A Moral Challenge to the Economists

GITTINS’ GOSPEL: The economics of just about everything
by Ross Gittins
Allen & Unwin, 312pp.

Reviewed: 24 November 2012

If you are suspicious of the economic claims and counter-claims of our politicians and lobbyists, then you enjoy reading Ross Gittins. If you are not suspicious, then you ought to read Gittins. For thirty years his economic commentary columns have shone skeptical beams through the fog and dust kicked up in the name of economics, often by professional economists blinkered by ideology or by the need to sell their services to somebody.

As a gadfly, Gittins is unpopular with those he nips. His online columns attract venomous comments from people accusing him of political bias. He takes positions on issues that are current and political, but this does not make him partisan. He will have a crack at Labor or Green politicians as readily as at conservatives, wherever he sniffs bogus or shallow economic argument.

Most commentators seem fixated on political conflict. Economic news is discussed mainly as a cause for further conflict – what affect will an interest rate rise have on so-and-so’s political fortunes? Gittins is among the few who are not afraid to apply a moral dimension to economic considerations.

Though rejected by neo-liberal orthodoxy, this is not a new idea. Gittins quotes Adam Smith, patron saint of market economics, on the persistence of an irrational human tendency to be interested in the happiness of others. After his most famous observation about the primacy of self-interest in human decision-making, Adam Smith said “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it”. Rational self-interest is the founding assumption of modern economic modelling, but Gittins doubts any of us are predictably rational. Neither can our perception of “self-interest” taken for granted.

Gittins does not dismiss market economics and has no time for socialist economic “planning”, but he sees political intervention as the essential moderator between economic free markets and the long-term welfare of human societies. He deplores the trite and self-serving neo-liberal assumption, still receiving lip-service in our parliaments and think-tanks, that governments have no role until free markets can be shown conclusively to have failed. The Global Financial Crisis is only the latest example of how unregulated markets tend to become corrupt, at vast cost to both suppliers and consumers. It is not the failed “self-regulation”, but governments alone who can set rules for “a better capitalism” through democractic process informed (he hopes) by more rigorous media commentary and analysis.

In setting himself against the neoliberal orthodoxy, Gittins is not alone. His columns draw on the work of other behavioural economists who take a broader view, embracing a wider range of non-monetary considerations for economic policy – such as social equity. He takes several potshots at the dry-as-dust approach of Australia’s Productivity Commission, but quotes approvingly from broader and deeper perspectives offered in speeches by the Secretary of Treasury, Dr Martin Parkinson.

Gittins doesn’t explicitly claim religious or moral foundation, but his title “Gittins’ Gospel”, and the cover illustration of the author as a haloed priest, are not purely ironic. He preface this collection with the background that his father had been a Salvation Army preacher. As a young economics graduate, Gittins approached his early journalism as a missionary for “the economic way of thinking”, but with experience has become increasingly agnostic. The conventional economists’ way of thinking has much in common with how religions can construct a complete world view that appears consistent from inside, so long as basic assumptions are not questioned.

Ross Gittins wants us to question a good many of the economists’assumptions. We should beware of economists or politicians quoting predictive economic models. Models are not to be trusted beyond the level of rhetoric because in every case they rely upon assumptions that are incomplete, unpredictable, or deliberately selected to support the special pleading of a particular interest group.

His idea of enlightened self-interest defies political typecasting. Gittins will write critically of Australians’ fear of boat-people, but then argue that high immigration rates benefit nobody, in the long term, except the immigrants themselves. He criticizes protectionism and argues the benefits of foreign investment in Australia’s industries, but then worries about the way Australia’s extractive industries are not properly accountable for the depletion of natural resource capital, and that job insecurity is destroying social trust.

The most consistent flaw in economic thinking is the confusion of economy with finance. Things that do not have money value are excluded from consideration. Money values can only be defined by actual sales in a real market, and attempts to impute values to social capital, environmental capital, human capital or even future mineral resource values are too speculative to be the basis for policy certainty.

Growth is another value that Gittins questions, especially when no proper balance sheet can be kept to compare gains in GDP (measurable output in tradable goods and services) against costs in all the non-traded forms of national capital. Failure to address the human contribution to environmental destruction, including potentially irreversible climate change, is Gittins’ frequent case in point. No wonder he has enemies who would like to buy the Fairfax organization with the spare change from their resource extraction profits.

How should Australia deal with an apparent failure to keep our labour productivity rising to compete with the world? Industrial relations laws are an almost trivial aspect of this, according to Gittins. The discussion so far has been sidetracked by employer groups wanting cheaper labour, and on the other side by the political liability of the ALP’s ties to the Union movement. Gittins says history shows that only innovation and capital investment make a serious difference to national productivity. These will only flow if governments build human capital through serious investment in education and research, and if our social capital fosters the kind of trust that encourages individual productivity, investment and risk-taking, rather than the crass punish-and-reward systems favoured by neo-liberal economists and short-term, bonus-driven managerialists.

Oh yes, and the better off among us will need to pay more tax.

These reprinted columns, at about 1000 words each, are tightly written and easy for the lay reader to follow. They are selected from 2009-2011, but remain fresh and relevant, grouped topically and with little repetition. It’s a recommended read for anyone interested in where we are heading, especially any public servants who may (like me in a former life) have been brow-beaten to espouse economic orthodoxies that deserve the sort of scrutiny Ross Gittins continues to provide.