.

And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won’t we just see new justifications for the same old policies?

Payam Sharifi quotes Mark Thoma, an economist who runs a popular economics blog :

“too many minds in the profession cannot be changed even when the empirical evidence is relatively clear…the politicization of the profession…plays a large role”.  Could it be that this reflects a crisis in economics, which is a crisis in its method of analysis and even the subject matter itself? 

That seems like good thinking .. there needs to be an Economic Reformation:

Economics in crisis – it needs a ‘Reformation’

 

As Antonio Gramsci wrote from his Italian prison cell, sometime in the 1930s:

‘The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.

I think it is more than time for our politicians to ‘wash their hands’ of the ‘miasma of deficit reduction’ and act as ‘midwife’ for an economics which serves the 99.9% and the natural world.

For more information about heterodox economists and MMT (Modern monetary theory – macroeconomic reality):

Bill Mitchell – billy blog

New Economic Perspectives

Steve Keen’s Debtwatch 

and many other sites

Related posts:

Cameron and Osborne dwell on Bullshit Mountain, UK

Telegraph tosh on economics

Neoliberal TINA economics is flat earth thinking 

State finances are not like a household or a maxed out credit card

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 Prue Plumridge patiently explains to a Conservative MP the true nature of Osborneomics and their devastating impact on the UK’s economy and people.

 

Dear Mr Whittingdale

I would like to take up where we left off at Sunday’s hustings on the subject of the national debt/ deficit, since not being a quick witted politician, I was unable to reply in the way I would have liked.  Let’s start with the Tory pledge that they’d balance the books by 2015.  Clearly this has not happened and, not only is the government on course to break this promise with the deficit set to be £75 billion next year, but is also set to borrow £207 billion more than planned. George Osborne’s plans to make more cuts (whilst not saying, unsurprisingly, where these cuts will fall) will take Britain back to 1930s levels of public spending, and that’s without the planned £7 billion of unfunded tax cuts. The effect on our economy and our people don’t bear thinking about.

Now, unlike you and David Cameron, I have not studied economics.  However, I do know that people have been deceived by a lie which compares our State finances to a household budget or a maxed out credit card.  In our ignorance this is the analogy which people can most identify with, but it is simply untrue.  Furthermore Britain was neither bust nor bankrupt – this sadly was used by coalition ministers to justify their ideologically inspired cuts to public expenditure. What was a genuine private debt crisis caused by reckless banks and absolute greed became a supposed sovereign debt crisis in order to justify austerity and the sale of public assets to the private sector.

As the economist David Blanchflower commented about the oft repeated lie about maxed out credit cards ‘Cameron is an economic simpleton who shows no understanding of basic accounting’. Furthermore the idea that future generations will pay for so called Labour government profligacy is yet another of those lies which the coalition has used to deceive the people of this country.    George Osborne’s statement in 2010 that ‘we have taken our country back from the brink of bankruptcy’ and that spending cuts were vital to avoid ending up like Greece was another of those misleading statements. We have full monetary sovereignty i.e. control over our own currency (unlike Greece) and we are the sixth biggest economy in the world whilst Greece the 32nd[1].  When Chuka Umunna asked Lord Turnbull who was testifying to the Treasury Select Committee in October 2010 whether he thought that the UK had been on the brink of bankruptcy he replied quite simply ‘No I don’t.’[2]

As Johann Hari wrote in the Independent ‘If we are bust today, as George Osborne has claimed, then we have almost always been bust. We were bust when we pioneered the Industrial Revolution.  We were bust when we ruled a quarter of the world. We were bust when we beat the Nazis.  We were bust when we built the NHS.’[3]

You pointed out quite rightly that my own party is planning to reduce the deficit and balance the books, albeit more slowly.  I cannot pretend that I approve of such a move but as a member of a democratic party I am entitled to disagree with it. However, my support for Labour is given on the basis that it wants to create a fairer and more socially just society – something the Tories have been working to dismantle over the last five years. It has created myths and lies about the state of our economy in 2010 and pointed the finger at every one other than those who are the real authors of our economic collapse, in order to justify disabling the welfare state, selling off our public assets, not to mention privatising our NHS.

George Osborne in 2010 said ‘reducing the deficit is a necessary precondition for sustained economic growth’.  This is the biggest deception of all. Deficit reduction, book balancing and surpluses simply remove money from the economy and make the situation worse.  Patently you have never studied Keynes or the conditions which led to the Great Depression in the 1920s. The economists Ann Pettifor and Victoria Chick studied data from 1918 to 2009 and concluded that the evidence runs counter to conventional economic wisdom and such policies have not improved the public finances – instead they increase rather than reduce the level of public debt associated with prevailing economic conditions[4]. In terms of people they destroy lives.  Indeed Keynes wrote in 1937 that ‘The boom not the slump, is the right time for austerity at the Treasury’.  Austerity can never be a solution but then this has been an ideological choice by the Tories rather than a necessity. I should point out that on seven occasions in US history when the government balanced the budget it was followed by recession/depression.

Mr Whittingdale – it doesn’t have to be like this.  There are alternative economic models which, over decades, have been airbrushed out of the mainstream in favour of this destructive neoliberal dogma which has brought many people to their knees whilst enriching a few. We are paying now for the dominance of the ideas of Hayek and Friedman which posit that the individual can best determine his needs and that free markets will always find their equilibrium, not to mention trickle down wealth.    Keynes’ ideas obviously spring to mind along with John Kenneth Galbraith and his son James, Wynne Godley, Mary Mellor, Bill Mitchell and Warren Mosler.  The thing seems to be that we have lost sight of the idea that money should be a public resource and not for private gain. The debt based society of the past decades is crushing us, indeed enslaving us.

We should see our monetary system as a public utility which is employed to finance the production and exchange of goods and services, not an opportunity for greedy speculation. It is our monetary system and it should be used to achieve the full potential of society and improve the lives of our citizens.

To finish where I started whilst there are always limits in terms of, for example, environment and resources there can be no such thing as an economic limit due solely to our society being ‘out of money’.  Government deficits do not take away from savings; government revenues are not constrained i.e it does not need to tax or borrow in order to spend – indeed logically government must spend first before it can tax or borrow; our children will get to consume what they produce and it has nothing to do with the deficit; tax is a mechanism to balance budgets and distribute wealth more fairly; and finally as the issuer of its own currency governments cannot be forced to go bankrupt[5]. The push for privatisation of public sector services and decimation of our social security system, on the basis that we can’t afford it, has been ideological and simply a way to destroy the foundations of a fair society and generate more profits for the private sector, as you most certainly know.

The emphasis on the national debt, deficit reduction and book balancing, hides the real issues that should be of concern to all – the trillions of pounds of private debt and the worst trade balance in history. But I notice Mr Osborne says nothing of that – he is relying on debt based consumption and a housing bubble to keep the economy afloat.

Yours sincerely

 

[1] Summer of Unrest: The Debt Delusion Medhi Hasan

[2] Summer of Unrest: The Debt Delusion Medhi Hasan

[3] The Paradox of Thrift: Johann Hari

[4] The Economic Consequences of Mr Osborne: Ann Pettifor and Victoria Chick

[5] The Seven Deadly Innocent Frauds: Warren Mosler

The Myth of Thatcherism/Reaganomics: Keynes vs Greenspan

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The Myth of the Great Moderation: Keynes vs Greenspan

by Haiku Charlatan

Ann Pettifor and the uncontrolled banking system

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Published on Apr 25, 2012

Renegade Economist talk show with Ann Pettifor