Reflections on “Why economics has become political again” by Richard V. Reeves, Brookings Institute.
Economics and Politics. Politics and Economics. In theory, these two fields of study are unequivocally distinct by definition. Economics is the study of how we make decisions in a world in which we have unlimited wants but limited resources; Political science, on the other hand, focuses on the functions of the government, the distribution of power, and public policy. Granted, these two fields have a special relationship: the role of the government is to distribute resources, to account for externalities, and to regulate the economy. However, in practice, the problem is that these two fields are almost merged together into one, seemingly making the two almost indistinguishable in the public eye.
So what exactly is the issue here? Why is it a problem? Well, the most striking problem is that there is a clash of fundamental ideology here. In democratic societies, politics, as we know it, is driven by the popular opinion of the people — we recognize this as ‘majority rule.’ Economics, in contrast, is driven by rational decision making, economic models, and calculations. In essence, political decisions should be and are made by individuals, whereas economic decisions should be made through careful conclusions drawn from economic analysis. Now, I am not saying that the majority opinion is irrational or unfounded; I am saying, however, that the most rational economic decision and the popular opinion quite frequently can be different. In these cases, the clash brings up a lot of questions regarding what we value as a society. Should expert economic opinion trump the majority opinion if it is more beneficial for society? Is it wise to leave economic decisions to those who are not accustomed to economic thought and analysis? Should a government’s role be to follow every public opinion or also account for the expert opinion?
As mentioned by the Reeves, Brexit is a perfect exemplar of this situation. While the economic consensus is that staying in Europe provides immeasurable benefits to the United Kingdom, the public/popular opinion was otherwise. Indeed, Brexit was a case in which economics and politics were merged into one; instead of following economic expert opinion, the public decided to take the word of politicians like Nigel Farage and Boris Johnson.
In the recent contemporary history — the late 20th century to be more specific — Reeves observes that economics was not so involved in the political sphere. Yes, politicians did debate on which economic policy was more effective, but they still agreed on simple and obvious economic conclusions. As Reeves puts it, “Economics became a matter of mathematical science rather than political art. Politicians still argued about economics, but within a tiny space between largely agreed parameters.” So, why has economics been summoned back into politics? Why are the economic ideologies of politicians so divided?
Reeves provides two fascinating answers to these questions: anti-establishment sentiments and a lack of connection with the study of economics. Lets go back to the Brexit example. The establishment, led by David Cameron and the Conservative Party, conducted a campaign that emphasized the cold, true, economic facts behind United Kingdom and the European Union. They brought in economic experts and speakers — one of whom was President Barack Obama — to reinforce their statistics and facts for remaining in the Union. However, Cameron and the Conservatives failed to realize the public’s stance. In this sense, Reeves’ analysis is accurate; the anti-establishment sentiments and the public’s lack of connection with economics has made the public turn against the economic consensus. Especially regarding important social issues like immigration, the public has a higher propensity to reject establishment economics. In Reeves’ words:
“The voice of reason is no longer the one that is heard… It is no good complaining that the experts are right: nobody’s listening.”
This, in my opinion, will be the defining challenge for politicians in the upcoming years. In many nations including the United States and the United Kingdom, the public do not have a positive view of the establishment since the 2008 recession. In essence, 2008 marked the abandonment of establishment politics and its economic arguments for a large amount of the populace. How are we going to get economics out of politics once more? When will the people put their differences aside and listen once more to the economists who fervently express concern in many of the public’s decisions? When will politicians agree once more on plain economic facts? Only time will tell.