Back in February 2009 I wrote about what I saw as the break-up of a longstanding political alliance between “a pragmatic, basically scientific technocratic economics and conservative pseudo-economics.” The split was forced by the technocratic imperative to run stimulatory fiscal policy in response to the crisis, while conservatives remained attached to balanced budget, small government rhetoric.
What we’re seeing is not the ‘end of neoliberalism’, because most practical neoliberals never ditched the idea of stimulatory spending in a downturn. We’re just seeing the widening of a split between technocrats and ideologues. The ideologues have become an obstacle to policy which is functional for capitalism; they are being cast adrift, but no doubt they’ll be useful again.
In a comment JCD wrote:
…the reiteration of the ideologue line in the media through all the op-eds and interviews though certainly has a broad impact on the wider public’s understanding of economics, so I am not so sure that the break is going to be so clean. At least here in the States. There are a whole bunch of cranks–professional economists and not–who loathe the notion of a government deficit.
And clearly he was right. I still think the technocrats have the upper hand within most policy bureaucracies. In Australia it almost goes without saying. In the UK the situation is more complicated, with a government committed to deficit reduction. In the US, also, it looks unlikely that the degree of stimulus that is called for will get through Congress. In both these places, though, this should be qualified by the substantial stimulus that has been run these past few years – the ideologues are in the ascendancy in the media-political sphere, but it remains to be seen whether policy follows through.
In the UK the bulk of the promised cut-backs are due to come a year or two down the track. I doubt they would go ahead in the event of another downturn, whoever is in government, and I think it is a very open question whether the government will succeed in its planned program even without a downturn, since its severity will surely provoke countervailing pressure. In the unlikely event of a boom, the technocrats and the ideologues will in any case be back in alignment, although the latter will probably prefer a more drawn-out process of deficit reduction.
The US is an interesting case. Although the US government is often seen as having a strong executive, that’s clearly not the case when it comes to fiscal policy. My impression is that the President’s relationship to Congress has more in common with temporary coalition building in a multi-party hung Parliament than with a winner-takes-all system. That makes technocratic fiscal policy extremely difficult – it faces stronger problems of timing and economic rationality than in most countries. (In some ways the strongly independent Federal Reserve has evolved to compensate for that.) So the ideologues in the media-political sphere are correspondingly more potent, and with elections this year we see almost the reversal of the traditional ‘political business cycle’, where stimulus is difficult to build support for.
I have to admit to still being surprised by the know-nothingness of the likes of the Wall Street Journal, in contrast to the more technocratic financial press elsewhere in the world. This editorial from Tuesday is a case in point. It is transparent pseudo-economics all the way through, arguing first that the first round of stimulus was a failure because there was still a recession, and second that this was a result of public deficit spending ‘crowding out’ the private sector, despite the lack of apparent upward pressure on interest rates. Hilariously, it puts ‘demand’ in scare-quotes, as if it were some kooky concept dreamed up by community organisers: “Larry Summers, who would later become Mr. Obama’s chief economic adviser, made the case for such a stimulus to boost domestic ‘demand’ in late 2007.” It’s hard to see it as anything other than propaganda – but propaganda for who? Wall Street doesn’t benefit from demand restraint. It can only be Republican anti-Obamaism; it is not really a rational ideology for capital.
Showing that the technocrat-ideologue struggle is alive and well, the Economist’s economics blogger has taken to ridiculing the Wall Street Journal and its “own special brand of economics”. On the other hand, today he or she gives a good illustration of why, however much we may enjoy their beatings of the conservative ideologues, the technocrats are ultimately not friends of the left either, and why eventually they will again be the force to contend with, precisely because they are rational:
When expanded government activity generates increased interest rates, that’s a sign that the activity is coming at the direct expense of private sector expansion, and society should think very, very carefully about the return to that increased government activity. It might nonetheless be worthwhile—defending the nation from attack would fall into this category—but in general it probably means that the government should find ways to reduce wasteful aspects of its demands on the economy.