One of the most powerful parts of New Zealand’s government is the Treasury. When one looks through nearly any government document, there will be a part where the Treasury gives its ‘advice’ to the government. They are supposedly the ‘experts’ on the economy, the people who know exactly how to run the country, how to make more jobs, how to give us all a ‘brighter future’. Unfortunately, they seem to be completely terrible at it. One only has to have a brief glance to see how broken society is, how it serves only the rich and the powerful, with little or no concern given to the working class
Take, for example, Treasury’s weigh-in around the minimum wage.
It might be surprising for some to find out that for almost a decade the Department of Labour has had a $15 minimum wage as one of the options presented in its yearly review. For the past three years, they have even had a $16.50 option. It is clearly spelled out how this would benefit the poor and low income workers; how it would decrease inequality; how it would make real gains for a large number of people. Each time, the Treasury advises no rise in the minimum wage, citing, first and foremost that it would increase unemployment. While every other department fills its contributions with references to studies, to academic articles or to statistics to justify their point of view, the Treasury simply states their opinion as indisputable fact.
The ‘fact’ that an increase in the minimum wage will lead to increased rates of unemployment, however, and most other facts that the Treasury puts forwards is far from indisputable. Leave aside the many of empirical studies done by others: studies by the Treasury itself have shown no significant link between the minimum wage and unemployment. Add to this the so-called experts’ inability to predict the global recession, the years of them misjudging the inflation rate, the missed predictions on unemployment, their smug assertions that people are ‘better off’ now despite increases in the price of food far outstripping increases in wages, and we get a sense of a very poor record on their part.
Why then, does neoliberal economics seem to ignore reality when it comes to their so-called science? It goes down to fundamental problems, in no small part because of how neoliberal economists build their model of the economy. All economics uses a model, Marxist, neoliberal, Keynesian or otherwise. Economics is sometimes presented as a value-free, fact-driven empirical study, but all economics involves theories and models, and those involve judgment. The first principles around which neoliberal economics organises are based on ideological assumptions that are then read into the social world. Neoliberal economics focuses on the individual, ‘rational consumer’. This mythical person supposedly weighs up, accurately and considerately, all of their resources and compares that to things they want and make decisions based on this comparison. In terms of the minimum wage argument, both employer and employee reach an agreement that accurately and properly reflects the worth of that employee’s work, and therefore any forced change in that work will ‘logically’ result in someone getting fired.
The problem with this point of view is that it doesn’t bear any relation to reality. Even without a class analysis, one can see that how much an employee gets paid rarely has anything to do with rationality. We live in a society where those who are caring for our elders and people with disabilities get paid atrociously low wages while marketing managers selling snake oil get paid six figure salaries. We know, as a matter of common sense, that wages are about power. This is borne out in how the real economy plays out – strongly unionized workers, i.e. those who have more power, win higher wages than those who are not unionized. Marxist economics does look at reality. Instead of trying to hypothesize what individuals think or do, Marxist economics looks at the material forces that exist in society. It sees that the material interest for a business owner is to keep wages as low as possible while maintaining a workforce that will make them profits.
Neoliberal economic is built on imagination and fairytales about ‘rational choice’ and a lot of graphs. The proof of its absolute inadequacy is all around us.
