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The Critique of Economic
Policy
Richard D. Wolff (University of Massachusetts, Amherst, USA)
© Copyright 2003 Richard
D. Wolff
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.
Note: I wish to thank Max Fraad-Wolff for valuable comments on an earlier draft.
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CITATION:
Richard D. Wolff, “The Critique of Economic Policy”, post-autistic economics review,
issue no. 22, 24 November 2003,
article 4, http://www.paecon.net/PAEReview/issue22/Wolffe22.htm
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