3.1.2 The Relationship between Politics and Economics

(This is an archived extract from the book Patterns of Power: Edition 2)

Societies vary in the extent to which government decision-makers – who are referred to in this book as ‘politicians’ – play a role in the management of their economies. At one extreme, in a ‘market economy’, "individuals and private firms make the major decisions about production and consumption".[1] At the other extreme, in a 'command economy', "the government makes all decisions about production and distribution." In practice "all societies are 'mixed economies', with elements of market and command". Governments control some aspects of a mixed economy, but since the end of the 18th century there has been a gradual trend towards enabling markets to function more freely.

Economics is an important factor in political decision-making but, as observed in the previous section, it should not be the only consideration. As Michael Sandel noted:

“...questions of what we ought to do in politics or as a society are unavoidably moral and political, not merely economic questions, and so they require democratic debate about fundamental values. Economists can inform us about possible implications of policy choices, but they can’t tell us - and they don’t really claim to tell us - what’s right and wrong, what’s just and unjust”.[2]

Sandel’s phrasing echoes this book’s separation of the different dimensions of governance. Economists themselves draw a distinction:

· Governments exert economic power to create moral and political effects: so-called ‘normative economics’.[3]

· They cannot avoid consequences that can be quantified in financial terms: ‘positive economics’.

There is confusion in using the term 'economics' for both these aspects, sometimes leading to heated debate between economists about what constitutes good policy.[4] This book attempts to reduce the confusion by treating them in separate sections:

· There are different views on socio-economic rights, such as health, education and welfare: their affordability is a matter of economics (3.5.2), their desirability (as compared to reliance on private charity) is a moral question (4.2.4.3), and it is a political question as to whether the population will agree to pay the necessary taxes to establish them as a public benefit (6.7.1).

· The redistribution of wealth can be considered as a matter of economic reciprocity (3.5.1) or as a question about perceived fairness (6.7.2.1).

· Measures to combat climate change can be considered as an economic problem (3.5.7), and as a political question about the extent to which the public would support spending money on it (6.7.5).

· Support for developing countries can also be considered from both the economic (3.5.8) and political (6.7.6) perspectives.

In this chapter, economic power is considered as a motivating force and as a numeric calculation; the moral and political aspects of its use are in other chapters.

[1] The definitions of ‘market economies’, ‘command economies’ and ‘mixed economies’, and the associated quotations are taken from Economics by Samuelson and Nordhaus, pages 6-7.

[2] Michael Sandel commented on the scope of economic power, in the Reith Lectures 2009: A New Citizenship, Lecture 1: Markets and Morals, in his opening remarks. The transcript of this lecture was downloadable in April 2014 from http://downloads.bbc.co.uk/rmhttp/radio4/transcripts/20090609_thereithlectures_marketsandmorals.rtf.

He subsequently published a book, What Money Can’t Buy, which further elaborated these arguments

[3] Paul A. Samuelson and William D. Nordhaus’s book Economics contains a very useful glossary of specialised terms, which are shown in single quotation marks when they are used in this chapter. In the glossary, they summarise the difference between 'normative economics' and 'positive economics' in these terms:

"Normative economics considers ‘what ought to be’ – value judgments, or goals, of public policy. Positive economics, by contrast, is the analysis of facts and behavior in an economy, or ‘the way things are.’"

They give more detail on this distinction on page 6.

[4] For example, Don Boudreaux wrote an article entitled Grocery School, which was published on the Cafe Hayek blog on 24 April 2011 and was downloadable in June 2014 from http://cafehayek.com/2011/04/grocery-school.html. In it he compared the supply of publically-funded ‘K-12’ schooling to what would happen if the State supplied groceries, concluding:

· “Does anyone believe that such a system for supplying groceries would work well, or even one-tenth as well as the current private, competitive system that we currently rely upon for supplying grocery-retailing services? To those of you who might think so, pardon me but you’re nuts.

· To those of you who understand that such a system for supplying grocery-retailing services would be a catastrophe, why might you continue to count yourself in the ranks of those who believe that government schooling (especially the way it is currently funded and supplied) is the system that we should continue to use?”

In terms of 'positive economics' it is hard to disagree with his conclusion, but here he is only looking at education as a component of government spending. In this book it is argued that there are other ways of looking at it: as a way of increasing productivity (3.2.5), as a factor in helping people from different cultures to understand each other (4.4.7.1), as a way of strengthening people's sense of shared identity (6.7.4.9) and as a way of helping them to participate more actively in politics (6.8.1). This is not to say that people should be deprived of choice in education, because choice is a way of increasing the acceptability of governance (2.3.3), but attention has to be paid to the importance of its role in society and some safeguards are therefore necessary – including the need to ensure that all children have access to it, irrespective of their parents’ ability to pay.