Tag Archives: political economy

Democracy, the El Farol bar and Captain Kirk

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The El Farol problem, named by Brian Arthur (pdf), concerns a popular bar in Santa Fe. It’s so popular it gets very crowded, to such a degree that people then start to stay away. Then, when the crowds thin out, people start going back. The bar oscillates between being over-crowded and being too empty.

David Runciman’s superb book [amazon_link id=”0691148686″ target=”_blank” ]The Confidence Trap: A History of Democracy in Crisis from World War I to the Present[/amazon_link] reminded me of the El Farol model. He uses the examples of several turning points in democracy – World War I, the Depression, post-war reconstruction, the Cold War, the mid-70s economic crisis, the collapse of communism in 1989 and the global financial crisis – to argue that democracies exist in a (so far) stable instability. Democracies are inherently flexible, adaptable (echoes of Tim Harford’s [amazon_link id=”0349121516″ target=”_blank” ]Adapt[/amazon_link]), and so are better than autocracies at coping with crisis; but having coped with so many crises, don’t bother to adapt because of a high degree of confidence that everything will turn out ok in the end.

The book is full of wonderful variations on this central paradox. “Democracy is more durable than other systems of government not because it succeeds when it has to, but because it can afford to fail when it has to. It is better at failure than its rivals.” “Autocrats are often highly sensitive to public opinion, which is why they go to such lengths to control it.” Echoes in this next one of Dominic Sandbrook’s entertaining TV history of the Cold War, Strange Days: “To take their minds of nuclear Armageddon they [Western citizens] watcheyd TV and went shopping. And that’s how the Cold War was won: by people whose attention was elsewhere.” “Democracy is only doomed if people come to believe it is doomed; otherwise, it can survive anything.” On President Obama: “He symbolized change, which meant he did not need to specify it.”

The continuing ability to cope is messy and unattractive, if so far effective. There is a pervasive and constant disappointment with actually existing democracies. Still, muddling through is a better outcome than the alternatives.

[amazon_image id=”0691148686″ link=”true” target=”_blank” size=”medium” ]The Confidence Trap: A History of Democracy in Crisis from World War I to the Present[/amazon_image]

In the end, democracy involves a kind of collective game of chicken. If things get really bad, we’ll do something about it. Until then, no need to change because it will turn out ok in the end. As Runciman points out, this kind of game is fine – until it isn’t, when it turns out to be catastrophic.

Is this “typical democratic recklessness: short term gain at the expense of long-term stability” sustainable? The book doesn’t answer the question definitively. Yet the historic, existential challenges of war, political rivalry, environmental collapse, and financial over-extension remain. Runciman is not optimistic:

“We should not assume that democracies will always be able to improvise a solution to whatever challenges they face. …. The assumption that it is bound to happen increases the likelihood it will stop happening. It breeds the sort of complacency that allows dangerous crises to build up, invites decisive action to be deferred and encourages brinksmanship. This is tempting fate.”

There is no ultimate crisis, but the crises keep on coming, and there is no reason to expect democratic adaptability to remain successful indefinitely, he writes. He even suggests that the current crisis may be decisive, marking as it does the unwinding of an extended political/economic experiment – call it ‘neoliberalism’ – since the mid-1970s. The world’s democracies are bound together by complicated financial, technological, and institutional arrangements. Failure in one place can have large repercussions elsewhere. (This systemic nature of modern risks is something Ian Goldin is writing about.) The short-term restlessness of democracy is both its biggest strength and greatest weakness. “I do not know what will happen,” Runciman concludes.

I don’t know either. Watching Strange Days has reminded me of the nightmares I used to have as a child about nuclear winter and being the only person left alive. The late 70s, one of the crisis episodes in [amazon_link id=”0691148686″ target=”_blank” ]The Confidence Trap[/amazon_link], was a terrible period. The emotional impact of the current economic/political/environmental challenges is not as intense for me – I wonder what it has done to today’s teenagers? – but I don’t have great optimism about what our world will look like in another 10 or 20 years. That’s why it’s so important to build the optimism, to create new institutions and insist on our societies living their stated values, and in fact being the adaptability Runciman writes about.

That’s hard to do in an El Farol world. But another story the book reminded me about was the Kobayashi Maru scenario in Star Trek. Star Fleet cadets are placed in a war game with no possibility of victory – it is a test of character, not a test of ability. Captain Kirk is the only cadet ever to triumph; he re-codes the scenario (for which Spock later criticises him). That’s what we have to do.

I’ve not yet read other reviews of David Runciman’s book, but there have been plenty. Here are: The Guardian; The Economist; the FT;  and an extract in Foreign Policy.

Economics and public policy

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I was mulling over the exchange at the Festival of Economics described in yesterday’s post, between those saying economics had little to contribute to the debate about public services because it is simplistic and reductionist, and the economists pointing out that economics as applied to this area actually addresses the critics’ claims. Needless to say, I’m on the side of the economists, and indeed wrote a whole book ([amazon_link id=”0691143161″ target=”_blank” ]The Soulful Science[/amazon_link]) pointing out all the richness and sophistication of modern applied economics.

To check my views, I looked through Lee Friedman’s [amazon_link id=”0691089345″ target=”_blank” ]The Microeconomics of Public Policy Analysis[/amazon_link], a recent textbook in this field. The issue of equity is brought in by Chapter 3 (after an introductory/overview chapter and one on cost-benefit principles). Distributional issues feature strongly throughout. Profit versus non-profit behaviour is discussed at length. The interaction of markets and policy is thoroughly covered and a whole section discusses the pervasive problems of asymmetric information and externalities. The book is full of examples (all American) illustrating the unavoidable trade-offs in policy decisions.

[amazon_image id=”0691089345″ link=”true” target=”_blank” size=”medium” ]The Microeconomics of Public Policy Analysis[/amazon_image]

Yet of course the critics have a point. Because although economists are doing all this subtle work, the policy debate still draws on the caricature version of the economic debate, the ‘markets good, government bad’ or vice versa. This is partly the usual problem of the people in charge having learned their economics a long time ago. It’s also clear that economists should redouble their efforts to communicate their work. But I wonder if there are other barriers to the policy world embracing the subtler and evidence-based work that is taking place now in economic research into public services?

Existential times

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In my teenage years, a serious-minded and rather eccentric girl seemingly dropped by aliens in a small Lancashire mill town, I was determined to be an existentialist philosopher when I grew up. I could imagine nothing more glamorous than spending my working life writing in a notebook in a Parisian cafe (I’d never been abroad). This despite having been tortured by a French syllabus that included Sartre’s [amazon_link id=”2070368076″ target=”_blank” ]Huis Clos[/amazon_link] and [amazon_link id=”2070384411″ target=”_blank” ]Les Mains Sales[/amazon_link]. The fact that he was neither a good philosopher nor a good writer didn’t put me off. For there was Simone De Beauvoir, whose novels like [amazon_link id=”207036769X” target=”_blank” ]Les Mandarins[/amazon_link] are ok, and whose [amazon_link id=”009974421X” target=”_blank” ]The Second Sex[/amazon_link] is a seriously important book.

[amazon_image id=”207036769X” link=”true” target=”_blank” size=”medium” ]Les Mandarins 1: 001[/amazon_image]

And above all, Albert Camus, the archetype of the honourable man in a dishonourable world, and a great novelist. I read [amazon_link id=”B006E3KCT6″ target=”_blank” ]La Peste[/amazon_link] tucked up in bed with an old fashioned metal hot water bottle that my mother had covered with a sock so it wouldn’t burn me. The sock had a hole and the bottle raise some small blisters on my arm. I was so wrapped up in the book that I didn’t notice the burn, but when I spotted the blisters later, ran downstairs to my bemused mum, shouting that I had caught the plague.

[amazon_image id=”B006E3KCT6″ link=”true” target=”_blank” size=”medium” ]La peste[/amazon_image]

So reading about Camus on the occasion of what would have been his 100th birthday this week – a brilliant essay by Claire Messud in the NYRB and Michael Azar in Glanta – I bought the new book of Camus essays, [amazon_link id=”0674072588″ target=”_blank” ]Algerian Chronicles[/amazon_link], edited by Alice Kaplan and translated by Arthur Goldhammer. I set aside Jonathan Fenby’s (so far) excellent [amazon_link id=”1847394116″ target=”_blank” ]Tiger Head, Snake Tails[/amazon_link] about modern China and plunged instead into Algeria at the tail end of France’s colonial occupation. Alastair Horne’s [amazon_link id=”1590172183″ target=”_blank” ]A Savage War of Peace[/amazon_link] is still as far as I know the best single book on the conflict.

[amazon_image id=”0674072588″ link=”true” target=”_blank” size=”medium” ]Algerian Chronicles[/amazon_image]

What these essays by Camus – appearing for the first time in English – add to the history is that same sense as from Camus’ wartime years of the near-impossibility of morality in polarized times. The pressures to say one side or the other is all right, the opposing side all wrong, to justify any means in terms of ends, are almost irresistible. It is very interesting to read Camus on terrorism and counter-terrorism – there is an obvious parallel with our own times. More generally, the polarization of politics away from the centre ground in the context of slow economic growth and the extreme tone encouraged by online discussion, make it interesting to look once again at existentialism. For decades it has seemed hopelessly retro (only an ignorant teen in a provincial backwater could have found it glamorous even as long ago as the 1970s); but maybe the times have circled back and ‘authenticity’ is having another moment.

A blank slate on political economy

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A question: what would you put in a hypothetical brand new public policy/political economy course for undergraduates (mainly studying economics, mainly with a good maths A level)? What are the essential readings? Are there any examples of existing courses you would recommend?

My first thoughts – and this is very much off the top of my head – are: a bit of James Scott’s [amazon_link id=”0300078153″ target=”_blank” ]Seeing Like A State[/amazon_link]; [amazon_link id=”0141047976″ target=”_blank” ]23 Things They Don’t Tell You About Capitalism[/amazon_link], Ha-Joon Chang and/or Joe Studwell’s [amazon_link id=”1846682428″ target=”_blank” ]How Asia Works[/amazon_link] (reviewed here); definitely some Hume, always wise about the messiness of the world – maybe ‘Of A Particular Providence and A Future State’ from [amazon_link id=”002353110X” target=”_blank” ]An Inquiry Concerning Human Understanding[/amazon_link]; Hirschman on possibilism (from [amazon_link id=”0691159904″ target=”_blank” ]The Essential Hirschman[/amazon_link] which I reviewed here yesterday);

[amazon_image id=”0300078153″ link=”true” target=”_blank” size=”medium” ]Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (Yale Agrarian Studies)[/amazon_image]

[amazon_image id=”1846682428″ link=”true” target=”_blank” size=”medium” ]How Asia Works: Success and Failure in the World’s Most Dynamic Region[/amazon_image]

Case studies, from competition, immigration, education, energy policy, areas where economics and politics so often appear to conflict – it’s papers rather than books that come to mind, such as the excellent paper by Rufus Pollock on the liberalisation of directory enquiries. But also Daniel Bell in [amazon_link id=”0465097138″ target=”_blank” ]The Coming of Post Industrial Society[/amazon_link] on the conflict between technocratic decisions in a complex society and popular/populist democracy.

But there are many possibilities. Other suggestions?

Essays by the worldly philosopher

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[amazon_link id=”0691159904″ target=”_blank” ]The Essential Hirschman[/amazon_link] edited by his prize-winning biographer Jeremy Adelman ([amazon_link id=”0691155674″ target=”_blank” ]Worldly Philosopher)[/amazon_link] is a collection of essays well worth reading by anbody who, like me, was not very familiar with Hirschman’s work. The book is divided into three sections covering Hirschman’s work on development economics, essays on market societies, and essays on democracy including his thinking on political rhetoric.

[amazon_image id=”0691159904″ link=”true” target=”_blank” size=”medium” ]The Essential Hirschman[/amazon_image]

I particularly like the combination of economic analysis (rarely expressed mathematically, but nonetheless rigorous) with an awareness of the difficulties of implementation, of political constraints, and of the role of the emotions in people’s decisions. For example, the first essay, ‘Political Economics and Possibilism’, looks specifically at the role of optimism and political leadership in bringing about change, and the scope for the same economic policies to have vastly different outcomes depending on political characteristics of the society in which they are introduced. For example, trade-offs that are possible in a relatively homogeneous society may not be feasible in one divided on religious or ethnic grounds, of might even lead to civil war. As Adelman puts it in his excellent introduction, “It is rare to find a writer in our times so at ease with the modern tools of the social scientist and yet so concerned with the complexity of the human condition that he or she can bring to life the frictions and tensions that come from looking at our world at the junctions of political, economic and emotional life.”

Hirschman, it is evident from this book and Adelman’s superb biography, Worldly Philosopher, was increasingly out of tune with the economics of his times. The subject became increasingly abstract and generalised, and inclined to require mathematical rigour everywhere. Hirschman was focused on the specifics of each situation. In ‘Search for Paradigms’, he argues that the highly analytical, paradigm-seeking frame of mind led either to undue conservatism about the prospects for things to improve, or its opposite, a revolutionary bias. In the essay on possibilism, he wrote: “Most social scientists conceive it as their exclusive task to discover and stress regularities, stable relationships and uniform sequences. This is obviously an essential search, one in which no thinking person can refrain from participating. But in social sciences there is a special room for the opposite type of endeavour: to underline the multiplicity and creative disorder of the human adventure, to bring out the uniqueness of a certain occurrence, and to perceive a new way of turning a historical corner.” And it is this last that makes him such an optimistic, encouraging thinker too.

I least enjoyed, however, a couple of the essays on development, which may well be because I am entirely unfamiliar with his theory of linkages – these essays didn’t mean much to me out of context. Still, even in those, the emphasis on tensions and conflicts as motors of change, and the inevitable messiness of the process, is clear.

The book also has a nice evaluation of Hirschman by Emma Rothschild and Amartya Sen as an afterword. They say his work cannot be neatly mapped onto any of the normal distinctions we tend to make, between orthodox and heterodox, between theoretical and empirical, between state and market – “he aspired to both and embraced the conflict between them,” they conclude. It is well worth reading some of Hirschman’s classic books such as [amazon_link id=”0674276604″ target=”_blank” ]Exit, Voice and Loyalty[/amazon_link] of course, but this book of essays is a terrific overview of his work.