It’s the economy, stupid

Collapse: The Fall of the Soviet Union by Vladislav Zubok was unexpectedly gripping. It’s a large tome, and I can’t remember how it came to be in my pile. But perhaps it’s because the events collectively described as the collapse of Communism marked history as part of my own life that I found the detailed descriptions here of Soviet politics over the years from the arrival of Garbachev and the collapse of the USSR so compelling. In the late 1980s I was working for DRI Europe where my job included trying to understand perestroika and the Soviet economic reforms to explain to clients. We were on holiday in remote Herefordshire watching the fall of the Berlin Wall on a small black and white TV, whose grainy footage felt somehow appropriate for a world historical event. Then came the Czechoslovak Velvet Revolution and the not-at-all-velvet overthrow of the Ceaucescus in Romania over the Christmas holiday. German re-unfication. And of course the collapse of the USSR and western ‘victory’ in the Cold War. If only we’d realised then that the West was a construct of the same system, except that its collapse on our side of the Iron Curtain would be a slower business.

Anyway, aside from the fascinating detail, the message I took away from Collapse was the perennial: it’s the economy, stupid. If there’s high inflation and people’s living standards are falling because of food shortages and other problems, you will have zero political room for manoeuvre and will open the way to political snake-oil peddlers to offer “easy” solutions. Oh.

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Rawls, reloaded

A few weeks ago I read Thomas Aubrey’s All Roads Lead to Serfdom, which argued for an alternative philosophical foundation to simple-minded utilitarianism for economic policy, if market liberalism is to survive. In Free and Equal: What Would A Fair Society Look Like, Daniel Chandler offers a modern interpretation of Rawls as an alternative to Aubrey’s Ordoliberalism.

The first part of Free and Equal is a clear and useful summary of what Rawls said. It’s over 40 years since I read A Theory of Justice, so this was a terrific refresher. And indeed for a liberal-minded person there is much to like in the Rawlsian approach, which is presented here as both comon sense and yet quite radical given where we are.

The second part of the book takes the themes – freedom, democracy, equality of opportunity, shared prosperity and democracy at work – and analyses the current state of the world in the light of each. It has many policy recommendations, many of them familiar such as UBI, worker rights in gig jobs, proportional representation in elections, all justified in terms of the underlying Rawlsian philosophy. Again, there are some unexpected overlaps with the ordoliberal case for power dispersion: Chandler writes: “Properly understood, the difference principle is concerned not just with the distribution of income and wealth but with the concentration of economic power and control.”

It seems hard to disagree with the contention that both wealth and power have become too concentrated in the western democracries and some things badly need fixing. But reading Free and Equal so soon after All Roads Lead to Serfdom crystallised for me an uneasiness I have with both underpinning philosophies, namely their individualism. Take Universal Basic Income for instance. Chandler is an advocate, but recognises there are critiques – such as undermining the sense of purpose people get from work, or the cost. The one critique he does not address is the one I’m going to label the Coyle Critique: you can’t buy a public realm – transport services, decent schools, waste collection – with your UBI.

Both books have plenty of specific recommendations, and a fine liberal individualist philosophy, but no positive account of the public realm. Improving economic and social outcomes will require a shift in public philosophy away from the bankrupt post-1980 set of assumptions; while there is much to like and much sense in Free and Equal, it doesn’t achieve this, although recognising the need to get away from the false dichotomy of market fundamentalism vs statist socialism. It argues that Rawls’ ‘difference principle’ lays the foundation for “a richer and more nuanced conversation about our economic structures,” but for me it doesn’t add up yet to “a new and inspiring political economy.”

Still, it’s unfair to expect a ready-packaged answer. Free and Equal makes an important contribution to the conversation, also explored in the recent special issue of Daedalus and elsewhere. It’s an optimistic take, and it’s interesting to revisit Rawls in such depth.


Saving liberalism

I liked Thomas Aubrey’s short book, All Roads Lead to Serfdom: Confronting Liberalism’s Fatal Flaw. It could alternatively be called, Confronting the weaknesses of the Anglo-Saxon economic model. But it does this in a thoughtful way, contrasting the utilitarian tradition of UK/US economic policy with (West) Germany and the “underlying ordoliberal principle of power dispersion.” It is quite a philosophical book, which concludes that private and public power must be dispersed across labour markets, product markets and the activities of the state (as well as the liberal market basics of secure property rights and a stable currency). As well as stressing the importance of ideas, though – and I wholeheartedly agree – the book calculates power dispersion indices (“to provide a potential alternative framework to the current utilitarian welfarist approach”) and has a serise of proposals for how to disperse power in the three domains.

The empirics turn out broadly as you might expect. Canada, Switzerland, Denmark and Sweden turn out to have widely dispersed state power, as does the US, and the Scandinavian countries cluster near the top of all three rankings. The UK is near the bottom of all three rankings, while the US is near the top for state power dispersion but not labour or product markets. This seems to me to understate the traction economic power delivers in terms of political power, albeit through sometimes indirect channels.

The book’s compare and contrast with the German model is interesting although Aubrey concludes Germany itself has not delivered on ordoliberal ideals. I rather agree with its final conclusion: “If liberalism is to have a future, it will require those who believe in liberal values to make the case for an alternative ethical foundation; one where freedom and equality can be contsnatly manufactured by the continuous dispersal of public and private power.” Ideas are indeed important for winning hearts and minds. The naive utilitarianism underlying the eocnomic policy playbook of the past 40 or 50 years has lost hearts and minds. But I’m not sure framing what’s needed in terms of ‘ordoliberalism’ with all its free market and Hayekian baggage will be an easy sell, hearts and mind-wise. (And the book has been priced only for libraries by its publisher, Bristol University Press, so it won’t even get much chance to influence people.)A1e0JCBaNuL._AC_UY436_QL65_


Righteous anger

I polished off in a couple of days Paul Johnson’s new book Follow the Money: How Much Does Britain Cost? The hugely-respected Director of the Institute for Fiscal Studies (who is a friend, to be transparent) has written a crystal-clear account of how the UK government raises revenues and how it spends them. Government expenditure is over £1 trillion, raising just over £900m in taxes, or four pounds in every ten earned. The big swallowers of money are health, social care and pensions. So this book (published later this month) is a huge service to citizens as we head towards the next general election within a couple of years.

Although a calm, even forensic, account of the unavoidable trade-offs and complexities in providing these facets of social insurance against the uncertainties of life, the book left me furious. It cites the wonderful The Blunders of Our Governments by Anthony King & Ivor Crewe, and could equally have cited the more recent Why Governments Get It Wrong by my colleague Dennis Grube. We know – don’t we – that governments do a lot of stupid things, badly. We’ve certainly had a run of these stupidities here in the UK: Brexit on the worst possible terms for internal party reasons, Liz Truss… Even so, to see collected in one place all the bad decisions concerning the fundamental well-being of citizens is angry-making. Any unavoidable choice that could be postponed has been, even at substantial long term cost. There have been obfuscations and lies. And it has been going on for years.

So here we are with an economy whose long term potential growth is heading down toward zero (1% a year for the next couple of years, the Bank of England reckons, down from 1.7% in 2010-1019). The extent of inequality is shocking. As Simon Tilford noted in a recent essay, most of the people taking decisions have no idea about the lives of those they exercise control over, about how badly off most of their compatriots are. The over-burdened welfare state is not quite coping with people suffering from what (I learned here) doctors describe as “Shit Life Syndrome” when they go to their GPs for help with depression or other mental ill-health conditions. And there will not be enough money to fix any of this unless growth picks up. But that would require a competent, effective government able to take clear decisions, build cross-party consensus, devolve money and powers, and stick with the plan without changing ministers and policies every 18 months.

Here’s hoping – but it’s been decades since we had that. And for another couple of years this corrupt, internally-riven, and ineffective government is likely to cling on. Meanwhile, read the book, which urges us not to despair, but ends: “We can, and must, do better.”


How economists think

Elizabeth Popp Berman’s Thinking Like an Economist: How Efficiency Replaced Equality in US Public Policy, is a historical account of how a broad spectrum of policies set in Washington DC became – from the 1960s – increasingly determined by the criterion of economic efficiency. As she points out (& as I do in Cogs & Monsters), this notion of efficiency is far from value-free, although many economists (and others) insist that it is.

One distinctive aspect of the book’s account is its focus on the centre and left as the source of this economic thinking. Often the dominance of economics in policy decisions is attributed to the Chicago School, or neoliberals, or the Reagan/Thatcher administrations with their emphasis on markets everywhere. I think the book makes a convincing case that the economics turn started earlier, and gained important momentum from the drive to use government programmes to address social problems. The book focuses therefore on microeconomic issues – competition policy, cost benefit anaylsis – rather than the macro battle of monetarists vs Keynesians.

The transition it is interested in is the shift from pre-1960, indeed pre-war, institutionalist economics: “Institutionalism emphasized the collection of quantitative data, but with an inductive, historical approach in mind.” It avoided formalism, and tended to be progressive. Post-war, however, the institutionalists in Washington lost influence over time to two groups highlighted in the book: economists from RAND’s economics division and from new schools or programmes of public policy that trained a growing number of officials in “RAND-lite” formal modelling approaches; and anti-trust and I/O economists who – even before the full flowering of the Chicago School – brought neoclassical economic analysis emphasizing the role of markets in allocative efficiency in place of earlier structuralist approaches. The former group grew at pace during the Great Society years, along with more policy institutes evaluating social programmes. The Reagan years cemented the role of economic thinking by adding more cost benefit analysis of government interventions, favoured by business to limit ‘interference’ in their actions.

As the concluding chapter points out, there emerged a divergence on partisan lines in terms of the embrace of economic thinking: Democrats consistently embraced it and “allowed the economic style to define the boundaries of legitimate policy debate.” But Republicans “continued to use the economic style strategically and fleixbly, embracing it where it helped advance their goals and rejecting it when it conflicted with more fundamental values.” I wonder if there is a less on here for the centre-left now?

The book is entirely US-focused; it would have been interesting to read some reflections on how the economic style spread internationally. The other element I missed was the interaction between economic thinking in government, and how economics itself changed over the postwar period. How did the role of economists in policy-shaping contribute either to the rational epectations era of the late 70s/early 80s, or the later applied turn? Having said that, it’s a nice study of how ideas work in policy, and the key point about the consistent embrace of economic-style thinking by the left contrasted with the intellectual flexibility (cynicism?) of the right is very interesting.