Time for an economic battle

The importance of ideas in understanding economic developments is both overestimated and underestimated.

It is overestimated in that the overwhelming impulse of mainstream politicians today is to be pragmatic. That applies as much to David Cameron and Ed Miliband or to Barack Obama as to Mitt Romney.

Of course they will sometimes modify their rhetoric to keep a particular electoral constituency happy. If Miliband is talking to old trade unionists or Cameron is addressing the Women’s Institute they will tweak their language accordingly.

But essentially they are bereft of ideas. They simply react to events as they happen.

Admittedly Miliband in particular likes a good catchphrase whether it is the “squeezed middle” or “predistribution”. He is a bit like Bruce Forsyth in that respect: only without the wit, charm or charisma. But having favourite buzzwords should not be confused with having a broader vision of how the economy or society should be organised.

However, this pragmatism paradoxically helps illustrate the importance of ideas. In a way the ideas-lite approach is a default form of conservatism. It means accepting that, as far as possible, things should be left as they are. Any initiatives launched by such politicians are almost invariably designed to tighten regulation rather than to promote progress.

Ideas are also important in a more fundamental way. To understand economic events it is necessary to be able to step back from the everyday and work out the underlying trends. This process requires careful thought and the construction of appropriate concepts.

In this ideas-lite environment Stephanie Flanders’ three-part BBC Documentary series on the Masters of Money was particularly welcome. The BBC economics gave a useful introduction to three of history’s leading economic thinkers: John Maynard Keynes, Friedrich Hayek and Karl Marx.
Each programme weaved together the life of the thinker and his main ideas. The programmes also included high profile critics and exponents of each set of ideas.

Being the BBC the programmes had to avoid taking an explicit line in favour of one thinker or another. Flanders’ work should primarily be judged on whether it gave an accurate sense of what each one argued.

In many cases her assessments reasonable but occasionally she misrepresented them. For example, she claimed: “for Marx the best argument against capitalism was that it was inherently unfair”.

This is a common misconception. Anyone who has read Marx’s Critique of the Gotha Programme should be in no doubt he was staunchly opposed to the concept of fairness. His critique of capitalism had a different starting point. It is not necessary to agree with all of Marx’s views to argue that he should be accurately represented.

But the biggest problem with Masters of Money was that in its own peculiar way it reflected today’s ideas-lite culture. This was particularly clear in the programme on Hayek in which she argued that free market ideas had dominated political thinking from the mid-1970s till the emergence of crisis in 2008.

In her telling politicians did not go so far as to support Hayek but they favoured the more moderate free market thinking of Milton Friedman. Whereas Hayek was extremely sceptical of central banks, sometimes even calling for from to be abolished, Friedman favoured them playing an activist role.

While this distinction is narrowly true in relation to central banks it is a myth that politicians propounded Friedman’s free market views for many years. Although it is true that they were pro-market they also presided over a state that was immensely more interventionist than anything Friedman advocated.

Nor are the present generation of politicians, strictly speaking, Keynesian. They simply have a tendency to throw money at problems because they cannot think of any alternative. Even the Tories, for all their talk of cuts, plan to maintain state spending at a level way beyond anything that could accurately be described as compatible with a free market.

It is high time there was a genuine battle of ideas over the economy.

This post first appeared on the Fundweb site today.