The Critique of Economic Policy
Now more than ever, the watchword in economics is “policy.” “Decision-makers” demand – and sometimes pay well for – “the appropriate policy” to solve those economic problems that strike them as important. Economists interested in “practical relevance” respond by “applying” their theories to supply such a policy. What goes unquestioned is the plausibility of “policy” itself. Yet, the very notion of policy is questionable. This analysis seeks to show that “policies” are now fashionable disguises for partisan ideologies. While the victims of policies have long suspected this, I propose to validate their suspicions in logical terms.
The Absurdity of Policy
A policy is an action proposed as a means to solve a problem. For example, for many private and public decision-makers, the US economy’s decline (since its stock market bubble burst in 2000) is a problem. They demand solutions from economists. Predictably, economists propose mixes of more or less conventional monetary and fiscal policies. The Bush regime chooses to reduce interest rates, increase money supply, cut taxes, and so on. In classic fashion, it identifies a problem and implements the appropriate policy.
Very particular and partisan presumptions underlie such exercises in economic policy. First, proponents of policies presume that the problems presented to them have a few “key” (or “essential” or “determinant”) causes. Second, they presume these key causes to have been “found” by economists and hence to be “known”. Policies are then simply the negations or reversals of these key causes. Having found that economic decline is determined by high interest rates, the appropriate policy is to lower them. If decline was found to follow from high taxes, policy lowers them, and so on.
However, why make such restrictive presumptions? It is much more reasonable to presume that many, many causes combine to produce any economic problem. For example, American economic decline since early 2000 has been shaped by all manner of political, cultural, and economic causes. These include – but are hardly limited to - shifts in consumers’ sentiments about saving for retirement; personal, corporate and government debt; workers’ productivity and attitudes toward work; capitalists’ expectations about competition, market expansion, and union organizing campaigns; bankers’ risk assessments of domestic and foreign loans; foreign currencies being pegged to the US dollar; federal and state regulators’ attitudes toward accounting standards, pollution control, and auditing of corporate tax returns; pentagon arms procurements; Chinese exports’ unit-labor costs; young Americans’ expenditures on housing; consumers’ vacation plans; changing production technologies; the effects of pre-emptive foreign wars; the invention of new commodities; and union strategies for bargaining and organizing. Economic decline likely results from an infinity of interacting causes.
That decline, in both its qualitative and quantitative dimensions, results from the interaction of all the causes. Indeed, the causes are so complexly intertwined and interdependent that it is impossible to abstract one or a few causes from the totality of causes and attribute effects (e.g., economic decline) to those few alone. To do so presumes that the effectivity of the selected one or few selected causes could somehow be disentangled from and comparatively ranked above all other causes. Nothing logically warrants this presumption, notwithstanding the desire to produce policy for those who demand and pay.
Econometricians glimpse a parallel problem of unwarranted presumptions. That glimpse underlies the cautionary argument found at the beginning of most econometric texts: that one cannot logically infer causality from correlation. Econometricians often forget that cautionary argument. They imagine (mistake) themselves to be ferreting out causal linkages in their correlation studies. In parallel fashion, policy economists imagine (mistake) the few causes their work focuses on for being the few key causes of whatever problem their policy aims to solve.
Nor is this logical error avoided if economists accept that the causes for any economic problem are infinite in number and variety, but then proceed to presume that a very few among them – those chosen as “the policy tools” - are “the most important causes.” To know which are the “most important” – or “key” - requires comparing them to all the other possibly effective causes. Since the latter are of immense number, that comparison cannot be done. It has never been done. Whatever basis economists may claim for selecting the particular causes that their policies stress, the actual basis for that selection simply cannot be that they or anyone else “found” those variables to be the most important among all the causes. We will need to look elsewhere to explain why different policies select the particular causes that they do.
True, decision-makers dislike hearing that the problems concerning them (or, if they are politicians, their constituents) have countless causative factors whose relative effectivity cannot be ranked. They wish to be capable of “solving” economic problems. So they press and pay economists to produce policies that promise solutions if just this or that (or those) key cause(s) is (are) adjusted. If the problem fades after such adjustment, they take credit. If the problem persists or worsens, they blame economists. In their defense, the economists point to “unusual” or “exogenous” factors that “caused” the failure in a policy that is otherwise – in “normal circumstances” – effective. Policy economists then argue among themselves over which economist’s key causes are “the most effective” and so ought to be central to proposed policies. Decision-makers may well choose a different policy from that which failed and resume the entire exercise. Indeed, there may be oscillations among a set of policies as decision-makers cycle through them when economic problems elude solutions. This has long been the reality of government economic policy in much of the modern world.
Thus, for example, interest rates and federal budget surpluses have been widely claimed as key causes of the US economic decline since early 2000. Correspondingly, lowering interest rates and moving federal budgets toward deficits became appropriate policies. Those policies would increase consumer spending and business investment, solving the problem by turning economic decline into growth. Yet, there could be no assurance whatsoever that all the other operative causes of economic decline might not overwhelm or negate the impact of these policies. Indeed, historically unprecedented interest rate reductions by the Federal Reserve over the last two years and Bush’s tax cuts failed to reverse the decline. Had they “worked”, however, the logical problem remains. There would be no way to know whether the policies pursued or countless other causes had reversed the decline. While the economists debate which is the right policy to pursue, the deeper problem lies with policy per se.
The Importance of Policy
Having shown how policy depends on unreasonable presumptions about key causes, it remains to explain the actual importance of policy. Many people want and support policies as solutions to pressing problems. Responsible decision-makers demand and rely on specific policies. Trained specialists produce, refine, and debate appropriate policies. The evident contradiction – policy as theoretically absurd and policy as important practically – needs to be acknowledged and accounted for.
Returning to the example of recent American economic decline illustrates policy’s practical importance. Rising rates of unemployment, personal bankruptcy, and reduced public services strike many as urgent problems requiring solutions. Because the decline coincides with the Bush presidency, it poses a problem for his 2004 re-election campaign. He demands a policy to solve the problem of economic decline as do stock market players and businesses facing continuing losses, states confronting huge budget deficits, and so on. They all demand “policies.” The mass media feature experts in economic policy proposing, challenging, and debating alternative remedies. No doubt something socially important is going on.
What makes any policy important, however, is not the solution it promises because, as argued in Part I above, that promise is empty. Because each policy focuses on merely one or a few of the vast array of any problem’s causes (ignoring all the others), its effectivity is utterly contingent and unpredictable. Previous declines in the US show a simple truth about all policies to reverse them: sometimes they work and sometimes they fail.
The clue to unraveling what makes policy practically important lies in what differentiates policies. Each policy focuses upon a different few of the innumerable causes of a targeted problem. For one policy, the key is interest rates and business investment; for another it is government budgets and aggregate demand; and for still another, it is currency exchange rates.
Each policy focuses the attention, discourse, and actions of a public concerned with a problem. It focuses them precisely upon the particular subset of the causes selected by that policy. Thus, Fed policies on interest rates and Bush policy on budget deficits become ways to shape and control how Americans think about a problem such as economic downturn. To make the point more sharply, virtually exclusive public discussion about interest-rate and budget deficit policies keep people from thinking about other causes of decline.
For example, no significant public discourse focuses on how the capitalist class structure of business enterprise contributes to the current economic decline. This is because no policy aimed at class change is permitted entry into public discourse. Similarly, only a tiny, marginalised public discourse links Washington’s particular anti-terrorism program to that decline. Once again, no policy aimed at changing Bush’s anti-terrorism program obtains a place among the hegemonic set of “policies” debated in the overlapping spheres of government, business, media, and academy.
Policies “work” by selecting particular causes of any targeted problem, focusing exclusively upon them, and thereby moving other causes to the edges or altogether out of consideration. The currently hegemonic set of debatable policies for reversing US economic decline excludes policies focused on class and anti-terrorism. There is no logical reason for this exclusion. No analysis exists or could exist to prove that all possible causes of economic decline other than interest rates, state budgets, business and consumer spending are negligible.
There are ideological and political reasons for the exclusions worked by all policies. A public excluded from knowledge of, let alone debates over, class-focused policies will not likely think about changing class structures to reverse an economic decline. That is the point. A public concerned about decline may be nicely controlled by limiting debate about its causes and remedies to the current “appropriate policy alternatives”. One way to preclude social movements from dealing with economic decline by challenging the capitalist class structure of the US is to keep public discourse about policies focused on causes other than class.
The great practical importance of policy is to shape events by restricting the public discourse about what steps are appropriate to deal with problems. That is why, despite the fact that particular policies – e.g., reducing interest rates to reverse economic declines – “fail” as often as they “succeed”, they remain dominant policies across repeated economic declines. People thinking about interest rates are not thinking about class transformation. If interest rate reductions fall out of favor, then perhaps a policy shift to tax cuts, or currency manipulations will occur. In all such cases, these policy tools keep people from thinking about class transformation. Policies police the public understanding and response to social problems.
It is thus important to establish, maintain, and give wide exposure to the small “policy community” of political and business leaders and their paid experts inside and outside the academy. Distant from people’s daily lives, its expertise heavily promoted, this community invents and debates its carefully restricted set of policies. It keeps ready alternative policies for those deemed to have failed. It makes sure that policies allowed into the orbit of discussion exclude social structures of wealth, power, and class as causes of social suffering. This exclusion operates by silence whenever possible. When silence is insufficient, exclusion is achieved by denouncing the nwanted policies’ flawed basis, ineffectivity and/or ulterior political motives.
The US policy community functions well these days. Economic decline will not likely provoke policies that challenge the class structure. The now hegemonic set of policies will likely see American society through yet another of its endemic cycles of instability and mass suffering. When the upturn arrives, it can and will be credited to one or another within the hegemonic set of policies. Why not?
Policy and Radical Critics
Economic policies have little relevance to actual solutions. Policies are relevant to controlling how people think about and act on problems. That control function emerges from the limits on what is considered as policy, limits accepted and enforced by the “experts”. Excluding consideration, let alone debate, of alternative policies (outside the limits) reinforces the social status quo, especially its class structure.
What enables this exclusion to persist, even when challenged by supporters of the excluded policies? It is hardly the mediocre success rate achieved by official policies (witness the failures of monetary and fiscal policies to reverse declines in Japan, Western Europe and the US in recent years). What most sustains the limits and exclusions operated by the hegemonic policy community is one central claim, namely to have “found” those very few “key” causes (within the infinity of those that contribute to the targeted problem) that alone define and delimit “appropriate” policy. Before radical critics – those interested in basic social (including class) change - can obtain a hearing, they must deconstruct and persuasively undermine that central claim.
Radical critics can do more and better than to design and propose policies likely to be ignored or dismissed. Nor need they succumb to the policy community’s definitions of what counts as “realistic” policy, since that amounts to accepting the very limits against which their radicalism otherwise struggles. Radicals might best begin by criticizing the entire enterprise of “policy solutions,” exposing its logical absurdity and the partisan ideological and political ends served by the currently hegemonic set of policies and policy-makers.
Economic problems confront all economists with danger and/or opportunity. An economist’s social agenda (e.g., status quo versus radical class transformation) may be endangered (compromised or defeated) by how the problem is understood and acted upon. Opportunity lies in the possibility that the problem will be understood and treated in a manner advancing the social agenda of the economist. Advocating particular policies as “solutions” for problems is a way to advance a particular social agenda. The claim that particular policies actually “solve” the problems is a ruse or disguise for - a displacement of - what are actually promotions of particular social agendas. Policies promote their proponents’ social agendas by controlling how people understand and respond to social problems that arise. If radicals successfully undermine the absurd claim that a policy is “the solution,” they could level the policy debate playing field. Instead of disputes among carefully limited policy options whose “found appropriateness” excludes radical policies, policy debates would become explicitly recognized contests among alternative social agendas and their correspondingly differing ways of understanding and reacting to social problems.
To show that there is no such thing as the “right” policy, but only a ceaseless contestation among alternative social agendas is the best strategy for opening present and future policy debates. It may also be the best strategy for drawing many more people into discussion of and decision on social issues. Instead of an elite of credentialed “experts” versed in an increasingly arcane and distant terrain of “appropriate policy mechanisms,” we might expect a return to genuine participation. Alternative social agendas and visions – if and when people understand that they lie behind the ruse of policy – might return to become the stuff of a democratic politics.
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