Towards the end of a holiday I always try to read something a bit more work-related to get myself ready for the return to normality. This year I ended with a pair of books which, by coincidence, shed great light on each other. One was Albert Hirschman’s Rhetoric of Reaction, prompted by reading the wonderful biography of him by Jerry Adelman, Worldly Philosopher.
The Rhetoric of Reaction: Perversity, Futility, Jeopardy
In it Hirschman describes three types of argument deployed by those who want to debunk ‘progressive’ or interventionist policies. He calls them the perversity thesis (interventions backfire, they turn out to have perverse effects, often the exact opposite of what was desired); the futility thesis (any attempt at change will fail because it is too hard to accomplish – plus ça change, plus c’est la même chose); and the jeopardy thesis (change is desirable but to achieve it will endanger other things that are highly valued, change is too destructive). He notes that the futility thesis does not sit comfortably with the others and tends to be made by different people. But all three are somewhat plausible as soon as you acknowledge, as an honest person must, that the world is a complex place with cause and effect hardly ever clear. So all three rhetorical strategies have great success.
Straight after this I turned to Government Failure versus Market Failure: Microeconomic Policy Research and Government Performance by Clifford Winston. This is an interesting survey of the empirical evidence on several areas of government policy in the US, including competition policy. To my surprise, the book cannot find empirical evidence that the consumer benefit of anti-trust enforcement outweighs the enforcement costs – the book’s overall conclusion is that “the welfare cost of government failure may be considerably greater than that of market failure,” and it concludes this is so even for competition policy aimed at enhancing the functioning of markets. I didn’t find this persuasive because I don’t believe comparative statics – the Harberger triangles – capture the dynamic effects, which can be very much larger. An analogy would be with Robert Vogel’s famous conclusion that the railroads didn’t do much for the US economy if you look at the incremental GDP growth. On other areas of policy such as agricultural support, Winston is very convincing, however.
What particularly struck me though was that the book is a good example of the kind of rhetoric or framing that Hirschman described as the perversity thesis. Winston writes:
“Government failures appear to be explained by the self-correcting nature of some market failures, which makes government intervention unnecessary; by the short-sightedness, inflexibility and conflicting policies of government agencies; and by political forces that allow well-defined interest groups to influence elected and unelected officials to initiate and maintain inefficient policies that enable the interest groups to accrue economic rents.”
Government Failure Vs. Market Failure: Microeconomic Policy Research and Government Performance (AEI-Brookings Joint Center for Regulatory Studies)
My final read, on the plane, was Parade’s End by Ford Madox Ford, a brilliant, epic novel on the way the First World War changed everything. The protagonist, Christopher Tietjens, is a government statistician. He makes the mistake of telling his superiors what he can prove to be true about government policies and actions – an early example of the evidence-based or “what works” approach to policy. Not surprisingly, they take a great dislike to him. An early example of what politicians will make of being told “what works” by experts?