In an interview with Joel Suss, editor of the British Politics and Policy blog, Ha-Joon Chang discusses his new book, Economics: The User’s Guide, and the need for a pluralist approach to economics. He recently gave a public lecture at the LSE, the video of which can be seen here.
This post originally appeared on British Politics and Policy (BPP).
In a recent article, you wrote: “the economy is too important to be left to professional economists, and that includes me.” Can you elaborate on what you mean?
I don’t mean to suggest that expertise is unimportant. You can’t run a sophisticated modern economy on Maoist lines, that says that anyone can do anything therefore we don’t need experts. No, I don’t believe in that. Experts are crucial; there are a lot of technical things that only experts can know. However, if you want to have a meaningful democracy expertise should be harnessed by the general will, by the general public. Unless the general public is informed by basic economic theory and by key economic facts, they’re going to make wrong decisions. Members of the general public have a duty to educate themselves in economics to an extent so that they make enlightened decisions. Then the details can be sorted out by the experts. We have instead created a system where self-appointed experts basically run the show and democracies become a kind of rubber stamp because people don’t understand what’s going on and they don’t want to understand what’s going on.
People have strong opinions on all sorts of things – gay marriage, Iraq, abortion, global warming – without having any qualifications to make informed judgements. I don’t have a degree in international relations but I have a view on Afghanistan. How come everyone thinks that economics is too difficult, too technical? People make strong judgements on the basis of having some basic knowledge about international politics or some climate science, they are not making this judgement based on sophisticated expert knowledge, and that’s all I’m asking when it comes to economic matters as well.
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Unfortunately we economists have been very successful in convincing people that what we do is very difficult and that people won’t understand it even if we explained it to them. There has also been a lot of political interest in keeping economics away from democratic debate, keeping it away from the general public by making people believe that it is very difficult. There is therefore a lack of a real debate except yes, monetary policy should be run by the Bank of England or the Federal Reserve Board, or utility regulation can be done by some special committee. After a while you realise that there’s no substance to democracy because all of the important decisions have been farmed out to these expert groups. That’s what needs to change.
Should monetary policy not be completely independent of politics? Should voters have a role to play?
Not that it has been hugely effective, but at least in the US the Chair of the Federal Reserve Board has to sit in front of a Congressional Committee and get grilled once every 6 months. On the other hand, the European Central Bank has no accountability whatsoever. They are totally free from democracy. That’s what needs changing. Perhaps we should elect the members of the board of the Bank of England’s Monetary Policy Committee. Why not? I’m not necessarily advocating the election of board members but there needs to be some kind of democratic accountability in these expert groups. There needs to be some balance; you don’t want things to be decided purely on political convenience without any kind of technical competence or expert opinion. On the other hand, experts are not pure technocrats. They have their views. Central bankers may not be overtly political; they may not be a member of some political party but they represent a particular worldview. They are usually people from the financial community and, without meaning to be biased, tend to look at the world through a specific lens. There needs to be some kind of counter to that. If you are uncomfortable with having people without any economics background then at least ask the trade unions or citizen groups or something to recommend an economist who can sit in there who can represent other interests. At the moment it is full of people either from the financial industry or purely from academic backgrounds, so monetary policy gets decided in a very particular way.
You’re also critical of how mainstream economic thought dominates academia…
I sometimes liken the economics profession to the Catholic clergy in the Middle Ages. Unless you knew Latin you couldn’t even read the Bible because the Pope refused to let the Bible be translated into the local languages. You had to either learn Latin or take their word for it. Economics has become completely inaccessible to many people so we need to change this in the way that some of the religious reforms back then tried to do. In those days, religious reformers promoted the translation of the Bible into local languages and the reading of Bible by common people. They emphasised the authority of the Bible rather than what the Vatican says is in the Bible. They, if you like, democratised the religion. Something similar to that is necessary now once again. This is not to say that we don’t need academic economists; those people are necessary. But it has to be related to what’s going on in the real world. Unfortunately a lot of my academic colleagues not only do not work on the real world, but are not even interested in the real world.
What kind of heterodox or alternative streams of economic thought would you like to see in the mainstream?
I don’t like the term heterodox because it’s relative. It already assumes that there is an orthodox position and everything else is heterodox. What is heterodox can change all the time. In the 1950s Milton Friedman was heterodox. My position is that we need a pluralist approach where no theory is superior to any other theory. In my new book I explain that there are at least 9 major schools of economics, possibly another half dozen if you include some minor schools or split bigger schools into sub-schools and so on. There are many different economic theories and they all have something to contribute. They have their weaknesses and strengths because they all make certain assumptions about ethics and politics. They all have different theories about how economies develop, different visions of what an ideal society looks like and so on. People should be exposed to as broad a range of theories as possible in order to have a more sophisticated view of the world. By looking at many theories you get to see the world in a more complicated way.
I want teach my readers how to think not what to think. What conclusion they draw is up to them; I’m simply giving the necessary tools in terms of different theories and historical background and facts as they stand today so that they can make a more informed decision. One great example that you can use here is Singapore. If you read only The Economist or the Wall Street Journal you will only hear about the country’s free trade policy and welcoming attitude to foreign investors. You will never be told that 90 per cent of the land is owned by the government, 85 per cent of housing is provided by government owned housing corporation, and a staggering 22 per cent of GDP is produced by state owned enterprise when the equivalent ratio on average worldwide is around 9 per cent. Singapore combines the features of extreme capitalism and extreme socialism, so what is it? There’s no single economic theory that can explain Singapore. Reality is very complex, therefore I’m encouraging my readers to look at the different theories and try to apply different theories in different contexts.
What are the wider implications of a dominant economics worldview which posits individuals as rational actors, as agents acting in their own self-interest and systematically weighing costs and benefits? Some people argue that the logic of the market has, as a result, become embedded in our daily, personal interactions.
Yes, that’s right. Of course it would be silly to deny that we at least try to be rational. There are rationalist aspects in what we do. Human beings are at least partly motivated by selfish interest. But this very narrow view of human nature has actually created a kind of poor society in the sense of everything being reduced to monetary value. Now people are asking why we need subjects like anthropology or history of art or sociology when all we need is making money. That makes for a very poor society. You are seeing arguments that we should commercialise the BBC so that they can make more things that people can watch without realising that the BBC is the envy worldwide for its ability to produce very high quality cultural programmes. So that kind of worldview has made societies very poor in terms of cultural diversity and things like that. But more importantly it’s created this society where being bad, if you like, is considered something good or even being clever. You are actually a sucker if you don’t cheat. Once you begin to understand the world in this very narrow, impoverished way then you will create a society which is actually very inefficient. Then you will have to say well everyone’s out to cheat and promote their own self-interest so we have to monitor everyone all the time, and then who’s going to monitor the monitors? We have to hire monitors who can monitor the monitors and so on and so on. Society becomes very inefficient not to speak of being very unpleasant.
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Dr Ha-Joon Chang has been teaching economics at the Faculty of Economics and the Development Studies programme at the University of Cambridge since 1990. Economics: The User’s Guide was published in April 2014, and Chang is also the author of Kicking Away the Ladder, Bad Samaritans: The Myth of Free Trade, and 23 Things They Don’t Tell You About Capitalism.