The thought that perhaps the next Prime Minister might have a sound knowledge of economics is a comforting one. But we fear that this isn’t in fact the problem. Rather, it’s not the knowledge, it’s the incentives:
Now that the search for a new Prime Minister is under way, after the disasters of the last couple of years it is worth reflecting on how important it is that Mrs May’s replacement has a sound grasp of economics.
History gives a mixed message. Mrs May herself was not burdened with an understanding of economics, nor much interest in it.
The thought that someone who knows their economics will be better is that comforting one. But then Karl Marx knew his economics - he lifted an awful lot from Adam Smith after all - and other than John McDonnell few think he’d have made a good Prime Minister.
The problem, we fear, being not the knowledge of the subject but the incentives faced by an elected politician. In order to keep the job it is necessary to win the next election. That means that the useful time horizon is never more than 4 and a bit years, on average is around two. Given that either fiscal or monetary policy take a couple of years to make a difference this is problematic. It’s obviously worse when we move to microeconomic matters where misrule might take a decade or two to turn up.
It’s easy enough to gain electoral favour by announcing some measure of spending here or there. The effects of the collection to fund the spending turning up only after that period of time.
That is, a system whereby our money is spent by those who must regularly appeal to the mob produces the wrong incentives for those rulers.
No, this is not to say that democracy has thus failed - an undemocratic regime faces exactly the same problems of panem et circences as we can observe around the world. The answer is to structure the system so that we move from St Milton’s fourth method - spending other peoples’ money on other people - to the first, we spend our own money on ourselves. That’s actually useful knowledge of the heart of economics and we might indeed hope that the next PM grasps that point.