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April 09, 2006


Much good sense in this:

Are you U or non-U? By which I mean, are you a universalist or a relativist? Forget left and right; the defining political divide of the global era is between those who believe that some moral rights and freedoms ought to be universal and those who argue that each culture to its own.

I’m a U as I expect most readers here are. However, it isn’t the defining political divide. It’s an important point, but not the defining one.  That is whether you are a statist or not.

Put another way, the question is whether you actually understand public choice theory. Four Nobels for it so far so obviously an important strand of economics. One interpretation of it (an extreme one, to be sure) and one that I subscribe to is that it overturns most of the arguments in favour of State regulation of the economy, indeed most State action. Yes, this includes much of Keynes as well.

Put simply, there are indeed very strong arguments in favour of well judged intervention in said economy. They, rather disappointingly, assume that such intervention will be undertaken by wise, omniscient even, honest and extremely clever people with only the good of the public weal as a whole being weighed in the balance.

Public choice theory shows that the people who make such decisions are not so. They are human beings, with all of the faults and foibles that encompasses, and they act out of rational self-interest, just as everyone else does.   Thus the interventions are not driven by what is good for us all, but by what is good for those taking the decisions.

At which point the whole Statist delusion falls apart.

That’s the defining political divide of the current era.

April 9, 2006 in Politics | Permalink


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Yawn. I disagree with Tim Worstall that The Observer is being particularly interesting when Andrew Anthony asks: Are You a Universalist or a Relatvist?. I know Anthonys article is tongue-in-cheek, but it betrays a sneering attitude to the r... [Read More]

Tracked on Apr 9, 2006 8:23:07 PM


'twas studying rational choice theory (public choice? New name, same stuff) that sold this lefty on markets. Was being taught by a lefty as well, one of the few UK academics that really thought it important.

He emigrated to Oz :-(

I think what divides us is Irecognise the division between systems of ownership and systems of distribution and exchange, thus socialism can work effectively within markets; John Lewis and co-ops being prime examples.

Tim adds: I have no problems with voluntary socialism. Absolutely none whatsoever. As you point out, in a free society all forms of organization are allowed. What worries me is the involuntary form, which requires the ending of the free society.

Posted by: MatGB | Apr 9, 2006 12:35:59 PM

"Most of Keynes"? Are you sure?

Where is the "good sense" in that article btw? It seems to be all about "do you believe in a ludicrous strawman version of relativism (and are you an anti-Semite too), or do you buy the whole Decent bill of goods? Come on, it's got to be one or the other!"

Posted by: dsquared | Apr 9, 2006 1:51:51 PM

"Yes, this includes much of Keynes as well."

Garbage. To repeat myself quoting Keynes, the General Theory was about this: "it is an outstanding characteristic of the economic system in which we live that, whilst it is subject to severe fluctuations in respect of output and employment, it is not violently unstable. Indeed it seems capable of remaining in a chronic condition of sub-normal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse." [GT p. 249]

We can argue about the frequency with which market economies become locked into "a chronic condition of sub-normal activity for a considerable period . . ." as Japan's economy was during the 1990s. And we can argue about whether Keynes was successful in proposing a theory that could satisfactorily explain how and why such situations develop and whether he was correct in suggesting that monetary policy alone could be ineffective in restoring normal activity. Whether the General Theory provides a convincing rationale for monetary and fiscal intervention in *particular circumstances* is an entirely separate issue.

For example: the major Eurozone economies manifestly suffer from problems of persistent high rates of unemployment (and low rates of employment of working-age people). The European Central Bank has adopted a policy of inflation targeting (correctly IMO) and sets interest rates to achieve its adopted target. Various working papers emanating from the Bank and its policy prouncements have suggested that the Bank's board of governors do not believe that monetary boosts to the Eurozone economy will successfully reduce high unemployment rates in the Eurozone without also breaching the Bank's inflation target downstream - correctly so IMO.

None of that proves that Keynes was wrong. It does suggest that the Bank and others have concluded that the high unemployment rates of the major Eurozone economies are not (primarily) due to demand deficiency.

However, the fact that the governments of France, Germany and Italy evidently consider it necessary to run fiscal deficits of magnitudes that breach the Eurozone's Stability and Growth Pact (1997) limits does indicate that those governments believe some unduly large fiscal boosting of their respective national economies is needed to maintain politically tolerable rates of unemployment.

It seems that the finance ministries of the respective governments have assessed their national economies in Keynesian terms. Some would argue - myself included - that the governments have under-estimated the importance of supply-side policies which influence the elasticity of Keynes' aggregate supply function in the GT. The recent legislative proposals of De Villepin in France to reduce the job security of the under-26s were evidently intended to address supply-side issues - which is not to claim that he went about it sensibly.

Posted by: Bob B | Apr 9, 2006 8:30:09 PM