Leading politicians are ignoring basic economic lessons

I started studying economics fifty years ago last month, unbelievably (OK, I was a precocious child). Over the decades I have had many doubts about my chosen discipline. Were its prescriptions too uncaring, its view of human behaviour too narrow? For a time I was seduced by the insidious promise of modern macroeconomics, both in its Keynesian versions and later rational expectations framework, although I struggled to understand dynamic stochastic general equilibrium models. As for the world of the econometricians – the Gauss-Markov Theorem, Kalman Filters and all that stuff – I’m afraid I demur.

But I’ve never had any doubts about some of the basic microeconomic analysis I learnt from dear old Mr Fell at the beginning of my studies. That price controls increase the quantity of a good demanded and reduce its supply, creating a shortage; that minimum wages benefit some workers but penalise others by reducing job availability; that rent controls make it harder for people to find housing. Oh, and there’s no such thing as a free lunch.

Sadly, these lessons do not seem to have been learned by our current generation of politicians despite the fact that several of them purport to have studied a little economics while practising point-scoring at the Oxbridge Unions and drinking large amounts of champagne.

It’s not a party political thing. Boris Johnson seems as keen as Ed Miliband on the idea of a ‘living wage’ (a misnomer, incidentally, as the LW is an hourly rate, and a large proportion of its potential beneficiaries only work part-time). The Labour Party wants to freeze energy prices. Eric Pickles intends to introduce new controls on the rented housing market. And Nick Clegg is determined to pay for my daughter’s spaghetti bolognese and jam roll.

These policies will end up producing perverse outcomes and costing significant amounts of money – though perhaps not so much as some of the grander follies, such as High Speed 2.

This week sees the prospect of ‘reckless bankers’ being thrown in the slammer for making foolish business decisions – not fraud, not deceit, not even greed. I don’t think our politicians are necessarily fraudulent, or deceitful or greedy either. Perhaps we would all gain a little, however, if they had to contemplate the prospect of their collars being felt for taking rubbish decisions.

Particularly since, unlike, say the RBS-ABN Amro merger where quite a lot of people (including politicians such as Alex Salmond) supported the over-optimistic judgment of Fred Goodwin, the outcomes of political decisions such as those outlined above are only too predictable to those of us who listened to what Mr Fell had to say all those years ago.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

5 thoughts on “Leading politicians are ignoring basic economic lessons”

  1. Posted 03/10/2013 at 10:51 | Permalink

    Given that politicians routinely lie, dissemble, and deceive, and that they feel entitled to use other people’s money to bribe voters – that the contempt the public increasingly feel for most politicians is surpassed only by the contempt shown by most politicians for the public – I’d suggest “taking rubbish decisions” is amongst the least of their sins.

  2. Posted 03/10/2013 at 12:39 | Permalink


    You only just worked this out?!?!?

    They bribe the sheeple with their own money: Child benefit, housing benefit, tax credits, “social” care, the list goes on and on.

  3. Posted 11/10/2013 at 21:30 | Permalink

    Did Mr Fell also teach you that land is a free gift of nature and so the rent of land and natural resources should be paid to fund public services, not to landowners who did not create it and who do not create the location value of land?

  4. Posted 14/10/2013 at 18:32 | Permalink

    1. Henry Hazlitt’s ‘Economics in One Lesson’ is hereby recommended reading for all politicians as well as their constituents.

    2. Economics is only a dismal science in the minds of those who legislate, enforce or support political action based upon spurious economic notions.

    3. The insidious deception that underpins the concept of public ownership of property impels the recommendation in the first comment, while verifying the contention of the second.

  5. Posted 15/10/2013 at 06:59 | Permalink

    They certainly don’t learn the kind of economics I learnt at University. Nor are they remotely interested in anybody except themselves and their cronies.

    Osborne (and the rest) could do worse than remember that the point of a market was to let prices fluctuate and let people who can’t make it work go belly-up, which is of course what the banks should have done. The “welfare state” should save those who would drown, but basically no more. Yes there would have been some chaos if the banks had gone but it would have worked out in the end (and they would have, correctly, been cut down to size). Remember money as “a store of value and a medium of exchange” and banks with a 1:6 reserve ratio?

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