November 24, 2009
Economics, Democracy and the Death of the Left?
After my tirade against the left’s economic illiteracy, I’ve been contemplating aspects of the modern political-economic interface. I want to sketch a tentative thesis: that modern economics is fundamentally undemocratic in a number of important ways, and that this is worse news for “the left” than “the right”.
Let’s begin by noting that the vast majority of people engaged in political campaigning, activism or discussion want to make the world a better place. Of course, enormous disagreement arises about both the means adopted (state intervention vs. markets) and especially the ends (greater equality vs. merit; fairness vs. competition, and other such helpful caricatures). Virtually nobody wants to make the world a worse place. Although a tiny minority – National Front knuckleheads, sociopathic xenophobes – may want to make it a worse place for some people, that’s usually in order to make it better for others. However, most people want to make the world a better place for everybody. Salus populi suprema lex esto the Romans used to say, and almost everyone agrees.
Of course how we go about making the world a better place is the million dollar question. In modern representative democracy what usually happens is that rival groups form political parties, which seek to advance the means and ends their members and supporters favour. At general elections one party garners enough of a popular vote to assume the power of the state and begin legislating as the government. In theory, when it becomes the government, the party legislates so as to enact the means, which will bring about the ends, which together promote the values of the people who form and staff the party, as well as all those who voted for it. (Of course, we know that in practice it’s never that simple. But that seems to be the basic rationale underlying modern representative democracy).
Now a spanner enters the works. Let’s suppose that a party is elected to govern on a wave of popular support. Imagine it promised (e.g.) “more jobs”, or “lower taxes”, or “new hospitals” or “better support for our troops” or “great equality” or “less red tape”, or whatever. It will inevitably turn out that when getting down to the nitty gritty of how to make good on these stated goals, the politicians in question are going to have to make decisions relating to economic policy.
Economics is at the heart of our politics and society. Pretty much everything that a government does or changes will have economic ramifications, and I think it’s fair to say that a great many – and possibly the vast majority – will only be achievable through economic means. We want more schools and hospitals! How you gonna pay for them? We want lower taxes! Where you gonna make the cuts, who are they going to affect, and what impact will that have upon your spending commitments? We want lower unemployment! You’re going to increase spending to create jobs and induce harmful inflation then? And so on.
Economics is at the heart of all the big political decisions. Fact of life. Problem: very few politicians are economists. Take the present Chancellor of the Exchequer, and his predecessor-turned Prime Minister. What did they study at University? History. (Economic history in the case of the latter, but as anyone who has studied even undergraduate level economics will confirm, that’s really not the same). This is unsurprising, of course. Politicians are politicians. They spend their lives kissing babies, knocking on doors, selling their souls to party whips and lying (and don’t begrudge them for that, it’s just the job and somebody’s gotta do it). The result is that politicians are, naturally, reliant upon experts who are economists. People who know the theories, the models, the trends and who understand the complicated data and variables and stuff. People who can make it all comprehensible for the Rt. Hon. Mr Bloggs who of course did PPE, but spent his 3 years hacking at the union (or if he did do his reading, that was 30 years ago, only piffy undergraduate level and anyway everything’s changed now).
Recap: economics is essential to all political decision-making; politicians are not economists; economic advisers are indispensible.
Troubling thought number one: economics – or rather, modern, highly-technical, mathematically-driven economics – is innately undemocratic in its nature, and the non-democratic concerns get worse when economics interacts with politics.
Political debate and discourse is fundamentally democratic in a way that economics isn’t. By “democratic” I mean something quite specific: that ordinary people can understand, engage with and contest the basic building blocks of political discourse. Due to intelligence limits, not everybody can assess the competing virtues of esoteric formulations of the values of different conceptions of equality and how they interact with merit and opportunity. Nonetheless, pretty much every normal adult human being is able to take a stand on whether they would like a society with more equality (be that in terms of wealth, income, opportunity or whatever) or not, and can at some level (however confused, however based on misunderstanding) argue and debate that with others. After doing so, they can go into a voting booth in local and national elections, and cast a ballot accordingly for whichever party they think best reflects, or aspires to promote, their opinions and values. (Likewise, the intricacies of concepts like state involvement in private enterprise, or the market in the NHS, or the way we structure our tax regimes may, at some level, become accessible only to the highly intelligent. But at root, these concepts can be accessed and debated by ordinary people, and voted on accordingly).
Modern economics is different. It is so highly conceptualised, so mathematically driven and so technical that to get to the stage where one understands the principles of – say – macro economics (to the point of understanding the principles and intricacies of how government involvement will affect the balance of outcomes and probabilities, in a world of unknown and unforeseen possibilities) requires a level of training, intelligence and (given the structure of the modern discipline) mathematical aptitude that is beyond the reach (and means) of the vast majority of people. It was certainly beyond my reach, I’ll admit. I tried, but I just didn’t have the maths.
So it seems fair to describe modern economics as “undemocratic” in this straightforward sense: it is inaccessible to the vast majority of people, by its constituent nature.
You might ask why this matters. There have always been things which are so complicated – advanced quantum physics, say – that only a tiny minority can access them. So what’s my beef with the dull science? The difference, obviously, is that quantum mechanics isn’t at the heart of political decision-making. Economics is. And that has further undemocratic ramifications.
Consider: a government gets elected with popular support to (say) increase employment and decrease inequality. But the politicians have no economic expertise, so they rely upon their specialist economic advisers – who tell them, in sombre tones, that it’s simply not possible to achieve these things because the economic situation is XYZ.
It might look like I’m complaining about a stupid thing here. If a government was elected upon a mandate to turn the entire population of Britain into singing pink squirrels, and leading biological experts informed the scientifically-challenged politicians that this was simply impossible, I wouldn’t complain that there was something “undemocratic” going on.
But the mistake here is to assume that economics is like science (a mistake fuelled by the frequent economists’ pretension that it is). Economics is not an exact science – in fact, it is nothing like one. It is a lot of conjecture, often based upon much good reasoning and modelling, yet which must ultimately apply theory and deduction from observed variables and conceptual formula to a world which is unpredictable and where the unexpected (and previously unknown or misunderstood) has a habit of messing with everything.
All the best experts in the world can do is tell politicians what they think will happen. But OK (you say) that just delineates some limitations inherent in economics. Surely it’s not undemocratic to exhibit limitations?!
But perhaps it is if the theories and models that the economic advisers and experts are using are loaded with value-judgements and political preferences (some that perhaps the advisers and experts themselves don’t even realise are present). In such a case, we could imagine a government being elected to bring about X, but being told solemnly by its economic advisers that X is impossible. But perhaps X is in fact not impossible, but only ruled out by the models and theories of the economists, that embody anti-X assumptions and conclusions but which are themselves flawed. However, as the politicians are not economists, and must take the experts and adviser’s words for it, X gets abandoned. Even though X was what the government was democratically mandated to do. Now that to me looks undemocratic. And worrying.
The example of “X” is highly conceptualised (and oversimplified). Do I have any sort of proof that such a thing goes on; that economic orthodoxies are latent with political and value-judgements assumptions which may be deeply contested? Perhaps. The following is a little foray into economic intellectual history, which I’m happy to be corrected upon by those who know better.
Around the later 1960s/early 1970s, a theory began to emerge – one that was championed especially by Milton Friedman and the “Chicago School” of economics – that claimed unemployment in a national economy tended towards a “natural” rate. The previous view – broadly labelled “Keynesian” – was that unemployment was a function of “aggregate demand” (very roughly: the level of economic activity in an economy). Therefore, if aggregate demand was high, unemployment would be low, and vice versa. Accordingly, government could stimulate aggregate demand and thus lower unemployment. The “natural rate” view of unemployment, by contrast, claimed that because the level of joblessness tended to an “equilibrium” rate, any efforts to move it away from that rate – say by government interference – could only do so at the expense of creating disruption in other parts of the economy. For example (and to caricature) that government efforts to artificially lower unemployment below its “natural” rate led to inflation (a terrible evil due to the havoc it wreaks upon economic stability). The best thing to do was to let unemployment find its “natural” rate, stop interfering, and reap the benefits of lower, stable levels of inflation.
The Friedmanite “monetarists” largely carried the day. Unfortunately, the theory didn’t pan out so well. Here’s an interesting graph, which I’ve remarked upon before:
From the period 1979 (when Thatcher roughly began to move away from “Keynesian” policies and to accept the Monetarist “natural rate” view), we see that UK unemployment has clearly not tended to a natural rate equilibrium. It has moved about all over the place. With an interesting consequence: it wasn’t until 2004 that unemployment levels fell to being at level of the highest rate they had been during all the turmoil of the 1970s. For the post 1979 period, the UK experienced (and tolerated) higher rates of joblessness – with all the personal and social evils that brings – than for that bleak decade scarred so indelibly onto our collective political memories.
Now I can feel myself getting to deep waters, and I don’t have armbands. Hence I’d rather not labour this example, for fear of making daft mistakes. What I simply want to suggest is that the “natural rate” view of unemployment – which appears to have been wrong – was used to justify economic policies which in turn had profound political effects (not least upon the lives of all those blighted by unemployment personally or in their families).
My example may well be faulty. But it suggests nonetheless that economic models and theories – which can turn out to be wrong – can have profound effects upon our politics. And this must be undemocratic because the people who understand, interpret and advocate the models and theories are not our democratically elected, revocable and replaceable representatives, but experts and advisers who do the intellectual graft and inform the decision making of our broadly economically illiterate political classes, yet may be insisting upon the primacy of theory which contains values and assumptions which are antithetical to those of an electorate which mandated a government to act in its name.
Of course, it wouldn’t be so bad if one political party could just chuck out the others’ advisers when it won, and bring in its own. Except here perhaps “the left” has a real problem that “the right” doesn’t.
When I wrote that the left is broadly speaking “economically illiterate” and “devoid of ideas”, Chris Dillow noted that this wasn’t strictly true; that there are actually quite a lot of leftist economists out there. And he’s right of course. But I’m focusing on a more general level. It seems to me (and of course I could very well be wrong) that the broad consensus of economic theory is off to the right of centre, and that the majority of economic experts in and around governments are either rightists themselves, or have imbibed rightist assumptions embedded in the theory and practice of modern economics (which may have been increasingly disguised by the conviction that the discipline is an “objective” “science”). It’s a crass term, usually employed as a slur, but call it “neoliberal consensus”, if you like. The problem for me (or rather, for the left) deepens when it becomes increasingly apparent that there doesn’t look like much of an alternative, and certainly not beyond tinkering around the edges. What are the big ideas? What are these mythical “new models for growth” which we hear whispered at conferences and on blogs? And as Giles Wilkes pointed out to me, how are these vague things to be enacted without any fiscal resources?
There’s been lots of excited talk recently about a possible resurgence of the left in Britain after the aberration of New Labour. I’m not so sure. I’ve recently been pondering the possibility of whether New Labour represented the death throes of the British left, with the hegemony of anti-democratic economics as the silent euthaniser.
That the future is cold, unknown and a shade of permanent blue.
Peter said,
November 24, 2009 at 4:38 pm
Very interesting post Paul!
I agree that if those who give the descriptive advice have normative commitments that are not sanctioned by the electorate (or those the electorate elects to represent them), and these normative commitments influence the descriptive advice given, then this is a great cause for concern.
However, I’m not convinced (as of yet) that this is what is happening (this isn’t to say that I’m hostile to your theory – I’m not). What might be an example of a deep normative commitment that is leading to (possible flawed) descriptive advice?
Paul Sagar said,
November 24, 2009 at 5:43 pm
Peter,
This is all very tentative stuff at my end. I’m pretty confused about it, and there’s big gaps: e.g. what do I mean by “modern economics”; am I counting the pre-Friedman rough hegemony of “Keynesianism”, or am I only counting the ultra-mathematical econometrics that have come to the fore over the past 30 years? I don’t know, to be honest. But it affects my story, so I need to think about it.
As for “deep normative commitments”, frankly I’m not clued-up enough to give you a solid answer. What I can do, however, is argue by analogy.
When (what we now call) classic political economy emerged in the 18th Century – reaching its apex with Smith’s Wealth of Nations – it’s arguable that one of two paths was eventually chosen by Smith (as the intellectual culmination of many decades, even centuries, of debate). This path was to advocate a society which enshrined property rights as the foundation stone of economic production, organisation and management. This created something of a problem, however: huge numbers of people found themselves without property in actuality, and were at the mercy of those who controlled what Marx would later apty term, the means of production.
This appeared to create problems of justice: what if the masses were starving? What happened to the property rights of those who weren’t starving, and whose possessions could aleviate the suffering of the masses? Smith’s Wealth of Nations is, in large chunk, an answer to this question. He says, for a big start, that it’s less of a problem than you might think because commercial industrial society ends up making everyone better off (even workers at the bottom of the social pile in Britain are much better off than savages in America, or even workers in backwards Poland).
But Smith realises theres’ more to it than that – there will be times when right comes into conflict with justice (to put it very crudely). One maneouvre Smith makes – and here is is again following Locke (as he is in his Maxi-min reasoning above, so to speak), as well as Grotious and Puffendorf – is to say that a duties are incumbent upon those with resources to help those without. HOWEVER, these duties are what frequently get termed “imperfect” (e.g. a hundred years later in J.S. Mill); it would be ethically reprehensible for the agent not to help another, but there is no “perfect” duty incumbent upon them to do so; they have a right to withhold their property and not help – even though this withholding is rightly reprehensible in the eyes of others, and most especially, in the eyes of the Impartial Spectator who resides within all our breats (hence, Smith’s Theory of Moral Sentitments is very important).
But in taking this route – declaring that whilst it is morraly reprehensible to not help others, agents may still have right to hold onto their property, thus yielding a paradox of rights vs. [social] justice, but one that ends up defering to rights – Smith is, effectively, rejecting what is frequently termed the “civic humanist” or “classical republican” line of thought (what we today might brand “communitarianism”); that the good of members fo the polis, and the good life for all, depends upon these sorts of property rights playing second-fiddle to justice. I.e. when people are starving, rights go out of the window as the polis acts collectively to secure its people.
[Confession: this is massively over simplified. Smith actually wants to say that the poor and starving can take possession of the property of others in desperate times - and this is no ethically reprehensible thing. Necessity breeds, justice so to speak. He seems to be getting this from Aquinas, via Pufendorf and Grotius. Note: it's a prima facie case for Smith not being a Libertarian. But the above sketch gives you the right sort of idea. If you want more, Get Istvan Hont's book Jealousy of Trade and see the chapter on Smith's Wealth of Nations).]
Right, with that rough sketch in place, I can make my analogy. In choosing the path he did, Smith built-in value assumptions about justice and rights into the heart of his economic theory. This was profoundly influential given the impact of Wealth of Nations.
Now, I am not making some over-simplistic claim about modern economics being the simple legacy of Smith, and it (rightly or wrongly) reflecting his value-structures. It’s much trickier than that.
But I strongly suspect that all economic theory must, a-la-Smith (and of course, a-la-Marx in the next century), make value judgements as a matter of course. That it’s unavoidable.
I could, of course, be wrong. But I’d be surprised if economics in the 21st Century had somehow transcended the fundamental problems and frames of reference that the greatest minds to apply themselves to it had been unable to get away from…
David said,
November 24, 2009 at 10:09 pm
“Troubling thought number one: economics – or rather, modern, highly-technical, mathematically-driven economics”
…sorry to interrupt, but aren’t these the sort of economists that Kaletsky and others have been railing against recently for failing to predict what should have been a perfectly predictable economic crash?
David said,
November 24, 2009 at 10:18 pm
”
Modern economics is different. It is so highly conceptualised, so mathematically driven and so technical that to get to the stage where one understands the principles of – say – macro economics (to the point of understanding the principles and intricacies of how government involvement will affect the balance of outcomes and probabilities, in a world of unknown and unforeseen possibilities) requires a level of training, intelligence and (given the structure of the modern discipline) mathematical aptitude that is beyond the reach (and means) of the vast majority of people. It was certainly beyond my reach, I’ll admit. I tried, but I just didn’t have the maths.
So it seems fair to describe modern economics as “undemocratic” in this straightforward sense: it is inaccessible to the vast majority of people, by its constituent nature.”
…I don’t think this is the only policy issue which people have a lot of trouble with. One could almost argue that your central point about core policy objectives in other areas — “pretty much every normal adult human being is able to take a stand on whether they would like a society with more equality (be that in terms of wealth, income, opportunity or whatever) or not, and can at some level (however confused, however based on misunderstanding) argue and debate that with others” — can be applied to economic policy, too. After all, pretty much everyone can state what they support in terms of economic outcomes — healthy competition and low unemployment, consistent and stable growth etc. — the difficulty is the annoying little details that come with both determining and understanding policy decisions that drive such factors. As such, I don’t see economic policy decision-making as any more difficult as, say, education policy decision-making (which is truly stuffed up by a lack of understanding of the intricate details by politicians and people alike, and thus results in a worrying culture where, at the moment, politicians invariably see solutions as coming inherently from central government management).
David said,
November 24, 2009 at 10:29 pm
“My example may well be faulty. But it suggests nonetheless that economic models and theories – which can turn out to be wrong – can have profound effects upon our politics. And this must be undemocratic because the people who understand, interpret and advocate the models and theories are not our democratically elected, revocable and replaceable representatives, but experts and advisers who do the intellectual graft and inform the decision making of our broadly economically illiterate political classes, yet may be insisting upon the primacy of theory which contains values and assumptions which are antithetical to those of an electorate which mandated a government to act in its name.”
Firstly, I think that you’re making the mistake of assuming that the issue is simply that the change in economic policy in the 80s did not work entirely as expected. I disagree — a far bigger part of it is that the economic ideas at the heart of British policy-making in the 1970s were failing. For this reason, even if people strongly disagree with monetarism and Thatcherite policy, they are far more likely to agree that the Post-war consensus was at least partly flawed, and that policy-making in the 1970s was part of the reason that Thatcherism was allowed to take such strong hold of UK policy.
Secondly, I think you’re making a far more fundamental mistake: believing that simply because an idea is not produced en masse, means that it is undemocratic. I disagree — if a broad idea gains traction with a large percentage of the electorate (such as deregulation and economic freedom) even if they do not particularly understand why the idea works, and why the previous ideas were flawed, then the support-building among the electorate means that idea has democratic backing. Of course, you may argue that this did not happen to sufficient scale to be considered democratic in the 80s, but it’s undeniable that Thatcher received some wider public support for her economic reforms, given that her party won re-election twice.
David said,
November 24, 2009 at 10:41 pm
“The problem for me (or rather, for the left) deepens when it becomes increasingly apparent that there doesn’t look like much of an alternative, and certainly not beyond tinkering around the edges. What are the big ideas? What are these mythical “new models for growth” which we hear whispered at conferences and on blogs? And as Giles Wilkes pointed out to me, how are these vague things to be enacted without any fiscal resources?”
To be honest, this is why I disagree with you about the argued “death of the left”: I think that it isn’t a bad thing for politicians to begin by “tinkering around the edges”. Firstly, they’re far more likely to cause less serious problems. I appreciate that I contradict my earlier point about education policy here, but I think in the broader scheme of things, although New Labour’s increased application of the State has been damaging (the independent standards authority, for example), it hasn’t been particularly devastating, or resulted in a fundamental rethink in the way in which government helps people, thus forcing a period of extreme change in which lots of people suffer. I appreciate that this is largely calling a Conservative governments actions before it makes them — but other than retrenchment of the public sector, caused by budgetary concerns, I don’t think the Conservatives have plans to fundamentally change the nature of the State. At least, not yet.
Secondly, I think you can guarantee that these vague “new models for economic growth” will not even begin to be considered from the position of government until a) people actually have some kind of coherent idea as to what they are; and b) a certain amount of popular support for these economic reforms is built. This goes back to my earlier slight disagreements with you as to the nature of economic change and democracy in the 1980s.
David said,
November 24, 2009 at 10:44 pm
One final point: I think your previous article is a good argument against the final conclusion of this, as well. Democracy tends to result in “a crappy system returning crappy politicians making crappy laws, which somehow managed to be the best system because when summed together all that crappiness worked. It worked, especially, to the best advantages of all the ordinary people, living under the equality of conditions. Whilst creating many mediocre men and perhaps no great ones, democracy ensured the former weren’t sacrificed in their thousands to the mad-cap schemes of the unrestrained latter”.
…so even if economic policy is fundamentally undemocratic, democracy still acts as a safety mechanism against this threatening ordinary people to too great an extent.
donpaskini said,
November 25, 2009 at 4:32 pm
Hi Paul,
Interesting piece, though I am much more optimistic than you.
Firstly on your scenario of a politician being elected and then all the top economists telling them that they are not allowed to enact their policies.
This did actually happen in recent British history – in 1981 dozens of leading economists told the government that they needed to change policies or face economic disaster…and the elected Prime Minister merrily ignored them.
(This is different from the much more serious dilemma which Clinton faced in 1993, where the bond market told Clinton that he wasn’t allowed to enact economic policies to help the middle class because he had to reduce the deficit).
Point being that there isn’t actually any political cost to ignoring what economists say – politicians can pick and choose their advisers and follow maverick economic advice if they prefer. Indeed, just at the moment, there are probably significant advantages to doing so.
As for the left’s economic analysis, my three favourite are Larry Elliott, Duncan’s Economic Blog and D-squared Digest, all full of good ideas, though there is little waffle about “new models of growth” in any of them.
donpaskini said,
November 25, 2009 at 4:34 pm
Also, the citizens’ response to the economic crisis, which was developed by thousands of ordinary people, very few of whom had been taught much economics, is approximately one thousand times better than the combined output of all right of centre economists since 2007.
Paul Sagar said,
November 26, 2009 at 8:26 am
Don,
I probably should have made something clearer, which in fact my examples above have obscured rather than illuminated.
I’m not so much talking about individual policy decisions. What I have in mind is more the general horizon-defining power that prevalent intellectual trends can have. So with economics, it’s not so much the idea (as I crudely suggested above) that politicians want X and the advisers will say no, and so X won’t happen. But perhaps more accurately, that the ability to conceptualise X, or think X viable, or to come up with X-facilitating strategies and solutions, will be – if not consciously prevented – then made more difficult by the hegemony of certain value-laden theories which present themselves as definitive of the horizons of possibility.
On top of that, though, a friend of mine suggested yesterday that I also think about the really obvious cases of economic non-democracy, such as the chairman of the Fed or governor of the Bank of England, or the European Central Bank. Massively important institutions which are now independent from democratic control, because basically the economically-dominant school of monetarism says (oversimplifying, but it’s basically true), that controlling inflation via interest rates is the number one economic imperative, and this is best achieved via central bank independence. That looks like value-laden theory dictating the political process.
The failure of monetarism might make us think twice about such things…except Dave and George want to give more power to the City of London’s cheerleader-powerhouse on Threadneedle Street…
Tom James said,
November 28, 2009 at 1:06 am
A very good post. You may be interested in this discussion on Crooked Timber on the subject of economics and ideology, particularly this comment from Daniel Davies (he of the D-squared Digest mentioned by donpaskini above) which is worth quoting at length:
“…the tragedy of this is that there is, within the bloated corpus of economics, a perfectly nice slimmed-down little science struggling to get out. It’s a branch of control engineering; specifically it’s the branch of control engineering that deals with the control of recursive systems that can change their outputs in response to their local state. The trouble is that at some stage in its development, this harmless and beneficial branch of engineering got caught up in 18th and 19th century politics and philosophy and developed all manner of strange idiosyncracies (including a lot of fundamental assumptions about human psychology which clearly don’t belong there), coupled with a wildly inflated idea of its station in life.”
As to your point about “the general horizon-defining power that prevalent intellectual trends can have” – aren’t these usually undemocratic? I mean that ideas usually emerge from academic establishments or intellectuals and are then adopted by politicians (Keynes’ point about “scribblers from a few years back”). Where politicians get their advice from, and the intellectual climate in which politicians are raised, are not really things that we can reasonably do anything about, except continue to fight our own ideological corner as best we can (and criticism of an economic orthodoxy is a good way of doing this, so bravo again).
But yes, the basic problem is that economics as a subject has a whole lot of ideological assumptions that really need to be given the heave-ho if economists want to be thought of as scientists.