The first lot, like the USSR, completely failed to avoid misery. The second lot, like the US, Europe, Australia, New Zealand, etc postponed it. The third lot, which is the rest of the world, alleviated it a bit for a while but not by much. The reasons for all this are well known.
The point is this: Over this period only the nature and extent of government intervention changed, not of people’s misery. The Gini coefficient alone provides enough proof that replacing Church with State makes no difference.
End of the road
Now we may have come full circle wherein governments have reached the limits of intervention because they require a lot of money, which they don’t have, and a lot of cross-border transference of costs, which is not possible any more.
Governments are broke after 67 years of excess. The cross-border transference of costs — via colonisation or exchange rate manipulation or quasi-monopolies in tradable goods — is no longer easy, if not impossible.
Put simply, the world has suddenly changed. The question now is this: How long will it take for politics and economics to recognise this and accept it? Also, which of these will lead the way?
The urge to intervene — and distort markets— came from two sources in the 20th century: Competing politicians and patronage-seeking economists. They reinforced each other and still do.
The politicians dress their competition in morality. The economists disguise it in their “scientific” quest for data. Both are humbugs. Caught in the middle are the bureaucrats, who desultorily stir the mud in the water.
Before Robert McNamara — in atonement for his sins in Vietnam — converted the World Bank into a branch of the Salvation Army, formal economics seldom included morality and compassion as an inevitable objective of public policy.
The result of doing so is a dog’s breakfast of self-contradicting market regulation. There are thousands of examples of this in India alone.
Everyone has forgotten what Adam Smith said: Morals are for individuals. They cannot be induced, as McNamara thought they could be, by governments.
Since 1946, governments have come to believe that the solution to economic distress is flooding their economies with money as though economic distress is an infection and money is the antibiotic.
The truth is that there is only one solution to economic distress: Efficient markets that sort themselves out, not “efficient” government that screws up. Hence the future need to stop meddling.
However, it’s very unlikely that politicians will change how they think about persistent economic distress. So, as in the previous two centuries, the intellectual case will have to be made by economists. The emphasis will have to revert from equity to efficiency.
Marx and Keynes have both outlived their usefulness because the times have changed and, along with them, the facts as well. It is time to pay belated attention the classical economics tradition of Irving Fisher, Friedrich Hayek, and Milton Friedman, not to mention a host of Indian economists that India has shunned after 1950.
After all, wasn’t it Keynes who said when the facts changed he changed his mind? As habitual Keynesians we need to do that now.