Dismal Science, Dismal Record

Populism, is so far as it is not merely a term of abuse of those whom one abominates, is, I suppose, the search for power by means of encouraging a widespread belief in scapegoats that supposedly explain, and in simple-minded policies that will supposedly assuage, current discontents (and discontents are always current, it is the human condition to be discontented). Populism is tempting because it is more gratifying, psychologically, to blame than to solve; and the prospect of causing pain to one’s enemies, even if they are imaginary, is likewise always delightful.

There is no reason, then, why populism should have any greater predilection for the Right than for the Left: for, after all, you can’t get much simpler-minded than socialism in its explanation of, and answer to, human woes.

When the French president, Emmanuel Macron, proposed partially to abolish one of the most stupid taxes in the world, the ISF (L’Impot sur la fortune, formerly known as L’Impot sur la grande fortune, until it became clear that the fortune did not have to be so very great to be subject to it), he was immediately designated as “President of the Rich”. And in France, while everyone wants to be rich, no one wants to be, or to be seen as, the friend of the rich. No one, then, called Macron “President of the Rich” as a compliment; rather it was a self-explanatory term of condemnation that, however, no one designated as populist in sentiment.

This column appears in the December edition of Quadrant.
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The ISF is a tax on capital that has driven as many French from France as the Terror. M Macron proposes to retain it on real estate, but abolish it on financial assets. His reasoning presumably is that speculation in property is not productive, unlike other forms of saving and investment. I leave it to economists to decide whether this reasoning is sound, rather than merely expedient politically.

The ISF is on a local scale what the economist Thomas Piketty proposed on a global scale in his best-selling book Capital in the Twenty-First Century. If I understand Piketty’s argument correctly, it is as follows:

Globalisation has inducted a huge and almost inexhaustible pool of cheap labour into the world economy, which means that consumer goods can now be produced very much cheaper than formerly. (One can buy the socks of a lifetime with fifteen minutes’ work.) This explains why, when the money supply in rich countries is increased dramatically, there is no inflation, or not much, in the nominal cost of daily life: cheap goods are imported from abroad.

But in fact there is inflation, namely in the price of assets. This inflation favours those who already possess assets relative to those who don’t, whose only wealth is in their income. If asset prices rise relative to incomes, this means that the difference between the possessors and the workers—those who have only their labour to sell—increases, and in fact must increase indefinitely unless something intervenes to stop the process. This is because possessors can use their assets as collateral or capital for further acquisition; and property at any given moment being finite even if indefinitely expandable, this means that it becomes more and more concentrated in the hands of the few. Marx was right after all.

Low interest rates favour the rich because the collateral of the poor is labour that is ever-more reduced in value (or price, if you believe that value and price are different) compared to that of assets. Thus houses are now too expensive for anyone with only a salary to buy. Only those who stand to inherit, or have the help of their parents, can aspire to own anything much. And thus the rich cease to be a class and become a caste.

Why, then, is there not more discontent than there is, given that the poor (that is to say, the relatively poor who have only their labour to sell) so vastly outnumber the rich, indeed ever more so? In part it is because the cost of bread and circuses relative to wages has not risen, if anything the reverse. We have more—I will not say better—distracting circuses than ever, and they are cheap. Moreover, low interest rates permit governments to spend more than they gather in taxes, and to do so painlessly and (so it seems) costlessly; by conjuring money out of nothing, they can maintain social security without unduly raising direct taxes.

Our economic system is a little like Ophelia’s clothes once she had fallen into the weeping brook. Indeed, what happened next is an object lesson in political economy, by far the most beautiful that has ever been written:

Her clothes spread wide;
And, mermaid-like, awhile they bore her up:
Which time she chanted snatches of old tunes;
As one incapable of her own distress,
Or like a creature native and indued
Unto that element: but long it could not be
Till that her garments, heavy with their drink,
Pull’d the poor wretch from her melodious lay
To muddy death.   

Which economy in the world does not now chant old tunes, as one incapable of its own distress? Germany’s? But the Bundesbank is reported to hold 800 billion euros in worthless European debt; the German people beaver away to produce excellent goods and are paid by borrowing—from themselves. No, we are all doomed to be dragged down to a muddy death.

The Earth, then, is definitely bankrupt; we need a loan from Mars, to which indeed many people would emigrate if M Piketty had his way, his way being a global tax on capital. A local tax on capital is no good of course, because the rich simply remove themselves to Belgium or Luxembourg, or wherever there is no such tax. So only a global tax on capital can halt the inexorable scission of the world population into the 0.0001 per cent and the 99.9999 per cent. There might in this proposal be a few teething problems from the administrative point of view, and indeed there might also be some initial political resistance to it, but the sacrifice would be worth it in the end. Did not Pol Pot say that he could build a perfect society with only a quarter or a fifth of the original population still living?

But is the world really dividing into two? Of course, you can always divide the world into two: those, for example, who divide it into two and those who don’t. The question is one of the nature of reality. Is the world composed of the one or the many?

I am so wedded to my concrete perceptions that, wherever I go, I see not two types of people, say those with assets and those without, but an infinite number of types of people, each class of person containing only one member. When you look at people from afar, they look the same, or at least very similar. When you look at them close up, they are very different. I have never met anyone who was identical to someone else. Even identical twins, who may be hard to distinguish physically, turn out not to be identical in all other respects.

On the other hand, generalisation about people is not impossible. Indeed, I don’t suppose any of us goes a day without generalising about people, often unfavourably (how dull life would be without disparagement!). We constantly have to juggle in our minds the notion that everyone is unique and everyone is the same. It is like looking down an unstable zoom lens that moves all the time, while we have continuously to focus on different focal points.

I find it difficult to stabilise my attitude to economics and economists. I can quite see that economics is a field of special study, and that our lives are much affected by economic conditions, and yet those who study economics seem to be right no more of the time than the average player of roulette. Is the purpose of economics to explain the past, describe the present, or predict the future, or all three? And what help does it require from other disciplines, supposing any of these goals to be achievable, to do so? I can’t even predict what I’m going to have for dinner tonight, which is something completely under my own control. We are told that the flutter of a butterfly’s wing in South America can result in a tempest in Asia: surely my decision whether or not to have butter on my potatoes is of greater account than the flutter of a butterfly’s wing?