The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [112]
There is a fundamental issue to address first, though, before turning to specifics. The priority given to economic growth in political debate is, as we’ve seen, perfectly valid; it’s what voters want. However, it means the debate has come to be almost entirely about questions of efficiency. What works? This is the question asked by officials and politicians and in think tanks. “Evidence-based policy” is the mantra in Washington and Whitehall. And quite right too, surely. If policies have a specific economic aim, we don’t want to select ones that don’t work. For this reason, swaths of the political debate have become technocratic and managerial. This can be seen in the increasing influence of academic research on policy choices, and in the growing number of quasi-independent bodies composed of experts who make important decisions. Independent central banks are one example of this kind of body, but there are many others. There does indeed seem to be some evidence that removing certain decisions from the arena of day-to-day politics improves outcomes (although the boom and bust of this decade have certainly dented the claims of central banks to superior expertise). This shouldn’t be surprising. Modern economies and societies are large and complex, presenting difficult problems some of which are indeed highly technical. In areas such as transport policy, energy, education, telecommunications, and many others, it is only sensible to use expertise and evidence to make decisions. Not only will there be a better chance that the decisions will be effective in achieving desired aims and boosting the economy, delegating decisions to bodies of experts might help focus choices on a longer time horizon than the few years at best that form the attention-span of politicians.
But, of course, efficiency isn’t everything. The financial crisis has highlighted in many people’s minds the need to keep other goals in mind. One of those, as described in chapter 4, is the unease about the unfairness of recent economic growth. The human sense of fairness runs deep. The extent of the inequality that will be tolerated politically can obviously differ in different eras, and the imperative toward greater equality is quite recent in historical terms. However, a desire for a minimum equality of either incomes or opportunities is part and parcel of democracy.
It’s debatable whether or not a dynamic capitalist economy has to go hand in hand with democracy. Historically, the two have coevolved, and of course the collapse of the communist economies adds weight to the sense that there is a link between a successful and innovative economy and the demands of democratic politics. What happens in China as it continues on its capitalist path will test whether the link is inevitable. However, most of the leading economies are democracies, and democratic societies are populist societies. Fairness in a democracy where policy decisions are tested by popular vote requires not too much inequality, and it requires the provision of welfare and public services so that everyone (in principle) has a fair opportunity. Fairness is what makes the drive for an efficient economy politically legitimate. While fairness is essential in the Economy of Enough, there are some obvious trade-offs between the institutions democratic governments have created to deliver such demands and the financial sustainability addressed in chapter 3.
The trade-off between efficiency and equality is a familiar one. All economics textbooks note that there are circumstances when more unequal outcomes would generate faster growth. For example, progressive taxation helps equalize incomes but has an adverse impact on incentives to work harder. But this textbook trade-off simplifies reality too much. Not only do modern democracies have a commitment to a minimum degree of equality and entitlement, but also