Which side is arrogant? (Thoughts on framing and debate)

By Matt Nolan 08/05/2013 3


Via Bernard Hickey on Rates Blog I see the following:

All you need to do is deregulate, privatise and target stable inflation and everything will work.

Broadly, they still believe that. I listen every day to this group think in Wellington. Treasury, the Reserve Bank and the cabinet have not changed that mindset.

The Global Financial Crisis has exposed that as both arrogant and wrong. New Zealand can kid itself that our relative economic stability and apparent prosperity (relative to everyone else) is the exception that proved rule.

Let’s put to the side that this is not what policy makers in New Zealand have done – we have had active competition policy, and we do have significant income transfers to support parts of society.

I have a more fundamental qualm with this – the idea that it is arrogant to presuppose that the knowledge of policy makers is limited and that intervention should be based on a clear idea of “what is wrong” … rather than presupposing that non-policy makers are idiots.

To me, I find the other way of looking at it arrogant – and yes, this does imply that I think that Stiglitz’s views on the ability to micromanage the economy are in themselves a touch arrogant.

Let us think about this a bit more.  What is more “arrogant” – forcing people who want to trade with each other not to because we are concerned about it, or not doing so?  What is more arrogant, accepting that our knowledge is limited and trying to work with society to ensure that as a society we can protect ourselves from unexpected things (the mainstream way of viewing things), or assuming that our knowledge of what is going on in a broad economy is great and trying to micomanage industries, credit markets, and the transactions people are allowed to choose.

In all honesty, I am sick to death of the mystical presumption that “free markets” have done horrible things to us and we need to do something about it.  Government as a share of national expenditure is larger than it used to be.  Transfers through the tax and benefit system are larger than they were 20 years ago.  Competition law and regulation is a lot clearer and much more active than it used to be.

Rant over – now to make an actual point!

Now do not get me wrong – in reality I actually don’t think Stiglitz, or Hickey (who wrote the above comment), are being arrogant.  I was trying to illustrate a point, I mean no offence :)

My point here was that how we frame this question makes the different sides look incredibly different!  I don’t think it is fair to call any side arrogant, in truth we just have different beliefs regarding the ability and knowledge of technocrats to guide the economy.  Stiglitz and Hickey both place more faith in the hands of policy makers to make choices for individuals that are better than the choices that individuals would make – either because of direct mistakes by individuals, or factors that stem from the interrelationship of individuals.

The economic model allows us to clearly paint the picture of these issues – and debate our value judgments.  Just like Rodrik says in this awesome piece.

So how about we stop treating the “other side” as ideological idiots, and actually ask “why” our views are different and whether the assumptions involved are appropriate or inappropriate.  I am afriad that I often see Bernard Hickey giving the Treasury and RBNZ people too little credit for their views in these pieces – the solutions are not as simple as a single newspaper article, or academic paper, will suggest!  Furthermore, there are always trade-offs – unlike politicians someone with integrity (such as an economist) will look at costs of choices as well as benefits.  And yes, that final statement was an example of stunning arrogance by me – but I’m not going back on it ;)


3 Responses to “Which side is arrogant? (Thoughts on framing and debate)”

  • For a rant about people making arrogant assumptions on how other people think, I’d expect some direct quotes to back this up:
    “Stiglitz and Hickey both place more faith in the hands of policy makers to make choices for individuals that are better than the choices that individuals would make – either because of direct mistakes by individuals, or factors that stem from the interrelationship of individuals.”

    For me, there’s a curious absence of discussion of the role of corporations – it’s strikes me as a nice ideological sleight of hand to say that privatising national assets makes their control entirely up to “individual choices” without acknowledging the role of corporations in the modern economy (as distinct from individuals). Or are we saying corporations are people in NZ now too? 🙂

  • “For a rant about people making arrogant assumptions on how other people think, I’d expect some direct quotes to back this up”

    Well that wasn’t what I said at all. The “rant” was an example of how the opposite side to Hickey’s could call the other side arrogant – just to show how it was a rhetorical device. I’m not calling any of the assumptions arrogant – I specifically say that when I go past the rant stage, when I point out it was an example. eg

    “Now do not get me wrong – in reality I actually don’t think Stiglitz, or Hickey (who wrote the above comment), are being arrogant. I was trying to illustrate a point, I mean no offence”

    Regarding the quote you pull I think if you asked Stiglitz, Rodrik, or Hickey they would all say they place less faith in private decision makers relative to policy makers. If we need an example, we can go back to Stiglitz initial post and see that he is saying that we can use multiple interventions to deal with instability in markets – which comes with the presumption that we have knowledge, and an acceptance of the incentives of decision makers, that would make this pass a cost-benefit test.

    I’d note that all I’ve done is noted the distinction, said that my priors and way I’ve incorporated the evidence differ, and also noted that all sides have relevant arguments – we just need to be transparent about assumptions. This is in contrast to the “rant” argument which tends to make things very “us vs them” for no socially good reason.

    “For me, there’s a curious absence of discussion of the role of corporations – it’s strikes me as a nice ideological sleight of hand to say that privatising national assets makes their control entirely up to “individual choices” without acknowledging the role of corporations in the modern economy (as distinct from individuals)”

    What exactly do you mean? There are plenty of areas where economists look at corporations, incentive structures in corporations/firms, and what these mean for the specific questions we ask.

    Trust me, economists will just as rapidly talk about issues of institutional failure for large firms as we will for government. The fact is that, from Stiglitz all the way to Mankiw, institutions are treated in the same way in terms of the model – the debate is around the types of failures, absense of knowledge, and incentives faced by the different groups. Given that we can’t observe objective truth, there are going to be difference of view … and these differences do not make the other side “arrogant” or “idiots”, which was my point.

  • Firstly, thanks for taking the time to step through it for me. I clearly misread your intent when I first read the post.

    I think where I get hung up is that what you said about the position of Stiglitz et al seemed to create an either/or situation of people arguing either for policy or individual choice, which I dont think anyone serious does.
    There are another massively influential set of actors in the market in the form of the institutions. Which is exactly what you just said as well.

    And I wasn’t trying to say no-one is looking at it in economics in general, just about the specific situation you described here. Frankly I think given your explanation (and my re-reading of your post) it’s completely tangential to your point anyway.

    I think the other place where I lose the thread is that you refer to “the model” and assume that your readers know precisely what that entails. I could hazard a guess but not reliably, because I’m not in any way an economist – just interested. But that’s my problem, not yours 🙂