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Why politicians are sometimes economical with the truth
When a politician tells you something in confidence, always ask yourself: 'Why is this lying bastard lying to me?'
So said Louis Heren, who spent his entire career working for The Times and is today considered to have been one of the great foreign correspondents of the twentieth century.
Twelve years after Heren's death, Sandro Brusco and Carmine Ornaghi may have an answer to his question. In the September 2012 issue of the Economic Review, they put forward the view that politicians usually try to make positive statements about the economy - even if the financial markets and general public know that these statements are over-optimistic - because it is better to tell a white lie that does not add information to the general pool of knowledge of the real state of the economy.
Take the example of chancellor of the exchequer George Osborne. He talks constantly of how Draconian spending cuts are keeping the British economy on course to meet its debt-reduction targets. At the same time, he is quietly sanctioning limited spending increases in some areas in order to promote economic growth. If he were more open about these, spending increases, the theory goes, the markets would have less confidence in his debt-reduction strategy and the British government would face potentially savage increases in the interest rates on its debt.
Similar obfuscation surrounded the so-called 'fiscal cliff' during the recent US presidential elections. This would be reached at the end of 2012 with the simultaneous expiry of ex-president George W. Bush's tax breaks and the arrival of automatic tax increases and spending cuts. Taken together, analysts argued, they could push the United States back into recession.
But little of that was made clear in the campaign speeches of Barack Obama or Mitt Romney. A fog of claim and counter claim on the economy marked the elections. This masked the fact that, after the poll, politicians in Washington would almost certainly reach an agreement that would reduce America's debt over the next 10 years without choking the recovery.
Such an accord would be a triumph of pragmatism over ideology. Ideology tends to dominate politics at election times because it helps to point up the issues in black and white and emphasize the differences between the candidates. But the best way to solve the day-to-day problems of government tends to be pragmatic.
Miron Wolnicki, author of 'Restoring pragmatism in American governance', from volume 39, issue 7 of the International Journal of Social Economics, believes that the greatest asset of US capitalism until recently has been its blend of pragmatism with a passion to create the best socio-economic system in the world. But today, says the author, ideology is playing a more important role in government, at the expense of pragmatism. He claims that this is the root cause of the USA's financial crisis, rising unemployment and increasing anti-governmentalism.
Neoconservatives were right to believe that markets work, says Miron Wolnicki. They will be needed to solve the rocketing costs of Medicare, Medicaid and job displacement caused by globalization. Neoliberals, meanwhile, were correct to allow the development of a highly profitable financial sector and give Americans access to cheap credit.
What has been dramatically missing, though, is a countervailing economic policy to deal with such problems as market volatility, falling incomes, poor distribution of wealth, failing education, dependence on foreign sources of energy and an aging infrastructure. Liberal democrats did not propose comprehensive plan for government economic interventionism although they well understood its importance.
Miron Wolnicki concludes that the USA's declining economic power is not caused by globalization, but by decision-makers' self-imposed ideological straitjackets and their departure from traditional US pragmatism - the sort of pragmatism that can turn politicians into 'lying bastards' when they tell a reporter something in confidence.