All Commentary
Wednesday, August 19, 2009

In Defense of Ideology

There have been many statements recently to the effect that we should not let “ideology” or “philosophy” stand in the way of solving our economic problems. Indeed, the Obama administration (like the previous Bush administration) is keen to persuade us to drop all this prejudice and to go after each problem–banking, stimulus, and so forth–on its own terms. We should examine each solution on its own merits.

President Obama’s inaugural address includes an apparent attack on ideology:

What the cynics fail to understand is that the ground has shifted beneath them–that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works….

Furthermore, Christina Romer, the chairperson of Obama’s Council of Economic Advisers, is often described as a non-doctrinaire economist who simply follows the data wherever they may lead.

What appears to be a sensible idea to turn our problems into purely technical ones is, on the contrary, profoundly unscientific and, more generally, anti-intellectual.

This is a big subject and deserves comprehensive treatment. Let it suffice here to make a few crucial observations.

In the first place, this point of view is not new. I cannot trace here the full extent of its intellectual roots–they are deep and wide–but we can find it in such essays, relevant to our current concerns, as “The End of Laissez Faire,” (1926) by John Maynard Keynes.

Keynes believed that one of the most important functions of economics is to determine what belongs to the State’s agenda and what does not. “The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do things which at present are not done at all.” Keynes was referring to decisions that fall outside of the sphere of the individual, “to those decisions which are made by no one if the State does not make them.”

Actually, the sphere to which Keynes referred is the aggregate outcomes of individual decisions. He did not have much confidence in the spontaneous order of the market. He rejected what he thought were the “metaphysical or general principles upon which, from time to time, laissez-faire has been founded.” So, “[w]e cannot settle on abstract grounds, but must handle on its merits in detail . . . to determine what the State ought to take upon itself to direct by public wisdom.”

1. Ideology as a Presumption

Keynes is rejecting any presumption that the “results of human action but not of human design” (F. A. Hayek citing Adam Ferguson) are beneficial. He seems to be saying that we can operate without any presumptions at all; we can simply look at each “problem” on its own merits and make an individualized decision in each case. But a presumption is not an arbitrary belief; it is not “metaphysical” in the sense that it is completely impervious to new evidence. A presumption is a belief we accept until sufficient evidence to the contrary is forthcoming.

However, evidence is rarely definitive or overwhelming. We need to begin from somewhere. The Bayesian statisticians say that we begin with prior probabilities and then update them with new evidence. Prior probabilities are only slightly modified with incremental evidence. These priors function in a manner similar to a presumption. So, for example, a person may think that a large urn contains 95 percent red balls and 5 percent blue ones–say, because someone he thought reliable told him so. But if he starts drawing balls from the urn and keeps getting blue ones, he will soon revise downward his estimate of the proportion of red balls, although drawing only one blue ball will not affect his estimate very much.

2. Ideology as Scientific Framework or Research Program

In the realm of scientific hypotheses, even the “falsificationist” Karl Popper accepted a principle of tenacity, which had it that hypotheses are not to be dropped in face of just any conflicting evidence. No hypothesis will have 100 percent of the evidence in its favor. (A falsificationist is a scientist or philosopher who believes that data can count against a theory and enough such data can refute it. However, he is careful never to say that data can definitively prove a theory.)

Is this rational? It depends, in part, on the nature of the prior probabilities or the prior hypothesis. Suppose someone says: “By and large the free market is best, among all the feasible alternatives, at promoting human welfare.” Is this ideology? I think most people would say it is. What is it based on? Well, for some people it may be a religion or faith of sorts. But then its negation can be as well. However, it need not be a faith.

I think that for almost all economists who subscribe to the statement, it is a generalization based on evidence. The evidence is in the form of a general way of looking at the world–a framework or research program that is supported in many specific cases. Note that the statement itself goes beyond the individual specific cases. It must go beyond them to deal with new problems and new events. It must function, in a specific application, as a conjecture about novel situations.

Looked at in this way, “ideology” is useful in scientific discourse. In fact, I suggest it is indispensable. How else can we approach new problems when the likely outcome of our search for specific evidence is inconclusive?

3. Ideology as a Window on Indirect or Long-Run Consequences

One of the difficulties attendant upon looking at each problem and each solution individually is the tendency to ignore indirect or long-run effects. For example, we were told, “Consider the ‘problem’ of insufficient homeownership, and just solve it.” So this was done. A solution of subsidized homeownership and very low interest rates was put into effect. Should we not have cared about the longer-run effects of such policies? It would have been impossible to predict when and to what extent problems would have occurred. So many thought it was foolish to worry. Those who did worry were dismissed as dogmatically anti-Fannie/Freddie and anti-flexible Fed policy. And here we are.

Ideologies stress the interconnections among policies and problems. They may point us in the direction of the general principle implied by a policy and hence the implicit rationalization of further policies. They may make us alert to unintended changes in incentives in related problem areas, especially when this worsening of other problems has happened time and again. They show us that when the State intervenes there is more than just some pinpointed technology involved.

4. Ideology as Shortcut for Rationally Ignorant People (Most of Us)

Most people are not scientists, economists, or intellectuals. They are not testing hypotheses. They have other things to do. They are often  rationally ignorant. How can they make up their minds about public policy? Many, though not all, are ideological. They choose a set or complex of beliefs that comports best with their observations and experience. For them, too, it is not rational to give up the worldview because some (few) observations seem to conflict. Forgive some of them who are not willing to throw away long-held beliefs on the say-so of a president whom most never heard of two years ago.

5. Ideology as an Ethical Framework

Public-policy questions are not simply technical questions. They involve ethical issues. The economist John Neville Keynes (the father of John Maynard Keynes) divided economics into science, ethics and art. (See J. N. Keynes’s The Scope and Method of Political Economy, Chapter II). The science is the technical aspect: causes and effects. The ethics involves the standards that are applied to determine whether a state of affairs is good or just. And the art involves the sometimes intuitive judgments of how to apply the science to get (or allow) the outcomes policymakers want.

An ideology can serve as a rough guide to ethical considerations. For example, some people believe that it is immoral to “reward” people for irresponsible economic behavior. Maybe a policy wonk disagrees because he thinks that systemic effects are all that matter. Is the citizen to be faulted for acting or evaluating on the basis of her belief, regardless of the wonk’s opinion? In general, the belief makes good sense. As a long-run rule of behavior, the idea that economic actors should bear both upside and downside risk would have saved us, for example, from the Fannie/Freddie overexpansion in the first place as shareholders would not have believed in implicit guarantees. Is this an idea we want people to give up without resistance? I do not think so.

Ideology is okay. It is fine to be ideological. It is indispensible to effective analysis of the world. Just make sure that the ideology makes real sense.