Monday, 25 April 2011

The (changing?) role of the intellectuals

One puzzling aspect of the public debate in Portugal is the considerable disagreement about key parameters of the economy. There are widely different views across (and sometimes within) the political spectrum on major questions such as the optimal size of the public sector, the link between minimum wages and employment, the importance of state-owned firms, the degree of employment protection, the importance of low public deficits, teacher evaluation and many other issues. This stands in considerable contrast with other Western countries, where the benefits from flexible markets are acknowledged by most and the public debate tends to be focused on relatively minor issues.

It is true that these disagreements in Portugal are not that relevant these days: given the slow growth of the last 10-15 years and the current huge debt levels, several reforms are most likely going to be imposed from abroad anyway. However, the sustainability of such reforms may be at stake if many in the country find them at odds with their own views of the economy. It may even be that the legality of those changes would be successfully challenged, for instance at the Constitutional Court, and subsequently reversed. In any case, the introduction of the reforms would be much more straightforward if a persuasive case could be made of their importance and fit with the parameters of the economy.

So why are there so many contrasting views of the Portuguese economy in the country? Is this because the Portuguese democracy is relatively young and more time is needed for public opinion to converge on a more restricted range of parameters? A recent paper by Gilles Saint-Paul - on occupational choice and the political economy of reform - offers some possible answers, based on two views of F. Hayek on the role of the intellectuals. First, there is a selection bias in occupational choices: talented pro-market people prefer business sector jobs, while talented anti-market people prefer intellectual professions (as these tend to be sheltered from the market, which is regarded as unfair). Second, the nature of the intellectual occupations (e.g. teachers and professors in the public sector) is such that they insulate the people that take them from the reality of the market - if the market is regarded as unfair or wrong in some way, then those occupations would want to follow a different framework.

If this approach is appropriate for Portugal, then the April 25th revolution - despite its major achievements - probably played a large role in the current status quo of very heterogeneous views of the structure of the economy. Many new intellectual occupations opened up after 1974 as the welfare state expanded and most of them were taken by those with anti-market views (which were popular at the time). In this case, time by itself will not necessarily promote a significantly better understanding of the parameters of the economy in Portugal. However, one way forward may be a changing, more open-minded nature of the intellectual occupations. A general acknowledgement of the great advantages of analyses based on representative empirical data - rather than subjective views or simply the clichés from the past - would also be a step forward.


  1. @Pedro,
    Very interesting post. I have thought about this for some time, but wasn't able to bring it to words, at least on the same enlightened way as you did.
    Would you agree that there's also a huge lack of understanding about "the markets" by a lot of these intelectuals (meaning they hate/do not trust markets because they don't know them), mainly due to a highly theoretical curricula approach in school? Also, wouldn't it make sense to teach simple concepts like "interest rates" early in school?

    What I mean with this is that maybe - and I say maybe without any empirical evidence - these intelectual people just don't know how things work and, because of that, we have such a broad spectrum of ideas making the (negative) difference in comparison with other countries.

  2. Your post in interesting indeed, and I would like to add two comments. Businesses, which should be interested in the spread of pro-market ideas, have much deeper pockets than any of the money available to anti-market intellectuals. Until now that was very little investment in this, with the exception of the very recent Francisco Manuel dos Santos Foundation.
    We also have at least two solid scientific institutions (Nova and Católica), whose intellectuals have a clear pro-market bias. Probably they are doing less than they could, and it would make sense for them to develop some kind of sponsorship to invest in spreading pro-market ideas.

  3. Thank you for your comments.

    1. Yes, I also believe that a little extra effort in approaching the world in a more open-minded and dispassionate way could have a big pay off.

    2. On Pedro's second comment, let me cite another passage of the paper mentioned in my post which may explain in part that Nova/Catolica "paradox":

    "There is also, according to Hayek, a finer selection bias among the intellectual professions themselves:

    "Even more than that: the more conservatively inclined man of first class ability will in general choose intellectual work (and the
    sacrifice in material reward which this choice usually entails) only if he enjoys it for its own sake. He is in consequence more likely to become an expert scholar rather than an intellectual in the specific sense of the word; while to the more radically minded the intellectual pursuit is more often than not a means rather than an end, a path to exactly that kind of wide influence which the professional intellectual exercises. It is therefore probably the fact, not that the more intelligent people are generally socialists, but that a much higher proportion of socialists among the best minds devote themselves to those intellectual pursuits which in modern society give them a decisive influence on public opinion.""

  4. In the US there is also a strong division among academic economists regarding the wat to get out of the crisis.

    Is the same Keynes versus Hayek debate of the thirties.

    Is amazing the rejection that Keynes legacy has this days in the US and in Europe.

  5. >However, one way forward may be a changing, >more open-minded nature of the intellectual >occupations.

    Yes. And the other way forward may be a changing, more open-minded nature of the business sector.

    >of analyses based on representative empirical >data

    Agreed. But you need both data and the framework to understand it. Whenever people assume there is only one framework they risk great delusions...

    I would wager that some of those pesky intelectuals are actually quite adept of empirical data. Yet I can show you a roomful of physicists - such ultimate empiricists - who would disagree with the conclusions of the business class.

    >or simply the clichés from the past

    versus the clichés of the present? Like arguing for "flexibility" and "free market" when the market isn't free in any way, but rather dominated by big business who also controls politics? Please go and read or re-read Adam Smith. He already understood that there is no greater enemy of competition than the business man - he thinks the free market and competition is great for other people, but what he really likes is security for his position and state-protected monopoly. The free market has to be forced to work *against* the very agents that act within it. Incentives must be right.

    (I have noticed a long time ago that most Communists have never read "The capital" beyond the cover, and most capitalists have never read "The wealth of nations". Both are waiting to see the movie instead, yet they like invoking those Old Masters for the sheer power of incantation)

    > rather than subjective views

    "Subjective" is a very un-objective word. "Subject" to what? If you look carefuly it means subject to the choice of models, the prior probabilities, and the utility functions. Different people have different utility functions; you can call someone irrational only if their actions do not accord to their utility functions, but to try to decry those functions themselves as irrational is just rethoric to impose one's one.

    Your description of the two opposing sides, for instance, is not in the least neutral. A lot can be deduced about your notion of utility and your models from the very terms you use (as can from mine).


  6. A big part of the discord in Portugal comes from:

    1- the existence of opposing notions of utility. Nothing much you can do on that respect, except reach a "Pareto optimal" result - getting more than that for your side will have to come from political maneuvering (including, yes, the use of rethorical devices, trying to convince other people that you are being reasonable while advancing your preferences over theirs)

    2- Lack of data. I have a big conflict within myself, for instance, because I cannot decide my position with certainty unless I know the data. My preference goes to a free(ish) market with reasonable regulation and reasonable safety nets, but it is hard to know at each moment whether we have too little or too much state (and in what part of the system), too much or too little regulation, since the information that the common citizen can access in Portugal is both limited *and* unreliable.

    3- The *sources* of data are unreliable. The citizen has no confidence on the media, on official statistics, or on what the business class says, or on what the various political parties say. All we have is faction, and no reliable sources. That makes it very hard to decide. So, some people (like me), that want to reach a pareto equilibrium, get sick with indecision and suspicion, constantly trying to decipher the situation. Most people, however, who treat political parties as football clubs - with undying loyalty - assume that whatever their party says must be true, and simply push as hard as they can towards the side of their preference - risking in that way to topple the system by breaking the balance that makes it work.

    The difference with the USA is that you get so much data and such lively discourse that you can decipher the lies, if you are really attentive at least. In Portugal there is just too little volume and too little quality in the debate.

    Right now, I am for the first time in my life pushing strongly towards the left. Why? Because the right, and the business class, have solved a lot of the problem of the unreliability of data by making claims that are false beyond all doubt, and by pushing so hard that I am pretty sure we are going past the equilibrium I'd deem adequate if I had the proper data. What caused this crisis was a total failure of the market and of regulation. Let's be clear: It was not the social state that collapsed, it was business! So why are we doing business as usual and demolishing the social state? The banks, and big business in general, are only standing because the public bailed them out. And yet the big business, and the financials in particular, awash in bonuses effectively payed by public money, decries the "irresponsability" of the state and its finances? Lets be honest, there are is *no* big player that is standing now that is not a zombie. They have been saved by life support payed by taxes. They should apologize, shut up, and be regulated properly. And yet they pass judgements and block regulations yet again, preparing the way for a new collapse.

    Timing is everything, and this is just the wrong time to be quoting Hayek.

    Or rather, if you want to quote him, quote him infull context. He would be the first to state that businesses should never have been bailed out, that, yes, the state is too powerful, and is controlled by illicit influences that bailed out bad businesses, and it should never have done it.

    But strangely, business forgets Hayek when it wants to be saved. Business is Keynesian for itself and is Hayekian towards the rabble. The whole thing is disingenuous and quite sickening to a weak stomach.