Someone familiar with Russian totalitarianism once asked how George Orwell understood it so well without ever having experienced it. It was pointed out that Orwell had been to Eton. Paul Krugman asks how could the guardians of economic orthodoxy all suddenly come out in favour not just of fiscal austerity, which was wrong, but also monetary tightening.

It took bad thinking and bad policy by many players to get us into the state we’re in; rarely in the course of human events have so many worked so hard to do so much damage. But if I had to identify the players who really let us down the most, I think I’d point to European institutions that lent totally spurious intellectual credibility to the Pain Caucus. Specifically:

I haven’t developed a full theory of the sociology going on here. But these organisations should be doing some agonised soul-searching, asking how they got it so wrong while posing as high priests of economic expertise.

I don’t have a fully developed one either, but whenever I see this kind of groupthink, especially in economics, I think of years 8-10 at school. You know that time when the opinion of peer group is virtually irresistible. I recall there were codes about how high one wore one’s belt, and the length of your long pants. Too high or too short was death. Now it would have been possible to wear your pants so long or your belt so low as to lapse into parody, but that was pretty easy to judge. So short of that there was a kind of asymmetry. You could be tolerated (at least for your decisions on these things) or decidedly uncool — not really worthy of the normal considerations due to a human being.

And as one might imagine for a species that evolved on the African savannah where the most important pronouns were “us” and “them” we’re very attuned to who’s in and who’s out. Indeed research has recently been reported that we instinctively discriminate against those wearing different coloured wristbands compared with those wearing the same.

In economics there’s the same kind of asymmetry — and it’s around all those things such as fiscal responsibility and no pain, no gain. Now it’s not as if those issues shouldn’t get their due.  Moreover it’s also true that there are some powerful forces pushing against them. Easing is more popular than tightening and that matters in a democracy.

And in normal times these kinds of notions are important. So there’s a role in the eco-system for tough-minded, no-pain-no-gainedness. But where one needs emergency expansion, as one did in Australia in 2007, or one is in or close to being in a liquidity trap as is much of the developed world, this asymmetry is deadly. It’s horrible to watch the grip on those who are supposed to be trained to be as rational as possible in these situations.

Peter Fray

Fetch your first 12 weeks for $12

Here at Crikey, we saw a mighty surge in subscribers throughout 2020. Your support has been nothing short of amazing — we couldn’t have got through this year like no other without you, our readers.

If you haven’t joined us yet, fetch your first 12 weeks for $12 and start 2021 with the journalism you need to navigate whatever lies ahead.

Peter Fray
Editor-in-chief of Crikey

JOIN NOW