THE FUTURE OF DEBT AND DEFICIT
POLICY: DEMOCRACY,
TECHNOCRACY AND PUBLIC POLICYMAKING
YIANNIS KITROMILIDES
INTRODUCTION
• The way debt and deficit
policies have been
formulated during the
current debt crisis,
especially in the euro
area, has raised
important questions
concerning the
relationship between
democracy, technocracy
and public policymaking.
THREE EPISODES
ITALY
GREECE
CYPRUS
DEMOCRACY OR TECHNOCRACY?
• In November 2011 the
democratically elected Prime
Ministers of Italy and Greece,
Silvio Berlusconi and George
Papandreou, were forced out of
office and replaced by the
unelected ‘technocrats’ M. Monti
and L. Papademos
• On March 15th 2013, Mario
Draghi the president of the ECB,
an unelected ‘technocrat’, issued
an ultimatum to the president of
Cyprus that unless he signed the
‘bail-in’ agreement all ELA from
the ECB to the banking system of
Cyprus will cease immediately.
• THE LEGAL AND
CONSTITUTIONAL STATUS IS NOT
IN QUESTION.
• THE DEMOCRATIC LEGITIMACY IS
IN DOUBT.
• IS THIS THE FUTURE OF DEBT
AND DEFICIT POLICY?
MORE QUESTIONS
• Is the ‘technocratic’ solution only appropriate for policies dealing with
debt and deficits or is it appropriate for a wide range of policy issues?
• Is a ‘technocratic government’ needed in only certain countries like Italy
and Greece or can it also be usefully employed in other countries like for
example Germany or the Netherlands?
• If there are universal ‘technocratic’ solutions to policy problems why not
apply them universally for all public policy-making, everywhere?
• Can ‘technocrats’ ever formulate policy? In other words were the
governments of Mario Monti and Lucas Papademos expected to design
their own policies based on their ‘technocratic’ credentials or merely to
rubber stamp and faithfully implement ‘pre-ordained’ policies?
• If their role was simply to ensure the implementation of the so called
‘German model’ of dealing with the debt crisis in the eurozone by a
combination of savage austerity and ‘structural reform’, a strong case can
be made that these governments were neither ‘technocratic’ nor
‘democratic’.
DEFINITIONS
• TECHNOCRACY: The rule or government of society by
technical experts.
• ‘TECHNOCRATIC GOVERNMENT’: It means different
things to different people
Sometimes it means that a person or an institution is above
party politics.
Frequently it implies that what is being proposed has the
sanction and authority of expert knowledge and scientific
understanding of the problem at hand.
Yet at other times it refers to the ability to recommend what is
‘correct’ and ‘necessary’ as opposed to what is ‘popular’
DEMOCRACY:
‘Representative’ not ‘Direct’ Democracy.
NEW THINKING
• At this point it may be asked :
• Are these legitimate questions to be discussed by economists.
• Yes: For a discipline that was originally known as Political Economy.
• Yes: For a conference like the present one that has as its principal aim the
encouragement of new thinking in economics.
• The main argument of my paper is that we need a new way of thinking
not only about economics but also about economic policymaking.
• Although my main point of reference will be debt and deficit policies, most
of what I have to say is of a more general nature.
• I will adopt an interdisciplinary approach utilising knowledge, analysis
and insights from two disciplines that have historically been closest to
political economy: political science and political philosophy.
• I plan to proceed as follows:
PLAN
•
First, I will begin by looking at the way economists view their role in the
policymaking process and then review briefly the development of the concept of
‘technocracy’ and examine the philosophical questions raised by the relationship
between expert knowledge and political power.
•
Second, I will compare the economist’ view of the policymaking process with the
prevailing views in political science
.
•
•
•
Third, I will argue that there are some additional problems with the economists’
policymaking paradigm, based on accounts provided by economists that have
actively participated in public policymaking as advisors.
Fourth, the case for revising the established policymaking paradigm in economics
is presented and some ideas on how such a revision might be attempted are
discussed.
Finally, debt and deficit policies are discussed in relation to the preceding
discussion of democracy, technocracy and public policymaking.
A. The economists’ view of policymaking:
The ‘Technocratic Ideal’
• How do economists see their role in
policymaking?
• The ‘optimisation paradigm’ of policymaking.
• POLICYMAKERS DEFINE THE OBJECTIVES
OF POLICY AND IDENTIFY THE
CONSTRAINTS- ECONOMISTS PROVIDE
THE INSTRUMENTS.
• The ‘optimisation paradigm’ views policymaking
as having a dual nature: a political one involving
the selection of ends and a technical one
involving the selection of means.
The philosophical dimension: The ‘KnowledgePower’ Relation
• Reflections on the philosophical problems raised by
this duality have a long intellectual history going back
to ancient Greece.
• The problem has always been one of establishing the
appropriate balance in the relationship between
knowledge and political power.
• Plato in his famous concept of the ‘philosopher-king’
was articulating a fundamental puzzle of politics: how
government can be organised so as to locate power
and wisdom in the same place.
• Machiavelli, Bacon, Saint-Simon, Compte, Weber.
Two conceptions of ‘technocracy’
(a) It attempts to subordinate political power to the power of
knowledge. Bacon, Saint-Simon, Compte fall into this
category.
(b) Weber restores the supremacy of politics by distinguishing
between “ends” and “means”. Scientific knowledge cannot
dominate politics because science can only determine “what
is” not what “ought to be”.
Clearly Max Weber had a profound influence on the
‘optimisation paradigm’ in terms of defining the
appropriate relation between economics and policymaking.
Economists view their role in public policymaking as
‘technocratic’ in the Weberian sense, not in the literal sense of
determining policy but of assisting policymakers in best
meeting their policy objectives.
B. The political science view of
policymaking
• According to the ‘optimisation paradigm’ public policymaking is
and ought to be a rational process of constrained optimisation.
• What is the political science perspective?
• The study of public policy can be approached from two
different perspectives:
(1) Descriptive- explanatory:
(a) How
(b) Why
(2) Prescriptive- normative:
(a) How policies should be made
(b) Develop techniques for improved policymaking
DESCRIPTIVE MODELS
• TWO contrasting descriptive models:
• (a) Policy as a PROCESS going through
various rational and discrete stages.
• (b) Policy as MUDDLING THROUGH
pragmatic and incremental.
Rational Decision-Making Vs. Incrementalism
• Herbert Simon recognises that complete
rationality untenable: “ Bounded rationality” and
“satisficing” better descriptions of public
decision-making.
• Charles Lindblom claims that public decisionmakers seek to reach not “correct” solutions to
policy problems but “agreed” solutions which is
best achieved by a series of limited and marginal
departures from existing decisions.
• A. Etzioni proposes a third model “Mixed
Scanning “ combining elements of both
rationalism and incrementalism.
C. Policy Advisors’ View
• There is a consensus in political science, which
casts serious doubts on the adequacy of the
economists’ public policymaking paradigm:
• ‘Satisficing’, ‘bounded rationality’,
‘incrementalism’ and ‘partisan mutual adjustment’
are more accurate descriptions of and possibly
more desirable prescription for public
policymaking than ‘constrained optimisation’.
• It is not only political science that has questioned
the optimising approach to policymaking but also
economists themselves.
Economists and Policy Advice
• Many leading economists have acted as senior policy
advisors to governments.
• The account of their experiences is quite instructive.
They are purely anecdotal evidence emerging from the
personal impressions and accounts of some economists
who acted as policy advisors to governments mainly in
the UK and the USA.
• Far from confirming the optimising view of
policymaking most of them express a combination of
surprise, frustration even anger and dismay at the way
actual policymaking works.
Some common themes
The most common misgiving:
GOOD POLITICS IS THE ENEMY OF GOOD ECONOMIC
POLICYMAKING
BUT
The world of ‘GOOD POLITICS’ is different from the world of
‘GOOD ECONOMICS’ in several important respects
Time horizons
Standards of evaluating policies
Standards of evaluating evidence
Speed of decision making
Social welfare function
PARADIGM SHIFT
Alan Blinder (CEA during the first Clinton Administration) believed in
the ‘optimisation paradigm’:
The best way to formulate economic policy was for the politicians to
provide advisors with a social welfare function that is to be maximised
together with all the constraints including all the political constraints
and then let them get on with their job.
“But I have learned over the years that this vision is naïve. The
problem is that, in the slightly-crazy world of politics, the political
constraints and even the welfare function are apt to be changing
unpredictably over time.”
This slightly crazy world of politics is not very dissimilar from the
process of muddling through, as described by Lindblom in the theory of
pragmatic incrementalism.
D. The ‘optimisation paradigm’:
revision or replacement?
One of the central assumptions of the ‘optimisation paradigm’
is that public policy is, and to the extent that it is not, it should
be rational and based as far as possible on scientific
information and evidence.
Political science and related disciplines, unlike economics, has
a number of alternative models of policymaking: ‘muddling
through’, ‘incrementalism’, ‘partisan mutual adjustment’,
‘bounded rationality’ and ‘satisficing’. Economists only use
one, the ‘rational model’.
Most economics textbooks even those that are specifically
concerned with economic policymaking, present the
optimisation paradigm without any critical evaluation, let
alone any comparison with the alternative models developed
by political scientists.
Does it matter?
• Does it matter if the economist’s view of public
policymaking is ‘naïve and simplistic?
• After all the main job of economists, is not to be policy
advisors or analysts of the policymaking process.
• Their main task is to understand how the economy
works and on the basis of that understanding to offer
‘technical’ advice both when asked and, even more
frequently, when they are not asked.
• ‘Take it or leave it’ attitude.
• ‘Intellectual division of labour’.
• Interdisciplinary ‘trade’? Is there any in economics?
POLITICAL ECONOMY
• A new way of thinking about public policymaking which utilises
knowledge, insights and evidence from other disciplines may lead also to a
new way of thinking in economics.
• If the ‘optimisation paradigm’ is rejected what can be put in its place?
• The political economy paradigm: economists will participate in public
policymaking as political economists not as technical experts ‘divorced’
from politics with all its ‘peculiarities’ and ‘impurities’
• Move away from such concepts as ‘technocratic policymaking’ and
‘technocratic governments’
• For TWO reasons:
• (a) the separation of functions between those setting the objectives
(politics) and those advising on the best instruments (technical experts) is
unworkable
(b) it can become a dangerous ideology: democratic ‘bad’; technocratic
‘good’
E. DEBT AND DEFICIT POLICY:
DEMOCRATIC OR TECHNOCRATIC?
• The threat to democracy by the recent events in Greece, Italy and Cyprus
is real and it should not be disguised by the use of the term ‘technocratic’
government.
• There are some uncomfortable implications of this position: first,
democratic governance is a luxury that heavily indebted economies can ill
afford; and second, there is a unique and unambiguous ‘technocratic’
policy solution to national indebtedness that somehow democratically
elected and accountable governments are incapable of implementing.
• The loss of national sovereignty in heavily indebted economies over the
conduct of its debt and deficit policy represents:
• (a) the power relationship between creditors and debtors and (b) There is
an apparent clash of democratic rights between creditor and debtor
countries.
• Neither should happen in a monetary union. In the absence of
fundamental reform the future of debt and deficit policies of indebted
economies in the euro area remains bleak.
Competent dentists?
• The German finance minister Wolfgang Schaeuble is adamant
that there is only one ‘technocratic’ solution to the debt crisis
in Europe: The ‘bitter medicine’ of Austerity.
• He does not mince his words on this issue: He had even
suggested that the Geek elections of June 2012 be postponed
in case it produced a government that would abandon the
austerity strategy.
• Keynes envisaged that one day economists will be regarded as
having the same professional status as ‘competent dentists’ !
• Mr Schaeuble thinks that economists have surpassed that
status. The ‘technocrats’ in the Troika are no longer
‘competent dentists’, they have become ‘rocket scientists’. We
should all take the medicine they prescribe.