Brexiter nonsense and policy entrepreneurs

Brexiters typically sound convincing if you know little about what they are talking about. Ian Dunt takes a typical example from Rees-Mogg (still favourite to be next Conservative leader). Rees-Mogg asserts, with absolute certainty, that a House of Lords committee have missed a crucial aspect of trade law related to WTO rules. Trade experts spend some time scratching their heads wondering what on earth he is talking about. They finally work out where the idea comes from, and why it has next to zero applicability to Brexit. (See also Jim Cornelius here.)

As Dunt points out, nonsense of this kind is effective. Because broadcasters often fail to match Brexiters with trade experts, they get away with their nonsense. By the time the nonsense is revealed as such, and enough people know why it is nonsense. the discussion has moved on and new nonsense appears. The fantasy that is Brexit remains intact at the level of public discourse.

Politicians like Rees-Mogg are not able to generate this nonsense themselves. How could they when they seem to spend most of their lives going from one broadcast studio to the next. Because this nonsense normally has some tenuous connection to reality, it has to come from someone with some knowledge of international trade and trade agreements. Welcome to the policy entrepreneur.

The term policy entrepreneur comes I believe from Paul Krugman’s first book from 1995, Peddling Prosperity, which unfortunately remains as relevant as ever. The book begins with the Laffer curve and the economists - including Laffer - who promoted the idea that cutting taxes would raise revenue. It is a typical piece of nonsense. It takes the reality that if taxes were 100% lots of people would stop working, and mutates this into the idea that taxes are already so high that cutting them would encourage more growth such that tax revenue will rise. It is typical political bullshit: giving an imagined respectable gloss on something that too many Republicans just wish were true.

But in the latter part of Peddling Prosperity things got personal, as Krugman describes how different policy entrepreneurs took some of Krugman’s own research and used it in a way Krugman would not to lobby President Clinton for trade protection. Economic theory suggests that if a profitable opportunity arises and there are no barriers to entry people will exploit that opportunity. I think the policy entrepreneur is a good example of that happening. Some politicians want to pursue a policy but want some kind of rationalisation for it, and the policy entrepreneur steps up with some nonsense erroneously derived from economics or some other discipline to provide that veneer of respectability.

Policy entrepreneurs can be academics: in the UK the most obvious example many would point to is Patrick Minford. But they can just be good lobbyists, who put themselves in the right place at the right time. In the case of Brexit, the policy entrepreneurs from whom the Brexiters get most of their information are in the Legatum Institute. BuzzFeed has a very good profile of their until recently director of economic policy, Shanker Singham. It is worth quoting from it.

“BuzzFeed News spoke to multiple economists, policy wonks, Conservative advisers, politicians, and journalists who said they’re baffled that he’s become so prominent in the Brexit debate. They say his standing in the trade world has been overblown. They don’t dispute that he knows the subject, but most hadn’t heard of him before he emerged at Legatum. They find it exasperating that he’s been portrayed in the UK as a vastly experienced trade negotiator, as if he were one of the decision-makers in the room when the world’s biggest trade agreements were hammered out. He wasn’t that close to the action, they say.”

But of course someone with more experience or more knowledge could not take Singham’s place, because they would not be the true believer that Brexiters require. When you have faith as the Brexiters have, you do not seek real knowledge, but just enough facts to sound good and thereby promote the cause.

Policy entrepreneurs, whether they are seeing a profit opportunity or really are true believers, are a symptom that what I call the knowledge transmission mechanism has broken down. As Krugman’s book indicates, Brexit is not the first time that policy entrepreneurs have helped politicians enact destructive policies. Here I argue that that the knowledge transmission also broke down when it came to austerity. (Paper here.) It is possible for policymakers to use intermediaries like civil servants to find the best research and use it - it has happened in the past - but today it seems like the exception rather than the rule.

Explaining macroeconomics to the Swabian housewife

Matthew Bishop has a nice simple post at SPERI suggesting how the ‘economy is like a household’ idea can be tackled. He is correct that this analogy has tremendous power, to the extent that I doubt we would have seen so much UK austerity without it. He uses an exchange between Yanis Varoufakis and a member of the Question Time audience to suggest that attempts to simply explain the economics are ineffective. He suggests that the “problem, as Jonathan Hopkin and Ben Rosamond have suggested (here and here), is that you cannot fight ‘political bullshit’ with facts”.

I want to make some observations, in ascending order of importance.

1. I think he is right that economists can usefully point out that households do not always balance their budgets. But all the examples he gives help explain why it may make sense for the government to borrow to invest. Indeed he could have added comparisons between governments and firms in this respect. That is why it is easy for economists to now argue that governments should be borrowing more to invest. I’m sure most economists would use exactly these analogies: after all most do try to teach this stuff.
   
   
2. However these analogies do little for the issue the audience member thought we were dealing with. He thought the analogy was exactly the case of spending too much on excessive drinking, and needing to sober up financially. While the examples Matthew quotes get you over the simplistic idea that governments should never borrow, they do not explain why (a) it is OK in principle to keep the ratio of government debt to GDP constant (governments live forever), and (b) why it makes sense for governments to borrow a lot more in a recession (the automatic stabilisers), or even (c) why the government should go out of its way to borrow even more in a recession when interest rates are at the Zero Lower Bound. We can try and get these ideas across as simply as we can, as I have tried many times (and suggestions on how to do it better are always welcome), but it is very difficult to do so in a minute or two on Question Time. It is sufficiently difficult that before the General Theory it was not understood by most economists.
   
   
3. I think the suggestion that economists are too busy trying to be correct and therefore too scornful of simple analogies is a little unfair. Only a little: in a live public appearance there is always the concern about what your colleagues in the department will say afterwards. Economists are also aware, as Chris Dillow points out, that partial analogies used in one context can easily backfire in others. However I doubt very much that most economists do the equivalent of mocking “every grammatical error made by friends practising their holiday Spanish”.
   
   
4. The big difference between economists and scientists at CERN is not that economists are less respectful of lay people’s mistakes. It is (a) they have politicians repeating false analogies about their subject as if they were facts, and (b) large sections of the print media doing the same, and (c) most of the rest of the media too clueless to challenge these falsehoods.
   
   
5. This is why, for an evidence based discipline like economics, the response ‘economists know that the economy is not like a household in important respects and here is why’ is not at the end of the day arrogant or dismissive. If Brian Cox was asked on Question Time ‘what is all this about the Earth moving: it is obvious that everything moves around the Earth’ we would not blink an eyelid if he replied ‘No, scientists know that is not true and it only seems that way to you because..’.
   
   
6. What austerity tells us, just as the climate change denial tells us, is that in today’s world respect for science is fragile. In the US public opinion about climate change is sharply divided along political lines, despite the near unanimity among scientists. It is this that should really worry us, and not how climate change scientists can better communicate with the public, desirable though that might be in itself. A world where the scientist has to compete on equal terms with the ignorant polemicist is not a healthy world.

Is deficit fetishism innate or contextual?

In a couple of interesting posts, Jonathan Hopkin and Ben Rosamond, political scientists from the LSE and Copenhagen respectively, talk about ‘political bullshit’. They use ‘bullshit’ as a technical term due to Princeton philosopher Harry Frankfurt. Unlike lying, bullshit tells false stories that pay no heed to the truth. Their appeal is more to common sense, or what Tyler Cowen calls common sense morality. At a primitive level it is the stuff of political sound bites, but at a slightly more detailed level it is the language of what Krugman ironically calls ‘Very Serious People’.

The implication which can then be drawn is that because bullshit does not reside in the “court of truth”, trying to combat it with facts, knowledge or expertise may have limited effectiveness. The conditions under which this might be true, and the extent to which information technology impacts on this, are fascinating issues which the authors briefly discuss. But what makes their discussion even more interesting for me is that they use what they call ‘deficit fetishism’, and in particular the stories that the UK government told before the last election, as their subject matter.

In the case of fiscal policy, deficit fetishism as bullshit involves appeals to ‘common sense’ by invoking simple analogies with households, often coupled with an element of morality - it is responsible to pay down debts. The point in calling it bullshit (in this technical sense) is that attempts to counter it by appeals to facts or knowledge (e.g. the government is not like a household, as every economist knows) may have limited effectiveness. Instead it might be better to fight bullshit with bullshit, by talking about the need to borrow to invest, or even that it is best to ‘grow your way out of debt’. (If you think the latter is nonsense, you are still in the wrong court: the court of truth rather than bullshit. As long as the phrase contains what I have sometimes called a ‘half-truth’, it has the potential to be effective bullshit.)

If for the sake of argument we accept all this, I want to ask whether deficit fetishism will always be powerful bullshit, or whether its force is a symptom of a particular time, and what is more a time that may by now have passed. This, rather than discussions of the technical merits of particular fiscal policies, may be the crucial political discussion that needs to take place right now for all those in Europe that want to put an end to needless austerity. (In the US deficit fetishism, and also austerity itself, seems to be taking a breather or having a prolonged rest: which may depend on the forthcoming elections.) Just to be clear, I’m not discussing bullshit more generally, but just the appeal of the particular example of deficit fetishism.

At first sight deficit fetishism seems to be innate, because it appeals to the basic intuition of the household and the morality of good housekeeping. However households also borrow to invest (such as in a house), and most people understand that this is what firms also do. The reason why the bullshit involving paying back borrowing may have been particularly powerful over the last five years is that this is exactly what many households have also been doing.

Although the Great Recession may have started with a financial crisis, its persistence despite low real interest rates is often put down to what many economists call a balance sheet recession: individuals and firms cutting back on borrowing (or saving more) over a number of years. That process has been particularly evident in the US and UK, with sustained increases in the aggregate savings ratio. However that process now appears to have come to an end. As individuals start to borrowing again (or at least stop running down their debt), perhaps they will become more tolerant of governments doing the same.

To this we could add an obvious external factor. In 2010 and the following two years, deficit fetishism seemed to be validated by a superficial view of external events. The difficulties that some countries were getting into because their governments had ‘borrowed too much’ was top of the news night after night. In that context, is it any wonder that most people believed the bullshit?

One final indication that the power of deficit fetishism is contextual is what economists call deficit bias. Before the Great Recession, there was a tendency in many countries for government debt as a share of GDP to rise over time for no justifiable reason. Fiscal rules and then fiscal councils were created largely to prevent this. It is difficult to square this phenomenon with the idea that deficit fetishism is always powerful.

Many political parties on the centre left in Europe (such as the UK) currently seemed resigned to deficit fetishism remaining a powerful force that can sway elections. So, if you cannot beat them, join them (and never mind what is good macroeconomics). This assumption at the very least seems debatable.