Why Do Bad Economic Ideas Persist?

Protests have erupted in Greece and Spain over austerity measures, which are bound to keep those economies depressed far longer than a large Keynesian booster-shot of government spending would.  As liberal economists argue, as history shows, and as common sense indicates, cutting spending for the working class and taxes for the rentier class is not a recipe for economic strength.  While Ireland and the other countries that have followed the austerity path are struggling — and making their people miserable — Iceland has maintained its social welfare spending, forgiven homeowner debt, and penalized those responsible for financial failure, and is consequently recovering well.

It seems that austerity it is a zombie idea that has to be continually beaten back, no matter how often it fails.  As the protests show, there is increasing resistance because more people know that austerity does not make an economy do what an economy is supposed to do — meet the economic needs of people.  That increasing awareness is a good thing, even if a critical mass of protest, combined with organized politicking, doesn't exist yet to create real change.

Why do zombie ideas persist?  Not just austerity, but budget deficit obsession, the investor confidence fairy, radical privatization and deregulation, the welfare queen lie, Randian heroic businessman myths, or climate change denial?  Indeed, the whole Milton Friedman, trickle-down, neoliberal ideology has long been a failure as an economic model, producing fewer jobs, less economic growth, greater inequality, and worse social conditions than progressive social democracy; it should be a lifeless corpse by now, but it keeps crawling on like the undead.  For the last generation Europe, with its more expansive regulatory welfare state, better balance between private and public spheres, and strong labor unions, created healthier economies with strong middle classes and greater social mobility, while the United States underwent a middle-class squeeze.  But despite the success of the European model in raising the standards of living for regular people, now the economic crisis caused by neoliberalism is being used to undermine Europe’s social democracy and spread neoliberal austerity.  Why do these lousy ideas last?

The answer is that it is in the interest of wealthy oligarchs to have these ideas remain widespread in society, and they have the means and power to keep reviving them and propagating them.  They can pay for think tanks, business schools, economics departments, television networks, radio empires, newspapers, journals, conferences, and advertising agencies that will find rationales for the ideas that maintain their profit privileges, no matter how often they fail.  Indeed, they keep all of civilization awash in these bad ideas such that they have become second nature to many people, especially the political-economic elites themselves.

This opens up a whole host of interesting philosophical issues about capitalism's touchy relationship to evidence, standards of assessment and judgment: these things are valued only when they support profit, while deception, advertising, illusion, and propaganda are equally valued — when they deliver profits too.  Facts don’t matter, money does.  This creates a whole alternative universe of neoliberal capitalist illusions, what Marx called "false consciousness."  But eventually these illusions and deceptions run up against the reality of a world that is quite different.

Zombie ideas live on after their shelf life because it is in the interest of the wealthy that they do so.  The first step in replacing them is to recognize that this is so; after that, one has to rely on deceptions eventually running aground on the shoals of reality, usually during crises.  The best thing to do is to prepare people for those moments of truth by persistently making good arguments to expose the illusions and to provide an alternative path, so that people will have somewhere to turn when the illusions collapse.

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