Ideology and Economics

One of the most pernicious and misguided developments of the past century or so is the rise of ideology as a kind of secular religion.   Ideologies emerge as vast simplifications of reality in order to build theoretical frameworks that are based on certain core assumptions.  The result is a world view that yields some fundamental principles which in turn are used to justify and rationalize action.

One example is free market capitalism.  Assumptions are made about human behavior, an individualist ontology is adopted, and the result is a theory of how the market works (supply and demand, equilibrium, self-interested behavior yielding the best result, markets being better than bureaucracies in making decisions since markets gather massive amounts of information through individual choices, etc.)  This theory then provides policy prescriptions and a blueprint for the ‘best’ sort of economic structure.  If you take this to a logical extreme (i.e., if you forget that the ideology is based on a vast simplification of reality) then markets are always the answer, there should be little or no government, and the ideology guides every choice to be made.  In its most dangerous form, ideologues try to don the mantel of ethics and principle by defining the ideology as the central core of human meaning.  A few of these people become ideological zealots, uncompromising puritans whose need for meaning in life is filled by a secular religion, and they become as dogmatic as your most devout religious extremist.   Often these same people see religion as a myth for the small minded, and don’t recognize that they are just as tied to myth as the religious folk they ridicule.  Whereas the religious at least know they are taking a leap of faith, the secular ideologues believe that reason has given them an objectively true answer.

But then check the other side, the socialists.  They have an ideology that defines capitalism as inherently exploitative and crisis prone, which, obviously, it is.  Yet when faced with this they try to create an ideological alternative where there will be no crises and no exploitation, just people working for the good of the whole, and sharing in the wealth.  This is rationalized with an ideology that subordinates politics, culture, human nature and psychology to economics.  All that matters is the economic system, and if it is run properly, a truly rational and just outcome will emerge, one that will yield such success that individuals will be free from alienation and able to achieve their true desires.

Of course, this “objectively just” economic system can’t function without a government, and somehow human beings when given power in a capitalist system will exploit, while when given power in a socialist system will work for the good of the masses.  Anyone see a problem with that assumption?  People are what screw up capitalism, people are what screw up socialism, and people do so not just out of ill will or selfishness, but also because their actions are driven by their cultural beliefs, political values, and position in society.

Now, as governments step in to develop plans to attempt to guide economies away from the catastrophic dangers that credit market collapse would create, left and right alike cling to ideology as their source for prescriptions about what to do.   Many “free marketeers” are appalled that even Republican governments and candidates are embracing an intrusive government solution.  The problem, however, is not regulation or government action, but under-regulation and government inaction.  The problem is also that you cannot have a major economic system without it being prone to close government-business ties.  The ideological dream of a market system absent politics (or with minimal political involvement), or of a socialist system absent markets (or with intensely manipulated markets) are practical impossibilities.  Such perspectives are examples of ideology-driven understandings of reality, rather than consideration of how human society really works.

Simply, ideology does not give answers about economics.  At best theories about capitalism, socialism, and various types of economic structures can be useful to develop pragmatic approaches to economic problems.  Those who grab an ideology will simply look for solutions, or rationalize non-action, by applying a principle which they falsely believe to be based on objective truth.  Instead of taking into account different perspectives, thinking creatively for solutions, making compromises about accepting some market exploitation and inequities and some government interference for a balanced, mixed approach that isn’t perfect, but might be as good as we can manage, they want their “ism” pure and unvarnished.  Instead of thinking, they want an answer key that comes from a set of assumptions and principles.

The current crisis defies ideological thinking.  It cannot be addressed with glib “well, let them collapse, it was a bad investment” or “bail out everyone, they were all fooled.”  Instead, we have to think about the consequences of different policies, the fiscal realities the country faces, the danger that doing too much to rescue failing banks and firms might harm the economy in numerous other ways, while doing too little might allow the crisis to spread out of control.   Most importantly, we have to separate economics from ideology, at least ideological purity.  The world is too complex, ideologies are too shallow and incomplete.  Creative problem solving involves borrowing and taking from many theories in a way that practically deals with problems.

The stock market has bounced back up, but the crisis hasn’t passed.  People don’t know for sure what will come next, short term traders are glad government is thinking of a $1 trillion dollar bail out, long term thinkers are worried what that means for the value of the dollar, debt, and the US economy.  This also shows the folly of paying hundreds of billions for wars we can’t afford, and suggests that ambitious efforts to expand health care and social welfare may be out of reach for awhile.   Somehow both parties have to come together and realize that this problem is such that we can’t afford ideological fantasy or partisan posturing.  We need solutions.

And as for ideology?  One can imagine perfect systems, such as a totally free market somehow balancing everything with government simply standing by (or maybe not existing).  One can also imagine a utopian socialism, of people all with enough to live well, no exploitation, and a true sense of liberty.  One can theorize that either of these would be a true, ethical and correct system, but both are so out of touch with the world as it really is and people as they really behave that they are meaningless.  Become a secular capitalist or socialist ideologue, and you’ll end up angry and resentful at a world that isn’t anywhere close to how you believe it should be.

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  1. #1 by Jeff Lees on September 21, 2008 - 17:59

    Quite true, it is interesting to see how this will play out. Unfortunately, I don’t think the root of the problem is being address enough, or at least not in a sensible fashion. I am curious to see what each candidate will have to say about the economic crisis during the up coming presidential debate. I hope these event convince many Americans not to take out loans they can’t afford or get themselves into massive amounts of debt.

  2. #2 by Ron Byrnes on September 21, 2008 - 22:57

    Scott,
    I couldn’t agree more. I feel like we’re kindred spirits and I’ve added your blog to my blogroll. If you have time to check out my blog, I’d be interested in any feedback you might provide. I get particularly frustrated when the free market capitalist ideologues try to apply their religion to public schooling. Competition is seen as a panacea for reforming public schooling, but young people aren’t consumer products, and when a school closes, it has more profound effects than when a small business closes.
    Ron

  3. #3 by renaissanceguy on September 22, 2008 - 09:57

    How is your commit to “non-ideology” different from people’s commitment to ideology. In other words, haven’t you just described in this post your own particular ideology? And why is your ideology, which seems to be some kind of middle ground between capitalism and socialsim, superior to other ideologies?

    I think that looking at capitalism or socialism as merely economic systems is a huge problem. I think instead of discussing which one works better economically, we should first look at which system promotes freedom. I think freedom is much more important than “success,” especially when success is measured in how well a country is faring economically rather than how well individuals are faring economically.

    Whatever is wrong with either economic system, and there are things wrong with both, one promotes freedom while the oher one promotes control. Call it an ideology if you want, but liberty is a positive virtue that our Founding Fathers believed in. I think they would be shocked to see the huge bureaucracies and exorbitant taxes that are now imposed on the American people. However a free-market system might oppress and exploit people, at least they are free to improve their lot in life and to climb the ladder of economic prosperity if they choose to do so.

    Once you establish that liberty is a virtue and that laissez faire capitalism most supports individual liberty, then you can talk about its success or failure economically. But then you have to define success. If success means that more individuals have the possibility to create wealth, then there’s no question that free markets are superior. If success means that everybody lives in a mediocre middle where nobody has too much or too little, then a “mixed” economy seems to be able to succeed temporarily. (Of course, I’ve never heard of a socialist economy in which somebody wasn’t more “equal” than somebody else.)

    One huge problem with your ideology is that mixed economies seem to continue to cycle into more and more controlled economies. Higher taxes, bigger spending, deeper debt, expanding bureaucracy, stricter control, tighter regulation–these are the trends that continue to get worse and worse. Eventually the system simply implodes, as we have seen happen time and again in other parts of the world and now in the United States. It implodes because it is artificial to start with. It is backed on unpredictable whims of a Federal Reserve system who can print more currency or raise and lower interest rates to put a bandaid on an economy with a gaping wound. It is undercut by individual debt and national debt that simply cannot grow indefinitely.

  4. #4 by Scott Erb on September 22, 2008 - 10:50

    I think the world is too complex to see it as liberty or non-liberty. You are against choice in abortion, you’d use the power of the state to deny the woman that liberty. You rationalize it with concern for the life of the unborn. Socialists rationalize their actions with concern of the material injustices of the born. They argue socialism INCREASES liberty, just as you would probably argue you’re concerned about the liberty of the unborn. I believe pure systems like socialism or pure market capitalism are fictions, impossible given human nature and our culture, and vast simplifications. To me the best solution is pragmatic compromise making and problem solving, recognizing that no ideology can be close to true because they make so many simplifications and so much is up to interpretation as to what it means (as in the abortion example, for instance).

  5. #5 by renaissanceguy on September 22, 2008 - 12:29

    You say that I am against choice in abortion, because choice is a buzzword. I am also against choice in murder, rape, theft, armed robbery, and many other things that I’m sure you are also against. Bringing in the word “choice” doesn’t prove anything about which economic system is preferable.

    In all those cases, the rights of another person are violated, That is my reason for opposing abortion–it violates the rights of the unborn.

    Property ownership is a basic human right, according to our Consitution and our laws, and I agree with that. Government ownership is the antithesis of private ownership–whether it be an authoritarian government or a so-called communal government.

    What socialism basically means is that you think that you have a right to claim part of what I own–both what was given to me by my industrious ancestors and what I have been able to accumulate through my own skill and effort. In any other context, we call that theft.

    To even suggest that socialism increases or promotes liberty is to completely redefine the term and to perpetrate a lie. The ownership of capital by a government body is, by definition, not a mark of a free society. That’s just simple logic.

  6. #6 by Scott Erb on September 22, 2008 - 12:45

    Propery ownership is a basic human right? There can be debate about that, just as there can be a debate about abortion. You have strong beliefs and opinions, and I respect that. But obviously most of history sees property ownership as a right defined collectively, and not purely individual. Even Adam Smith and John Locke saw limits to property ownership as a right. I forget who the French philosopher was who said “property is theft.” My point is that you can build an ideology around any of these kinds of assumptions and it works. And while you can say it’s a lie that socialism promotes liberty, many on the left will say its a lie that capitalism promotes liberty. You will all be convinced you are right, you’ll get indignant at the other side, and none of you can prove it if you are not allowed to name your assumptions. It’s belief, assumptions, a kind of faith. The reality is that obviously sweat shops in pure free market economics creates a kind of slavery, and government planning in bureuacratic socialism creates another kind of slavery. Such extremes clearly are not good. What is? That is up for debate and compromise. It’s good to fight for your beliefs; but it’s a complex world, and statements that try to promote some kind of basic, simple, principle are virtually always rendered questionable when the complexities of reality intrude.

    Also, I think you are inherently part of a society, and you gain what you have by being in a society with rule of law, functioning cultural norms, and the like. That means you owe something to the society that allows you to be what you are. If you don’t contribute, you are cheating others. I’m not saying you don’t, but this opens up a question of what kind of contribution is propery, when should society use a government to enforce contribution, what process should exist to figure out these complex issues. There are no easy answers, and I guarantee you — as one who has to teach about these perspectives in a way that is fair to each, and to avoid trying to bias students towards my view by deriding perspectives different than my own — vast differences of opinion can be supported with evidence and logic.

    Oh, and the point about abortion is simply that you define this as something different, where government prohibition is OK. Others put economic issues in that category, even though you don’t. And either way can be justified. Each person has to make their call. You made yours; others can make theirs differently. I am NOT saying there is anything illegitimate about your view, but it’s also legitimate to see it as a “choice” issue — neither side can dictate the terminology.

    Speaking of pragmatic realism vs. idealism, I’m off to give a lecture about the ultimate pragmatic realist (someone also very misunderstood in common parlance): Niccolo Machiavelli.

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