Liberal Democracy and Its Reinventors
Reinventing “liberal democracy” seems a rather popular activity these days. There is a widespread presumption that voters are globally rejecting globalisation and freer markets. Most explanations of the rise of so-called “populism” tend to understand it as a homogeneous phenomenon all through the West, and thus the result of homogenous demands on the part of voters. “Liberal democracy” (or liberalism, or capitalism, all words that in this context are used as a substitute for “the establishment”) ought to be reinventing itself to answer such demands.
Most of the time, the reinventors of “liberal democracy” end up preaching for more economic interventionism, thinking this is the way to bring the populists’ demands back into the fold of the “establishment”. It is a bit surprising that, while in the West government has arguably never been so expensive nor so over-reaching, these proposals seem to be what would be needed to “cure” a world of laissez-faire and not so benign neglect. Those who uphold them speak as if public spending was 5% of GDP.
Yet sometimes more thought-provoking ideas pop up. Hedge fund manager Ray Dalio, for example, has an interview in which he suggests the renewal of capitalism should be “a national emergency”, tackled as such by the President. Well, that sounds terrifying. But then it seems to me that he ends up preaching some sort of “private-public partnership” for education, seeing the sorry state of schools as the primary reason why the social elevator looks broken these days. That high schools are doing a very poor job, almost anywhere, is a matter which seldom gets the proper consideration. Those who worry about the education system typically end up asking for more money (but should you really put more gas in a pierced tank?) and very rarely consider its faults as an institution. Kudos to Mr Dalio to hint at that.
Wolfgang Munchau has an op-ed in the FT. The whole piece seems written for the sake of the last line pun: “liberalism is failing because of market forces.” Well, sometimes writers sacrifice arguments for a good line. Munchau has two points. His call to arms is that (Margaret) “Thatcher looked after the median household” whereas her successors “lost the middle classes”. In other words, the free market’s natural constituency is made up of those people who want to do better in life, to improve their lot, and somehow current policies have failed them. This idea he justifies against the background of economic policies have lost interest in “the little guy”, and implicitly singles out lack of proper antitrust enforcement. Really? Does this matter? Lots of people seem to believe that voters choose populists because Amazon (who the very same people use incessantly) or Facebook (the very place where they continuously rant against the political establishment) aren’t properly squeezed by our tax systems. Does it make sense?
Munchau clearly has little patience for the hypothesis that politics may be influenced by wrong perceptions on the voters’ part, and with the idea that the market economy should be judged on the growth it created over time.
What often leads the supporters and defenders of modern liberal democracy astray in their analysis is their addiction to macroeconomic aggregate variables such as gross domestic product and the officially recorded rate of unemployment
“Granular information” presents a different picture, he argues. And we all know that macroeconomic aggregates may be tortured to please this or that ideology, but I fear the same thing can happen with “granular information”. Avoid cherry picking one way or another is sound advice, but I’m afraid most of us are affected by confirmation bias.
Speaking of which, Munchau writes confidently that “one of the main lessons of modern economic history is we cannot be oblivious to the distribution of income and wealth”. For sure most people aren’t oblivious to that, as they incessantly write on it. They certainly exerted an influence on policies: sometimes commentators need to be reminded that we already live in welfare states, that we already have progressive taxation, that privatisations have left much in government hands, that immigration is hardly “free” and as a matter of fact international trade too is not a totally deregulated matter. If we do so much not to “be oblivious to the distribution of income and wealth”, and yet we are deeply dissatisfied with the result, can’t we, for a change, try to do less and see how it goes?