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Why there has to be more to economic policy than number crunching


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Milton Friedman, the 1976 Nobel Laureate in Economic Sciences and Chicago School economist, once wrote the following about the role economics plays in political division:

“I venture the judgement however that currently in the Western world...differences about economic policy among disinterested citizens derive predominantly from different predictions about the economic consequences of taking action---differences that in principle can be eliminated by the progress of...economics”

Friedman’s speculation was awfully optimistic. He contended that our only sources of political difference, in the sphere of economics anyway, are disagreements about the consequences of specific actions and therefore the only thing obstructing political unity in this domain is progress in our economic understanding. He was writing in 1953, but does this sentiment still ring true today?

Image Credit: The Friedman Foundation for Educational Choice [CC0] via Wikimedia Commons

Consider this: just last month, some 66 years after Friedman wrote the words quoted above, another Nobel Prize-winning economist, Paul Krugman, wrote one of his regular op-eds in the New York Times pillorying the US Republican Party’s healthcare policy. In a piece bluntly titled ‘Republicans Really Hate Health Care’ he claimed, among other things that:

“ ...whatever they may claim today’s Republicans hate the idea of poor and working-class Americans getting the health care they need.”

He further stated in the article’s subtitle that the party has “gone beyond cynicism to pathology”. Such words represent a stark departure from the non-partisan paradise described by Friedman in 1953. In his world, the only things dividing us were perceived policy consequences. Yet the work of Krugman and millions of polemicists just like him shows us that in the present day, this is no longer the case. Not merely through the vitriol of their rhetoric, but the fact we have arrived at a circumstance in which their turns of phrase are no longer unusual.

Accordingly, what separates Krugman from the Republican legislators he maligns so enthusiastically is more than merely their perception of economic fact, but basic values. And as such, the purely mechanical understanding of economics Friedman held in such high esteem can is longer sufficient to reconcile their respective differences.

It may seem somewhat demoralising but there is an important lesson here. Some policy differences simply cannot be reconciled even when we possess absolute certainty as to their consequences. In this regard, the usefulness of strictly empirical ‘value neutral’ economics is simply limited. Different people just value different rights and different freedoms to different degrees.

The arguments surrounding the implementation of a national living wage, or even the case for a minimum wage altogether, provide a useful example. Those in favour often argue that these measures raise standards of living, give workers greater economic security, and ensure a baseline income for all who receive it. These are factual claims, ones I’d even venture to say many opponents of these measures do not actually dispute.

Yet many still oppose them. Why? It’s not necessarily because they doubt their purported consequences nor their virtue. Rather, it’s because in principle they simply believe the freedom to choose your wage should supersede the security provided by an enforced minimum. Whilst perhaps not a strictly factual claim, such value judgements obviously interface with our perception of the facts. In particular influencing which ones we each pay attention to on any given issue.

Hence it is identifying and understanding these normative preconditions that is the antidote to the hyper-partisan demagoguery we see in the domain of economic policy. Of these, the tightrope between freedom and security is merely one of many critical recurring tensions in our decision making. Understanding our own preferences in these areas, as well as those of your political opponents, is key to unlocking a mutual understanding. 

However obtuse your political adversaries may appear to be, if you really take the time to understand them properly you’ll have to explore these issues. In doing so I can confidently guarantee you’ll find your differences aren’t actually down to ‘cynicism’ or ‘pathology’, but probably just a divergence in basic values.

Our departure from Friedman’s non-partisan paradise has certainly made civilised conversation a bit more challenging. Nonetheless an awareness of the new status quo can allow us to change our political norms accordingly. With a little more patience, empathy and understanding it may still possible to get to the root of our political disagreements, move beyond simple number crunching and into the domain of values.

Lead Image Credit: Nick Youngson // Picpedia

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