Why Care About American Economics?

November 1, 2013 12:00 pm

Economics, economics, economics. That’s what the 2010 UK election was about, and it seems to be the main thrust of the American one. Unemployment and job figures are the battlefield. Gross Domestic Product and AA+ credit ratings are the weapons. The Federal Reserve might be a potential ally, and the Deficit is the vulnerable baggage-train. The important debates are about fiscal stimuli, quantitative easing, limiting spending, improving taxation, stimulating growth, removing restrictions and facilitating entrepreneurship. Education, healthcare and welfare are all seen through the frame of national debt and uncertain future. To quote Gandalf, “The board is set. The pieces are moving.”

Wait, really? That’s the debate? Economics is the debate?

Ohhh no.

It is just absurd that economics is the focus of the election. Don’t get me wrong. Economics is important. Although there’s healthy debate over what a healthy economy looks like, almost any politician, be they Centrist, Anarchist or Fascist, would be in favour of ‘a healthier economy’. Given our recent recession/credit crunch/slump/mass-unemployment etc., the issue is certainly pressing. But should a party’s economic plan and record really be the dealbreaker in any election? Is that even possible?

No.

I say no for two reasons:
1) Economics is inseparable from ethos and ‘politics in general’.
2) Even if economics did exist in a vacuum, it is too complex, international and fallible to be the prime criteria for your vote.

For these reasons, I argue that ‘social issues’ are far more important when deciding whom to vote for, using the Gay Marriage debate as an example.

[Disclaimer: I have limited economic training. Say half a module. And, in the space of one article which spans most of modern politics and almost the whole history of economics, I don’t even come close to the complexities I do know, let alone my ‘unknown unknowns’. So this is necessarily reductive. I also happen to think it’s right. That’s why I’m writing it.]

 

Economics is inseparable from political ethos

The term ‘economics’ comes from the Greek οἰκονομία (oikonomia, “management of a household, administration”) and everyone called it ‘political economics’ until c.1900, when apparently they all got lazy.* It started to be seen as a social science by the 1950s, or even just a ‘science’, even though it’s based on predicting the actions of ‘economic agents’, i.e. people.

The goals of modern economics are irreducibly political. Whether you want economic growth** isn’t really an issue (you can’t imagine anyone proclaiming “We support stagflation!” or “We love recession!”). The issue is what you mean by growth, and how that is achieved. A high GDP, or a high GDP per capita, can mean a whole range of things. You can get a high GDP by having a few super-rich people with everyone else in poverty.  You can get high GDP by everyone being pretty affluent. You can get a high GDP (in theory) by the state owning all big industries. And mixes of the above.
A party/candidate’s economic manifesto will appeal to one/a mix of the above. In the American election, both Mitt and Obama are ceaselessly talking about promoting the fortunes of the ‘Middle Class’.  This is fairly meaningless, as some 66% of Americans think of themselves as Middle Class, and their income/job/education situations are so varied that it’s impossible to legislate for all of them. Oh well.  [Apparently 71% of Britons self-identify as MC too.]

In the UK and America, then, the main ethos-tension is between ‘leaning towards socialism’ (however weak that socialism may be), and ‘leaning towards conservatism’ (the same). Basically, American Democrats , British Labour and British Liberal Democrats are more willing to tax more (including income taxes, corporation taxes, inheritance taxes) and with that money, spend more on the state’s institutions, typically including education, health, welfare, work-schemes and infrastructure. They are also more willing to ‘deficit spend’, i.e. to borrow money to pay for the state’s expenditure, and service that debt through taxation. The American Republicans and British Conservatives, to some degree, would keep the taxes lower and spend less on the state.

There, economics. Done. Both of the parties justify their plans with very valid and (often) respected economic theory. Those leaning left point out that good educations, working infrastructure, positive welfare schemes and high quality healthcare all promote a more dynamic workforce, increasing growth. The right tend to accept that their stance means more people will be poorer, but argue that their model encourages business and endeavour, meaning those who work hard will rise to the top, and those who are lazy (or ‘evil’) will suffer for their sins. They fear that taxes punish those who work hard and reward those who are lazy.

They’ve both got big name economists and historical examples, too. Pretty much everyone nods to Smith, because he was right about much of the basics. You get winks at Malthus and Ricardo, borrowings from Marx (seldom attributed), and more recently, 20C kingpins gain centre stage. Lord Keynes became the boss of the Left when he talked up deficit spending to relieve recessions, and is often*** credited with giving Franklin D Roosevelt the tools for his New Deal (and World War) to pull America (and the world) out of the Great Depression.

Equally, Friedrich Hayek, a strong critic of over-powerful government, has become the idol of many who oppose government interventionism and think that economics should (broadly) be left to operate itself – giving ammo to ‘Liberals’ who support laissez-faire free market capitalism. They are joined most recently by Milton Friedman and the ‘Chicago School’, although politicians tend to ignore Friedman’s braver suggestions (e.g. negative income tax). If you are of a certain literary persuasion, Ayn Rand is on Hayek’s side, mostly.

All of their arguments are palatable (except Rand’s, which is morally repulsive). All of them have data and good stuff to back them up. Indeed, each have historical examples as ‘proof’ of their efficacy – the postwar boom for Keynes, the post-80s boom (when much financial regulation was cut by Thatcher and Reagan) for the free-market liberals. But, of course, both had different ideas about what ‘healthy economy’ should be. Rand essentially thinks a few brilliant people are Nietzsche’s Ubermensch, have no responsibility or obligation to community, friends, family or society, and should be allowed to fuck everyone over for money. [How’s that for a balanced summary?] Many neo-Keynsians (e.g. postwar Labour governments) were convinced by the importance of 100% employment, seeing this as a great social leveller, allowing large government debts to accumulate through funding failing state-owned industries to avoid sacking people.

Similarly, for a variety of reasons, the Chicago School (inc. current Federal Reserve boss Ben Bernake) are in favour of free markets. In the US especially, it’s easy to see how this ties in with the ‘American Dream’ of a pioneering man (invariably, a man) setting out on his own and building a profitable company from the ground up. A hilarious right-wing stereotype includes the man who ‘was born in a wooden lodge that he’d built’. People who credit this self-determination principle, and who deny or minimise the importance of [List: state infrastructure, peace, favourable trade relations, stable interest and fiscal spending, educated workforce availability etc.] are thus predisposed to favour free-market thinking, whereas those who accept or support more state-centric thought are more likely to favour taxation and spending. Especially when (and this is a historical truth) someone else is paying.

So, in intermediate-conclusion, political economics is ‘housekeeping’, and that fundamentally requires you to at least have an idea of what your house should look like, even before we examine the validity of your plan to get the house to that state of affairs. When you’re choosing a candidate on his/her economic plan, you’re also making a statement about who should be taxed, and how much, and who should benefit, and how much, and how powerful the state should be, and how the country should act on an international state.

 

Even without these problems, economics is too fallible to be your main voting criterion

Very, very broadly, ‘economics’ is creating models to explain how people have acted with money, and using these models to hypothesise how they will act in a given situation, then optimising the situation to produce your desired outcome.

As you might have noticed in the late 1920s, or the 1970s, or the early 1990s, or 2008, these models can often be ‘wrong’. Indeed, an article cited in Wikipedia looked: “at ‘consensus forecasts’ (the forecasts of large groups of economists) that were made in advance of 60 different national recessions in the ’90s: in 97% of the cases the economists did not predict the contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated their severity.”

That’s a pretty damning stat.

Yes, I know Vince Cable predicted the crash. So did other economists. But far from a majority. And they’re pretty split on how to solve it, and what’s going to happen now. Let’s not even go near the swamp of terror that is the Yuro-peon Quest-shun.

Now, bear my disclaimer in mind when I say this; economics is very informed guesswork. But still guesswork. All the data we have from history is imperfect, and incomplete. No single historical regime consistently followed any single economist’s advice. Economics does fantastically clever things to help it guess the future, but is very fallible. A BIG reason is that no nation is entirely autarkic, and that in practice, the UK and America are very much global, making them prey to domestic and international developments including but not limited to:

– Europe. Greece might’ve gone down anyway, but the Credit Crunch (largely caused by Wall Street) certainly helped. And now Greece (and Italy, Spain, Ireland) are causing uncertainty for the Eurozone, which causes uncertainty for everyone else. It is almost impossible to tell how Obama or the Con-Dems would’ve done without the European problems, but everything would probably be better. And guess what – no matter how good our leaders are at economics, they have very limited control over other countries.

– The price of oil. Most developed economies depend on oil. Most developed economies arenet-importers of oil. The whole picture changed in 1973 when OPEC (The Organisation of the Petroleum Exporting Countries…i.e. mostly the Middle East) embargoed the West, and sent USA oil prices from $3/barrel to $12 almost overnight. They were reacting to the West’s support for Israel in the Yom Kippur War, if you’re interested. The embargo only lasted a year, but in that time managed to cripple Detroit, brought in a global recession, changed US consumer opinions on public transport, speed limits and engine efficiency, and turned many factories onto coal-dependency. Hooray.

– BRIC. Brazil, Russia, India and China. Multi-volume books can and have been written on what these countries’ growth does to our own, but to summarise: makes our governments consider protectionism (that is, punitive taxation on imports) and hardline foreign police; allows capitalists to make bigger profits by employing BRIC citizens for lower wages than Western citizens, thereby contributing to unemployment; terrifies some politicians into hyperbolic rhetoric; flood various sectors with imports so cheap that Western businesses cannot compete (or are forced into ‘luxury/elite quality’ branding); ‘economic tourism’ meaning many of the West’s ‘best minds/entrepreneurs’ move to BRIC to make big profits, rather than building businesses at home, effectively denying the domestic economy growth. There are far more I either can’t summarise, or don’t understand. As if I understand the ones I’ve mentioned…

– ‘Bubbles’. Bubbles are economies or sectors which receive high investment based on high market evaluations, but turn out to be ‘empty’ and cause collapses. The most recent big bubble was the ‘dot.com boom’. Some people won, lots of people lost. It’s very hard to tell what is and isn’t a bubble, until it has ‘burst’. I’ve read various pieces which opine that Facebook, social media in general, the Kindle, and e-books, are all bubbles-in-waiting. Who knows?

There are other interesting crits of economics as a discipline. Feminist Economics (and others) attack the mainstream for its assumption that agents act rationally and selfishly. Most economics fails to give serious attention to class, gender, unpaid-work and historical concerns. Lots of micro-economics is also very much influenced by the ‘vogues’ of behavioural psychology, which is itself a far from perfect science.

Basically, economists have an impossible task. They have to create a model for ‘how the whole world works’, but they don’t have the luxury of knowing ‘when and where the next war will be’, ‘who will invent the next big thing’, ‘when X commodity will run out/become abundant’ and so on. It’s a little bit like a blind person playing poker. Or darts. Yeah, darts. You can tell the man everything you can see about the dart-board, but s/he still won’t really know where he’s throwing the dangerous pointy thing.

So there.

I’ve shown that economics is both too partisan, and too random, to be your prime voting criterion. What else is there, then?

 

Foreign Policy

Foreign policy is certainly very important. It influences defense, trade relations, immigration, ideas dissemination, blah blah blah. However ‘the future’ pans out, it’s useful to have a leader who knows how to get what he wants on an international stage, by crook or by hook. Or by being polite and reasonable. This is one of many reasons I’d oppose Romney, but you probably already knew that.

I don’t think foreign policy can ever be the salient voting criterion, however. This is partly because, like economics, FP is largely reactive and teleological (consequences-based). It’s also because foreign policy is based on reasoning that we cannot understand or evaluate. Even after Wikileaks’ wonderful/terrible works, there are tons of international decisions which seem to have been taken based on information we simply don’t know about.

Take Obama for an example. His 2008 platform was hugely optimistic on foreign policy issues. He was going to respect other countries, he was going to stop extra-ordinary rendition, stop torture, close Abu Ghraib, build better trade relations, create a consensus on climate change, work against international poverty and all the rest. But? But he hasn’t. Abu Ghraib was downsized but is interrogating same as ever, possibly worse. Rendition continues. The Afghanistan pullout date is Bush’s pullout date. He sent forces to Libya, and ?possibly to Egypt?, plus ?possibly funds to Syria? That’s serious meddling in other nations’ sovereignty. What? Oh yeah. Drone strikes. Loads of them. Killing civilians and violating other nations’ airspace. Plus, what? Oh yeah. Bin Laden. Sending elite assassins into a foreign country, without that country’s permission.

Why did he do all these things? Well, even if you think he was lying in 2008 (which I genuinely don’t), he’s still losing leftwing votes through all his FP and human rights abuses. To take Abu Ghraib specifically, the only reason I can imagine him carrying it on is that he’s seen some seriously secret spy evidence, some CIA ‘more secret than top secret’ intelligence which shows that OK, we don’t have enough to charge these guys, and yes, it’s terrible and illegal to hold them in this way, but seriously, if we let them go, lots of people will die. I really can’t imagine another reason for him not to follow through on his pledge.
Similar reasoning, of course, helped justify the Iraq War. Sure, the Intelligence happened to be total rubbish, but Blair and Bush really believed Iraq was a chem/bio threat. Probably.

What these examples illustrate is that Foreign Policy again can’t be the deciding issue, since we don’t know all the data. How can we evaluate which candidate will be best in given situation Y, when we don’t actually know what situation Y is?!

So what can we choose our governments by?****

That’s right.

 

Homosexual Marriage

Well, social policies anyhow. Homosexual Marriage (from now HM) is just a handy example. See, social issues are demonstrative of a party’s actual thinking mechanisms. Even if you argue that the Democrats and Lib Dems are cynically supporting HM to gather homosexual votes, that still shows a greater willingness than more right-wing parties, who apparently don’t want their votes. Ever.

Most social policies, HM no exception, are not teleological. Arguments for HM don’t tend to start, “If we adopt HM, then in ten years’ time everyone will be better educated and £3000 richer”. They are reasoning-based. They are values-based. And they demonstrate the type of reasoning which I’d like a party to use when selecting its stances on any issue. I would trust a party that supports gay, minority and women’s rights on the economy, the military budget, the environment. Why? Because they seem to think similarly to me based on the same basic facts. Even if I disagree with the Lib Dems’ economic plans, that’s essentially me betting on black and them on red. But on an issue like HM or Lords Reform, stem-cell research or abortion, their lovely lovely critical, analytical, secular thinking is demonstrated. And I jizz in my figurative pants.

The other important point about social policy is that it’s much harder to change tack. I have zero problem with a politician making a huge U-turn on an economic or foreign issue – if new data or developments happen which show that they were obviously wrong, then a U-turn is the only sensible option. I’d actually respect that quite a lot. [Hear that, Gideon?]

But social policy? How can a bunch of stats suddenly convince you (and by ‘you’ I mean Mitt Romney) to change your (his) mind on abortion, climate change, HM and gun control? Where changing tack on data-based spheres may be wise, honest and noble, a huge change of heart on such social issues can only be read as cynical. A reaction, not to facts which show those principles are flawed, but to facts which show you desperately need to draw Tea Party support away from crazy Rick Santorum.

 

How does all of this affect the UK?

Thanks, I’m glad you asked.

Basically in every way you can think of. Firstly, we will have elections in a few years. We face pretty similar issues. I will (unless someone shows me the flaws in my reasoning), be voting according to this rubric.
America is the world’s only superpower, a huge trading partner of ours, our largest military ally, and the quirks of Wall Street pretty much dictate what goes on everywhere else. What America does affects us all the time. In the UK we are bombarded with US culture, from TV shows (Simpsons, Friends, Family Guy, American Dad) to music (Avenged Sevenfold, Metallica) to film (virtually all films) to books (Twilight, Safran Foer, Egan). The arms and space races between America and China affects global relations, the UN, our economy, loads of stuff. We are in Afghanistan, and were in Iraq, largely thanks to US pressure. Our embassy in Khartoum, Sudan was attacked this week as a reaction to a film made in America. Our stock market did well this week thanks to the Federal Reserve’s quantitative easing declaration. Oh, and the Western World might be wiped out if Iran manages to build a nuke, and the USA/Israel provoke it.

BOOM.

 

*Welllll, sort of. Mill differentiated ‘applied economics’ – the production of wealth – from ‘social economics’ – how that wealth is distributed in a nation. I’m not sure it’s that easy to cleave, but in any case current discourse, doesn’t recognise the distinction, so let’s ignore all of Mill’s excellent work.

** Bill Clinton popularised the term ‘grow the economy’ in the 90s. It took a dip in usage, but is not back strong. This is one of my many pathetic, petulant, pretentious pet hates. Grow is not a transitive verb – we can’t say “I grew my children” or “I grew my house a new conservatory”. When it is used transitively (“I grew some beans”) the euphemism is clear – you didn’t actually do anything. If everyone would start saying ‘promote growth’ or ‘help the economy grow’ then I would be marginally happier.

*** By no means unanimously. In fact, there is massive debate as to whether, and to what extent, the New Deal worked at all.
Moreover, people both side of the fence tend to say that no government has acted in a purely Keynsian way, because virtually everyone ignores the ‘Part II’ of his strategy. Sure, he says when a country is bust you need to borrow more, spend on public works, get everything moving again and employ people. But when the economy is growing he says you need to pay off those debts and start saving. In practice, most governments either keep spending or get voted out. Awkward. Some people might say Bill Clinton’s famous budget-balancing is the only real example of part II working. And work it did.

**** I’m talking priorities here. I’d never seriously suggest anyone should vote with zero consideration for a party’s economic OR foreign policy stances. That would be crazy, not least because economic and foreign policy stances can help tell us whether the candidates are, themselves, crazy.

 

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  • ChrisRobinson

    ‘A blind man playing poker…’ just about sums up the failing capitalist system in a nutshell. Time we picked up our chips and found another game. Mine’s democratic socialism…

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