"Political reality" and political change

Tim says that Keynesianism doesn’t work because “there’s just no way, given political reality“ that governments can run large and sustained budget surpluses during booms.

Such a view is widely shared; it‘s one reason why euro area finance ministers want to impose fiscal discipline through constitutional rules, rather than rely upon states‘ discretion.

But it’s not just Keynesianism that is ruled out by “political reality”. As Philip Booth points out, political reality also makes lost causes of lots of policies beloved of classical liberals such as Tim. There’s little hope of liberal policies on immigration, drugs or prostitution. I suspect a flat tax is impossible because of the irresistible demands - reasonable and not - for loopholes, favours and reliefs. And there’s not much chance of massive public spending cuts, given the power and interest of bureaucrats to resist them; one of the paradoxes of libertarianism is that one of the research programmes it inspired - public choice - does much to show why libertarianism is doomed to fail as a political strategy.

I say all this not to sneer at Tim, but rather to raise a question about the nature of political change.

Part of me wants to say that a flaw in classical liberalism - regardless of its other merits or demerits - is that it places too much faith in the power of reason, as defined by its own (perhaps dim) lights. Just as some soft lefties think the world would be better if we were less greedy, so classical liberals give the impression that it would be so if only folk were more “rational.“ Both are utopian. And both can be contrasted to Marx’s view that revolutions require not (just?) people to be nice and rational, but instead a powerful constituency with an interest in achieving change. Classical liberals have no such constituency.

But that’s what half of me thinks. Another half remembers Richard Cockett’s description of how libertarian think-tanks helped - over very many years - to shift the Overton window; within my lifetime, private ownership of utilities, for example, has gone from being unthinkable by the political class to taken for granted.

There is, then, a question here of the roles of reason, power and client groups in achieving genuine political change. This question gets overlooked amidst the tribalism of day-to-day debate and a managerialism which worries about focus groups and day-to-day polling. And for me, this is a pity.

Comments

[gastro george]

"... it places too much faith in the power of reason ..."

I'd have more faith in their power of reason if their economic theories bore any relation to empirical behaviour.

[Zorblog]

Political Reality is a weak excuse for failed politics.
When people can really have their say, and provided they're properly informed after an open debate, they turn out to be surprisingly "reasonable". This is most obvious when seen from Switzerland where direct democracy rules about everything.
Of course, not every referendum is a demonstration of public wisdom (on many of them, there is just not enough of a debate; on other ones, strong interests succeed through massive advertising or clever networking; Swiss democracy is far from perfect).
But on occasions, and especially on important issues, voters may take bold decisions, sometimes in opposition to Swiss government or parliament (that are not necessarily of the same opinion).
People voted for budget discipline, just as they voted liberal policies on drugs.
Very often, Swiss politicians refer to Political Reality for something they consider can't be done. That's wrong. It is something they don't want to do, because they don't view it as favourable to their careers.

[Luis Enrique]

observations only tangentially related to your point ...

not so long ago, people might have argued that politicians couldn't resist the urge to use monetary policy to inflate the economy before elections, and we managed to get around that one. Maybe Wren-Lewis' fiscal councils could get around the alleged political infeasibility of counter-cyclical fiscal policy.

Plus Keynesian ideas only require that you have sufficient fiscal headroom when the crisis hits, you don't really need to have been running surpluses for years ... especially if you think stimulus can be nearly self-financing as in De Long Summers - arguably, despite what Gordon did - we could have afforded some Keynesian fiscal stimulus if we'd wanted to. We didn't butt up against political reality, we just had the Tories in charge.

[Account Deleted]

Politics is either about changing reality or resisting change. The appeal to "political reality" is just a species of the latter.

[UnlearningEcon]

'Plus Keynesian ideas only require that you have sufficient fiscal headroom when the crisis hits, you don't really need to have been running surpluses for years'

This is exactly what I was going to say. Well put.

[Keith]

Generalisations are dangerous off course but it can be argued that circumstances determine changes. The first and second world wars made all sorts of changes possible in economics and politics. Events rather than abstract reason may be the key; also generational change i.e. the old die and their errors with them. To be rplaced by new errors no doubt!

[Andrew]

I'm still marvelling at that post "if productivity hadn't fallen".

If that reasoning is representative of the standard, I think the economics profession is in deep intellectual trouble.

That subject needs revisiting.

[Andrew]

"... especially if you think stimulus can be nearly self-financing as in De Long Summers"

Can't see any problem with that at all. The formula is sound with no important unaccounted for variables. And if stimulus x is self-financing, then stimulus 100x must be too.

What? Interest rates would rise because of lack of confidence in the govt you say? Why? The stimulus is self-financing! The larger the borrowing the better that chance of paying back! Confidence would improve the greater multiple of x with no upper bound.

And there would be no real cost to the expenditure of real resources that this stimulus would stimulate. The physical details of what is done is irrelevant - just look at the formula. Only benefits would ensue, I think.

[Luke]

I am stating the obvious, but think of the Overton window on taxes. I was working in a city law firm when Lawson cut taxes to 40%. The partners were listening to the budget on the radio, hoping for a cut to 50%. When it went to 40%, they erupted with the amazed delight of supporters of a non-league side who score against Man U. The same people now think 50% is theft.

[George Carty]

Switzerland's direct democracy isn't always reasonable (minaret ban anyone)?

[Zorblog]

Indeed it isn't (and this isn't even the worse example), but at least it leads to choices that are accepted by the people.
And when people feel they've been fooled, with bad consequences for them, they're just able to make a reverse choice (in the case of minarets, that's a pure symbol, with little consequence for anyone).
Wouldn't it be interesting to have the Greek or the Spanish vote on their fate? In Iceland, the people did, and the country is in a much better shape than European counterparts.

[UnlearningEcon]

Andrew,

Be careful with reductio ad absurdum's, and especially careful when you haven't read or are misrepresenting your opponents. Delong & Summers do not argue that any amount of stimulus is self financing always and everywhere.

[Ralph Musgrave]

Tim Worstall’s point contains SOME TRUTH, but it’s not a strong point. If governments can’t run “large and sustained budget surpluses…” how come the British government got the national debt down from about 200% of GDP immediately after World War II to about 50% thirty years later? And ditto after the Napoleonic wars.

Second, for the purposes of shrinking the national debt, no surplus is needed strictly speaking. Reason is that inflation alone shrinks the debt given a balanced budget.

Third, there was Clinton’s surplus. Some argue that Clinton’s much vaunted surplus was not a surplus. But certainly the deficit during the Clinton years was much smaller than at other times.

Fourth, if the debt gets really excessive, creditors start charging seriously high rates of interest. In this scenario it becomes obvious, even to the fools that run Western countries, that big savings can be made by raising taxes rather than incurring more debt. And even the aforementioned fools should be able to persuade voters that such savings will make voters better off.

[Ralph Musgrave]

I’m all in favour of banning minarets and for several reasons.

First, the minaret builders (in common with Hitler’s Nazis) believe in killing the cartoonists and authors they don’t like.

Second, a significant proportion of minaret builders (in common with Hitler’s Nazis) think that anyone leaving their belief system should be killed.

Third, moving to another country is an admission that the latter country’s culture is superior to the culture of the country from which one has come. To then try to impose one’s own culture on one’s adopted country is hypocrisy, stupidity and bad manners all rolled into one.

Fourth, any country has the right to decide on its own culture and way of life. Potential immigrants and recent arrivals who don’t like that culture are free to leave.

[Andrew]

UnlearningEcon -

Delong and Summers produce a simple linear model that implies just that so long as the assumptions of multiplier, hysteresis, interest rates, growth and percentage GDP that figures in tax revenues hold. Of course they won't believe that arbitrarily large stimulus should be applied, but what exactly are their reasons? I suspect they would shed light on their model.

I suspect, for example, that they might argue that the value of their model variables (particularly multiplier and hysteresis) would move with too large stimulus. And that is the problem with their model. It is a typical economic model - i.e. they estimate a few variables at current equilibrium(ish) and then use them to predict what large pushes on one variable will achieve. In fact, the system is highly non-linear and the models are childish.

I find it amazing that they consider it of any value at all estimating hysteresis (the guesswork amount of future production potential lost by long term unemployment.)
This is much more accurately analysed from the ground up. Of course it is important to keep and develop skills, health and motivation. Let's focus on that, particularly what skills, and avoid the hubris of advocating large sums of spending justified by estimates of aggregate effects. If each individual pound is justified, then and only then can a large sum be.

Deciding a large value and only then worrying about where to target it is backward (in the sense of cretinous).

[Andrew]

But my main complaint is Chris's post. It's all over the place with unstated ceteris paribus assumptions and equivocating terms,

e.g. labour productivity (ie per capita) is the only long term source of wealth)? No I think it also matters how many people are working.

I fully accept that as a macroecnomic ingenue I may have completely misread something I'm criticising, but I would like to be shown how.

[Keith]

Ralph Musgrave is right about macro debt management; there is actually no reason a state cannot run any kind of surplus or deficit it likes so long as the political class accept the full implications. The political class in europe and the uk simply have lost their balls or have become prisoners of interests that are not aiming for the public good.

As for minaret bans I am not so sure. Since Liberal democracy requires religious toleration it is western politicians who are being hypocritical by banning expressions of Islamic beliefs. Islamists are perfectly entitled to argue this point even if they don't believe in toleration. Just as criminals who are guilty are entitled to demand a fair trial even if they are guilty. I oppose plea bargains. The state should always prove its case. The defendant being a murderer or what not is irrelevant. While muslim immigrants or their parents had a choice about immigration so did the governments which allowed it in the first place. They did not require the immigrants to abandon their faith as a condition of entry or citizenship. As in a Liberal democracy that is a power the state does not claim to exercise. Not for muslims or jews or catholics! So unless you do think the state should have this power discrimination would appear to be inadmissible.

Minority rights subject to referenda raises the same problem: if a minority is unpopular with a majority then what is there to stop the minorities rights being violated by a referendum?

[Tim Newman]

if a minority is unpopular with a majority then what is there to stop the minorities rights being violated by a referendum?

This is the tyranny of the majority problem, and is best dealt with by understanding that democracy - in any form - is a means to an end, not an end in itself. Too often we hear illiberal policies being justified by "according to opinion polls, the majority of people want it".