You can almost feel the intensifying and clangorous clash of two economic policy paradigms. The question is: what is the best policy response to high indebtedness by countries especially after the global financial crash of 2008? Some economists say stimulate the economy now even if it means taking on more debt, pursue growth and then deal with deficits once the economy is robust. Others say you have to deal with deficits now by imposing serious, often crippling austerity programs. The bloodless phrase for this: fiscal consolidation. Who is right and who is wrong? Unfortunately for many citizens, this is not an argument that can be settled in a science lab, perhaps by testing the theories on some unfortunate rats or monkeys. Entire countries are the laboratories for the testing of these rival policy paradigms.
I use the phrase ‘policy paradigms’ advisedly because I have been reading the notable political scientist Peter A. Hall who wrote the classic piece ‘Policy Paradigms, Social Learning, and the State: The Case of Economic Policymaking in Britain’ for the journal of Comparative Politics in 1993. I went back to the piece after reading the April 2013 special issue of the journal, Governance, which is entirely about the politics of policy paradigms. In that compelling issue, a salute to Hall’s classic essay, he himself has an op-ed titled ‘Brother, Can You Paradigm?’ Hall restates the view that policy paradigms shift, for example from Keynesian policies to monetarist ones, but in order for this to happen ‘each of these transitions required a motivation, means, and motor’.
The motivation for the shift from one paradigm to another would be roughly that things are not going well under the dominant paradigm. It is creating a mess; inconvenient facts are piling up. The motor for the change is some development in politics, especially electoral politics: because of elections the old policy makers get thrown out. The means: a new paradigm. Hall believes the following:
"Today, some of the preconditions for another major shift of policy are in place and perhaps presage a new era. There is a widespread sense of grievance in much of Europe and North America about rising levels of income inequality, intensified in some countries by high levels of unemployment and stagnant incomes following from the global financial crisis."
He is not sure that the return of Keynesianism will suffice. Maybe a whole new doctrine responding to the realities of the global economy today will be needed to do the job.
One of the things Hall noted in the original 1993 case study was how policy change in Britain did not take place solely within the confines of the state itself:
"The ensuing struggle to replace one policy paradigm with another was a societywide affair, mediated by the press, deeply imbricated with electoral competition, and fought in the public arena."
If that was true of Britain in the 1990s, that is even truer of economic policy debate these days. First, the debates are global now. And they take place not just in the quiet seminars that policy makers organize but in the places like Davos and others where the global elite regularly assemble. Above all, these policy fights are conducted in the global media…and that is a growing breed. And the experts contend in the media as well. To be an influential expert these days you have to me truly media savvy. Naturally, the politicians on the different sides of the debate have their favorite experts that they quote and deploy like missiles. And they want these experts to provide them with killer facts, simple laws as clear as those in physics.
So, if you are a conservative politician driving an Austerity-Now agenda what a boon it is to learn that two top Harvard economists have ‘found’ a clear, irrefutable law: that when debt reaches 90% of GDP growth is compromised. So they took the ‘finding’ and began to use it to pummel their opponents. The experts on the other side of the debate smelled a rat, so they began to look closely at the data used by Reinhart and Rogoff, the Harvard professors. And soon enough it was found that there were errors in the original paper…and all hell broke loose on the op-ed pages of the global media. You can read some of the coverage in the Financial Times here, here and here.
The two Harvard professors are now enduring some reputation damage. And this for three reasons. First, they have embarrassed the politicians on both sides of the Atlantic who had been citing their ‘finding’ with glee. The professors are not going to be flavors of the month any longer. Second, the experts on the other side of the debate have been thrashing the Harvard professors with gusto…all in the global public sphere, not in journals read only by experts. Hey, when you enter the arena you can get burned. Third, most members of the global elite who consume the elite global media are not going to read the works of the Harvard professors in the original; that means they won’t see the caveats, the footnotes, the ifs and buts of the case. Yet they are following the controversy. As a result, they will now associate the names of these professors with careless work. Fair? Of course not. But that is the way these matters go. See, for instance, what Larry Summers, also a Harvard economist, says in an op-ed piece that starts out appearing to defend Reinhart and Rogoff:
"In future, authors, academic journals and commentators need to devote more effort to replicating significant research results before broadcasting them more widely. More generally, no important policy conclusion should ever be based solely on a single statistical result. Policy judgments should be based on the accumulation of evidence from multiple studies done with differing approaches."