Economists and the European democratic deficit Post author By Kevin O’Rourke Post date July 24, 2015 I have a column in Critical Quarterly, available here. Categories In Economics, European economy, European politics 8 Comments on Economists and the European democratic deficit ← Call for Proposals DEW Conference 2015 → Guest post by Marios Zachariadis: On the Greek Crisis and German Imbalances 8 replies on “Economists and the European democratic deficit” Obviously not as erudite as your contribution: http://www.theguardian.com/commentisfree/2015/jul/24/europe-innovate-greek-france-germany-eurozone-government but perhaps worthy of some consideration. The EU’s pols may not be as cavalier about the need for demcratic legitimacy as you seem to think. On a slightly different track, there is a crying need for a coherent alternative to the current centre-right dominance of EU politics that will secure a broad measure of popular support. And it needs solid intellectual foundations. But pillorying ‘structural reforms’ when powerful special interest groups ostensibly on the left of the spectrum are as much a part of the problem as the corporate capitalists and high wealth individuals who subborn governing politicians, or hankering for a return to some sort of status quo ante when most voters, for very good reasons, have moved on, isn’t much use. The current travails of the UK Labour party highlight the futility of such a stance. Kevin, most people will probably comment on this piece in the context of the recent events in Greece. But can I comment on another aspect, your criticism of utilitarianism as a basis for evaluating public polices. Most applied public policy analysis still effectively is built upon utilitarian foundations. We evaluate the impact of a policy in cardinal terms (money) but then we can apply different welfare weights (typically declining in income) to different agents to translate these monetary gains and losses into some rough metric of a change in welfare. For sure, its not perfect, but I don’t think its a bad first way to analyse a policy. You are probably also aware that there is a growing literature which takes a non-welfarist approach and evaluates policies using other criteria such as fairness, justice, inequality of opportunity etc, using what they term Generalised Welfare Weights. Myself and Michael Savage have a recent working paper which looks at the sensitivity of indirect tax reforms in Ireland to using Utilitarian and non-utilitarian weighting schemes http://www.ucd.ie/t4cms/WP15_02.pdf Of course, what welfare weights were implicitly applied in recent policies towards Greece is another matter. I guess one issue to think about is whether we think in terms of Eurozone members as a whole, or just Greece. Or do we apply a higher weighting to Greece? Definitive answers are hard to come by here I think. Anyway, I have (nearly) always refrained from commenting on macro issues on this blog, so maybe I’ll retire here! I like the piece, but, “It makes no sense, they point out, to claim that something makes me twice as happy as something else (utility is not ‘cardinal’, like weight or height). All that we can say is that it makes me happier (utility is ‘ordinal’). We can rank states of the world, not attach numbers to them. Utility cannot be compared across individuals, nor can one add together the utilities enjoyed by everyone in society. Utilitarianism is therefore logically impossible.” This paragraph is throwing me off a lot. Do you actually believe these statements or are you just saying that lots of economists believe them? I feel like it’s obvious from the piece that you do not believe them, and yet you state them as fact. Personally I absolutely do not think these things are true. Sorry if it’s obvious to you but my sarcasm detector is not academic grade. . . . Kevin, I admire your willingness to ask questions that others fear and applaud your quest to identify the democratic deficit in Europe. But I think your approach is too narrow and that, in the process, you have underestimated the value of economics in the debate. In your criticism of “bastardised” utilitarianism (which I recognise), you fail to stress the conclusions that economists can draw from their analysis of trade. It is possible (and important) to say that the gains from free trade are unambiguously positive for all of the participants (who, otherwise, would not take part in it). It is also possible to say that restrictions on such trade will result in a loss in welfare for some and a net transfer to those who control the market. The utilitarian question only arises when one tries to assess whether this transfer–and the market restriction–is “good”. (You ask the question in reverse–is it “good” to get rid of the restriction?) Of course, there is a vast literature on rent-seeking (market restriction) that can help us out here. And it is fair (and somewhat redundant) to say that market restrictions are usually imposed by the politically powerful and that they impose a cost on the weak in society. Such findings inform a broader school of Public Choice in economics that is still alive and well and in the capable hands of Tyler Cowen. (It is not fully correct to say that economics steers away from questions of politics.) And the clear implication is that politics (democracy) does not always work very well–a truth that we need to face. What is an economist to do (you ask)? In practice, economists find that it is usually preferable to get rid of market restrictions and to make transfers more transparent where they are necessary (and approved by voters). Having worked for the IMF, I can assure you that IMF economists can spot rent-seeking from far off and that the strong are generally benefitting at the cost of the weak. Just this week, for example, the EU brokered a Reform Agenda in Bosnia (with IMF help) that will liberalise labour markets as a main plank. The governments–who genuinely endorse the plan–will face stern opposition from unions representing entrenched workers. Meanwhile, the rate of youth unemployment is persistently at 60 percent in a country that is a tinder box on the best of days. The young are effectively excluded from the labour market. The unions will raise a cry for workers’ rights–but what of opportunities for youth? Entrenched interests need to be broken up every now and then and this is the essence of most structural reform. In theory, also, Public Choice has provided some insights. By examining how economics can pervert politics, it has shown that there are limits to what democracy can do (in terms of electing governments that will increase welfare). And this has strengthened the case for constitutional limits on government and for setting out clearly the rules of the game. Peter Mair recognises this in his distinction between government “for” the people (with checks and balances) and government “by” the people (where popular participation is necessary and productive). The main problem in the euro shambles, in my opinion, arises from a failure to adhere to this distinction. If there is no popular support for fiscal union, then it will not work and it is best to preclude transfers from the start. The “no bailout” clause was the expression of this check on popular will in the eurozone. But, of course, the clause was quickly abandoned when it was discovered that the creditor banks were in the big countries. And this led to the bailout of banks and the imposition of massive burdens on localised taxpayers. In order to ensure that these burdens are repaid, local popular democracies have now been undermined as well. And this, in my view, is where the democratic deficit has emerged. There is democracy in Europe, but it is only really effective at the national level. It is very important to recognise this and to accept that there will be limits to what can be achieved by the European project. The ideal of a unified Europe that is promoted by eurocrats (mostly lawyers and diplomats, in my experience) is, therefore, very dangerous. Anybody who values democracy, and wants to preserve it, must first recognise its limits. On this conclusion, we certainly agree. My comment is now ten hours delayed for “moderation.” I will never visit this site again. “Gary O’Callaghan Says: July 25th, 2015 at 9:11 pm My comment is now ten hours delayed for “moderation.” I will never visit this site again.” And next time make sure to put 4 hot sauce packages in with my breakfast burritos. @KOR Your coining the adjective “democracy proof” superbly captures the entire the central problem with the european project today as I see. Legislation by stealth is a by-product of this process where countless laws pass through our parliaments with no debate and less understanding from our own elected representatives. The laws are decreed and laid out in talkshops of Brussels. Elected MEPs may fulfill the criteria of democratically elected representatives at the highest level but they are largely unaccountable and once they pack themselves off to the europe they feel neither the desire or need to report back to their electorate positions they are taking in various tablings of legislation that will impact the lives of their citizens. I am unsure whether you mean the term “democratic deficit” to be pejorative but for clarity I point out that it can be good thing. For example it is current orthodoxy amongst the leading democracies for Central Banks to be independent i.e. Immune to democratic influence. As we see in the bank inquiry we could have done with a little more democratic deficit rather than the auction politics that were so disastrous. Comments are closed.