By Michael Hoexter
The success of the austerity campaign in capturing the American and European political process is remarkable considering that it prescribes exactly the opposite of what factually grounded economic analyses would recommend. Leading politicians and their advisors are pushing governments to curtail spending at a time of economic weakness and doing so in the post gold-standard monetary era where currency-issuing governments have no affordability constraint on spending. The focus on public debt is leading the political process away from economic growth and full employment, despite the fact that all major actors in this process claim that their preferred policies are the way to lasting growth. In the current American “fiscal cliff” negotiations, the leadership of both sides of the negotiation are pushing for different forms of austerity, with no effective organized force in government working against this economic madness.
Austerity is claiming victims around the world as we speak, with many of the economies of the Euro-zone now in a self-induced recession because of the politics of austerity. Spain, Portugal, the Netherlands, Slovenia, Czech Republic, Hungary, Ireland, Greece, Great Britain, and Italy are in recession and even Germany appears to now be suffering the effects of the austerity of which its politicians were so enamored.
The only economic rationality that austerity seems to serve is to bolster the political-economic position of large creditors and financial institutions, in the United States represented by Wall Street, as they hope to dismember the assets of the social welfare states of the industrialized world and find new “markets” for their speculative financial products and services. These wealthy groups have sponsored front organizations and think tanks that push for austerity and their wealth has enabled them to bombard legislators and government leaders with analyses and propaganda. But their push has also taken advantage of “a fifth column” within the ranks of their would-be opponents and victims. The austerity campaign has utilized a series of misunderstandings about how economies work and about human nature that stretch back many years, with roots in the most powerful of social sciences, economics.
The would-be opponents of austerity from parties of what once was the Left have shared in many of these unrealistic ideas about humanity, hamstringing their opposition to this campaign of economic destruction, as well as participating in the destruction of the ideological basis of their own Parties. Because they have in recent years endorsed what might be broadly called a “neoliberal” vision of the economy, they have become fatally compromised and unable to resist the push towards austerity effectively.
The Energy-Economics of Life
One of the most important books of the 20th Century is the physicist Erwin Schroedinger’s 1944 “What is Life?”, in which he sketched out the basic thermodynamic organization of living things. Schroedinger’s work pioneered an approach to a wide variety of natural and social systems that later came to be known as complexity or “chaos” theory, an interdisciplinary approach to the natural and the social sciences rooted in understanding complex systems and their non-linear dynamics.
The fundamental question that Schroedinger was trying to answer in “What is Life?” was how can life exist if the Second Law of Thermodynamics also holds, which states that systems always tend to greater disorder. In Schroedinger’s account, the basic plan of the energetic systems of living things is that they take in energy (called “negentropy” by Schroedinger) which enables them to maintain a high level of internal organization, while at the same time dissipating energy and increasing overall entropy through their waste products. The ultimate source of energy for living system on earth is solar energy, especially the energy captured by the primary producers (mostly plants and other organisms that use ). Eco-systems have evolved so that living things reciprocally “trade” what to them is “waste” enabling the earth’s systems overall to maintain a more complex level of organization and to sustain more life with the existing primary source of energy, the sun.
Living organisms and eco-systems more generally thus “defeat” temporarily the Second Law by being, in physical terms, “open” systems that bring in usable energy that enables them to live before succumbing to relative physical disorder towards the end of their lives. The temporary defeat of the entropic tendencies of the 2nd Law is enabled by the “negentropy” of usable energy, often in the form of food. In thermodynamic terms, living things belong to a larger class of “dissipative structures” within which energy is used to do some form of physical work or to enable a form of self-organization as contrasted to simpler “conservative systems”. A conservative system is an “ideal” system in which all quantities are conserved and in which processes can be reversed, while dissipative systems are characterized by irreversible processes, which means they are time-bound.
While the above would appear in part to be incredibly obvious, banal observations, people seem to have great difficulty keeping them in mind when they think about themselves, when they devise personal or social ideals, or when they draft various theories about living things, including in the social sciences. Ultimately it is often the ideal of a “perfect”, closed system that conserves all energy and inputs which distracts people from grasping the somewhat more complex reality of human life.
Dissipative Systems and the Desire to Consume
One of the features of dissipative systems is that they need a source of energy to function, they are “open” rather than “closed” systems. In the case of animals, which have mobility or motility, they have drives to push them to seek out and incorporate sources of energy, usually through their mouth which of course is the entry to their alimentary canal. Freud’s word for classification of this type of drive, as an “oral” one, is as good as any a description of the primitive but necessary drive of animals and human beings to incorporate sources of energy as well as the pleasure, experienced or inferred by an observer, attached to the experience of ingestion and satiation. Freud’s linking orality necessarily with sexuality is perhaps a product of his repressed 19th Century imagination rather than an analytically helpful classification of all oral or incorporative drives. The experience of satiation, of having consumed enough, keeps animals under most circumstances from consuming too much.
In Freud’s account of how the human personality emerges from the experience of having a body, the “oral stage” is the first stage and in his model of personality development, the later stages can sometimes “repress” the experience of the earlier stage. No stage is ever entirely closed or superseded in the personality, each is built on top of the other. “Orality” by itself is associated with very young babies and very early experience but also words like “sucker” used in adulthood suggest the vulnerability of being a baby and the dangers of being dependent. Subsequent stages of development, according to Freud, may tend to paper over the anxieties and vulnerabilities that are associated with the oral stage. In Freud’s model of how the personality works, multiple conflicting drives, fixation points, and “complexes” can lead to conflicts and divisions within a person’s own experience of their life, limiting the effectiveness of rational thought and action.
The “Protestant” Ideal of the Self as Self-Sufficient
The ideal portrait of the human being that has emerged in post-Protestant Reformation culture that dominates in Northern Europe and North America, is that of each human being self-sufficient and self-reliant. The divide between Northern and Southern European cultures reproduces this divide between societies where individual autonomy is prized versus societies where people accept their interdependence with other family members and other members of the community. Austere Northern Europeans sometimes flee, on vacation or otherwise, the post-Reformation culture of the North for an experience of more relaxed interpersonal boundaries that one finds in cultures around the Mediterranean and in the less-developed world. You could say that one of the features of the “Protestant” ideal of the self is that it repressed the “oral” dimension of life, or in the case of Weber’s view of the Protestant capitalist, channels oral drives into the accumulation of monetary units, i.e. money savings.
Ideals of Self-Sufficiency and Economics
While consumption and the interdependence implied by the division of labor are important categories within economics, economic theorists have tended to paper over or bowdlerize the reality of our dependency on external energy sources and each other. The dominant model of “Economic Man”, emphasizes “utility maximization”, which suggests a degree of control or mastery over the environment by each economic actor, without mentioning the need for intake of supplies from others or from the environment. The tendency of the dominant neoclassical economic school to focus on markets and market transactions has also obscured the degree to which production of goods and services and reproduction of fully competent market participants have required energy and material inputs from the outside, as well as subsidy from natural systems.
Keynes’s contribution to economics was in part to establish the interdependence of parts of the economy on each other in a relatively holistic manner. Keynes’s reintroduction of the ancient idea, for instance, that one person’s cost is another’s income via the Paradox of Thrift, works against the assumptions of neoclassical economics and the “Treasury View” that somehow all economic actors could save and increase their economic self-sufficiency at the same time. The 80 year opposition to the relatively mild observations of Keynesianism in its various forms may stem from an attachment to the ideal of self-sufficient saving as a sacrosanct ideal. This attachment when taken to extremes also might be considered a sign of a neurotic fixation of anti-Keynesians, especially those from the “Austrian” school.
Despite these tendencies, economic orthodoxy is “ambivalent” about dependency, as it also promotes as a matter of dogma free trade, which suggests that nations should depend on each other more rather than strive to achieve national economic self-sufficiency.
Austerity Economics Re-Energizes the Protestant Ideal of Self-Sufficiency to Provoke Shame
Austerity economics, similar to the “Treasury view” against which Keynes fought, tilts the balance of the ambivalence of economists and the public in favor of the ideal of self-sufficiency and against our “need to feed”. The need for injections of spending to feed economic growth are denied by austerity advocates, like Pete Peterson and others, who claim that an inward-turned struggle with one’s own needs will yield economic growth and success. Recalling Weber’s austere Protestant businessmen, austerity economics holds up as ideal a withholding or delay of consumption, supposedly to enable individual, organizations and governments to save money.
Holding themselves up, implicitly, as ideal because they have already achieved personal wealth by various means, the austerity advocates from the financial sector are presenting a view that somehow by cutting the supply of funding from government, that the economy, and in particular the lower and middle classes, will be “forced” to become self-sufficient. They hold up the unachievable ideal that every economic sector, the public sector, the private sector, and the rest of the world can run a surplus at the same time, somehow each magically generating its own monetary units to add to its bottom line. In their economic fantasy world, absorbed among others by the credulous President Obama, no one will run a net deficit, because each economic actor will auto-generate spending, money, and demand.
From this stance, deficit hawks conveniently overlook that most people’s incomes and wealth holdings have decreased, reducing their abilities to buy goods and services from either corporations or their neighbors. From the comfort of their plush offices, they assume that everybody has or could easily gain an adequate income for even the bare necessities of life, that it is a matter for all of a voluntary choice to consume less and to save more.
In parading this ideal before the public and on multiple news programs through paid and semi-paid proxies, many in Protestant-dominated cultures and elsewhere will tend to feel shame about their own consumption and dependency on others. In contrast to the ideal of the self-sufficient, bootstrap-pulling figure that austerity advocates parade before them, the average consumer and worker feels insufficient and inadequate. Whatever excesses that some consumers may have indulged in during the time of the (finance-led) consumer boom of the period 2002-2007, become particularly sore spots, which may lead to more feelings of shame and inadequacy. When shamed some tend towards withdrawal and inaction, while others tend towards projection onto others outside their sphere of acquaintanceship of the shameful feeling of being dependent and a “sucker”. These ethnically or economically different others are then pilloried and scapegoated in discourse or via government policy. The nurturing or caring aspects of the welfare state become a target of this scapegoating, as these are seen by some as the protector of less fortunate in society.
The austerity campaign thus artfully distracts the public and policymakers from the role of the financial sector in the economic misfortunes of the past several years by focusing political leaders on the issue of public debt and the supposed culpability of poor and middle-class people in their own misfortune for, from the perspective of these ideologues, consuming too much.
Modern Money Theory Recognizes That Economies are Open Systems
Among existing economic theories, those in the Modern Money School are the some of the very few economists to acknowledge that the economy is an open system that requires sustained input of new “energy”, new spending, in order for the desired economic growth to occur. The new spending can only in a sustained fashion come from monetarily sovereign currency-issuing governments spending more money than they collect in taxes, as non-governmental actors will over time face bankruptcy if they continue to give out more money than they take in. If on a worldwide basis, economic growth is to occur, there must be net deficit spending by governments, even as some countries run trade deficits while others run equally large trade surpluses. Unlike the nonsensical view of austerity advocates, not everybody can be a net saver or run a trade surplus.
Warren Buffett has recently recommended that the US should run permanent budget deficits, though he suggests that these be held constant and at a level that was too small for our current circumstances (3% of GDP). In this striking admission by a well-known business figure, there is the acknowledgement that public deficits and debt are not a fundamental problem for the solvency of the US government. However the arbitrary number that Buffett recommends would in budget year 2013 or in the foreseeable future still mean a very severe regime of austerity and lead to deep recession for the US. In contrast to Buffett, MMT recommends targeting a budget deficit that would yield full employment and economic growth rather than rigid adherence to an arbitrary number.
Without the acknowledgement of our own nature as open, energy-seeking systems, and of our economies as sharing this characteristic as open systems, governments and societies more generally will be caught in a “low level equilibrium trap” with regard to economic policy. We will not be able to formulate rational economic policies because we continually will be chasing the unreal ideal of a self-sufficient market economy, individually self-sufficient economic actors, and for that matter the unrealistic idea of a society that can float undisturbed above the endangered ecological systems upon which it rests.