Scotonomics: Let's expose major myth about world's economies

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WHAT is supplied is rarely what is demanded. There are much deeper factors at play. Power.

There are two sides to this story. I will start with the one you are probably less familiar with.

THE REAL-WORLD VERSION

THOSE in power decide which goods and services a society produces. They directly and indirectly allocate resources to specific types of products and services. They do this by controlling the spheres of power: education, industry, media, advertising, government and financial institutions. These powerful people, often called the elite or the establishment, “prioritise” the allocation of resources.

People, but more importantly, the institutions they control, move slowly over time. They operate a pact mentality. Their actions reinforce one another as similar people, often the same people, become influential in these institutions. All of these decisions, taken by the elite, are inextricably linked. Each sphere of power plays a vital role as a positive feedback loop reinforces this shared belief and overall direction.

The “social surplus” is all the goods and services we create. It is directed by an elite that has all of the power. This view is a very logical one. As consumers, we can only consume what is on offer. As Henry Ford said: “If I had asked people what they wanted, they would have said faster horses.”

The goods within the social surplus become “stickier”. More roads means more cars, and more cars means more roads. They reinforce themselves. As Professor Giorgos Kallis explains: “The expenditures sanctioned by a society reproduce its established order.”

Changing this list of goods is hard, as path dependency affects the ability to pivot.

Certain things are never on their radar. These institutions naturally resource the types of products and services they use or perceive as necessary. This is the real-world explanation and the end of the first version of this tale.

THE ‘ACCEPTED’ MAINSTREAM VIEW

THE second tale is that there is an invisible hand behind the whole economy. Unbiased, it gradually and softly directs consumers and suppliers to find a harmonised position where demand equals supply. This is also a tale of scarcity. Human wants are insatiable, so the market allocates these resources “efficiently” in the best possible outcome. If there is a market for a good, it will be supplied.

Price and profit help producers find the goods to provide. They are unbiased and structurally fluid to move to whatever market promises the most profit.

Two tales.

Representing two very different descriptions of our economy.

Which one best explains the world you see as you look out your window in Scotland?

The slow death of your local high street? Is it because you no longer require convenience and choice? Or is it because the elite don’t shop there anymore?

What explains the increasing number of SUVs at the same time your local bus service is removed?

Why do “we” underfund our health services across the UK while private healthcare use increases?

Is the proposed new golf course north of Dornock because locals cry out for another one?

What about the increase in new student residences in Edinburgh that fall outside general planning regulations, making them cheaper to construct than proper homes?

How about the increasing number of Airbnbs across Scotland? Is this because there is no demand for those houses as homes?

The global elite uses trees that sequester carbon to offset emissions. Is this an efficient allocation of capital? The best use of Scotland’s land? Is this how we ensure a Just Transition?

The poor state pension in the UK. Is this because the “Government can’t afford it”? Or is it simply a reflection of the disinterest of the elite in this tiny additional top-up amount of money they will receive?

Were the easy mortgages of the 2000s a way to help poorer people buy homes, or was it the best way to create financial assets for spare money flushing around global capital markets?

And perhaps most pertinent, the massive increase in precarious jobs and services dedicated to those mobile elites, is this a response to people craving flexibility?

Once we scratch the surface of the established economic narrative, things come into focus, and the make-up of the elite becomes more obvious.

It is a myth that “supply and demand” is the dominant force in our economy. The idea that we are all equal consumers is fanciful. We must see our modern economy as a construct for and on behalf of the already wealthy. Power is the dominant factor.

This is the real-world view of our economy shared by a whole host of diverse schools of economics. There is an alternative explanation of the dynamics of our economy. Once we can describe the true nature of our economy, it becomes much easier to prescribe solutions.

For a lighter version of this tale, I suggest you watch the Apple TV series For All Mankind, a retelling of the space race where the Russians are the first to land on the moon. You will see how elites in America and Russia refocus resources from Vietnam and Afghanistan to the space race and the huge impact that has on society.

I also want to relate this to the McCrone Report, which turns 50 this year. “If only Scotland had all of these resources, things would have been so different.” Well, possibly. But I want the above to be a cautionary tale. Unless you change the institutions and the make-up of those in power, the outcomes will not change.

Our events in March build on this version of our economy. Click HERE to find out more.