I started studying economics fifty years ago last month, unbelievably (OK, I was a precocious child). Over the decades I have had many doubts about my chosen discipline. Were its prescriptions too uncaring, its view of human behaviour too narrow? For a time I was seduced by the insidious promise of modern macroeconomics, both in its Keynesian versions and later rational expectations framework, although I struggled to understand dynamic stochastic general equilibrium models. As for the world of the econometricians - the Gauss-Markov Theorem, Kalman Filters and all that stuff – I’m afraid I demur.
But I’ve never had any doubts about some of the basic microeconomic analysis I learnt from dear old Mr Fell at the beginning of my studies. That price controls increase the quantity of a good demanded and reduce its supply, creating a shortage; that minimum wages benefit some workers but penalise others by reducing job availability; that rent controls make it harder for people to find housing. Oh, and there’s no such thing as a free lunch.
Sadly, these lessons do not seem to have been learned by our current generation of politicians despite the fact that several of them purport to have studied a little economics while practising point-scoring at the Oxbridge Unions and drinking large amounts of champagne.
It’s not a party political thing. Boris Johnson seems as keen as Ed Miliband on the idea of a ‘living wage’ (a misnomer, incidentally, as the LW is an hourly rate, and a large proportion of its potential beneficiaries only work part-time). The Labour Party wants to freeze energy prices. Eric Pickles intends to introduce new controls on the rented housing market. And Nick Clegg is determined to pay for my daughter’s spaghetti bolognese and jam roll.
These policies will end up producing perverse outcomes and costing significant amounts of money – though perhaps not so much as some of the grander follies, such as High Speed 2.
This week sees the prospect of ‘reckless bankers’ being thrown in the slammer for making foolish business decisions – not fraud, not deceit, not even greed. I don’t think our politicians are necessarily fraudulent, or deceitful or greedy either. Perhaps we would all gain a little, however, if they had to contemplate the prospect of their collars being felt for taking rubbish decisions.
Particularly since, unlike, say the RBS-ABN Amro merger where quite a lot of people (including politicians such as Alex Salmond) supported the over-optimistic judgment of Fred Goodwin, the outcomes of political decisions such as those outlined above are only too predictable to those of us who listened to what Mr Fell had to say all those years ago.