Many people think that economics is a right-leaning discipline. They are wrong, and we need to tell them.

One common caricature of politics is that the ideological right attracts a homogenous cadre of serious-yet-uncaring bean counters, while the left attracts a rag-tag mob of caring, sharing mush-heads.

Stated this way, the caricature is obviously silly. But many progressives do not help their own credibility when they avoid talking about economics, thus lending credence to the false notion that all economists support the right.

While there is a pretty strong consensus in favour of free trade among academic economists, there are in fact sharp divisions within the profession on all other important matters of economic policy.

Yet the false perception of a right-leaning consensus endures, for two reasons: selective reporting of economists’ findings by some entrepreneurial commentators; and a preference among many progressives to talk around rather than about economic policy.

This particular think-site, of course, suffers from no such economic shyness, and nor do one or two of the authors at The Standard. But the strong economic analyses on these websites are sadly not reflected around much of the rest of the progressive movement.

If folk on the left are to challenge the caricature that they are economic illiterates swimming against the tide, we need – all of us – to confront economic issues much more directly.

Helpfully, four of the world’s most prominent economists have recently suggested progressive solutions to the world’s largest economic problems. That should help us to stop being coy.

Nobel laureates Joseph Stiglitz and Amartya Sen recently spearheaded a French economic commission that made a remarkable recommendation. After decades of measuring human progress using a purely financial measure (GDP), Stiglitz and Sen suggested that we instead measure human progress more broadly.

This recommendation draws on a wider “happiness economics” research agenda, which holds that human action is successful only in as much as it makes humans feel better about their lives. This is actually a pretty standard economic idea – the idea of utility. All people are doing with happiness economics (or, if you prefer, with Genuine Progress Indicators) is measuring utility better. Any attempt to measure the success of an economy using only financial measures like GDP misses this wider point.

The heroic assumption that more money necessarily makes people happier has been shown untrue in a large number of circumstances. For example, the near doubling of American GDP since 1950 has had no impact at all on their collective happiness. And in a recent ranking of “happy life years,” the top five nations were Costa Rica, Iceland, Denmark, Switzerland, and Canada – none of which crack the top five in terms of material wealth.

The right of course, has mocked happiness economics. A mere poll of feelings, they argued, was an impractical and fanciful way to judge progress (although that never stopped them when it came to measuring “business confidence”). Despite this shallow critique, Genuine Progress Indicators are catching on, and progressives everywhere should be singing their virtues.

Paul Krugman, another recent Nobel laureate, recently showed how the right’s belief in the “efficient markets hypothesis” lead them to completely misdiagnose the recent financial crisis. The efficient markets hypothesis says that the price of any asset is an accurate reflection of all available information about it. But it has no way of explaining the panic and implosion that engulfed major sectors of the American markets in 2008. The journalist Michael Lewis has made similar observations.

Any economic theory that misses the big real-world events, needless to say, is of only dubious usefulness. Social scientific theories are only as good as their empirical validity.

One especially welcome innovation in the area of explaining panic among supposedly rational economic agents is to juxtapose traditional economic theory with recent practical work on human behavior. Whereas traditional economists had tended to just assume that people are individually economically rational, behavioural economists have gone and tested those propositions against real world experience. And when we look in the real world, non-rational behaviour is surprisingly easy to find.

Jeffrey Sachs, a Full Professor of economics at Harvard at the age of 29, will likely win the Nobel Peace Prize for development work in Africa. A former darling of the right for his developmental prescription of “shock therapy” for third-world governments, Sachs has also recently “gone mushy.” He has embraced an activist role for both national governments and the UN, and has also explicitly rejected the claims from the right that expansive Scandinavian-style welfare systems are a drain on the economy.

These four stand at the pinnacle of the global economics profession. They all propose progressive policies and oppose neoclassical economic orthodoxy. Their stances show that economics is no guaranteed friend of the right. Progressives need to seize on these and other developments within economics, including the influential book The Spirit Level, to help us think about policy and to better make our case to the New Zealand people.

Links:

• New York Times article on “The Rise and Fall of the GDP” including discussion of the Stiglitz / Sen commission
• The Stiglitz / Sen commission itself
• Happiness economics
• Genuine Progress Indicator
• Happy Life Year Rankings (2009)
• Paul Krugman’s “How Did Economists Get It So Wrong” (New York Times magazine)
• Michael Lewis’ “Panic!”
• Behavioural Economics
• Jeffrey Sachs’ “Common Wealth”

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A native Wellingtonian, Rob Salmond now lives in the US. He is Assistant Professor of political science at the University of Michigan, and is also currently a Visiting Scholar in the department of political science at Stanford University. Rob’s academic areas of interest include legislative institutions, political media, and political economy, all with a cross-national focus.