The Formulation of Debt and Deficit Policy: Democracy, Technocracy and Public Policymaking

Abstract

The formulation of debt and deficit policies in Europe has raised important questions regarding the general issue of the relationship between economic theory and economic policy and the more specific topic of the possible conflict between democracy and technocracy. The paper examines the way economists view the formation of economic policy which is in terms of a framework referred to in the paper as the ‘optimisation paradigm’. It is argued that the economists’ policymaking paradigm is naive and simplistic when approached from two different perspectives: from the standpoint of political science and from the accounts of economists who have actually participated in economic policymaking as policy advisors.

The ‘optimisation paradigm’ gives a distorted picture of economic policymaking as a rational technocratic process and represents a serious obstacle to effective communication between economists and policymakers. The adoption of the austerity strategy as a means of dealing with the debt and deficit problems in the euro area presents an interesting case study of how an artificial conflict between technocracy and democracy might be created. Far from providing technocratic solutions to debt and deficit problems, neoliberal economics offers a justification for the imposition of policies that benefit powerful political and economic elites. The optimisation paradigm needs to be replaced by an alternative model which views economists participating in the policymaking process as ‘political economists’ rather than ‘technocrats’.

A possible way forward is to apply Keynes’s concept of ‘animal spirits’ not only in relation to investment decision making under uncertainty but also to political decision making.