The tragic irony of Plan B

May 8, 2012 by
Filed under: Credit crunch, Politics 

As the astute Will Davies describes here, the last few years have seen a paradox: even though the credit crunch was in many ways an indictment of free market economics – and the orthodox economists who propounded it – the period since has seen this perspective continue to define what is and is not possible in the face of the impact of the crunch. For example, Bank of England Chairman Mervyn King appeared both to admit in his BBC lecture last week that the Bank should have intervened when the markets were overheating, while generally resisting the idea that anything of significance (beyond quantitative easing) can be done now the markets are failing to bring about growth.

It seems that when it comes to market economics, we are like the followers of an end of world cult that was the subject of a famous study by social psychologist Leon Festinger. When the apocalypse predicted by the leader failed to materialize on the appointed day, his followers had to choose between rejecting their previous worldview or finding excuses for the prophecy failing; they overwhelmingly chose the latter.

I am not against economics, indeed I think everyone interested in public policy should have a basic grounding in the subject, but used as the basis for policy advocacy, economic predictions lack reliability, are bound up in disputed social and psychological assumptions and often betray political predispositions. One example lies in what could be termed the tragic irony of plan B.

In the face of last week’s local election drubbing and the resulting soul searching in Government, there is a strengthening case for a little judicious loosening of the binds of austerity. Some additional public sector capital spending plus more comprehensive underwriting of bank loans to SMS might not be a bad start. Such an adjustment would be in keeping with the shift of opinion against pure austerity in Italy, Spain and now France.

The idea that such a loosening would on its own lead to a huge backlash by the markets and spiraling borrowing costs for UK debt seems alarmist given that the markets are continuing to offer cheap loans despite the UK already having substantially overshot the debt levels which George Osborne predicted just two years ago.

But here lies the irony: because, for a variety of non-economic reasons, the markets trust the Chancellor and Prime Minister, the Government could almost certainly adopt a slightly more expansionary strategy without an adverse reaction. In contrast, if the Liberal Democrats switched allegiances tomorrow and an incoming Chancellor Balls was to take the same actions this might be seen as the thin end of the wedge and the markets could punish him.

In other words Balls’ approach may be best but only if it is implemented by Osborne. It is the economic equivalent of the Nixon to China phenomenon in which it is easier for hard liners to compromise than those who are suspected of lacking ideological rigor.

Although it arguably more relevant to public disgruntlement than all the other issues being chucked in the blame frame by anxious Conservatives, there is no sign of the Coalition shifting policy on austerity. But that the success of an economic policy might depend so much on whether the person implementing it is trusted does reinforce the contingent nature of economic prediction.



  • Joe

    Do you know of any work that has been done on the ‘Nixon goes to China’ effect in British politics?

  • Robert Burns

    Joe to talk of Cold War ‘hardliners’ in the same breath as modern political office holders and pundits is to fall into catastrophic linguistic and factual errors.

    Margaret Thatcher was quite possibly the last morally and idealogically sincere politician this country has produced and seen rise to high political office.

    Modern politics and its practitioners are idealogically and morally bankrupt.

    Not only is this a matter of fact, it is a widely held perception.

    The situation at present is that ‘none of the people are fooled, any of the time’.

    Matthew’s article sets out precisely why political engagement amongst the public is at a such a low ebb.

    The democratic process isn’t calling the shots when it comes to important decisions about how people will live or shape the future of their society.

    And therein lies the problem of modern politics on both a national and international level.

  • Bernard Mason

    Three thoughts

    I was listening to James Lovelock this a.m. talking about the inability of orthodox thinkers to see the failure of their paradigm

    Orthodox economists and coalition are behaving like a bad obstetrician who is unable to take the forceps off once they are applied. Result at best a dead baby at worst a person crippled for 70 years..

    The problem with the Enlightenment is that its insights are incomplete and unacknowledged incomplete understanding is dangerous tending to lead to ideological rather than rational action.

  • Robert Burns


    I must disagree with you on a number of points.

    A cornerstone of the Elightenment is insight based on objective evidence.

    As the neurotoxin of (extra-European) multi-culturalism has spread through European societies the Enlightenment has come under sustained assault.

    The Enlightenment and the custodians of its values have always challenged orthodoxies and sought to provide explanations for the causes of phenomena that could be brought under direct scrutiny by anyone who chose to repeat the process that produced the causal explanation in question.

    By contrast the enemies of the Elightenment have always based their explanations on the existence of some mystical bridge between alleged cause and observed phenomena.

    When challenged the enemies of the Enlightenment have always fallen back on hysterical rabble-rousing and character assasination, censorship and physical violence to uphold their version of ‘reason’ and ‘complete’ knowledge.

    The rabble of atavistic barbarians that inhabit Parliament, The City and Wall Street have nothing to do with the Enlightenment.

  • Bernard Mason


    thanks for your interest

    I think that what I was trying to imply was that I feel that the discipline of Economics is an ideology masquerading as a “science” and that Ideological “normalization” is incredibly dangerous.

    As the American gentleman put it “its the things that you think that you do know but don’t know that you don’t know that you don’t know” that are dangerous.

    My problem with the Enlightenment model is that it assumes that humans are totally rational and I think that we are only a skin of logicality floating on an ocean of irrationality.

    However I do feel that the enlightenment model is that best one that we have – but that it is necessary to remember that it is imperfect and to acknowledge that what we feel are facts are often mistaken beliefs.

  • Robert Burns



    I have to pick up on your take on Economics (interesting use of capitalisation by the way).

    My position on this is that Economics is a science that describes relationships and processes relating to how value passes through a society, between groups and individuals.

    No one can really argue that it is not a ‘work in progress’.

    Now, as for the idealogy part, this is something that has been ‘bolted on’ or ‘wrapped around’ Economics.

    For the most part the movements that have sought to harness Economics to their cause have done so by attempting to control what processes and relationships will be allowed to exist within a given economy.

    I think it is reasonable to suggest that these efforts rested on presumptions about human nature, individual human worth and/or the scale of the resources needed to make these presumptions come to being.

    All too often these presumptions have proved to be either too optimistic, too pessimistic or just plain disingenuous manipulation.

    The Enlightenment rested on the belief that human powers of reason could access objective, verifiable explanations of the world about us and that we would be better for it.

    This is very far from claiming that any individual or group could posses any degree of ‘perfect knowledge’.

    We need also to distinguish between ‘rational’ and ‘reasonable’. The first is an internal thing, the latter is an external thing.

    Many of the problems in modern societies are rooted in pandering to disruptive individual and group rationality that doesn’t synch with wider (objective) tests of what is rerasonable.

    Over to you……

  • Bernard Mason


    You write “The Enlightenment rested on the belief that human powers of reason could access objective, verifiable explanations of the world about us and that we would be better for it.”

    I feel that it is this core belief that troubles me

    I feel that it is safer to take the skeptical attitude of Carl Popper regarding any belief structure

    One of many quotes might be “The scientific tradition is distinguished from the pre-scientific tradition by having two layers. Like the latter, it passes on its theories; but it also passes on a critical attitude towards them.”

    It is this lack of the quality of self criticism that I find in the attitudes of “Hayekian” economics which leads me to presume that it is an ideology rather than an empirical science.

    But then science is an imperfect self questioning ideology

  • Robert Burns


    thank you for your last post, I don’t think we are going to agree.

    Being imperfect humans are incapable of acquiring or expressing perfect, all encompassing knowledge.

    It is unfortunate that many of the early pioneers of the scientific method and the Enlightenment acquired their education from institutions that were deeply committed to the belief that humans could acquire and express perfect knowledge.

    The emergence and development of the scientific method is a continuing acknowledgement of the empirical fact that they can’t.

    Two words in the quote you extracted from my last post are key, they are ‘objective’ and ‘verifiable’.

    Philosophy and its offspring Religion, Politics and the Law may occasionally avail themselves of the services of Science but they have never fully accepted self criticism based on objectivity or external verifiability – if, indeed, they have ever accepted them at all.

    Wittgenstein (probable wrong spelling) was extremely hostile to the notion that the methods of Science were of any use in solving philosophical problems, while one of his mentors (Bertrand Russell) was part of a movement that sought to apply developments in formal logic and mathematics to the dissection and understanding of philosophical propositions.

    Economics belongs to Science, but its methods and insights have been have put to perverted uses by politicians just as with Physics and Chemistry to produce sarin gas and the atomic bomb.