'Do-it yourself economics' was a term coined by the economist David Henderson in his Reith Lectures for the BBC in 1985, and is the title of an occasional series in this blog. It refers to notions that are widely accepted - by media commentators, politicians, businessman, clerics and so on - as axiomatic principles of economics yet have not the slightest theoretical or empirical support from that discipline. Most instances have a distinct anti-market bias, though it should be said that economic illiteracy is a politically heterogeneous cause, as the following example illustrates.
The Telegraph reports:
The Government yesterday launched a campaign to persuade hospitals, prisons and schools to buy more British produce, while admitting that European competition law forbids ministers from actually telling people to buy British. Lord Whitty, the food minister, said that British producers should get "a fair crack of the whip" by gaining more of the £1.8 billion that is spent each year on food by the public sector.
Excuse me? I was under the impression that the role of the public sector was to serve the public, not to hand out favours to interest groups. Yet the notion that we must 'Buy British' is so entrenched in our political culture that the chief lobbyist for the sectional interest thus favoured can state his own agenda openly without being hauled up for it by the minister concerned:
Sir Ben Gill, president of the NFU [National Farmers' Union], said: "This is a tremendous opportunity for the British farmer to supply the public sector. For too long the Government has concentrated on the lowest possible price."
If the government isn't concentrating on the lowest possible price, then it's engaged in a dereliction of duty for which Lord Whitty - a former trade union and Labour Party functionary of no known qualifications in public administration, finance or agriculture - should resign immediately. As Paul Krugman - alternately a fine economist at MIT and an execrable political columnist at the New York Times - has made his mantra, the essential lesson of economics is that Things Add Up. If the public sector is paying higher prices than it needs to for food, then someone is paying those prices. The 'someone' in this case is the taxpayer, who - as ever, because the cost is dispersed whereas the benefit is concentrated - ends up being stuffed by a more vocal producer group.
There is nothing inherently patriotic in buying British produce regardless of price, any more than there is in buying British companies' stocks and shares regardless of earnings yield. British agriculture has no more reason to be treated as a protected industry than had uneconomic coal mines 20 years ago. It's a cardinal principle of economics that there is a circular flow of income. Consumers wish to buy goods or services; those who satisfy that demand receive income; they then spend the income on other goods or services, or save it. There is no 'lump of labour' such that economic activity in one sector that is deprived of government support cannot be replaced.
This isn't a doctrinaire notion held only by laissez-faire ideologues. As a Keynesian, I believe government should be prepared to maintain total spending at a level consistent with a target for growth in (nominal) GDP. Nothing in that premise commits me to the view that government should maintain growth and employment at a certain level in a particular sector, still less one that has for so long - regardless of cyclical fluctuations in economic activity - benefited from taxpayer subsidy.
I should have liked to report that the minister was being challenged by a stern and unyielding Thatcherite critique of wasteful public spending. But the modern Conservative Party is in so advanced a state of intellectual chaos that its representation is confined to hoping that the government is in earnest in forcing the taxpayer to subsidise an uneconomic lobby group:
David Liddington, the shadow minister for environment, food and rural affairs, said: "I hope this is more than a gimmick. The public sector should be buying more British food and these large contracts from outside have been going on too long."
I hope the Shadow Cabinet is more than a gimmick, but the countervailing evidence is sometimes too strong to resist.