Hard sums and easy morals

One of my favourite quips about modern economic theory is that its reliance on mathematical models is bad economics, but even worse maths. That certainly has been brought home by the spreadsheet mistake in the influential work of Reinhart and Rogoff. So it was nice to see this piece by David Graeber arguing that:

After all, as I and many others have long argued, austerity was never really an economic policy: ultimately, it was always about morality. We are talking about a politics of crime and punishment, sin and atonement. True, it's never been particularly clear exactly what the original sin was: some combination, perhaps, of tax avoidance, laziness, benefit fraud and the election of irresponsible leaders. But in a larger sense, the message was that we were guilty of having dreamed of social security, humane working conditions, pensions, social and economic democracy.

And this is the paradox. We rather like a good dose of vindictive morality. Nothing gives a believer more pleasure than the thought of the wicked burning in Hell for all eternity. Yet the stern face of just retribution is not always wise, especially when delivered in the name of flawed institutions.

Though justice be thy plea, consider this,
That, in the course of justice, none of us
Should see salvation: we do pray for mercy;
And that same prayer doth teach us all to render
The deeds of mercy. 

Forgive us our debts rather than impoverish a continent. But that is no part of the great Austeritian faith of tough choices and harsh medicine. Even without indulging in the sentimental belief that economics is about ensuring the welfare of all, there is a utilitarian argument against the economics of austerity; it makes everything worse. Larry Elliott expands on a neat metaphor here:

The economist George Akerlof came up with a metaphor for the state of the global economy at an IMF conference on rethinking macro economics. "The cat is still stuck up the tree and we don't know how to get it down", he said. Keynes would suggest building a bigger ladder. Hayek would wait for the cat to jump down of its own accord. The European approach involves chopping the tree down.