Posted by: Dirk | December 20, 2011

December 2011 – The Bleak Picture

These days, the news are bleak. Let me highlight some issues that appeared on radar in the last days:

  • Hungary is turning into an authoritarian state (article by Kim Lane Scheppele)
  • About the only economist talking sense in Germany is Oscar Lafontaine of DIE LINKE, which is partly a successor of the East German communist/socialist party (interview in German in the SPIEGEL)
  • it seems that the Chinese property bubble might bust soon (FT Alphaville)
  • the Spanish reform programme under Rajoy is an austerity policy, and it is not sufficient yet (and perhaps can’t be, but the cuts are not large enough even according to their yardstick; source: EL PAIS)
  • North Korean strongman Kim Jong-il dies, creating political instability over the succession, and so does Vaclav Havel, former president of the Czech Republic

Now some observers will now talk about confidence and geo-political risk and the like. However, I would like to point out that societies have a risk-management tool at their hands which normally can be relied upon in good times as well as bad times. This tool is called democracy with a market system.

However, this tool seems to be having problems. We are supposed to solve problems using markets and voting for people who regulate these markets. What happens, though, is that some markets have created the problem and then the politicians who are responsible for regulating the markets have denied responsibility/misdiagnosed the problem/evaded all criticism. What went wrong? What do we have to do to get the leaders that maximize our utility?

This is a typical problem of society. Even the ancient Greeks thought about this issue, and Plato’s The Republic was written to answer this question. I have quoted David Hume recently, who wrote:

A Government may endure for several ages, though the balance of power, and the balance of property do not coincide. […] But where the original constitution allows any share of power, though small, to an order of men, who possess a large share of the property, it is easy for them gradually to stretch their authority, and bring the balance of power to coincide with that of property.

David Hume, of course, more than Plato was a man of enlightenment. It is this movement which provides the foundation of today’s Western societies. We have become – in the words of Karl Popper – open societies, which distinguishes us from the closed, tribal societies of the dark ages.

Perhaps we have forgotten our roots, our joint history and this is why our situation seems so strange today. Economists assure us that we have avoided the worst depression since the Great Depression, but as a result we have returned to business as usual. The new standard includes mass unemployment in Spain and other countries, rising tensions in the European Union and giving up any meaningful fight against global warming.

Perhaps it is time to revisit the idea of open societies – and its enemies – and think about today’s developments in a historical and philosophical context. In the next few weeks, I will present some excerpts from Popper’s Vol. 1 and put them into a modern context. I believe that economics without philosophy falls short of generating a civilised society. Somebody else would perhaps be better suited to undertake this, but I can’t see anyone doing it.


  1. To me, the problem is that most politicians do not understand economics. Most voters do not understand economics.
    I know my examples give away my age! Most readers may not be old enough to remember, but here they are:
    Konrad Adenauer. Excellent politican (der Alte Fuchs), lousy economist.
    Charles Degaulle: Excellent politician, lousy economist
    Ludwig Erhard: Excellent economist, lousy politician!

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