Sunday, November 9, 2014
Towards a more agnostic behavioural political economy
Last July there was an interesting conference in Venice organized by CESIFO on Behavioural Political Economy. Most papers can be found in the conference's web page and will be published in a forthcoming issue of the European Journal of Political Economy. I already read some of them, and there is no doubt that they show the way in terms of what is increasingly necessary to understand the interaction between politics, economics and behavioural sciences in general. Economic thought has evolved from traditional welfare economics, where individuals are assumed to be rational and selfish but there is the implicit assumption that some benevolent planner has the ability to make things better. Then the public choice critique argued that planners cannot be assumed to be different from everybody else, so they should be assumed to be selfish as well. That was used as a justification of policies to reduce the size of government. But the assumption that everybody is selfish does not imply that markets are better than collective solutions based on game-theoretic principles, so a more agnostic view became the consensus among economists with what became the accepted label of "political economy." Behavioural economics then questioned the assumption that all agents are rational, even when they take important economic or political decisions, such as voting. The first answer to that was to assume that there would be planners unaffected by bounded rationality and that could help lay citizens to decide, though by keeping the principle of free choice. Thus the libertarian paternalism of "nudgers" such as Thaler and Sunstein was born. However, critics with this view point out, in an analogous way to what the public choice critique did, that planners are no different from everybody else, and that they can also be affected by bounded rationality. Actually, in one of the papers in the Venice conference it is shown that experts behave with similar biases than normal citizens when making policy choices. In some contributions, it is apparent that behavioural economists give also an ideological interpretation to this argument, by claiming that the fact that policy makers are boundedly rational justifies downsizing government. The logical evolution of all this is that instead of a "behavioural public choice," we will have a "behavioural political economy" that is more agnostic about the size of government. In that sense, it is interesting, that the survey article that was presented in the conference has already changed its title: before the conference, it circulated as "Behavioural Public Choice". After the conference, it circulates as "Behavioural Political Economy." It would have been interesting to see the discussants' presentations or any feedback that made the authors change their mind about the title. I don't think that behavioural considerations favour the right nor the left, it depends on the issue and the specific policy, and on time and place. Stiglitz in his book on inequality has a chapter on how the elites exploit the behavioural biases of the poor, and Slovic and coauthors have a paper criticizing from a radically democratic point of view the views of Sunstein. It will be very interesting to see how these academic debates evolve. The interest is not only academic. The evolution of the previous debate between public choice and political economy has influenced the international political debate on issues such as the Reagan revolution and the "Washington consensus."