Tuesday, 8 June 2010

Earth goes around the sun - shock

Michael Burke: One of the reasons why economists are often held in low esteem by the general public is that they claim the mantle of science while frequently producing arguments that are unscientific in the extreme.

To take one example, a giant of the natural sciences; Galileo. One of the reasons that Galileo was certain the Earth moves around the Sun was because he approximately calculated some of the distances within the Solar system, and reasoned that such huge bodies could not be hurtling at such great speeds through the Universe. Instead, we now know that the speeds Galileo calculated are actually a tiny fraction of their real speeds, given that the galaxies too and the Universe as whole are also in (extremely fast) motion. But no modern scientist spends any time deriding Galileo for his incorrect assumption, but marvels at his insight, ingenuity and worldliness.

Contrast this with Jeffrey Sachs in today's FT, who has come to bury Keynes, not praise him. Readers are left in no doubt that one of the architects of 'shock therapy' in Eastern Europe is not a fan. Never has been.

But look more closely at what he does argue for. This includes:

- Counter-cyclical spending
- Greening the economy
- Government investment
- Tax rises- big ones for the rich
- Promoting post-secondary education
- Income support for the poor
- Universal access to healthcare and education
- Promotion of exports, clean energy and transport infrastructure

And he argues specifically against:

- Car scrappage schemes
- Tax cuts
- Misplaced cuts in public spending

In fact, the Keynes that Sachs wants to consign to history could have written that policy menu himself (but would no doubt have included lots of measures designed to lower long-term interest rates too). Maybe Sachs' ire is really directed at large budget deficits. But the phrase 'budget deficit' never appears in Keynes' General Theory and they were never advocated by him, so perhaps Prof. Sachs' anger is misdirected. For some reason, Western governments' running large deficits in the 60s and 70s was Keynes' fault. Yet no-one accused Ronald Reagan of Keynesianism when he did it in the 80s.

No matter, no harm done. Two cheers for Jeffrey Sachs, who has discovered for himself that the Earth goes round the Sun.

Now, who's going to break it to Mr Lenihan?

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