Democratic reform and the Titanic

1 06 2009
Asset bubbles + zombie political parties = ?

Asset bubbles + zombie political parties = ?

The news that the last survivor of the Titanic, Lillian Gertrud Asplund, has died reminds us that rearranging the deckchairs on that doomed vessel has since been a metaphor for wasting time on trivial things while disaster looms. The current discussion on democratic reform falls into that category. Whatever may or may not be the merits of proportional representation, the discussion about them at this point is almost entirely irrelevant to the real problems we face. The debacle over MPs’ expenses is partly the product of underlying anger about the recession, partly a response to politicians lecturing us about personal morality for years, and partly their own fault for making greed the official cause of the recession itself. These are all symptoms of a political crisis and not causes.

These contingent factors have precipitated a crisis in public confidence in the parties. But the bankruptcy of our political culture is the culmination of a long process of deterioration in politics, not the cause of it. The political parties have had their political blood drained away over the years: zombie parties propped up by bubbles in the economy

The problem of the emptiness of politics is not going to disappear simply because we vote for MPs in a different way. Neither is it right to see this crisis simply as a distraction from dealing with the economy, as the head of the CBI reminds us today. It is the crisis of politics that has led us into this recession and that has also caused the weak and vacillating response to it. The recession has exposed the problems for all to see and it is this public exposure that is now bringing down the political parties.

The second part of Sean Collins’ excellent essay on the difference between the 1930s Depression and today ends by making the point that the US President FD Roosevelt, whatever his failings, at least tried to attack the cause of the Depression in a bold and experimental way. This kind of openness to experimentation does not mean making Esther Rantzen an MP, it means throwing off many of the conservative ways of thinking and operating that have become part of our way of life.

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Economists behaving badly: why individual behaviour is not to blame for the recession

27 05 2009

Bromley illustrationsLast week I attended a meeting with Robert Shiller, a behavioural economist and author of Animal Spirits.  As I have discussed previously, behavioural economics is becoming increasingly influential, particularly as an explanation for the recession and how to get out of it.  Essentially Shiller and others are offering psychological reasons for why people make apparently irrational decisions in the economic sphere.

Shiller’s argument last week boiled down to saying that the recession was caused by lack of confidence, an extension of FD Roosevelt’s proclamation during the 1930s depression that ‘all we have to fear is fear itself”. If you listen to the podcast you will see that in response to  questioning from  Richard Sedley and myself, Shiller is quick to concede that psychology cannot explain everything.


Two reasons why behavioural economics is on the rise

In the current climate of economic and political meltdown however, behavioural economics does not have to be a coherent theory of everything in order to be important. It is becoming increasingly influential because it plays a dual role in the current period of turbulence:

1)  it allows us to feel that it was the mistakes of the greedy bankers, driven by over confidence and corrupted by easy money that caused the recession. In that sense it takes away the necessity to think through what really caused the recession and the underlying political and economic problems that need to be resolved.

2)  if we are irrational beings as Shiller and others suggest, then the State is justified in stepping in to protect us from ourselves. Behavioural economics becomes another reason why the State needs to intervene more, not less, in all aspects of life.

This is why behavioural economics has been taken up by the Obama administration, the British Conservatives and people in New Labour. They are all looking for an explanation, any explanation, so that they can avoid tackling the really hard issues.