Explaining the inside-outers

In: Uncategorized

14 May 2015

This is my Polemic column for the May issue of Fund Strategy.

Writing about economic and investment topics in recent years I have kept stumbling across some initially unexpected themes. It is time to start pulling them together.

The most striking is what could be called inside-outerism. This is the pervasive tendency for elite functionaries and thinkers to view themselves as embattled critics of prevailing orthodoxies. In a recent blog post for Fundweb I wrote about one of the most high-profile British examples of this: Adair Turner. His glittering CV includes a stint as the director general of the Confederation of British Industry, and the chairmanship of the Financial Services Authority when it was Britain’s main financial regulator.

Perhaps the most consummate American example of inside-outerism, at least in the economic sphere, is Joseph Stiglitz. He is a Nobel laureate in economics, a former chair of the president’s Council of Economic Advisers and a former chief economist at the World Bank. Yet he constantly casts himself as a marginalised figure in economic debate.

Indeed this phenomenon goes beyond economics. For example, Nick Clegg, the deputy prime minister, recently described himself in a Guardian interview as “anti-establishment”. Across the western world it is common for leading politicians and officials to view themselves as opponents of the mainstream.

It is important to recognise the peculiar character of inside-outerism. It is entirely different from the earlier cases of people from privileged backgrounds rejecting their past to join radical political movements. The contemporary trend is for people currently at the peak of politics, official institutions or even academia to regard themselves as outsiders.

This is an odd phenomenon regardless of the content of their arguments. Even if the inside-outers were right on many points it would still beg the question of why they perceive themselves as anti-establishment.

To answer the question it helps to ponder a parallel development. That is the common tendency for those who view themselves as progressive to condemn what is sometimes called neo-liberalism or market fundamentalism. Such critics range from radical academics to George Soros, the billionaire fund manager and backer of such initiatives as the Institute for New Economic Thinking.

The essential thrust of their argument, that most western economies are free markets with the state playing a minimal role, is difficult to maintain. For example, total state spending in the America (including federal, state level and local spending) was 37% of GDP in 2014 or $6.4 trillion (£4.3 trillion). That is not a typo: the figure is in trillions rather than billions. Another indication of the size of the US government is the 26,417 pages in the Federal Register, an official record of federal government, is 2013.

It should be noted that the focus here is what exists rather than what is desirable. There are cases to be made both for and against extensive government spending. But in terms of what actually exists it is odd that so many authoritative figures insist that America and Britain have free market economies.

The final part of the jigsaw is the characteristic view the inside-outers have of the proper role of the state. Typically they argue that official institutions should play the central role in tackling any challenge. Any kind of instability, such as financial crises, invariably leads them to call for yet more regulation as a solution.

In this respect I was struck by a recent letter in the Financial Times penned mainly by radical academics including David Graeber, the thinker behind Occupy Wall Street. It argued that the European Central Bank should bolster the eurozone economy by creating new money to finance government spending. In other words, one part of the state, the central bank, should create money to bolster spending by another part.

Once again the point here is not to examine the pros and cons of such a proposal (although it is easy to spot potential pitfalls). It is that the inside-outers seem to see expanding the state’s role as the solution to virtually every problem. In the past, in contrast, radicals typically saw a greater role for the public or alternatively they demanded the reform or even abolition of state power.

It is now possible to start explaining the enigma of inside-outerism. The perspective is an inside one in that it typically looks at the world from the viewpoint of state functionary or professional technocrat. State officials hold this view but many academics and senior journalists share the perspective. On the other hand, the views of business, let alone the mass of the population, generally have a marginal influence in the current environment.

However, this technocracy has a profound lack of confidence in its ability to manage society. It feels that events too often have a tendency to spin out of its control. That is why its instinct is to propose ever more regulation at any sign of difficulty. That also helps to account for its perception of itself as an outside force.

The reasons for the technocracy’s profound crisis of confidence will have to be explained at another time.

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