Politicians' existential crisis

"Kicking the can down the road" quickly became a cliche to describe European policy-makers' inadequate response to the debt crisis. I suspect it will just as quickly become the cliched description of US fiscal policy. As Ed Dolan says, the deal to avert the fiscal cliff "does nothing" but postpone many important decisions, and Jeff Sachs in the Times (£) says: "US incoherence and unpredictability have a long way to run."

This raises a more profound question than generally realized: what exactly is the economic function of politicians?

Let's put the US debacle into perspective. From the 1970s onwards, it became the conventional wisdom in the west that a big job of government was to provide a stable framework so that businesses could stop fretting about at least some sources of uncertainty; this view united both Milton Friedman's famous AEA presidential lecture (pdf) and Ed Balls' thinking (pdf) about New Labour's macroeconomic policy. Of course, the crisis has taught us that this is not sufficient to achieve acceptable economic growth, but it might be necessary. As Nick Bloom and colleagues have shown, policy uncertainty can have hugely adverse (pdf) effects upon investment and jobs.

And yet policy uncertainty is exactly what Congress - and we might add euro area "leaders" - are offering.

An analogy from Michael Oakeshott helps us see why this has happened.He wrote (pdf):

The image of the ruler is the umpire whose business is to administer the rules of the game, or the chairman who governs the debate according to known rules but does not himself participate in it.

But now, politicians are participants rather than umpire. They are playing for particular ideologies (or principles), be it small government in the US or the punishment of debtors in Europe.

The pursuit of these principles, however, is undermining the function of government as the provider of certainty. What we're seeing here is an example of Poulantzas's relative autonomy of the state - the state is acting against the interests of capital (and, indeed, labour!)*.

But this is not the only sense in which politicians are not doing the job economists think they should. Here in the UK, the government has been unable to solve a simple problem of market failure - in social care - even when there is good advice on how to do so. And it has been woefully ignorant of what, to an economist, provides a role for government - that fact that the pursuit of self-interest can sometimes lead to outcomes that are collectively sub-optimal.  

Hence my question. If politicians not only don't provide policy certainty but actually tend to increase it, and if they can't solve problems of market failure and collective action, what is, or should be, their purpose? In this sense, the US's fiscal cliff is part of an existential crisis of politics.

* You could (perhaps) argue that in fact small government is good for growth in the long-run. But I doubt that many Republicans are motivated solely by cross-country growth regressions. 

Comments

[Jacqui Smith's haemorrhoid, AKA Herbert E. Dangler]

How can politicians provide certainty? How can anyone? Very few saw the economic crash coming, certainly not the myopic ideologues in parliament. Very few can recognise the long-term effects of previous policies, let alone effectively predict the long-term effects of ones yet to be implemented. Providing certainty is not the concern of politicians, getting elected is.

Remember, political parties cannot implement any policies unless they are elected, and they cannot get elected unless they sweet-talk (i.e. lie to) the public. In addition, there is selection for egotism and for belief in the system. Stagnation and corruption and incompetence are inherent in politics itself.

[FromArseToElbow]

Another perspective is that politicians aren't (with a few exceptions) idiots, and that their current strategy is deliberate, albeit covert. The question then is why would politicians see uncertainty as advantageous. Previous examples of this from history are not encouraging.

[chris]

@JSH - of course, politicians can't provide certainty about the environment generally. What they can do, though, is offer some certainty about their own actions - through institutions such as secure property rights, policy rules etc. My point is that politicians are no longer even doing this.

[Rob]

"But now, politicians are participants rather than umpire. They are playing for particular ideologies (or principles), be it small government in the US or the punishment of debtors in Europe."

Isn't this democracy? Did Labour in 1945 think "hang on a minute, this NHS business is a bit ideological, let's stand back and and create some policy certainty so that the healthcare market can take care of itself"? If we believe that a) the status quo is biased in favour of certain interests and b) politics is a potential means to counteract this, then don't we need politicians to "participate"?

We used to have a system of much greater checks on executive power - the Lords prior to the first Parliament Act were quite effective at providing policy certainty, by making damn sure that the Commons couldn't do anything to upset the interests of the wealthy. The people who overturned this system were the likes of Lloyd George and Attlee, who did so specifically to enable radical policies that would otherwise have been prevented.

Now, you can argue that this was short-sighted - they didn't realise that the Conservative party would hold the Commons for the majority of the next century, and would happily use the powers afforded to them. New Labour seemed very happy to pass legislation which they must have known would, one day, give Conservative Prime Ministers and Home Secretaries the power to do things that most Labour voters would abhor.

The thing is, if you want politics to be capable of changing anything, you also must allow politics to be a source of instability. It would be great if politics could be both stable and, say, broadly left-libertarian, but then you're basically asking to be made Benevolent Dictator for Life, and while I'd probably be happy enough to live in Dillowtopia, I'm not sure if everyone would.

[Ralph Musgrave]

That word “existential” drives me nuts. It used to refer to J.P.Sartre’s ideas. But assorted academics and self-styled intellectuals use the word instead of “current” or “existing”. I don’t know who degrades the English language more: academics and intellectuals on the one hand, or Sun readers on the other.

As to what the “economic function of politicians” is, advocates of full reserve banking like me have in one respect got that one sorted better than others. We say politicians and the electorate should determine the proportion of GDP going to public spending, while professional economists should determine what stimulus the economy gets. Indeed the latter is already the case in that the Bank of England determines interest rates.

[George Hallam]

"I don’t know who degrades the English language more: academics and intellectuals on the one hand, or Sun readers on the other."

What have Sun readers got to do with it?

Look at the people who write for the Sun.
To even get an interview for a job on the Sun you need a First from Oxbridge (Eng Lit graduates prefered).

[fresno dan]

I have to say, some of the best comments on a blog I have ever seen - very thought provoking.

[Peter T]

Rob, thank you for your post. I liked especially your statement: "if you want politics to be capable of changing anything, you also must allow politics to be a source of instability" - is that Rob's first axiom of stability, or did you learn it from someone else? I definitely want to give politics the chance to change something, but I'm not sure yet how much uncertainty I want to have introduced into the political system.

[Keith]

Death is certain.

Should we spend all our time contemplating death?

Economic uncertainty cannot be abolished by any one. The use of the word uncertainty in this context is a con. It seems to mean politicians will only follow far right neo liberal policies so as not to frighten the plutocrats. I do not think that the economy benefits from pleasing plutocrats. It is a way to avoid real political debate. Clear goals avoid uncertainty. If the wealthy do not like the implications tough tit.

[Ech]

I'd like to think that politicians are just as ignorant as the people who elect them. The politicians can't make good decisions because they fear that those decisions look bad in the eyes of the ignorant public. The inability to decide anything and the resulting uncertainty are results of the decision makers being constantly answerable to people who are too ignorant to distinguish between a good and a bad solution to a political problem.