As if there weren’t enough transatlantic rifts already, from the Middle East to the environment, another has opened over economic policy. European governments are still reeling from the dégringolade of late 2008 and now the crisis which began in Greece and nearly brought the Euro to its knees.
In response, they have chosen the traditional path of financial probity, attempting a painful cure for enormous government debts by raising taxes and, still more, cutting public spending on a scale that hasn’t been seen in generations, to the horror of Paul Krugman, the Princeton economist, and President Obama. His administration is converted to the Keynesian view that recession should be answered by reflation rather than the “hard-money and balanced-budget orthodoxy,” in Krugman’s words, which might turn recession into depression. At the G8 and G20 summits, the Americans chided their European friends, but to little effect.
This raises a question too rarely addressed. It’s not whether neo-Keynesians are right or whether the Europeans are, having borrowed “from the collected speeches of Herbert Hoover” (Krugman again). Can there be any “right or wrong” at all in these matters? Is economics in any sense a science?
As Barry Gewen has noted, David Cameron, Britain's new Conservative prime minister, has said that he will reduce the deficit “in a way that strengthens and unites the country.” That kind of caring, sharing, one-nation language helps explain why the Tories are the most long-lived and successful political party in Europe, but it doesn’t alter the fact that British government departments are being told to cut their spending by 25 percent, which might startle Rand Paul.
Nor does it alter the fact that some economists think this deflationary policy is disastrous—but only some. Some say one thing, some another. John Maynard Keynes said one thing, Milton Friedman another, and other political economists, all the way back to Adam Smith and Karl Marx. They can’t all be right, or be practicing a discipline in any way analogous to physics or chemistry.
Economists not only disagree on the nature of the good society and how best to achieve it, which is fair enough. They not only disagree on the future economy, which one could understand. They cannot agree on the economic present and past. If two opera critics took opposite views of the merits of the latest soprano it would likewise be possible to understand, but if one critic thought that they had just heard Parsifal and the other that it had been Falstaff, one might suspect a deeper epistemological problem.
What any layman can also see is that there is a great variety of political economies, all of which can work after a fashion. American free enterprise works, and so does Swedish social democracy, the interventionist “Rhenish” model works, and so does the quite different Japanese version. Maybe one should say “worked” in some cases, but then nothing in history is permanent. Even the Soviet economy functioned for a while (albeit on the principle “they pretend to pay us and we pretend to work”), and so did the economy of the Third Reich—as John Maynard Keynes ruefully acknowledged.
We have been too much in awe of what Carlyle called “the dismal science” of political economy. By all means cite one oracle or another, as one might cite any astrologer or soothsayer. They may be dismal—but scientists?
Geoffrey Wheatcroft's books include The Strange Death of Tory England and Yo, Blair!