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George Osborne has just spoken at the RSA. He gave a very interesting speech with real substantive economic analysis, incorporating insights from behavioural economics. He made the following major claims about a new ‘politics of austerity’:

George Osborne has just spoken at the RSA. He gave a very interesting speech with real substantive economic analysis, incorporating insights from behavioural economics. He made the following major claims about a new ‘politics of austerity’:

 

1)     that there should be no second fiscal stimulus and that we should not borrow our way of out of debt;

2)     that the current economic crisis does not mark the death knell of market capitalism, but rather a recognition of certain of its inherent features that ‘rational man’ economics had neglected to take into account.

 

He went on to say that a future Conservative government would embed markets in strong institutions, laws, and cultural norms that recognised the inherent flaws in markets due to the ‘irrationalities’ of the agents that popluate them.

 

He then talked about how Conservative party social policy would reflect the insights of behavioural economics in various ‘nudge’ style policies. Finally, he talked about how we avoid sowing the seeds of the next crisis while dealing with the present one. To that end, as well as better regulation, he suggested, drawing on Shiller’s work on irrational exhuberance, giving the Bank of England discretionary powers to gently deflate speculative bubbles as they build up.

 

So far so good. But I was left wondering why a link, beyond greater market regulation, wasn’t drawn between behavioural economics, social policy and avoiding sowing the seeds of the next crisis? For example, behavioural economics doesn’t just tell us that we act irrationally, it also tells us that we are not only self-interested – that we are motivated to act for the sake of fairness and altruism. And beyond behavioural economics, studies of social and emotional cognition show that we are innately disposed to care about harm done to others.

 

Our ‘pro-social’ dispositions can be seen as spare civic capacity to be put to use in a ‘politics of austerity’ which is not just a temporary blip between the cycles of consumerism, but a paradigm shift away from such a model. A ‘politics of austerity’ should not only be about refusing to borrow our way out of debt. It should also be about learning to live in a less materialistic, more socially responsible, environmentally sustainable society. All the evidence suggests such a society is not only desirable for ethical and practical reasons, but that it would also make us happier.

 

Does the Conservative party have the vision to tap into this spare civic capacity? If it does, it could dominate British politics for a generation. For there is a groundswell amongst the public that is pulling towards more empowered communities that participate in running their own affairs. People recognise that goverments cannot provide all the solutions to their problems, that they themselves must change the way they behave. And they also recognise the moral and personal emptiness of simply being a consumer and a recipient of top-down Government intervention. In response to this, the role of Government in the 21st century should largely be one of ethical oversight and enabling empowerment. Are the Conservative party up to that challenge?

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