Why politicians keeping economics simple is stupid
Modern societies are very complex. That means policy decisions are complex too. To voters, however, that can seem like obfuscation
By Buttonwood
“A DEMOCRATIC society in its thirst for liberty may fall under the influence of bad leaders”, worried Plato who also feared that “popular acclaim will attend on the man who tells the people what they want to hear rather than what truly benefits them.” These worries seem all the more pertinent today, as a quarter to a third of the electorate in many countries seems willing to lend support to candidates from out of the mainstream. Indeed, the whole appeal of a candidate like Donald Trump is his outsider status.
The problem is not so much that such candidates have new ideas, but that they are dangerously simplistic. The journalist H.L. Mencken remarked that “For every complex problem, there is an answer that is clear, simple and wrong.” The idea may be building a wall on America's southern (or even northern) border; it might be raising £120 billion in “missing” tax revenues; it might be “getting a better deal” with Iran on nuclear inspections; it might be rejecting austerity for Greece while simultaneously staying in the euro.
When mainstream politicians respond to these ideas, they have to give complex answers that don't fit easily into soundbites (well, maybe not the wall, which is just a stupid idea). Indeed, modern societies are incredibly complex; if there were simple answers to policy problems, they would have been found and applied before. When governments think about raising taxes, they have to think about the costs of collection, the impact on economic activity, and the risk that taxpayers will move elsewhere; when they think about cutting spending, they face the problem that a lot of spending is automatic (pensions, unemployment benefits) as well as the impact on the economy.
These are complicated decisions; economists do not agree on the relative impact of tax rises versus spending cuts, the size of the fiscal multiplier on the economy, the relative importance of fiscal versus monetary policy and lots more besides. Those who think they have a simple answer probably haven't thought through the issue.
When governments agree international deals, they cannot simply get their own way; compromises are inevitable. Just saying “getting a better deal” ignores not just the constraints on doing so, but also the policy consequence if no deal is reached. Those who push through a deal are open to the criticism of weakness; the counterfactual (what would have happened without a deal) cannot be arranged to provide a realistic contrast. Western policy in the Middle East looks a mess but anyone who thinks they have the right answer should consider history; outright invasion (Iraq) has failed, limited military intervention (Libya) failed too, and non-intervention (Syria) has had a terrible result. Those who carp from the sides will always be able to claim an ideal outcome in their imaginary world.
Journalists are, of course, as guilty of this as anyone; it is easy to hold others to a higher standard. But they can be guilty in another way; by treating politics as a game in which one side is winning or losing and in which disagreements within parties are “splits” and “divisions”. All parties are coalitions; one would have to be an automaton to agree with the entire party line. In any case, as already pointed out, most issues are complex; reasonable people can disagree. Policy differences should be celebrated as a sign of intellectual health, not of failure.
It is perhaps, encouraging, that only in Greece, where the population had suffered a lot, did the fringe gain power. Donald Trump will not be President; Marine Le Pen may get into the final round of the French presidential election but will not win; UKIP got just 14% in last year's British poll. Of course, if the economy slips back into recession again, the appeal of the outsider will go up.
The problems of western societies are very complex; how to generate growth with ageing societies and shrinking workforces; how to boost productivity while at the same time maintaining employment; how to deal with globalisation and the shocks transmitted across borders by terrorism, civil war and economic mistakes. What is striking about the new outsider politicians is that often they don't even seem to be addressing these questions.
