The Ravages of Economic Dogmatism

They have brought Europe to a standstill. The productivity differential is widening further every quarter between us and the United States, who are racing ahead, far ahead of the European Union with their 2.6% growth compared to the pitiful European regression of 1.2%. Mario Draghi warned us a few months ago, stating that we needed to ‘find immense sums in a relatively short time’ if we hoped to save our businesses and competitiveness in the only possible way, by increasing investments, both private and public.

However, our leaders, like our economists, remain deaf, despite the fact that the European ship is taking on water from all sides. The collapse of orthodox, traditional economic theory, which takes pleasure in tightening activity to smother it, is undeniable. But to no avail, as Germany and those still sensitive to its deadly ordoliberal argumentation, like the French Minister of Economy and Finance, remain steadfast in their convictions, tinged with econometrics and mathematics, the Pavlovian verdict of which is to reduce our standard of living and persist in the decline of our middle class.

My anger and disillusionment are at their peak against these so-called ‘mainstream’ economists and leaders who still delude themselves about their credibility. Historians and sociologists would be more competent than them in identifying the basic mechanisms that would prevent us from the inevitable repetition of disasters!

How can we make them understand once and for all that money is not neutral, that the monetary policies pursued by central banks do not – as they continue to hammer – only have short-term effects, but also long-term effects? The actions of a central bank are indeed felt and have obvious repercussions on real and tangible variables such as production, the labor market, and investments. Contrary to their ideology traumatized by Milton Friedman, which has wreaked immeasurable havoc with his formula ‘inflation is always and everywhere a monetary phenomenon,’ money is not a simple commodity whose abundance or scarcity is the sole condition for inflation or deflation. We are no longer in a barter economy, but a monetary economy where the creation of money has effects far beyond its influence on interest rates.

The dogmatists persist in their belief that the rise in interest rates has no consequences in the long term, which they believe are already anticipated by the market and by economic actors, of course, thanks to a benevolent invisible hand. Therefore, according to them, if the rise in rates results in increased unemployment and a distortion in the distribution of wealth, it will eventually be corrected in the long term. Their world is obviously not ours because any action triggers reactions, and the scarcity of money combined with the rise in rates and the inertia or the inaction of central banks have often devastating effects in the long term on our economies. Degradation of the labor market, further impoverishment of the most vulnerable, erosion of incomes, stagnation of activity to the detriment of businesses.

It is money that must be put at the service of society, the community, the economy, and even the State: not the other way around. But, for this to happen, ‘they’ must receive a lesson in humility or, to paraphrase Keynes, wouldn’t it be splendid if they finally realized that they are on the same level as dentists?

My 5 Points program for the Swiss National Bank