FOR A FUNCTIONAL ECONOMY, SUFFERING IS NEEDED
“To those human beings who are of any concern to me I wish suffering, desolation, sickness, ill-treatment, indignities”. This is from Nietzsche’s The Gay Science, where the virtues of suffering were extolled. So, how can suffering be a good thing?
Well, most events that improved humanity came on the account of suffering. The abolishment of slavery came due to the inhumane treatment of black people. Democracy came from bloody revolutions against oppressive regimes. Even in our personal lives, the achievements that mattered most came from suffering. Losing weight, getting a good degree, these are instances of accomplishments that always involved sacrifices of some sort.
In the workings of the economy, a different approach is taken entirely. The attitude of governments towards the economy is to avoid suffering at all costs. At the first mention of a slowdown in economic growth or news of a recession, the immediate tactic of governments are to take enormous loans in order to induce growth. Such a methodology is adopted, because the government’s economic concern is purely short-term benefit. The justification for such a style is embedded in Keynes’s one-liner “In the long-run, we are all dead”.
This approach has only brought failure. Bodies like the IMF, EU and World Bank — that provide the loans — impose stringent conditions with the loans. For most developing and developed nations, these conditions have devastating impacts on their standard of living. The Nigerian naira never got back to its glory days due to the Structural Adjustment Program of the World Bank and IMF. Countries like Spain, Ireland have had to impose stringent conditions on their citizens due to (making life for the average Joe a living hell). The future of most economies are bleak, due to the high incidence of public debts. Current level of global debt is valued at $217 trillion, three times over total world output. In every respects, this is an unsustainable model.
Iceland adopted a diametrically opposed approach with conventional wisdom. When the global economic crisis struck in 2008, Iceland as a nation and an economy deeply felt the effects. The savings of over 50,000 people were wiped out in the crisis, with population at that time being a little over 300,000. Conventional wisdom said it was a folly to refuse the IMF proposed bailout funds; which was dependent on bailing out the banks. That was however what the Icelandic government did.
The government let the banks and invariably the economy go kaput. It focused primarily on social welfare policies — universal healthcare and education. In economics, this is termed a supply-side fix to the economy. A supply-side fix tries to prompt economic growth by improving the productive resources of a nation with enhanced human capital. It also kept in measures to combat an exodus of foreign funds. The criticisms to this plan, which focused on the long term at the detriment of the short term, came from both home and abroad. Even, an adviser to the government, Benedikt Gislason was quoted as saying “The Icelandic economy would not survive”.
In March 2015, the International Monetary Fund announced contrary to Mr. Gislason’s pessimistic outlook, that Iceland had achieved economic recovery without “compromising its welfare model”. Its economy was booming, possessing one of the highest economic growth rates. It had one of the lowest unemployment rates, even as its European counterparts were suffering from economic stagnation. To achieve this, there were consequences in the short term. It drew the indignation of its European neighbors for failing to honor bank guarantees given to foreign investors. The citizen’s ability to move money out of their country were restricted by capital controls. High inflation, bringing about high prices was another side-effect.
Current level of global debt — valued at $217 trillion, three times over total world output — clearly highlights the important case against running the economy with only a short term view in mind. Iceland might not be perfect, but it is a testament to the motto of suffering in the short term. It’s no longer enough to run behind Keynes philosophy. That man taught us how to stabilize the economy, not how to develop it. Stabilization of the economy has come at a great cost ($217 trillion, to be exact). It’s time for something new, a model that brings about lasting growth. Therefore, I say “In the short-run, we must suffer to live in the long run”.
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