The world's most influential economic policy maker is Plato. It's not a good thing. - RSA

The world's most influential economic policy maker is Plato. It's not a good thing.

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One of the best aspects of the RSA is its ethos of trusting in the general public to come up with solutions to big problems. Indeed the Society’s raison d’etre for a very large part of its existence was to offer cash prizes and honours to anyone who could develop new inventions or ideas in response to challenges set by the RSA. It was by this method, for example, that the Society played a central role in revolutionising agricultural practices in the eighteenth century.

It’s a spirit which seems in short supply these days. Since the Crash, the claim that only the state and its agencies can solve our biggest economic problems has grown ever louder. As a result, the arrival of a new Governor at the Bank of England becomes a matter of the gravest importance. The Government itself is divided no less than four ways over what interventions it should make to get us back to growth. And HM Opposition’s almost entire beef with the Coalition is about the failure to intervene sufficiently to revive the economy.

The irony (not to say political narcissism) in all this is that major shifts are already underway which will entirely reshape the economy over the next few years. An RSA report  published later today reveals how rapid change in the manufacturing sector promises to bring production back to the very nations that have spent the last two decades furiously out-sourcing to China and elsewhere. This will have a huge (potentially positive) impact on jobs, productivity, exports and growth over the next few years. Is this change a result of government policy? Not at all. As ever in the highly innovative economic system that the RSA did its bit to create 250 years ago, it is driven by a combination of technological change and unpredictable socio-economic phenomena – in this case rising production costs in China.

As Paul Ormerod has shown rather brilliantly in his work, the belief that state policy can have predictable effects in the face of a complex, dynamic system like the economy is largely false. The reason the delusion persists is as much the fault of Plato as of Keynes or Friedman.

Plato’s great achievement was to place truth-seeking at the absolute heart of human life. More questionable, although clearly worthy of debate, was his claim that there is an absolute, pristine truth out there just waiting to be discovered. Downright abysmal, however, was his argument that those who had ‘discovered’ that truth were the most qualified to rule: a perspective that has led to all sorts of damaging elitism and autocracy.

And yet it’s this spirit that informs our policy more now than it has done in decades. In central banks, economists pull their monetary levers based on their models and (usually flawed) forecasts as an expectant, largely passive public looks on. While in government, economic analyses and views have an overwhelming influence on policy today. If you doubt this look at the way the discovery of a single data error in a single economics paper became a global news event a couple of weeks ago.

This is truly the age of the philosopher kings. We are increasingly ruled by people who believe they have some superior technical insight into the workings of our world which qualifies them to manage the whole thing. Again, if you doubt this, read this very recent post by the high priest of Keynesian economists (although this is a delusion that afflicts the Friedmanite right as much as the Keynesian left).

I’m struggling now to write a concluding paragraph. That’s because questioning the Platonic perspective means it is much harder to come to clear, simple conclusions. By contrast a Platonic view of the world inevitably leads you to strong recommendations: my analysis shows the world has this form, so do what I say. One very significant reason why it remains (albeit unconsciously) popular with governments and leaders who always have to be seen to be doing something.

Suffice it to say, however, that the economy itself will keep on developing and shifting in highly unpredictable and radical ways (with nudges from independent bodies like the RSA) while the policy makers maintain their increasingly intense cycle of activity always linked but never quite connecting in the ways they claim with that economic change. The economy, given enough time, has a way of making the politics and even the economists ultimately something of a sideshow.

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  • Good Hayekian comment. Remember bounded rationality, but alas precisely because rationality is bounded that the same is not well grasped

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