Monday, May 17, 2010

Efficient Markets and Efficient Politics

Paul Krugman’s column is devoted to explaining the renewed vigor of movement conservatism (my emphasis):

“Right-wing extremism may be the same as it ever was, but it clearly has more adherents now than it did a couple of years ago. Why? It may have a lot to do with a troubled economy.

“True, that’s not how it was supposed to work. When the economy plunged into crisis, many observers — myself included — expected a political shift to the left. After all, the crisis made nonsense of the right’s markets-know-best, regulation-is-always-bad dogma. In retrospect, however, this was naïve: voters tend to react with their guts, not in response to analytical arguments — and in bad times, the gut reaction of many voters is to move right.”

“That’s the message of a recent paper by the economists Markus Brückner and Hans Peter Grüner, who find a striking correlation between economic performance and political extremism in advanced nations: in both America and Europe, periods of low economic growth tend to be associated with a rising vote for right-wing and nationalist political parties. The rise of the Tea Party, in other words, was exactly what we should have expected in the wake of the economic crisis.”
All this seems to me like simple common sense. It stands to reason that people tend to get politically mobilized when they’re competing for fewer resources and see their civic ideals as being under attack by an administration they oppose. Krugman only loses me when he confesses that this is not how “it was supposed to work.”

I’m happy to concede that it’s hard to believe that “the markets-know-best [and] regulation-is-always-bad” when employment’s hovering around 10%. Indeed, it’s hard to believe that under any circumstances, which is probably why practically no one does--not even, I gather, the freshwater economists Krugman is always disparaging. The last time I looked, the Tea Partiers haven’t taken to the streets to uphold the efficient market hypothesis. They're there like every other citizen-activist, to advance their interests and (regrettably illiberal) ideals.

It’s one thing to suspend the presumption that the market always knows best during hard times, but something else to jump to the counter-presumption that, at least when it comes to allocation of public or partly public goods, the political process always knows better. That’s something that the Tea Partiers seem to be skeptical about. But it's something that people committed to having the state intervene more ambitiously in private economic affairs must believe. Liberalism only makes sense insofar as the political process tends to allocate resources in a way that's tolerably efficient, and morally acceptable.

Believing that's so makes a certain amount of theoretical and ethical sense insofar as every citizen’s political preferences are represented and the political process responds to their relative intensity by allowing elected representatives to trade votes on which their constituents have weak preferences to secure outcomes that they strongly prefer. But that means that conservative preferences count too, even when they're gut reactions that don't measure up to Krugman's idea of "analytical argument."

Krugman would be a more persuasive liberal if he could manage to sound more like a democrat.

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