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The decline of economics

Summary:
Edward Luce writes: Bill Clinton’s 1992 campaign watch phrase was “it’s the economy, stupid”. Today it would be “it’s the culture, idiot”. He’s right, but this poses the question: why did this change? The question of, course, applies to the UK as well as the US. One fact deepens the puzzle. It’s that trend growth in GDP per capita has halved since the 90s*. This should have made economic issues more important, because it’s much less obvious now that the economy can thrive without policy intervention. Back in the 90s, politicians might reasonably have thought “the economy will take care of itself as long as we don’t do anything too stupid, so let’s focus on other matters.” Today, we cannot take growth for granted. But in fact, the opposite has occurred. As economic performance has

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Edward Luce writes:

Bill Clinton’s 1992 campaign watch phrase was “it’s the economy, stupid”. Today it would be “it’s the culture, idiot”.

He’s right, but this poses the question: why did this change? The question of, course, applies to the UK as well as the US.

One fact deepens the puzzle. It’s that trend growth in GDP per capita has halved since the 90s*. This should have made economic issues more important, because it’s much less obvious now that the economy can thrive without policy intervention. Back in the 90s, politicians might reasonably have thought “the economy will take care of itself as long as we don’t do anything too stupid, so let’s focus on other matters.” Today, we cannot take growth for granted. Gdptrend

But in fact, the opposite has occurred. As economic performance has worsened, so the salience of economics in politics has declined – so much so that, as Stian Westlake has said, the Tories “seem to have stopped talking and thinking about economics.”

I stress that word salience. There have always been clashes between cultural liberals and conservatives. For decades, however, these were generally secondary to economic debates. Today they are not.

So what changed?

The cause of the increased salience of the culture wars should by now be well-known. Events have vindicated the point Ben Friedman made in 2006 – that slower economic growth promotes illiberalism and reaction, which triggers hostility from social liberals and egalitarians.

But why has the salience of economics declined?

I don’t think it’s because politicians have accepted the advice of Dietz Vollrath or John Landon-Lane and Peter Robertson, that national policies can do little to raise long-term growth** - any more than they have heeded green calls for degrowth.

Instead, one possibility is that people just don’t want economic growth. Philip Hammond (remember him?) once said that people “did not vote to become poorer”. But they did – in 2010, 2015, 2016, 2017 and 2019. This might not be a case of adaptive preferences, of people resigning themselves to not wanting what they can’t have. An ageing population means there’s a big constituency of retired or nearly-retired people who have little direct interest in increased prosperity. And the Easterlin paradox tells us that economic growth doesn’t make us much happier anyway. One reason for this is that it is a process of creative destruction – but this brings with it uncertainty and the disruption of jobs and communities. Why want that?

There’s another way in which economic growth is undesirable. Measures to increase it would almost certainly hurt powerful vested interests. Centrist policies to improve productivity would include toughening up competition policy and shifting the tax burden from incomes to land. And that’s not to mention more radical options such as increasing worker democracy or reducing inequality. Also, faster economic growth would lead to higher real interest rates, which could reduce asset prices and deter the leverage on which the “picking up pennies” strategies of investment banks and private equity depend. There’s a powerful coalition for whom all this is a nasty prospect.

You don’t have to be a Marxist to believe that we’ve reached a point where the relations of production have become a fetter upon the productive forces. Joel Mokyr has written:

Every society, when left on its own, will be technologically creative for only short periods. Sooner or later the forces of conservatism…take over and manage through a variety of legal and institutional channels to slow down and if possible stop technological creativity altogether.

To those of us formed in the 70s and 80s, all this seems weird. We were brought up to see Thatcherite Toryism as an economic project – albeit one with the aim of achieving cultural change. So isn’t the lack of interest in economics yet another way in which the Tories have become anti-Thatcherite?

Perhaps not. Maybe Tories were not really interested in economics at all, but something else.

Their concern about the UK’s relative economic decline in the 70s might have been motivated less by a desire to raise living standards and more because they feared the UK’s loss of power and prestige on the global stage. In this context, it was the Falklands war more than economic policy than transformed self-perceptions of the UK, just as Brexit now bolsters the self-image of the UK as a strong independent “nation”.

And perhaps Thatcher’s assertion of “managers’ right to manage” was not a means of increasing efficiency but rather a desire to impose traditional hierarchies. The crisis of the 70s was not so much an economic crisis – real GDP then grew better than they have in recent years – as a political one. Workers were getting uppity, and Tories hated that.

Maybe, therefore, the rise and decline of the salience of economics within the Tory party (and the media) isn’t so strange after all. Economics was only a tool for achieving a sense of national pride and preserving inequality, and the tool could be safely returned to the shed when the job was done.

* This isn't simply the result of the financial crisis. My chart shows that rend growth was declining before then. And anyway, the crisis was endogenous.

* Note the strong correlation in my chart between UK and US growth. It is consistent with Landon-Lane and Robertson’s point that medium-term growth is the result of mainly supra-national factors.

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