Wednesday, 16 April 2014

The Power of Ideas, Eh?

According to a passage in Lord Keynes' important General Theory, the world is ruled by "little else" than the ideas - good and bad - of economists and political philosophers. Virtually every discussion I have seen on Keynes that mentions this belief he had notes it with approval. For instance, I have heard both Milton Friedman and Gary Becker argue that academics' seemingly unimplementable brain-children have a good chance of taking over if old ideas result in failure, which they will if not good enough.

Yet I wonder what the evidence is that this view is right. To be sure, any action that was in some way premeditated may be said to be the result of some idea. To give more content to Keynes' position, I shall take it to mean that those ideas rule the world which have not been shot down, by logic or by empirical research, a generation or so before implementation.

To motivate my quaere, I set up a rivalling hypothesis according to which some ideas indeed do rule the world - namely, the ideas which translate into the greatest returns to whatever ruling politicians care about. These ideas are different from the ones discussed above, since they may never have enjoyed any academic respect at all (which does not necessarily make them bad ideas).
A common example of a good idea is free trade. Within the profession of economists, finding anyone willing to argue the benefits of autarky is almost surely impossible. For good reason. Yet, there remain many restrictions on the free movement of goods, services and labour around the world. If ideas truly rule the world, it does not seem to be the ones Lord Keynes had in mind.
Against this, one might argue that the world has become significantly more liberal with respect to free trade over the past few decades. Maybe so far Keynes' hypothesis is tied with mine, because I know of no good way to judge how much trade liberalization is enough to justify the proposition that academically respected ideas do eventually prevail.

Like autarky, rent control is a very bad idea. Swedish economist Assar Lindbeck has likened rent control to bombing as a method of destroying cities, yet rent control persists. Again, maybe its prevalence has shrunk in recent times (I don't know), making the truly venerable ideas (i.e. the ones respected on logical and empitical grounds and hence by academics) the really influential ones over time. But how influential is influential? The difficulties remain.

Perhaps one could claim that the existence of cycles in bad policy (such as the introduction of new trade restrictions after periods of relatively free trade) is evidence against Keynes, provided no cycles occurred in the ideas concerned at the relevant time (no apparent Lazarus ideas). Yet, at best this could only push Keynes back a little bit, because the obvious retort is that bad policy would have risen from the dead even more forcefully had it not been for academics' having buried the ideas which supported said bad policy. Alas, I do not seem to get very far in judging this contest between ideas about ideas. But if testing Keynes' proposition is so hard, what makes so many others so confident that Keynes was right?

A related issue is whether the belief in the power of ideas incentivize people to think harder about world problems. Perhaps, but if so, the incentive should have greatest bite among those who want to influence the world, which could be good or bad. Those wishing to influence society are apt to also want to simply understand it if they are to have any ideas, so the belief that ideas rule the world may not be too strong an incentive after all. At any rate, one should not hesitate to offer arguments against a proposition just because belief in its accuracy may have certain good consequences.

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