Just three days before he passed away, a notable Columbia University professor of economics William Vickrey was awarded the 1996 Nobel Prize in Economic Sciences for fundamental contribution to the economic theory of incentives under asymmetric information. Throughout his prolific career, Vickrey developed methods of analyzing the problems of incomplete information and also specialized on welfare, taxation, pricing and modern auction theory.
Just three weeks before he passed away, in September 1996, Vickrey contributed to The Proceedings of the National Academy of Sciences (for the special series of Inaugural Articles) a fascinating and enlightening article called “Fifteen fatal fallacies of financial fundamentalism: A disquisition on demand-side economics.” In this concise and insightful piece, written in a bright and accessible manner, Vickrey shattered and refuted myths and fallacies underling and guiding neoliberal economics (embodied in “inflation is a tax”, “fiscal responsibility”, “free markets” and other ideas). Especially, this article is a reasoned and elaborated rebuttal of squeezing policies. (For more precise understanding of this analysis, one should not forget that it is embedded in the mid 1990s economic context).
In his final words, Vickrey urges us to get “free from the dogmas of the apostles of austerity, most of whom would not share in the sacrifices they recommend for others. Failing this we will all be skating on very thin ice.”
In the article Professor Vickrey masterfully debunks fallacies such as:
– “Deficits are considered to represent sinful profligate spending at the expense of future generations who will be left with a smaller endowment of invested capital.”
– “Government borrowing is supposed to “crowd out” private investment.”
– “Inflation is the ‘cruelest tax'”
– “A chronic trend towards inflation is a reflection of living beyond our means.”
– “If only governments would stop meddling, and balance their budgets, free capital markets would in their own good time bring about prosperity, possibly with the aid of “sound” monetary policy.”
– “Exemption of capital gains from income tax will promote investment and growth.”
– “Unemployment is not due to lack of effective demand, reducible by demand-increasing deficits, but is either “structural,” resulting from a mismatch between the skills of the unemployed and the requirements of jobs, or “regulatory”, resulting from minimum wage laws, restrictions on the employment of classes of individuals in certain occupations, requirements for medical coverage, or burdensome dismissal constraints, or is “voluntary,” in part the result of excessively generous and poorly designed social insurance and relief provisions.”
“We will not get out of the economic doldrums as long as we continue to be governed by fallacious notions that are based on false analogies, one-sided analysis, and an implicit underlying counterfactual assumption[s]“, concludes William Vickrey, and he is absolutely right.
Open-access: Vickrey, W. 1998. “Fifteen fatal fallacies of financial fundamentalism: A disquisition on demand-side economics.” The Proceedings of the National Academy of Sciences 95: 1340-47.
See also collections of Vickrey’s works: Public Economics: Selected Papers by William Vickrey (Cambridge University Press, 1997) and Commitment to Full Employment: The Economics and Social Policy of William S. Vickrey (Routledge , 2000)