Does economics matter?

Does economics matter? I ask because I suspect I would understand political debate better if I realized that it doesn’t.

Everybody tends to over-rate the importance of their profession: it’s part of deformation professionelle. Lawyers over-rate the importance of the law, artists of the arts and so on. Maybe economists do the same. Perhaps we should realize that most people who are interested in politics just aren’t interested in economics.

If we adopt this perspective, a lot falls into place. It helps explain centrists’ hostility to Corbyn. If you’re not interested in capitalist stagnation and responses to it – Ian Austin, for example, never mentions the economy in this piece – you’ll not see much to admire in Corbynism: all that will stand out are associations with ant-Semites and Stalinists, student leftist politics and a rejection of conventional Westminster methods. For such people, the enthusiasm people like me have for Corbyn and McDonnell’s attempts to build an alternative to neoliberalism look as eccentric as would an actor endorsing Corbyn because of an attractive policy towards theatres.

Rightist politics also become more comprehensible once we recognise that economics doesn’t matter. The strongest case for austerity and immigration controls is that these have nothing to do with economics. Like Brexit, they are instead attempts to assert that governments have control over social affairs. Their supporters just don’t care about their economic consequences because other things matter more: sovereignty and an assurance that the government is on top of things.

Brexiters talking about economics are like dogs walking on their hind legs. One partly admires the gymnastic trickery, but the job is badly done and the animal’s heart isn’t really in it.

Of course, the right and the media do talk about “the economy.” But by this they mean something very different from what I understand by it. To them, the economy is not about real people struggling to make a living. It is a reified hyper-reality, a means through which politicians try to establish credibility. This is why “the economy” has often been equated with the public finances.  

You might object that the right certainly do care about economics when it comes to opposing Corbyn’s call for higher taxes on the rich. I’m not so sure. Opposition to tax rises is perhaps instead like land-owners shouting at ramblers: “get orf my land”. They are motivated less by fears of material loss but by the violation of (perceived) property rights.

And here’s the thing. There is some justification for this denial of economics. The link between income growth and subjective (pdf) well-being is weak and even many of the worst off feel they are living comfortably. Granted, this might be a sign of adaptive expectations. But it also tells us that things other than economic growth are important: community, autonomy, physical and mental health and so on. From this perspective, perhaps it’s understandable that politicians should want to offer a sense of security – as in various ways austerity, Brexit and immigration controls do – rather than higher incomes.

But, but, but. As Benjamin Friedman has shown, economics does matter. Growth makes people more open-minded and tolerant whilst stagnation makes them meaner: it’s no accident that a decade of stagnation has led to a rise of reactionary populism. John Stuart Mill claimed that a stationary state of incomes provides “as much scope as ever for all kinds of mental culture, and moral and social progress”. Subsequent history, however, suggests he was wrong.

It might be the case that most politically-engaged people don’t care about economics. But nevertheless, economics does matter.

Comments

[Dave Timoney]

On your point about reification, it's worth noting the extent to which "the economy" has been redefined since the 80s away from productive to speculative assets, such as property and shares. This "gamification" inevitably trivialises the topic in the public imagination.

[e]

Of course economics matter, but can it go where the politics won't allow? Can 'our' economy be sustained advantageously, or rearranged advantageously? High politics has long since held to TINA on matters economic, thus little to no need for public debate, not even on the space TINA provides – just platform a red braced banker to recount how unproductive workers have once again emptied his coffers. This was our public politics. Corbyn's carrying the blame for a little rebalancing, and the hope of...how many?... I don't know. But Corbyn or no Corbyn, thankfully Labour has moved on from its New/ism which was never, ever, new economically speaking. (Beyond, that is, Brown's tax credits program which is now all but dismantled).

I don't doubt you're point re assurances government is on top of things, here New Labour proved adept at living in the wake of Conservative authoritarianism. Their shame being they never had the bottle, or the foresight, to trust in, and develop a distinctive ways and means which included labour; a brand of paternalism that doesn't necessitate scapegoating.

[Lord]

It may matter, but not in the direction you wish. Maybe stagnation was sought for just that reason. Maybe in the end, it ends up eating itself though.

[Peter K.]

People may not be interested in economics but it's interested in them as your reference to Friedman suggests.

I believe if the UK had growing incomes like the post war years then Brexit wouldn't have happened.

Likewise Republican primary voters in the U.S. chose Trump over Bush, Rubio and the standard Republican fare they've been offered for decades.

Republican primary voters no longer care as much about trickle down economics or tax cuts for the rich. Reagan did it, Bush did and neither time it worked. People no longer believe it and you can see it in the popular media and on the news outside the rightwing media.

Trump focused on attacking the elites and the culture war and on scapegoating immigrants and free trade. Corporations were screwing us as they off-shored jobs.

But once in office Trump bowed to Republicans in Congress and did tax cuts. He's giving the base a culture war and daily Tweets, but from all of the special elections looks like Republican voter enthusiasm is down while Dem enthusiasm is up. (Dems might botch the mid terms by being incompetent and favoring the donors rather than the base).

The reality doesn't match their rhetoric and they can't deliver on "providing jobs" when trickle down doesn't work. Their ideology translates into incompetence.

I think the conservatives' incompetence is showing and while conservative politics favors tribalism and cognitive biases, eventually their incompetence shines throw like with George Bush who suffered a wave election in 2006.

Same might happen with May.

[Armin Chosnama]

Of course it matters. And people pay attention. That's why delusional socialists like Corbyn are marginalised.

[B.L. Zebub]

Chris said,

"Brexiters talking about economics are like dogs walking on their hind legs. One partly admires the gymnastic trickery, but the job is badly done and the animal’s heart isn’t really in it."

I don't agree with the substance of that, but I have to give this to you, Chris: that's one of the best put-downs I've ever heard!

[mulp]

What decade of stagnation?

There has been more that a decade of conservatives desperately trying to stop change, but they have succeeded only in harming their supporters, making their supporters angry and frustrated.

If you survey people, minorities, women, scientists, engineers, real capitalists, ie, not rent seekers like Trump and monopolists like Exxon, are optimistic because they see progress even in the fierce opposition from conservatives who are always negative.

In the decade of Obama, spaceflight has made progress like it did in the 60s, with lots of funding by government. Conservatives have tried to turn spaceflight into a high profit industry with lots of rent seeking.

In the decade of Obama, the energy industry has been disrupted in multiple ways. Vehicles use less fossil fuels, and nothing Trump, Pence, Pruitt can do can change that. Electric power is progressively phasing out coal.

These changes, and others, are durable progress because of the economics.

Not conservative free lunch economics that argues slashing labor costs will drive GDP growth by increased consumer spending because government will put more money in your pockets than work by cutting taxes, and cutting prices by imports.

Paying workers to build costly capital, whether engineers for spaceflight or for solar, wind, batteries, electric drive reduces long term costs at higher upfront costs, and in business, economics of capitalism win in business, short term higher labor costs to reduce long term labor costs, offset by higher quantities demanded.

And economic matters in that Trump and Pruitt cost cutting means killing the jobs of typically younger, well educated, workers, who will act out of economic self interest to maintain the progress started in the Obama decade.

Health care has also made progress because more workers are being paid to provide health care services. Paying people to work is economics, and progress.

Conservatives have sold most people on free lunch economics, a bizzare idea that by cutting labor costs, and conservatives never talk of slashing excessive monopoly and rent seeking profits, cutting labor costs will create more higher paying jobs.

Economics matters. It's just that conservatives have defined paying workers a good wage is a job killer. That leaves slavery as the conservative method of creating jobs. Obama stopped the efforts of conservatives to restore slavery, and got labor costs increased which should be the number one priority of economists.

How else can growth be paid for if workers are not paid more collectively, ie, higher aggregate labor costs, higher costs?

Economies are zero sum. Costs must increase to pay for greater benefits.

Tanstaafl

[Blissex]

«The strongest case for austerity and immigration controls is that these have nothing to do with economics. Like Brexit, they are instead attempts to assert that governments have control over social affairs.»

As usual our blogger confuses upward redistribution (when some gain and some lose) with "austerity" (when everybody loses, which has not happened) and has a touching faith in the power of ideas rather than material interests in driving behaviour, again here:

«Their supporters just don’t care about their economic consequences because other things matter more: sovereignty and an assurance that the government is on top of things.»

The usual misapplication of misleading aggregates by our blogger: "their supporters" think in terms of "our sovereignty" and "our government", where the "us" is those who benefit materially (if not immediately, eventually) from the same policies.

«Of course, the right and the media do talk about “the economy.” But by this they mean something very different from what I understand by it. To them, the economy is not about real people struggling to make a living»

Of course, "the economy" is a pointlessly vague abstraction, and "the economy" they refer to is that of affluent "Middle England" propertied voters, certainly not that of renters or buyers or wage earners.

[Blissex]

«Maybe stagnation was sought for just that reason.»

That electricity consumption growth started to collapse or stall in several advanced economies post-entry of China in the WTO indicates something worse than stagnation, and that maybe was a policy goal, for example because:

* The transfer to China of a large chunk of advanced economies industry has also transferred a lot of pollution to China.

* The transfer to China of a large number of jobs has significantly reduced the power of labour in advanced economies.

But sometimes I suspect that there is a much better/worse policy goal: oil supply seems to have reached a plateau worldwide, meaning that increased in demand would make prices rise a lot, and thus a permanent recession in the advanced economies is needed to moderate the pricing power of oil exporters.

[Blissex]

«the extent to which "the economy" has been redefined since the 80s away from productive to speculative assets, such as property and shares.»

Indeed, but for example in the USA news have always been reported from the point of view of asset owners, and now that a large chunk, the most affluent, of Middle England are asset owners it is not surprising that media targeted at them report news and commentary focusing on what is so important to their audience.

[B.L. Zebub]

@Chris,

A little more seriously now: you should read Deirdre McCloskey's "Keynes was a Sophist, and a Good Thing, Too".

But if you do, you must first understand where she's coming from: like other post-modernists, she doesn't believe in Truth (with big T), which she writes that way ironically. If one, like her, doesn't believe in Truth, then one's left to defend one's truth (with small t), much like lawyers in a court of law (you see there why economic debate often gets ugly, yes?). That also explains why even the most cynical economist will swear on the Bible he/she really do believe his/her truth is actually The Truth (and now you see why the critics of mainstream economics claim they did predict the bloody GFC/housing bubble collapse).

I am not her fan, but I think she had a point there. Have fun.

https://econpapers.repec.org/article/eejeeconj/v_3a22_3ay_3a1996_3ai_3a2_3ap_3a231-234.htm

[rogerh]

Plainly economics matters and governments have to be competent at managing the necessary compromises. But I doubt it is the first thing people think about at election time. More an assumed basic competence.

At one level politics seems like selling soap powder. Make a good looking box and declare the inside powder to be much like the stuff your mum used but better. The ingredients include economics, some greed, some ambition, some fear, some envy, a lot of capitalism and a lot of rubbish too. Add good advertising and press coverage and stack the shelves high. A close study of the kinds of models and tropes used on mass advertising is well worth while. Not for nothing is politics called show business for ugly people.

For many years we changed the box lable every decade or so but the powder inside was always much the same. Periodically the recipe had to change a bit, a bit more boom, then a bit more bust. I suppose that was the economics at play after someone had put too much greed or ambition or capitalism into the mix. But for the last decade or two the powder seems less and less effective. That is something for the economic techies to worry about and keep hidden from the punters.

If I were a political strategist I would not say too much about having radical plans to change the powder in the box. As a practical matter the record of government messing with the economy seems very dubious. Far better to keep quiet about that and concentrate on talking about the new 'extra sparkle' ingredient and making sure the picture on the box is nice.

[GrueBleen]

"Growth makes people more open-minded and tolerant whilst stagnation makes them meaner:..."

But, but, but, can growth really go on forever ? Does it never have to stop ?

If it does have to stop, how rich will everybody be when it does stop ?

[George Carty]

Blissex: "But sometimes I suspect that there is a much better/worse policy goal: oil supply seems to have reached a plateau worldwide, meaning that increased in demand would make prices rise a lot, and thus a permanent recession in the advanced economies is needed to moderate the pricing power of oil exporters."

Surely this would only make sense if there was a very strong correlation between household income and household oil consumption? Given that oil (as opposed to coal and gas) is used overwhelmingly for transportation, I'd expect that providing more affordable housing in city centre locations (from where commuting to work by car is unnecessary) would be far more effective in reducing oil consumption that generally suppressing incomes would be. So why did New Labour (which at least initially was hostile to car culture – note the fuel duty protest movement of 2000) not reverse Thatcher's pro-landowner housing policies to make this possible?

Or was the popular appeal of the ex-urban car-oriented way of life just too strong? Metatone suggests that envy of the USA and other sparsely-populated New World English-speaking countries may have been a key cultural root of Brexit:

https://medium.com/@Metatone/s-yorks-brexit-and-usa-philia-20d90a7790a5

Or alternatively, was the "curb household incomes to reduce oil consumption" policy more about a belief that households would spend a large proportion of their discretionary income on foreign holidays (and therefore on flying)? That has my thinking of George Monbiot anti-aviation stance...

[PhilippeO]

Not unless it merged with sociology.

Treating national economy as only macroeconomics didn't made sense. Every "economic" decision (taxation, exchange rate, tariffs, etc) affect subgroups of citizens differently and they react accordingly. Advocating high tax that would harm power elites didn't made sense when that power elite who responsible for such decision. Advocating freer trade that cause cities to grow while inland decline would cause inland voters to oppose it. "Nation" is composed of alliance of subgroups not unified entity, and economist should consider that.

[Luis Enrique]

Accepting the last decades of neoliberalism have been unsatisfactory, Corbyn's attempts to build an alternative may improve things (and by improve I mean as a first approximation, make the worse off better off) or they may make things worse. That's one lesson of the invasion of Iraq - things can always get worse.

I don't have strong priors here - do you think we should be ignoring Corbyn's "associations with Stalinists" when thinking about this question?

In an alternative universe, if Trump had tabled a reasonably sensible manifesto, I think residents of that universe would be making a mistake if they ignored where Trump draws his support from, and the kind of person he is. So I am not entirely reassured by those who point out that the Corbyn economic plan is reasonably sensible.

[Tynnie Todgers]

Yer average punter does think economics matters, but thinks the economy is just a big a household with a household budget. A misconception which suits the right just fine, and the left would probably damage itself trying to dispel. Indeed most Labour MPs appear to believe something of the kind, hence the popular perception that the Tories are the party of economic competence.

[Jim Harrison]

Does taking economics serious simply amount to putting economic growth first? Even if you imagine economics as a type of engineering, wouldn't it be a discipline that tells you If you want x, do y, if you want z, do w? Maybe you get better results if you improve distribution rather than mindlessly increase production. As a matter of fact, economists do seem to fetishize aggregate production, but do they have to?

[Robert Mitchell]

Blissex: "oil supply seems to have reached a plateau worldwide, meaning that increased in demand would make prices rise a lot"

Peak Oil predicted steeply declining supply by now. Oil supply is throttled; oil is not scarce.

If prices rise, why won't American fracking start up again, to put downward pressure on prices?

The statement about oil supply plateauing masks the arbitrary, psychological, political reasons for the drop in oil production. We are not dealing with economic assumptions of scarcity here; psychology determines the supply, not physics. Saudi Arabia could decide tomorrow to up production again to go after market share. Their decisions regarding oil supply are capricious and whimsical. Thus oil prices are determined not by supply and demand, as economic storytellers claim, but by arbitrary human psychology.

---

Tynnie Todgers said:

"Yer average punter does think economics matters, but thinks the economy is just a big a household with a household budget. A misconception which suits the right just fine, and the left would probably damage itself trying to dispel. Indeed most Labour MPs appear to believe something of the kind"

Seconded.

[Blissex]

«if there was a very strong correlation between household income and household oil consumption?»

For the past several decades there has been: because oil is so useful, people tend to buy as consumers as much as they can afford, and complementarily as producers they buy as much as they can get as it boosts their productivity and thus income.

«Given that oil (as opposed to coal and gas)»

"Opposed" is not quite right here, they are pretty much the same broad "high density cheap fuels" thing.

«So why did New Labour (which at least initially was hostile to car culture – note the fuel duty protest movement of 2000)»

Not at all hostile to car culture, the fuel duty protests were not against the fuel duty, but against increases in the price of fuel, and by commercial not personal users; they wanted the fuel duty cut to compensate for the rise in price of fuel.

«not reverse Thatcher's pro-landowner housing policies to make this possible?»

Because it is political suicide for a party that appeals to wannabe lords of the suburban micromanor", aka as the “aspirational voters who shop at John Lewis and Waitrose”.

«Or was the popular appeal of the ex-urban car-oriented way of life just too strong?»

But of course. The major political lesson of the 1970s were:

* The extreme unpopularity of J Carter when he said that energy conservation should be a priority.

* The landslide for R Reagan who championed cheap gasoline and the american way of gas guzzling speeding through the "sunny uplands".

* The enduring success of R Reagan and M Thatcher as the oil from the alaskan and the scottish oilfields allowed them to run a fantastically loose credit policy boosting debt and the prices of assets bought on leverage.

[Blissex]

«Peak Oil predicted steeply declining supply by now.»

Predicted steeply declining *cheap oil* supply and that certainly happened to the UK, which was the topic under discussion.
Worldwide *cheap oil* supply has steeply declined, in the sense that there have been not very many additions to supply as proven reserves, new oilfield discoveries. Oil production has also not done well, but that has been masked by counting "hydrocarbon liquids" as oil in many statistics.

The key is obviously "cheap oil": we use oil (a toxic pollutant, even if less bad than coal) only because it has a fantastically low price/calories ratio; as to merely quantitative supply, given that hydrocarbon fuels can be synthesized in any quantity if price does not matter, there will never be "peak oil".

«Oil supply is throttled; oil is not scarce.»

I see many signs instead of throttled oil demand, except from China, and they are trying to throttle it too. Oil demand is largely throttled by price, when demand increases price shoots up. Obviously it is bumping against a plateau.

My impression is that in the 1970s the great oil price increase was due to an oil demand boom from Japan adding on top of "north atlantic" demand, and this time round when China became a source of big demand the policymakers of "north atlantic" countries (and Japan) decided to voluntarily stymie their economies to avoid an oil price explosion.

«If prices rise, why won't American fracking start up again, to put downward pressure on prices?»

Fracking is very expensive (and relies on massive debt supply), and it cannot put downward pressure on prices below its cost.

[Blissex]

«Every "economic" decision (taxation, exchange rate, tariffs, etc) affect subgroups of citizens differently and they react accordinglyx

Ah such well meaning naivety! But of course every economic policy has a distributional impact, and most of them are designed mostly to have distributional impacts.

But Economics is never about distributional impacts, because absent government intervention "the markets" pay everybody instant by instant according to their marginal productivity (the central truthiness of Economics, and nobody adds "and their initial endowments"), and anyhow the Second Theorem of Welfare Economics says that in ideal conditions growth and distributional issues can be perfectly independent, and thus Economics need only worry about aggregate growth.