The good guys will always lose if they don’t have the courage to be the good guys.

Brad DeLong writes

Why Are the Technocrats of the Center Missing in Action? Robert Rubin disappoints… And it is not just Rubin: all the bipartisan technocrats of the center appear to be wringing their hands and calling for a plan without saying what it should be.

DeLong tries to remedy this with a list of specific proposals. As advertised, they constitute a “platform for the bipartisan technocrats of the center”. In a seven point memorandum, the vexing issues of the day are simply fixed. The arithmetic is made to work. “[T]he best policy to provide American businesses with the incentives they need” is declared. No matters of controversy are noted. Why then, as Felix Salmon points out, does it have “exactly zero probability of ever being enacted”?

Paul Krugman laments that we have been “mugged by the moralizers” and admonishes us that “economics is not a morality play“.

But the thing is, human affairs are a morality play, and economics, if it is to be useful at all, must be an account of human affairs. I have my share of disagreements with both Krugman and DeLong, but on balance I view them as smart, well-meaning people who would do more good than harm if they had greater influence over policy. But they won’t, and they can’t, and they shouldn’t, if they exempt themselves from the moral fray. One of the stereotyped insults economists throw at one another is that a piece of analysis is “partial equilibrium”. The phrase is shorthand for coming to a conclusion based on assumptions that could not survive the circumstances under which the conclusion would obtain. I don’t want to single out Krugman and DeLong, but technocratic economists in general engage in partial equilibrium social science when they ignore moral concerns and the constraints “legitimacy” places on feasible policy.

It should be no surprise that human collectives choose policies destructive of GDP or employment growth when they deem those policies to be wrong or unjust. Individual human beings act against their material interests all the time, providing full employment for economists who endlessly study the “ultimatum game“. Political choice combines diffuse personal costs with powerful moral signifiers. We should expect politics, including the politics that determines economic policy, to be dripping with moralism. And sure enough, it is! This doesn’t mean that policy outcomes are actually moral. (There’s a hypothesis we can falsify quickly.) But exhortations to policy that cannot survive in terms of moral framing are nullities. They are no less absurd than proposals to “whip inflation” by demanding increased production while simultaneously imposing price ceilings.

My inner DeLong objects at this point. After all, we have had a technocratic central bank, apparently independent of politics at least since the early 1980s. The market itself is a famously amoral creature, yet the outcomes it imposes have become widely regarded as legitimate. That’s all true! But it is a mistake to interpret those facts as evidence for the unconditional feasibility of technocratic management, or of unfettered markets. Our deference both to market outcomes and central bank management did not derive from some overwhelming scientific consensus to which the common man wisely deferred. They were the result of an immensely successful ideological campaign that conflated markets with liberty and democracy, and claimed central banks would deliver fair outcomes by virtue of predictably valued money. There is a reason why people are asking What Would Milton Friedman Do? in the same way a Christian might ask what Jesus would do. The technocratic interlude for which Brad DeLong yearns was built upon scripture that Milton Friedman both penned and evangelized.

We are in a period of Reformation now, with all the turmoil that suggests, and the outcome is not predetermined. Simply assuming the parishioners will remain faithful, or lamenting that they ought to remain faithful, is no way to win the argument. There is something poignant, but also a little blind, in the fact that DeLong’s agitation was aroused by Robert Rubin, who, when elevated to speak ex cathedra from the pages of the Financial Times, had nothing worthwhile to say. To DeLong, Robert Rubin remains a pontiff of the “bipartisan technocrats”. To the rest of us, Rubin has become an icon of self-delusion, corruption, and arrogance. Rubin was arguably the most influential member of a technocracy whose conduct now seems deeply unwise. He accepted handsome compensation to cheerlead risktaking at a bank that then held taxpayers for ransom when those risks went sour. Despite all this, he retains his wealth and influence, and has never much apologized. Heretics of all stripes chafe that his protégés are overepresented in the halls of power. Rubin is undoubtedly a compelling figure in person. People who have worked with him are bedazzled; they enthuse about his brilliance and public-spiritedness. The rest of us never met him. We just saw the smartest guy in the room walk away, rich and smug, and then the room exploded.

Krugman is the oddest technocrat, because he is also one of America’s great moralists. On so many subjects, his voice booms like thunder from astride the New York Times. When Krugman is at his best, and he is often at his best, no one mixes authority, moral outrage, and smart argument as effectively. But on the core economic questions of the moment — fiscal and monetary policy, national investment policy, employment — Krugman explicitly cedes recognizable morality to the other side, and in doing so, he cedes the argument. To be fair, moralizing Krugman’s positions might not be easy. Krugman’s views are inconsistent with some common moral frames. It is easy, in the context of prevailing norms, to argue that governments should be prudent in the same way as households, or that debtors have a sacred duty to repay creditors, or that good times must be paid for with bad. The most obvious moral counterplays, appeals to altruism in the face of misery, are vulnerable to vilification of the “undeserving poor” — people whose lack of diligence left them without “skills”, deadbeats who partied on debt they cannot now repay. These accusations are often inaccurate, hypocritical. and self-serving. But they are effective. The landscape of morality plays is challenging for someone with Krugman’s views.

But even in a challenging landscape it is better to fight than to preemptively surrender. There are ways to address, in explicitly moralistic terms, the arguments of the other side. It is not so effective to claim, for reasons described as “wonky”, that what’s bad is good in a liquidity trap and economics is not a morality play and in a better world policy would be driven by the models that one very smart economist prefers. Rather than eschewing moralism, Krugman could turn the table on “debt moralizers” and talk about the responsibilities of creditors, the evils of bad lending. In our personal lives, we understand that making loans to friends and family can be dangerous, that lenders and borrowers have a joint responsibility to ensure the money will be put to good use. We know that incautious lending to relatives can destroy families, and is best not done at all if the lender can’t afford to forgive the loan. Ethical lending always involves paternalism on the part of the lender, although self-interest often enforces paternalism even where ethics will not. Further, ethical lending for yield always involves risk-sharing: lenders must understand if the enterprise to which they lend fails badly, costs will be borne by both borrower and lender. Ordinary people get this stuff. A family member who continually lends money to the cousin everyone knows is alcoholic will not be considered virtuous. If the same family member suddenly demands repayment, provoking shouting matches at holiday dinners and making himself out a martyr for having lent so generously, the rest of the family is unlikely to be sympathetic. If he had lent to the alcoholic for interest and then caused such a scandal, he would probably be no longer welcome at holiday meals.

Accounts of destructive, reckless creditors may not fit a bumper sticker as easily as “deadbeat borrower”. But they are true, compelling, and moral. And they will not tell themselves. My point is not to criticize DeLong or Krugman, both of whom I admire. But the lament of the technocrats is self-defeating, counterproductive, and ultimately poor social science. Policy ideas that cannot survive in equilibrium with achievable social mores are useless. This needn’t rule out good policy. But it does mean that a good policy economist will be a political economist, and a moral economist. Ex post, the “good” in good policy will be a double entendre. Policy will be both effective and right. Ex ante, both policy and morality are contested and undetermined. The policymaker’s challenge is to negotiate a space where morality and policy are mutually reinforcing, and where the results of that coherence are in fact good.

Afterthought: The technocracy is suddenly up in arms over World Bank President Robert Zoellick’s suggestion that a new monetary system might involve some role for gold. Gold is a great heresy in the church of the technocrat. Zoellick’s remarks were mild and unspecific, and it amuses me the degree to which they have aroused the now embattled mainstream. For the record, though I have profited from gold’s rise, I do not think a gold standard is a good idea. But I also think that remetallization of money is much more likely than many economists, who brim with accounts of transition costs and unworkabilities, believe. The case for gold as money is fundamentally moral. The moral foundation of the old technocracy — that monetary and financial dynamics would be managed, but in a manner both stable and fair — has been discredited. Gold may have its flaws as a putative currency. But at least it doesn’t conspire to steal pennies from paupers in order to pay off well-situated cronies. As existing monetary authorities most certainly have done, on multiple occasions.