The best insights into the global malaise are to be found in commentaries on the Great Depression written in the 1930s. One of them, by a psychologist, identified “insanities” in the economic mechanism, evidence of a psychopathic process that required forensic scrutiny by pathologists. That the lessons have not been learnt is illustrated by hindsight experts like Paul Krugman.
Krugman says that we are in the early stages of a third depression, the first following the Panic of 1873, the second following the Wall Street Crash of 1929. So how come it has taken a Nobel prize economist so long to alert the world to the current depression (in today’s Guardian)? I offered the forecast in a book in 2005 (its sub-title was Housing, Banking and the Depression of 2010).
The tragic truth is that economics is unfit to guide public policy, and Krugman is a symptom of that failure. Professor Krugman’s textbook, for example, informs students that the rent of land in the US is just 1% of national income (it’s more like 33%, but that’s a story for another day).
Dr. Ian Suttie, writing in Psyche (1933), diagnosed the problems of economic practice in terms that are relevant today. In other words, the lessons of the previous two depressions have not been learnt. He writes:
“I repeat that the extreme ignorance of economics in high quarters is a very significant fact when we consider that the economic system is made by and for man, and should not therefore prove unintelligible to him.”
Back to Austerity
One example of lessons not learnt: austerity imposed on innocent people. In the 1930s, newspapers urged government to cut health and education grants by 20%. Today, Britain’s Coalition government is commended for its proposed 25% cut in public spending.
Dr. Suttie concluded that “Several pathological impulses have escaped detection and condemnation and have woven themselves into the fabric of our civilisation”. Those pathologies continue to elude scrutiny because people like Professor Krugman –guardians of economic philosophy – remain blinkered on a full third of economic activity. And it is in that realm of the unseen that the hot spots are harboured.