Essay by Keith Rankin.
“If the nations of the world fail to honour the pledges they made in Paris, the climate could return to Pliocene conditions when okapi-like creatures and giant vipers thrived in Europe. … Ernst Haeckel’s name for our Neanderthal ancestors, homo stupidus, may yet have some validity – for us.”
Tim Flannery, Europe a Natural History, 2018.
Recently I wrote about the Neanderthal ancestors of all of us who are not of pure African ethnicity. These early European and Asian ancestors luckily escaped being consigned to the dustbin of racist history, under the label homo stupidus.
This name contrasts with the name earlier conferred on our own species – homo sapiens – which means ‘wise upright primate’. The question here is: Has our own species done enough to earn the ‘wise’ marque. Maybe our species is ‘clever’ but not ‘wise’? Or maybe we are basically stupid? Or both clever and stupid?
Savings, Investment, and Stupidity
“It’s a question of rationality [not ideology] if I may say; never before has humanity had so much money, we have the largest pile of savings and liquidity in the history of humanity. By comparison, the proportion of savings that we are ploughing into investment – investment into the future, [for example] into the green transition … the amount that we are investing as a proportion of total savings has never been lower in the history of the world; that is stupidity in action, and you don’t have to be a left-winger or a right-winger to agree with that.” Yanis Varoufakis, Upfront, Al Jazeera 20 Feb 2021
In the quote above, prominent Greek political economist Yanis Varoufakis makes the point that our collective failure to invest the massive amounts of capital that we now have is the epitome of stupidity. Sure, we were clever to be able to accumulate so much capital; but what’s the point if we refuse to use it? What kind of mother or father would choose to malnourish the rest of the family when their fridge was full with good food, and then allow most of that food go to waste?
In classical economics (aka ‘the dismal science’) – the liberal description of capitalism that dates back over 200 years – the key conclusions were that investment creates growth, and that growth (and only growth) could stave off the inevitable ‘stationary state’ in which everyone except spendthrift landlords would subsist in a state of poverty. (Varoufakis believes that we are well on the way to a version of that stationary state, through a transition from capitalism to ‘techno-feudalism’; a transition that he believes has already been taking place.)
Classical economics was underpinned by an economic ‘law’ dubbed ‘Say’s Law’ – named after French political economist Jean-Baptiste Say, but which could equally have been called ‘Mill’s Law’, after the Scottish-born intellectual James Mill. Say’s Law says, in effect, that ‘supply creates its own demand’. (The law was invoked by the new capitalist political class to assert that ‘great depressions’ – known 200 years ago as ‘general gluts’ – could only persevere if government investments and relief programmes prevent markets from self-correcting.)
In a twentieth century context, Say’s Law says that ‘savings creates its own private investments’; in other words, the law says that it impossible to have uninvested savings. (One of the jokes about 1980s’ neoliberalism was that, while uninvested savings might be observed, because they were impossible in theory then the observation could not be true. The corollary – allegedly subscribed to by Treasury – was that policies which worked in practice should be eschewed in favour of policies that worked in theory, in their theory.)
Say’s Law, while true in a meaningless tautological sense (in which unspent income is defined as ‘unintended investment’, and in which unemployment is ‘voluntary’), is false in any practical sense. It was John Maynard Keynes – in his 1936 opus The General Theory Employment, Interest and Money – who comprehensively exposed the fallacy of Say’s Law. Keynes (who understood economics not as the dismal science but as the ‘science of happiness’) – and some others – could clearly see that the Great Depression of the 1930s was a period in which many people saved (and many others attempted to save) an unusually high percentage of their incomes, while an unusually low proportion of their nations’ incomes would be committed to investment spending (spending for the future). Money just sat there, unspent, for over a decade in some countries. Poverty stalked the world, in the midst of plenty. Homo stupidus reigned. In our part of the world, some of the Labour politicians in the Australian state governments were amongst the stupidest of all, determined to balance their budgets at any cost. (It’s lucky that New Zealand waited until 1935 to elect a Labour government!)
(In its historical context, 1980s’ neoliberalism represented the rejection of 1930s’ style Keynesian economics in favour of a return to 1800s’ style classical economics. By and large, the left-wing intellectual class was missing in action in the 1980s; instead descending into the rabbit hole of new identity politics, quite distinct from the 1930s’ national socialist rabbit hole of old identity politics.)
In the world today, most of the money that would be otherwise unspent is directed into the acquisition of existing assets – especially land (also equities) – in a speculative process that the political class incorrectly call ‘investment’. (Over the road from my house is a real estate sign that, underneath the word ‘SOLD’ says ‘LAND IS THE NEW GOLD’.) Land-hoarding represents a blight on our cities. We should note from our untaught history that land speculation is New Zealand’s true national sport – not rugby – and that, in New Zealand, land speculation has a continuous history dating back at least two centuries.
Tim Flannery and Yanis Varoufakis emphasise the need for green investment; for public spending – and for incentivised private spending – that leads us towards a decarbonised and democratic world. And, while the future benefits of such spending are substantial, Varoufakis emphasises that – at least in present times – the economic cost of such investment is trivial. Modern homo stupidus believes that land speculation should take priority, as an outlet for unspent income, over future public investment. The problem with future public investment – homo stupidus believes – is that we will end up owing ourselves too much money; better, he believes, to balance the books at zero on both sides.
————
Keith Rankin, trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland.
contact: keith at rankin.nz
