This Expert Comment argues that economic morality arises from market failure, which requires social corrections and government interventions. Such corrections might challenge economic actors who enjoy a privileged position, and who consequently advocate the so-called ‘free market’ that supports their unfair advantages. Dimitris Psarrakis argues that we must revisit old narratives and re-establish a consensus about the true values of liberal economic thinking in order to emancipate people who suffer under the current market structure. He suggests a return to Ordoliberalism and proposes eight principles of good economic governance as a basis for establishing the values of freedom and responsibility in contemporary economic policymaking.
Applied economics is all about who takes what and how much out of the distribution mechanisms of markets and governments. In economic cycles, every turn has winners and losers. The very fact that economies face cyclical fluctuations proves that markets are not divine. Markets fail, and this failure can be manifested in many ways: oligopolies, monopolies, information asymmetries that lead to moral hazard, and externalities that have socially and environmentally costly outcomes. These economic inconsistencies create moral arguments about who pays what and how much. Thus economic morality arises from market failure.
Market failure requires social corrections and government interventions. However, these corrections are not always welcome, particularly among economic actors who enjoy a privileged position in the top distribution of income. They are the advocates of the ‘protected value’ of the free market, not because they are liberals, but because they are allowed to exploit their unfair advantage in the current market structures. The same people will welcome aggressive, big-government intervention in the economy to bail them out and allow them to protect their advantages, especially if bailouts are made with taxpayers’ money.
The ‘politics’ of economic policies is concentrated where the money is concentrated. This is not ‘free market’ economic governance. It is not ‘free’ because it allows the concentration of income and the exploitation of the unfair advantages of certain elites to endure, thus deepening social inequality and economic dependencies. It is also not ‘market’, because the solution is provided by strict, conservative fiscal measures of austerity and taxpayers’ contributions, and because decisions as to which industry or firm is to be saved is not determined by objective economic criteria, but is made behind closed doors. Entire countries are treated similarly. This is neither liberalism nor neoliberalism; this is the narrative of a reactionary, activist, aggressive, ‘old-school’ conservatism.
Therefore this paper argues that it is important to revisit old narratives and re-establish a consensus about the true values of liberal thinking, which was designed to emancipate the people and not to lead them to serfdom, dependency, and poverty traps. The author suggests a return to what the Ordoliberals proposed: a society that combines freedom with responsibility.
The return to Ordoliberalism could be based on the following principles of good economic governance:
- deliberately designing optimal market structures;
- institutional capacity-building that enables markets to function efficiently;
- building human capital;
- taking a moderate view when considering re-distribution policies and addressing inequality issues;
- understanding of the limitations of ‘full employment’ policies;
- allowing monetary policy to dictate fiscal policy;
- re-regulating the financial sector in order to transform it from a lab of regulatory arbitrage back into a profit-and-loss industry.
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