Res Politica versus Res Economica
Res Politica versus Res Economica
John Mauldin
September 18, 2011
>
Today’s Outside the Box is the latest chapter in my ongoing discussion with Dr. Woody Brock on the rationale of the politics of economics. In this essay, Woody explains how political science has taken a back seat to economics, and how to redress the imbalance we find today between what he terms “Res Politica” (the rule of politics) and “Res Economica” (the rule of economics or money). Where the rubber meets the road here is that our important economic decisions are increasingly being made by politicians (who are not particularly well-schooled in either economics or political science), with consequences that are likely to be dangerous. You will have to put on your thinking cap, but this will provide you with some real insights and food for thought.
Woody is one of the best “big-picture” economic theoreticians of our time, and that’s why I treasure the times we get to talk (or rather I get to “sit in “school” and learn), and have invited him to speak at our annual conference. He has already committed for next year, so save the dates: May 2-4 in La Jolla. In the meantime, you can find more of Woody’s thinking at his company’s site, Strategic Economic Decisions. (For the record, this is the first OTB I have sent from my iPad.)
Your hoping the politicians are listening analyst,
John Mauldin, Editor
Outside the Box
RES POLITICA versus RES ECONOMICA
Why Economics Must Yield to Politics as the Paradigm of Tomorrow
By: Horace W. Brock, Ph.D. President Strategic Economic Decisions, Inc., http://www.SEDinc.com
Author’s Note: We are living in the age of economists, the Age of Larry Summers as it were. But economists have less and less to say about the important issues of our time. This is because these issues are political – indeed political philosophical – in nature, not economic. Yet “political science” is rightly regarded as a second rate discipline, and political philosophy has morphed into the History of Political Thought.
This essay explains why political science became irrelevant, and how to redress today’s imbalance between Res Politica and Res Economica.
A. Economics Imperialism and its Origins
The phrase “economics imperialism” has circulated for nearly three decades. It refers to the reality that, of all the social sciences, economics has emerged as the most relevant, most useful, and most rigorous discipline. Its perspective on social behavior and its analytic methods have invaded every facet of sociology, political science, and social psychology. The success of such books as “Freakonomics” is proof of precisely this point, as has been trumpeted by its author Steven Levitt. Finally, if any further proof of economics hegemony is needed, just consider the surging enrollments in economics and finance courses at major universities worldwide, a surge that is well known to have caught university administrators off guard.
The same phenomenon is true in public policy analysis. There was a time when the cabinet of the US president was dominated by lawyers, or political scientists and theorists, but that is no longer the case. We are living in an age when economists such as Martin Feldstein or Lawrence Summers or Alan Greenspan dominate policy discussions. With their well-honed analytical skills (lacking in other fields), they sound off with credibility on any number of topics, and often have the last word.
There are four reasons why all this has happened. First, the discipline of economics is indeed highly analytical and rigorous, and this imparts credibility to it. It can explain phenomena, and also (to some extent) abet forecasting the future.
Second, the analytics of economics are not mere abstractions, but are transformed into testable models via the linkage between economics and econometrics. In an age when the “objectivity” of analysis is prized (and indeed required by the press), it sure helps a policy maker to trot out extensive statistical back-up for his case. The fact that most people confronting econometric evidence have no way of knowing whether the underlying statistical methodology is valid does not change this reality.
Third, economics was the first discipline to put central emphasis on the concept of “incentives.” When they make decisions, consumers, producers, and investors respond to given incentives. This point is extremely important for two reasons: (i) the concept of “incentive structure compatibility” is arguably the most important concept ever set forth in the history of analytical social science; and (ii) incentives can be changed by government policy. This second point has permitted economics to be linked to public policy in a very compelling manner: By knowing the consequences of changing incentives, a politician can much better predict the outcome of a change in policy, and thus identify a better policy.
Fourth, beginning students of economics are presented with a timeless and powerful analytical model that is as compelling to economics as is the Law of Gravity to physics: The Law of Supply and Demand. Imagine economics without this model! Moreover, no matter how far students progress in their studies, they never deviate far from the model of market equilibration via the price system.
The Contrasting Failure of Political Science: Now contrast this plethora of selling points to the dismal state of political science today. To begin with, there is no organizing paradigm or “model” of any kind. The field is often described as “mush.” At its best, the discipline serves up rules of thumb about alternative voting procedures and their relative desirability. Issues of incentives and incentive structure incompatibility are suppressed, even though they are as important in politics as in economics. Worse yet, the fundamental paradigm of politics is largely side‐stepped, namely “Politics: Who gets What, When, How,” as set forth in 1935 by Harold Laswell. That is, the all-important paradigm of politics as multilateral bargaining between interest groups is absent from the pages of most political science textbooks.
For reasons we are about to see, these deficiencies of contemporary political science must be remedied. In particular, we need a hard-core analytical model as compelling to Res Politica as the Law of Supply and Demand is to Res Economica.
B. Why the Paradigm of Economics No Longer Suffices
It is time to take a leaf from Aristotle, who correctly recognized that political science is the master discipline—not economics. Here are several reasons why:
First, by reviewing the meaning of “true capitalism” it is clear that our cherished paradigm of free market economics is completely dependent upon the assumptions of the rule of law, of unbribable judges, of sanctity of contract, and of transparency. Put bluntly: Proper political institutions are a necessary condition for the virtues of a free market system to deliver the outcome society wants. They come first. They are not an after-thought.
Second, the ability of a free market capitalist system to deliver the goods requires much more than the basic institutional set-up just described. Specifically, whenever issues of “public goods,” “externalities,” or “imperfect competition” arise, impacted interest groups must determine via multilateral bargaining exactly what gets provided, and who is to pay how much of the bill in the process. Moreover, in a global context, issues of how to cope with misaligned currencies, vast trade deficits, and theft of intellectual property rights will only be resolved politically via multilateral bargaining between myriad interest groups. This is part and parcel of a well-functioning capitalist system.
Third, we are living in a world where the price, quantity, and allocation of important commodities like oil were once determined by a free market. But they no longer are. We are now witnessing the ongoing and dangerous “politicization” of the oil, gas, copper, and other markets. The same is true in the case of multilateral bargaining over “intellectual property rights.”
Fourth and more broadly, most of the important issues that could stymie future world growth and precipitate war remain quintessentially political in nature. For starters: Who gets how much water at what price? Who will pay how much for global warming? How much will tomorrow’s youth be taxed to pay for the elderly? Which nations will be “allowed” to go nuclear? And how will rival claims in the Middle East eventually get sorted out?
In short, our future depends upon success in politics—that is, in the quality of future “governance” to utilize a preferable term. But what do we mean by “success in governance?” Is there a yardstick equivalent in politics to “resource allocation efficiency” in economics? More broadly, is there an organizing paradigm or model that could prove as useful to res politica in the future as the Law of Supply and Demand has proven useful to res economica in the past? Happily, there is. Yet this model is completely unknown to most political scientists and philosophers. This must change.
Tweet
Facebook
Reddit
Digg this!
