Memorably described as the “dismal science” by Thomas Carlyle, economics is now the “failed science”. According to Rob Larson’s Bleakonomics, today’s belief in the virtues of the “invisible hand” of free markets has wrought environmental, social and financial havoc. Why? Because the economic orthodoxy of the past 30 years has ignored something rather basic: the collateral damage - the multiple externalities or side-effects - of economic activity.
By way of illustration, Larson begins this extended essay with a summary of the “plutonomy papers” prepared by Citigroup, the US mega-bank, in the mid-2000s. These confidential (but subsequently leaked) strategy documents describe the US’ return to 19th-century levels of inequality as “the economic disenfranchisement of the masses for the benefit of the few”. Far from condemning this trend, the reports outline ways that multimillionaire clients could gain from the rebirth of an American plutonomy. Indeed, the related client seminars were titled Rising Tides Lifting Yachts.
According to Larson, super-sized inequality is a classic example of market failure. The growing income gap (described by the Financial Times in 2008 as a “Grand Canyon”), caused by concentrating the gains from growth in fewer and fewer hands, has destabilised national economies.
Bleakonomics is full of similar examples, mostly from the US, of the effect of ignoring externalities. The BP oil-rig explosion in the Gulf of Mexico in 2010 arose, Larson argues, from “a consistent pattern of cost- and corner-cutting by BP” and a massive “corporate undervaluation of risk”. The rise of antibiotic resistance in hospitals has been traced to the US healthcare industry’s push to boost profits by using fewer (and more poorly trained) nurses.
The sustained tilting of bargaining power away from workforces in favour of business is also on Larson’s charge list. Although half of Americans say they would like to belong to a union, business has helped to ensure that membership has slumped to a mere 7 per cent of the workforce. Americans and their society, he notes, have paid a high price (or “negative externality”) for this shift: three decades of stagnant wages, longer hours and a dangerous erosion of parental time spent with children - 20 hours per week less compared with 30 years ago.
As business muscle has grown, democratic and political power has waned. Wall Street and private health insurance companies have run rings around the White House. As Larson outlines, a powerful healthcare industry was able to ensure that President Obama adopted a reform measure that is nine times more expensive than the most efficient and cheapest option - and the one operated successfully in Canada - for healthcare delivery.
It is not necessary to endorse all of Larson’s examples to accept his broad thesis. The modern love affair with markets has created an economic model full of structural inefficiencies, in which the “best economic case” option for companies often translates into a worst-case scenario for the world.
For Larson, the solution lies both in a reformed economics profession - one that moves from pet theorising to the embracing of the empirical evidence - and “occunomics”, or the spreading of economic democracy. Although these are admirable goals, there are regrettably few clues in this book on how to deliver them. And as the author admits: “The goal of economic democracy is hard to fulfil in … a system run by small slices of society, through their concentrated ownership of money and productive resources.” But if these goals are not met, we will indeed be set for a bleakonomic future.
Bleakonomics: A Heartwarming Introduction to Financial Catastrophe, the Jobs Crisis and Environmental Destruction
By Rob Larson
Pluto Press, 256pp, £54.00 and £15.00
ISBN 9780745332680 and 2673
Published 7 January 2013